Post-Cuomo: The Floodgates Have Not Opened and Watters Still Predominates
by: Nicholas P. Mooney II and Angela L. Beblo, Spilman Thomas & Battle, PLLC
On June 29, 2009, the United States Supreme Court issued its decision in Cuomo v. Clearing House Association, which held that state attorneys general were prohibited from exercising "visitorial powers" over national banks. The effect of that ruling was that attorneys general could no longer serve subpoenas on national banks to obtain information or documents in connection with an investigation an attorney general was conducting. The attorneys general remained free to file suits against national banks to enforce non-pre-empted state laws. However, in doing so, the attorney general will be treated like any other litigant and will be subject to motions to dismiss, the rules of discovery, and the possibility of sanctions for bringing a frivolous action. Although this decision has been heralded as an aberration that impinged the federal government's powers to regulate national banks and effectively abrogated preemption from a traditional federal regulatory scheme, the Cuomo decision has not opened national banks up to excessive and over-zealous state regulation or suit – yet.
In 2005, based upon a review of public information published pursuant to the Home Mortgage Disclosure Act, then Attorney General for the State of New York Elliot Spitzer sent letters requesting that various national banks voluntarily provide non-public information to him in order to determine whether the banks had violated state and federal fair lending laws by engaging in racial discrimination. In response, the Office of the Comptroller of Currency ("OCC") and the Clearing House Association, a banking trade group, instituted separate suits seeking injunctive relief to prevent the Attorney General's investigation into the banks. The Southern District of New York granted the request for injunctive relief on the grounds that the investigation was preempted by the National Bank Act and the Act's implementing regulations and was not otherwise authorized by federal law. The Second Circuit, hearing a consolidated appeal, affirmed the issuance of injunctive relief prohibiting the investigation. The Supreme Court affirmed the injunction to the extent it "applied to the threatened issuance of executive subpoena," but vacated the lower court decisions to the extent it "prohibit[ed] the Attorney General from bringing judicial enforcement actions."
According to commentators, the surprising decision "sent shock waves through the financial services industry" and was "a dramatic departure from decades of precedent in this area" that would "have a serious impact on the way that banks do business" because attorney generals," [d]eprived of the ability to obtain information except in the context of a lawsuit," would "likely . . . 'resort' to litigation early and often."
These dire predications have yet to come to fruition. In fact, only one Attorney General (Illinois) has instituted litigation against a national bank for violation of state laws. Not even Attorney General Cuomo appears to have proceeded with litigation against the banks that his predecessor sought information from in 2005. Thus far, this part of the Supreme Court's decision in Cuomo has failed to yield the flood of lawsuits that at least one commentator has predicted.
Nor has Cuomo been adopted by courts faced with questions of preemption and the National Bank Act. Cuomo only allows state attorneys general to bring suit to enforce non-preempted state laws. Despite the preemption language in Cuomo, courts are more often relying on the Watters v. Wachovia Bank, N.A. decision when faced with questions of preemption and the reach of the National Bank Act in cases filed against financial institutions. More specifically, of the nine district court decisions citing to Cuomo, only two decisions address preemption under the National Bank Act and both decisions include significant reference to Watters. The remaining seven cases do not.
Nor is the Cuomo decision being used by courts to address preemption beyond the National Bank Act. Courts thus far have explicitly refused to apply Cuomo to other federal statutes outside the National Bank Act. Of the seven decisions issued post-Cuomo that cite to Watters, six deal with preemption issues under the National Bank Act. It does not appear that Cuomo yet has had the game-changing effect that commentators believe it will have, both in the context of the National Bank Act and beyond.
Nonetheless, while state attorneys general have not begun filing lawsuits against national banks in the wake of the Cuomo decision, it remains possible that they will. In that event, banks should remain vigilant in reviewing the decisions resulting from suits brought by private litigants involving preemption of state laws in the wake of Cuomo. Courts faced with a challenge to an attorney general's authority to bring an action under a specific state law likely will rely on decisions involving individual consumers to determine whether a particular state law is preempted under the National Bank Act. Financial institutions need to be aware of how courts are addressing state law claims, how they are splitting hairs on claims that are preempted in private actions (i.e. Davis), and what claims courts are finding preempted by federal law.
For more information, please contact Nicholas P. Mooney II at
or Angela L. Beblo at
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Spilman Thomas & Battle is a full-service law firm with more than 100 attorneys. Founded in 1864, Spilman has offices in Charleston, Morgantown and Wheeling, West Virginia; Pittsburgh, Pennsylvania; Winston-Salem, North Carolina and Roanoke, Virginia.