05-5996-cv(L) 05-6001-cv (CON) IN THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT THE CLEARING HOUSE ASSOCIATION, L.L.C. Plaintiff-Appellee OFFICE OF THE COMPTROLLER OF THE CURRENCY, Plaintiff-Counterdefendant-Appellee, v. ANDREW M. CUOMO, in his official capacity as Attorney General for the State of New York, Defendant-Counterclaimant-Appellant. ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OPPOSITION TO REHEARING EN BANC BY OFFICE OF THE COMPTROLLER OF THE CURRENCY JULIE L. WILLIAMS DANIEL P. STIPANO HORACE G. SNEED DOUGLAS B. JORDAN C. ADAM NUNZIATO Counsel for the Office of the Comptroller of the Currency, 250 E Street, S.W. Washington, D.C. 20219 Tel: (202) 874-5280 Fax: (202) 874-5279
TABLE OF CONTENTS Page TABLE OF AUTHORITIES... ii NO REHEARING IS WARRANTED WHERE THE PANEL MAJORITY S DECISION CONFIRMING THE OCC S VISITORIAL EXCLUSIVITY OVER NATIONAL BANKS IS SUPPORTED BY THE REASONING OF THE SUPREME COURT AND THIS COURT... 1 I. NO NOVEL FEDERALISM ISSUES ARE PRESENTED WHERE AFFIRMANCE OF THE OCC S VISITORIAL EXCLUSIVITY RESPECTS A LINE DRAWN BY CONGRESS IN 1864... 2 II. III. IV. THE OCC S INTERPRETATION IS NOT FORECLOSED BY THE SUPREME COURT S 1924 OPINION IN FIRST NATIONAL BANK OF ST. LOUIS... 6 THE PANEL MAJORITY PROPERLY DEFERRED TO THE OCC S INTERPRETATION OF THE UNDEFINED STATUTORY TERM VISITORIAL POWERS... 8 APPLICATION OF THE SUPREMACY CLAUSE DOES NOT TURN ON POLICY ISSUES... 14 CONCLUSION... 15 -i-
TABLE OF AUTHORITIES FEDERAL CASES Page Beneficial National Bank v. Anderson, 539 U.S. 1 (2003)... 5 Citizens Bank v. Alafabco, Inc., 539 U.S. 52 (2003)... 4 Cohen v. JP MorganChase & Co., 498 F.3d 111 (2d Cir. 2007)... 10 Fidelity Federal Savings & Loan Association v. De la Cuesta, 458 U.S. 141 (1982)... 5 First National Bank in St. Louis v. Missouri, 263 U.S. 640 (1924)... 6, 7, 8 Franklin National Bank v. New York, 347 U.S. 373 (1954)... 14 Gregory v. Ashcroft, 501 U.S. 452 (1991)... 3, 4 Guthrie v. Harkness, 199 U.S. 148 (1905)... 11 McCulloch v. Maryland, 17 U.S. 316 (1819)... 2, 3 National Cable & Telecommunications Association v. Brand X Internet Services, 545 U.S. 967 (2005)... 6, 7-8 Riegel v. Medtronic, Inc., 128 S.Ct. 999 (2008)... 14 Solid Waste Agency of Northern Cook Co. v. United States Army Corps of Engineers, 531 U.S. 159 (2001)... 3-4 State of Missouri ex rel Burnes National Bank of St. Joseph v. Duncan, 265 U.S. 17 (1924)... 5 Tiffany v. National Bank of Missouri, 85 U.S. (18 Wall) 409 (1874)... 4-5 Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518 (1819)... 11 -ii-
Page Van Reed v. People s National Bank of Lebanon, 198 U.S. 554 (1905)... 5 Watters v. Wachovia Bank, N.A.127 S.Ct. 1559 (2007)... 1, 2, 4, 9, 10, 13, 14 Wachovia Bank, N.A. v. Burke, 414 F.3d 305 (2d Cir. 2005), cert. denied, 127 S.Ct. 2093 (2007)... 1, 2, 5, 9, 10, 14 STATUTES 12 U.S.C. 484... passim 12 U.S.C. 484(a)... 13 12 U.S.C. 484(b)... 12 FEDERAL REGULATIONS 12 C.F.R. 7.4000... 7 12 C.F.R. 7.4000(a)(2)... 8-9 12 C.F.R. 7.4000(b)(2)... 12 MISCELLANEOUS 69 Fed. Reg. 1895 (2004)... 3, 7 th st Cong. Globe, 38 Cong., 1 Sess. 1893 (April 27, 1864)... 3 R. Pound, Visitatorial Jurisdiction Over Corporations in Equity, 49 Harv. L. Rev. 369 (1935-36)... 11 -iii-
NO REHEARING IS WARRANTED WHERE THE PANEL MAJORITY S DECISION CONFIRMING THE OCC S VISITORIAL EXCLUSIVITY OVER NATIONAL BANKS IS SUPPORTED BY THE REASONING OF THE SUPREME COURT AND THIS COURT The panel majority decision is strongly supported by the reasoning of recent decisions by the Supreme Court and this Court that precluded states from exercising visitorial authority over national bank activities carried out through certain subsidiaries. The Supreme Court held that a national bank s mortgage business, whether conducted by the bank itself, or through the bank s operating subsidiary, is subject to OCC s superintendence, and not to the licensing, reporting, and visitorial regimes of the several states in which the subsidiary operates. Watters v. Wachovia Bank, N.A., 127 S.Ct. 1559, 1564-1565 (2007). This Court earlier reached a consistent conclusion: [T]he OCC regulations reflect a consistent and well-reasoned approach to preempting state regulation of operating subsidiaries so as to avoid interference with national banks exercise of their powers * * *. Wachovia Bank, N.A. v. Burke, 414 F.3d 305, 321 (2d Cir. 2005), cert. denied, 127 S.Ct. 2093 (2007). In Watters and Burke, it was an unchallenged premise that the state could not assert visitorial authority over the national bank itself, the issue presented by this case and correctly resolved by the panel decision. The New York Office of -1-
the Attorney General ( OAG ) argues that Watters and Burke are irrelevant to the issues here by seeking to limit the meaning of the term visitorial powers to the specific form of state visitation at issue in those cases. As discussed below, the panel majority correctly rejected the attempt to contrive a distinction between visitations effected through state banking officials in administrative proceedings and those effected through a state attorney general in lawsuits. The result reached by the panel majority flows a fortiori from the reasoning of Watters and Burke. I. NO NOVEL FEDERALISM ISSUES ARE PRESENTED WHERE AFFIRMANCE OF THE OCC S VISITORIAL EXCLUSIVITY RESPECTS A LINE DRAWN BY CONGRESS IN 1864 Contrary to the OAG s urging, this case does not alter the federal-state balance but instead represents a straightforward application of the Supremacy Clause in the well-grooved context of federally chartered financial institutions. As the Supreme Court observed in Watters: Nearly two hundred years ago, in McCulloch v. Maryland, 17 U.S. 316, 4 Wheat. 316, 4 L.Ed. 579 (1819), this Court held federal law supreme over state law with respect to national banking. Watters, 127 S.Ct at 1566. The Congress that enacted visitorial exclusivity in 1864 consciously depended upon the principles articulated in McCulloch in -2-
1/ drafting statutory protections for the new national bank system. Accordingly, the federal-state balance recognized by the OCC s regulation, and confirmed by the panel majority, abided by a Congressional design drawn nearly a century and a half ago. The various arguments urged by the OAG under the rubric of federalism are here channeled into a challenge to the OCC s statutory construction. OAG Pet. 4-7. The OAG urges a requirement that Congress make a clear statement of any intent to alter the usual constitutional balance between States and the Federal Government. OAG Pet. 6, quoting Gregory v. Ashcroft, 501 U.S. 452, 460 (1991). The panel rightly rejected that argument. See 510 F.3d at 113-114. First, this case does not alter the Constitutional balance or otherwise implicate the doctrine of Constitutional avoidance which gives rise to the clear statement requirement. The OAG avoids precedent specifically applicable to national banks and seeks out nonbanking cases in which an administrative interpretation of a statute invokes the outer limits of Congress s power * * *. 1/ The legislative history of the National Bank Act displays a keen Congressional awareness of McCulloch v. Maryland. The National Bank Act protections against state usury limits responded to a report from the first Comptroller of the Currency that likened the potential hostile state use of usury statutes against national banks to the Maryland tax in McCulloch. See 69 Fed. Reg. 1895, 1898 th st (2004); see also Cong. Globe, 38 Cong., 1 Sess. at 1893 (April 27, 1864)(Sen. Sumner quoting passages from McCulloch). -3-
Solid Waste Agency of Northern Cook Co. v. U.S. Army Corps of Eng rs, 531 U.S. 159, 172 (2001)(agency interpretation of statutory definition of navigable waters reviewed in light of Commerce Clause issue); see also Gregory, 501 U.S. at 464 (tension between federal statute and state constitution construed in light of limits that the state-federal balance places on Congress s powers under the Commerce Clause ). Here, in contrast, the Supreme Court has made definitively clear that Congress is Constitutionally authorized to regulate all aspects of the operations of national banks and of commercial lending generally. Regulation of national bank operations is a prerogative of Congress under the Commerce and Necessary and Proper Clauses. * * * The Tenth Amendment, therefore, is not implicated here. Watters, 127 S.Ct. at 1573; Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 58 (2003)( No elaborate explanation is needed to make evident the broad impact of commercial lending on the national economy or Congress power to regulate that activity pursuant to the Commerce Clause. ). Because this is not a case testing the limits of Congressional authority, there is no elevated requirement for a statement 2/ of Congressional preemptive intent. 2/ Indeed, as the panel correctly noted, even if such evidence of Congressional intent were necessary, it would be provided by the manifest purpose of the National Bank Act. 510 F.3d at 114. The Supreme Court has repeatedly recognized that the Civil-War-era National Bank Act was intended to expand federal authority to the possible detriment of state interests. National banks have been National favorites. -4-
Furthermore, this Court rejected an identical clear statement argument in Burke. Burke, 414 F.3d at 314-315. Burke instead followed the Supreme Court s prescription for review of preemptive regulations, which termed misdirected a search for express Congressional intent to preempt. Id. at 314, quoting Fid. Fed. 3/ Sav. & Loan Ass n v. De la Cuesta, 458 U.S. 141, 154 (1982). * * * It could not have been intended * * * to expose them to the hazard of unfriendly legislation by the States, or to ruinous competition with State banks. On the contrary, much as been done to insure their taking the place of State banks. Tiffany v. National Bank of Mo., 85 U.S. (18 Wall) 409, 412 (1874); see also Beneficial Nat l Bank v. Anderson, 539 U.S. 1, 10-11 (2003)(noting Congressional purpose of protecting national banks against possible state hostility). 3/ This case presents no better instance than Burke for application of the doctrine of Constitutional avoidance. Both cases represent instances where Congress acted clearly within its Constitutional authority in intervening in the enforcement of state law, a common consequence of the operation of the Supremacy Clause. For example, Congress has the power to declare that the appointment of national banks as fiduciaries in certain circumstances shall not be deemed to be in contravention of State or local law. State of Missouri ex rel Burnes Nat l Bank of St. Joseph v. Duncan, 265 U.S. 17, 23(1924)(Holmes, J.). The Court has also sustained the National Bank Act prohibition on pre-judgment attachment in state court. The right of Congress to determine to what extent a state court shall be permitted to entertain actions against national banks, and how far these institutions shall be subject to state control, is undeniable. Van Reed v. People s Nat l Bank of Lebanon, 198 U.S. 554, 557 (1905). -5-
II. THE OCC S INTERPRETATION IS NOT FORECLOSED BY THE SUPREME COURT S 1924 OPINION IN FIRST NATIONAL BANK OF ST. LOUIS The Supreme Court s opinion in First National Bank in St. Louis v. Missouri, 263 U.S. 640 (1924)( St. Louis ) does not foreclose the OCC s interpretation and therefore presents no conflict of law justifying rehearing. First, the precise meaning of St. Louis for the application of the visitorial powers text, a provision that the Court did not directly address, is unclear. Second, multiple succeeding changes in applicable federal laws justified the OCC, district court, and panel majority in distinguishing the case. Alternatively, because St. Louis nowhere addressed the meaning of the then-current version of section 484, the OCC is not foreclosed from reaching a fresh interpretation of the statute under the principles of National Cable & Telecommunications Ass n v. Brand X Internet Services, 545 U.S. 967 (2005)( Brand X ). For these reasons, St Louis provides no basis for reconsidering the decision of the panel majority. In St. Louis, the Court upheld a state action in quo warranto seeking to enjoin a national bank from operating a branch in violation of state law. The Supreme Court affirmed, first holding that national banks lacked the power as a matter of federal law to operate intrastate branches. St. Louis, 263 U.S. at 657-659. In the absence of a federal power, the Court permitted Missouri to enforce its -6-
non-preempted state law without expressly addressing the statutory prohibition on visitation. Id. at 659-661. Instead, the Court cryptically denied that Missouri possessed the authority to proceed against a national bank by quo warranto, the classic visitorial action, but nevertheless inexplicably affirmed the state s quo warranto action. The Court s holding did not yield any clear interpretation of the meaning of the statutory terms, which it did not parse, quote or even cite. In the Preamble to its 2004 amendment to section 7.4000, the OCC characterized the Supreme Court s decision in St. Louis, as dealing with an outdated set of circumstances and noted that the Court did not discuss the scope of section 484. 69 Fed. Reg. 1895, 1899 (2004). The panel majority agreed that St. Louis did not directly address the NBA s restriction of state visitorial powers, 510 F.3d at 116 n.8, and emphasized that, in the absence of the later-granted statutory authorization for national banks to establish branches, the case did not reflect an exercise of national bank powers. Id. In any event, the OCC s interpretation of section 484 is not foreclosed by St. Louis or by any of the other cases cited by the OAG. As the Supreme Court has made clear, an agency under Chevron may reach a statutory interpretation different from that reached by a federal court unless the judicial construction follows from the unambiguous terms of the statute * * *. Brand X, 545 U.S. at 982. Only a -7-
judicial precedent holding that the statute unambiguously forecloses the agency s interpretation, and therefore contains no gap for the agency to fill, displaces a conflicting agency construction. Id. at 982-83. Because St. Louis did not quote or even cite to the then-current version of section 484, St. Louis cannot be characterized as an unambiguous text determination. Accordingly, St. Louis does nothing to foreclose the OCC s interpretation of section 484 or to justify rehearing. III. THE PANEL MAJORITY PROPERLY DEFERRED TO THE OCC S INTERPRETATION OF THE UNDEFINED STATUTORY TERM VISITORIAL POWERS The panel majority properly deferred to the OCC s interpretation of the ambiguous statutory term visitorial powers, and rejected the OAG s alternative readings, which cannot be reconciled with statutory text, statutory structure, history, or the caselaw of the Supreme Court and this Court. Accordingly, no rehearing is warranted. The visitorial exclusivity vested in the OCC by section 484 reserves to the OCC the power to exercise sovereign authority over national banks, to the exclusion of other sources of government authority, state and federal, except where federally authorized. Thus, the OCC s visitorial powers regulation specifies that, subject to exceptions, State officials may not exercise visitorial powers with -8-
respect to national banks* * * and specifies that visitorial powers include: (i) Examination of a bank; (ii) Inspection of a bank s books and records; (iii) Regulation and supervision of activities authorized or permitted pursuant to federal banking law; and (iv) Enforcing compliance with any applicable federal or state laws concerning those activities. 12 C.F.R. 7.4000(a)(2). The regulation s prohibition of visitation by enforcing laws does not distinguish between administrative or judicial enforcement mechanisms. The OAG s arguments that visitorial powers possesses a single, narrow, plain meaning that precludes the OCC s interpretation are undermined by the historically recognized meanings of the term, the OCC s consistent and comprehensive regulatory definition, and the OAG s inability to state precisely what that plain meaning would be. The OAG variously suggests that the visitorial powers precluded by section 484: 1) by definition include only those that may be 4/ exercised by an institution s authorized visitor (OAG Pet. 10-11); 2) inherently 4/ That construction would make section 484 act as a restriction only upon the sole authorized visitor for national banks, the OCC, and cause it to have no meaning at all for assertions of state authority, a result foreclosed by controlling caselaw. Both the Supreme Court in Watters and this Court in Burke identify the purpose of section 484: To prevent inconsistent or intrusive state regulation from impairing the national system * * *. Watters, 127 S. Ct. at 1566; Burke, 414 F.3d at 312. Under the authority of the Supreme Court and this Court, accordingly, the meaning of visitorial powers in section 484 must include attempted regulation of national banks by the states. -9-
denote banking supervision such as that conducted by the OCC and by state banking regulators (OAG Pet. 11); 3) include, more broadly, the sorts of administrative licensing and enforcement regimes at issue in Watters and Burke, including regulation of mortgage lending by non-banks (OAG Pet. 11-12). The OAG speaks concretely only when it insists what visitorial powers does not cover: actions brought in court by the state attorney general. OAG Pet. 12. The OAG s readings are unsupported in the statutory text, which makes no distinction between visitations effected administratively or through the courts, and no distinctions among different categories of state visitors. Furthermore, section 484 expressly states that no national bank shall be subject to any visitorial powers, a word that weighs heavily against the OAG s urged narrow readings. As the Supreme Court has frequently observed, use of the word any in statutory text generally indicates Congress s intent to sweep broadly to reach all varieties of the item referenced. Cohen v. JP MorganChase & Co., 498 F.3d 111, 117 (2d Cir. 2007). The OCC s reading honors the presumption that Congress, by using the term any, meant to sweep broadly among the varieties of visitorial applications. History reflects a wide range of relationships that have been termed visitorial, including those between supervisor and bank and those between a state -10-
and a state-chartered corporation, and defeats the OAG s urged administrative/ 5/ judicial distinction. At the time the National Bank Act was enacted in 1864 visitorial powers were commonly exercised by state attorneys general against non-banking corporations through suits in law and equity brought in court. See R. Pound, 49 Harv. L. Rev. at 380; see also Guthrie v. Harkness, 199 U.S. 148, 157 (1905)( The visitation of civil corporations is by the government itself, through the medium of the courts of justice. ). Accordingly, the 1864 historical context renders untenable the OAG s insistence that visitorial powers cannot refer to judicial actions brought by a state attorney general. The statutory structure of section 484 further illustrates why the narrow meanings urged by the OAG cannot be sustained. The scope of visitorial 5/ The concept of visitation derives from Roman law and canon law, where it described the exclusive authority of the Church hierarchy over inferior Church institutions. See R. Pound, Visitatorial Jurisdiction Over Corporations in Equity, 49 Harv. L. Rev. 369, 369-70 (1935-36). Later, the concept evolved to describe the authority of charitable founders over the operation of their charities (see Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518, 673-76 (1819)(Story, J., concurring)), and the authority of the King over corporations that he had chartered. [T]he visitatorial power was in the King, exercisable through his courts and ordinarily exercised by mandamus and by information in the nature of quo warranto in the King s Bench. R. Pound, 49 Harv. L. Rev. at 371; see Guthrie v. Harkness, 199 U.S. 148, 158 (1905). In the United States, visitation came to describe the relationship of states to state-chartered corporations, Guthrie at 158, frequently policed by state attorneys general. See, e.g., R. Pound, 49 Harv. L. Rev at 380. -11-
powers is partially shaped by the specified exceptions, each of which implies that the covered activity is a visitation that, but for the exception, would be precluded by section 484. The exception for powers vested in the courts of justice operates to permit the functioning of normal judicial process in an action that is not otherwise visitorial. 12 C.F.R. 7.4000(b)(2). The OAG does not explain any way in which the courts exception has meaning if the term visitorial powers embraces only such non-court actions as examinations or administrative enforcement proceedings. Next, the existence of an exception for committees of Congress necessarily means that visitorial powers embraces powers within the competence of a Congressional committee, a limited universe that includes the compelled production of books and records through subpoenas, but not banking supervision. Accordingly, the exception cannot be squared with the OAG definition of visitorial to denote solely banking supervisory functions. Third, the escheat exception, which speaks to state auditors and examiners, narrowly limits the scope of their authority to review national bank records solely to ensure compliance with applicable State unclaimed property or escheat laws, and only in specified circumstances. 12 U.S.C. 484(b)(emphasis added). The narrow statutory escheat exception conflicts with the OAG s claimed power to review bank records for entirely different reasons. In each instance, accordingly, the -12-
OCC s definition of the term visitorial powers assigns meaning to the statutory structure of section 484, while the OAG s does not. The panel majority also properly drew support for its conclusion from Watters, which implied that investigation and enforcement by state officials are just as much aspects of visitorial authority as registration and other forms of administrative supervision * * *. 510 F.3d at 116. The focus in Watters was upon state action that would interfere with the federally authorized powers of national banks, or interfere with the OCC s supervision. Recognizing the burdens and undue duplication state controls could produce, Congress included in the NBA an express command: No national bank shall be subject to any visitorial powers except as authorized by Federal law. 127 S.Ct. at 1568, quoting 12 U.S.C. 484(a). While the state regime at issue in Watters consisted of administrative registration and enforcement, the Court s concerns over state interference and multiple supervision of national banks would apply with equal force to state regulation of national banks through judicial actions initiated by the state. State laws that conditioned national banks real estate lending on registration with the State, and subjected such lending to the State s investigative and enforcement machinery would surely interfere with the banks federally authorized business. 127 S.Ct. at 1568 (emphasis added); see also id. at -13-
1568-1569 (quoting OCC regulation defining visitorial powers to include enforcing compliance with state laws concerning national bank activities.) The state investigative and enforcement machinery vested in New York s attorney general is not categorically less intrusive than state administrative enforcement regimes with respect to national bank activities, or with the OCC s superintendence of those activities. Cf. Riegel v. Medtronic, Inc., 128 S.Ct. 999, 1008 (2008)(common-law liability award can be, indeed is designed to be, a potent method of governing conduct and controlling policy. ) Accordingly, the reasoning of Watters strongly supports the OCC s interpretation of visitorial powers. IV. APPLICATION OF THE SUPREMACY CLAUSE DOES NOT TURN ON POLICY ISSUES As the Supreme Court has recognized, questions of conflicts of authority under the Supremacy Clause cannot be resolved by our judgment as to the wisdom or need of either conflicting policy. The compact between the states creating the Federal Government resolves them as a matter of supremacy. However wise or needful New York s policy, a matter as to which we express no judgment, it must give way to the contrary federal policy. Franklin Nat l Bank v. New York, 347 U.S. 373, 378-379 (1954); see also Burke, 414 F.3d at 321. -14-
CONCLUSION For the foregoing reasons, the petition should be denied. Respectfully submitted, JULIE L. WILLIAMS Chief Counsel DANIEL P. STIPANO Deputy Chief Counsel HORACE G. SNEED Director of Litigation MARCH 2008 DOUGLAS B. JORDAN C. ADAM NUNZIATO Attorneys for Appellee Office of the Comptroller of the Currency 250 E Street, S.W. Washington, D.C. 20219 Telephone: (202) 874-5280 Facsimile: (202) 874-5279 -15-
CERTIFICATE OF SERVICE th I certify that on this 25 day of March, 2008, I served the foregoing Opposition to Rehearing En Banc by the Office of the Comptroller of the Currency on the following counsel of record by causing a copy to be sent by express service to: BARBARA UNDERWOOD MICHELE ARONOWITZ RICHARD DEARING OFFICE OF THE ATTORNEY GENERAL OF THE STATE OF NEW YORK 120 Broadway th 25 Floor New York, New York 10271 KATHLEEN KEEST ERIC HALPERIN MELISSA BRIGGS DANIEL MOSTELLER CENTER FOR RESPONSIBLE LENDING TH 910 17 Street, NW, Suite 500 Washington, DC 20006 (202) 349-1859 H. RODGIN COHEN ROBINSON B. LACY ADAM R. BREBNER SULLIVAN & CROMWELL LLP 125 Broad Street New York, New York 10004 (212) 558-4000 Douglas B. Jordan