Case Name: The People of the State of New York, by Andrew M. Cuomo, Attorney General of the State of New York, Respondent, v. First American Corporation et al., Appellants
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 2011-11-22
Citations: 18 N.Y.3d 173
Docket Number: 
Parties: The People of the State of New York, by Andrew M. Cuomo, Attorney General of the State of New York, Respondent, v First American Corporation et al., Appellants.
Judges: 
Reporter: New York Reports
Volume: 18
Pages: 173–198

Head Matter:
[960 NE2d 927, 937 NYS2d 136]
The People of the State of New York, by Andrew M. Cuomo, Attorney General of the State of New York, Respondent, v First American Corporation et al., Appellants.
Argued October 11, 2011;
decided November 22, 2011
POINTS OF COUNSEL
DLA Piper LLP, New York City (Andrew L. Deutsch, Richard F. Hans and Kerry Ford Cunningham of counsel), for appellants.
I. The Appellate Division erred in holding that the Attorney General’s use of State consumer protection laws to regulate Federal Savings Association (FSA) appraisal programs is not preempted by federal law governing FSA lending and appraisal activity. (City of New York v FCC, 486 US 57; Silvas v E*Trade Mtge. Corp., 514 F3d 1001; Fidelity Fed. Sav. & Loan Assn. v De la Cuesta, 458 US 141; Cipollone v Liggett Group, Inc., 505 US 504; State Farm Bank v Reardon, 539 F3d 336; Lee v Astoria Generating Co., L.P., 13 NY3d 382; Gade v National Solid Wastes Management Assn., 505 US 88; Conference of Fed. Sav. & Loan Assns. v Stein, 604 F2d 1256, 445 US 921; Dime Sav. Bank of N.Y., FSB v State of New York, 174 AD2d 173; Mayor of City of N.Y. v Council of City of N.Y., 4 Misc 3d 151.) II. The Appellate Division erred in holding that the complaint states a claim under General Business Law § 349. (Broder v Cablevision Sys. Corp., 418 F3d 187; In re Eaton Vance Mut. Funds Fee Litig., 380 F Supp 2d 222; Burns Inti., Inc. v Western Sav. & Loan Assn., 978 F2d 533.)
Eric T. Schneiderman, Attorney General, New York City (Richard Bearing, Barbara D. Underwood and Benjamin Gutman of counsel), for respondent.
I. Financial Institutions Reform, Recovery and Enforcement Act of 1989 demonstrates that federal law does not occupy the field of appraisal regulation. (Medtronic, Inc. v Lohr, 518 US 470; Matter of People v Applied Card Sys., Inc., 11 NY3d 105.) II. Office of Thrift Supervision’s preemption regulation does not override Financial Institutions Reform, Recovery and Enforcement Act of 1989 or otherwise reach this suit. (Matter of M.B., 6 NY3d 437; National Assn. of Home Builders v Defenders of Wildlife, 551 US 644; State Farm Bank v Reardon, 539 F3d 336; Fidelity Fed. Sav. & Loan Assn. v De la Cuesta, 458 US 141; SPGGC, LLC v Ayotte, 488 F3d 525; SPGGC, LLC v Blumenthal, 505 F3d 183; Pacific Capital Bank, N.A. v Connecticut, 542 F3d 341; Maurillo v Park Slope U-Haul, 194 AD2d 142; In re Ocwen Loan Servicing, LLC Mtge. Servicing Litig., 491 F3d 638; Martinez v Wells Fargo Home Mtge., Inc., 598 F3d 549.) III. The complaint states a valid claim under General Business Law § 349. (Oswego Laborers’ Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20; Goshen v Mutual Life Ins. Co. of N.Y., 98 NY2d 314; Bingham v New York City Tr. Auth., 99 NY2d 355; Stutman v Chemical Bank, 95 NY2d 24.)

Opinion:
OPINION OF THE COURT
ClPABICK, J.
This appeal arises out of an action commenced by the New York State Attorney General against defendants The First American Corporation (First American) and eAppraiselT, LLC (eAppraiselT) seeking injunctive and monetary relief as well as civil penalties for violations of New York's Executive Law and Consumer Protection Act (see Executive Law § 63 [12]; General Business Law § 349) as well as the common law. The primary issue we are called upon to determine is whether federal law preempts these claims alleging fraud and violations of real estate appraisal independence rules. We conclude that federal law does not preclude the Attorney General from pursuing these claims against defendants.
I.
First American provides real estate appraisal services to lending institutions, including savings and loan associations and banks. It supplies these services through its wholly owned subsidiary, eAppraiselT, an appraisal management company that conducts business in New York. eAppraiselT publicly advertises that its appraisals conform with the Uniform Standards of Professional Appraisal Practice (USPAP) and that they are "audited for compliance." USPAF¡ incorporated into both federal and New York law (see 12 CFR 34.44; 19 NYCRR 1106.1), requires appraisers to "perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests" (Advisory Standards Board, USPAI] Ethics Rule [2010-2011 ed], available at http://www.uspap.org/USPAP/ frwrd/ETHICS_RULE.htm).
In a complaint filed in November 2007, the Attorney General initiated this action against defendants, pursuant to its authority under Executive Law § 63 (12) and General Business Law § 349, asserting claims that defendants engaged in repeated fraudulent and deceptive acts in the conduct of its business to the detriment of consumers and the public. The Attorney General also alleges that defendants "unjustly enriched themselves by receiving payment for independent, accurate, and legal appraisals, but failing to provide such appraisals" in violation of the common law.
According to the complaint, in the spring of 2006, nonparty Washington Mutual, Inc. (WaMu), then the largest nationwide savings and loan institution, retained eAppraiselT and another company to perform independent appraisals on WaMu loan applications. WaMu soon became eAppraiselT's largest client, providing close to 30% of its business in New York. The complaint alleges that, in response to stricter federal appraisal regulations, WaMu hired eAppraiselT in order to create "a structural buffer between the banks and the appraisers that eliminates potential pressure or conflicts of interest."
Nevertheless, the Attorney General asserts that WaMu, throughout the course of its relationship with defendants, cajoled eAppraiselT employees to augment the appraised values assigned to certain homes in order to allow the loans associated with those homes to proceed to closing. The complaint highlights that, shortly after WaMu hired eAppraiselT, WaMu's loan production personnel complained that "eAppraiselT's staff and fee appraisers were not 'hitting value,' that is, were appraising homes at a value too low to permit loans to close." On August 15, 2006, eAppraiselT's executive vice-president advised the company's president that WaMu loan officers' unsubstantiated requests for appraisal adjustments amounted to "direct pressure on the appraiser[s] for a higher value without" justification.
Initially, eAppraiselT management attempted to thwart the coercion exerted by WaMu. During the latter part of 2006, however, WaMu allegedly continued to express its dissatisfaction with the appraisal reports issued by eAppraiselT. It purportedly indicated to First American that any future business with WaMu would be "expressly conditioned" on eAppraiselT's ability to furnish appraisals with "high enough values." Furthermore, in February 2007, WaMu allegedly directed eAppraiselT's to cease utilizing its panel of fee appraisers and instead employ appraisers from a panel previously selected by WaMu's loan origination staff who inflate the values of homes "in a greater majority of the time."
As a result of this mounting pressure, the complaint asserts that eAppraiselT eventually capitulated to WaMu's demands. According to the Attorney General, by April 2007, "WaMu had complete control over eAppraiselT's appraiser panel" and defendants knew that their compliance with WaMu "violated appraiser independence regulations" under USPAP
The Attorney General filed the complaint in Supreme Court and defendants removed the action to the United States District Court for the Southern District of New York, asserting that District Court had federal question jurisdiction of the action (see 28 USC § 1331). Defendants also sought dismissal of the complaint in federal court. The Attorney General, in response, moved to remand the case back to Supreme Court. District Court granted the Attorney General's motion, and, in so doing, did not address defendant's motion to dismiss (see People of New York ex rel. Cuomo v First Am. Corp., 2008 WL 2676618, 2008 US Dist LEXIS 51790 [SD NY 2008]).
Back in Supreme Court, defendants moved to dismiss the complaint pursuant to CPLR 3211. Defendants contended that the Home Owners' Loan Act (HOLA) (12 USC § 1461 et seq.) and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) (Pub L 101-73, 103 US Stat 183) and their concomitant regulations preempt the Attorney General from raising these claims. Defendants premised their preemption arguments on two theories: they maintained that the relevant federal statutory and regulatory scheme occupied the entire field of real estate appraisals. Alternatively, defendants posited that New York's attempt to regulate eAppraiselT conflicted with federal law in that it obstructed WaMu's ability to finance real estate transactions. Lastly, defendants asserted that the complaint failed to state a cause of action under General Business Law § 349.
Supreme Court denied the motion. Addressing the preemption arguments, Supreme Court first concluded that "federal regulation does not occupy the entire field with respect to real estate appraisal regulation" (People v First Am. Corp., 24 Misc 3d 672, 680-681 [Sup Ct, NY County 2009]). The court reasoned that "[i]n the area of real estate appraisals, Congress expressly envisioned a unique regulatory system overseen and enforced by both the federal government and the states" (id. at 679). Supreme Court likewise concluded that defendants failed to "articulate[ ] how the enforcement of USPAP standards under New York law or the application of General Business Law § 349 conflicts with federal law, or otherwise interferes with a bank's nationwide operations or ability to lend" (id. at 682). Finally, the court opined that the Attorney General adequately pleaded a cause of action under General Business Law § 349.
The Appellate Division affirmed the order of Supreme Court. Before the Appellate Division, defendants abandoned their conflict preemption arguments (see People v First Am. Corp., 76 AD3d 68, 72 [1st Dept 2010]) but still maintained that, given the comprehensive nature of HOLA and FIRREA, it is clear that Congress intended to occupy the entire home lending field. The Appellate Division disagreed and concluded, like Supreme Court, that Congress did not intend to occupy the entire field with respect to appraisal management companies (see id. at 73-76). The court also determined that the Attorney General articulated a cause of action under General Business Law § 349 and had standing to do so, reasoning that the complaint "references misrepresentations and other deceptive conduct allegedly perpetrated on the consuming public within the State of New York" (id. at 83).
The same panel of the Appellate Division granted defendants leave to appeal to this Court and certified a question inquiring whether its order, which affirmed the order of Supreme Court, was "properly made" (2010 NY Slip Op 84106[U] [2010]). We now affirm and answer the certified question in the affirmative.
II.
Preemption analysis begins, as always, with reference to the well-familiar Supremacy Clause of the United States Constitution, which provides that federal laws "shall be the supreme Law of the Land; and the Judges in every state shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding" (US Const, art VI, cl 2). Indeed, the Supremacy Clause "vests in Congress the power to supersede not only State statutory or regulatory law but common law as well" (Guice v Charles Schwab & Co., 89 NY2d 31, 39 [1996], cert denied 520 US 1118 [1997]). In determining whether federal law preempts state law, the United States Supreme Court has instructed that a court's "sole task is to ascertain the intent of Congress" (California Fed. Sav. & Loan Assn. v Guerra, 479 US 272, 280 [1987]; see also Medtronic, Inc. v Lohr, 518 US 470, 485 [1996] ["(T)he purpose of Congress is the ultimate touchstone in every pre-emption case"] [internal quotation marks omitted]; Matter of People v Applied Card Sys., Inc., 11 NY3d 105, 113 [2008]).
Of course, "[preemption can arise by: (i) express statutory provision, (ii) implication, or (iii) an irreconcilable conflict between federal and state law" (Applied Card Sys., 11 NY3d at 113, citing Balbuena v IDR Realty LLC, 6 NY3d 338, 356 [2006]). This appeal requires us to focus our analysis solely on implied preemption or field preemption, which occurs when: In that regard, defendants insist that "HOLA and FIRREA so occupy the field that these two statutes preempt any and all state laws speaking to the manner in which appraisal management companies provide real estate appraisal services" (First Am. Corp., 76 AD3d at 73). We disagree.
"[t]he scheme of federal regulation [is] so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it . . . [o]r the Act of Congress may touch a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject" (Rice v Santa Fe Elevator Corp., 331 US 218, 230 [1947]).
The Great Depression of the 1930s and the financial devastation that ensued triggered Congress to enact HOLA. HOLA created "a system of federal savings and loan associations, which would be regulated by the [Federal Home Loan Bank] Board" (FHLBB) (Fidelity Fed. Sav. & Loan Assn. v De la Cuesta, 458 US 141, 160 [1982]). The purpose of this comprehensive legislation was "to provide emergency relief with respect to home mortgage indebtedness at a time when as many as half of all home loans in the country were in default" (id. at 159 [internal quotation marks and citations omitted]). HOLA gave the FHLBB "plenary authority" to "promulgate[ ] regulations governing the powers and operations of every Federal savings and loan association from its cradle to its corporate grave" (id. at 144-145 [internal quotation marks and citation omitted]).
During the mid-1980s, the federal savings and loan crisis erupted, prompting Congress in 1989 to pass FIRREA. In enacting FIRREA, Congress restructured the regulation of federal savings and loan associations by disbanding the FHLBB and replacing it with the Office of Thrift Supervision (OTS) (see FIRREA, Pub L 101-73, tit III, § 301, 103 US Stat 183, 277, amending 12 USC § 1461 et seq. [establishing the OTS]; Pub L 101-73, tit IV § 401, 103 US Stat 183, 354, repealing 12 USC § 1437 [see 12 USCA § 1437, Historical and Statutory Notes (disbanding the FHLBB)]). As relevant here, FIRREA's legislative history reveals that Congress designed the statute, in part, "to thwart real estate appraisal abuses . . . [by] establishing] a system of uniform national real estate appraisal standards" (HR Rep 101-54[I], 101st Cong, 1st Sess, at 311, reprinted in 1989 US Code Cong & Admin News, at 107; see also 12 USC § 3331 ["real estate appraisals utilized in connection with federally related transactions are performed . in accordance with uniform standards"]).
To effectuate this stated goal, Congress enacted 12 USC § 3339 as part of FIRREA, which mandates that the OTS "prescribe appropriate standards for the performance of real estate appraisals." The statute "require[s], at a minimum . . . that real estate appraisals be performed in accordance with generally accepted appraisal standards as evidenced by the appraisal standards promulgated by the Appraisal Standards Board of the Appraisal Foundation" (12 USC § 3339 [1]). In 1987, prior to the FIRREA legislation, the United States appraisal profession formed The Appraisal Foundation, a private "not-for-profit organization dedicated to the advancement of professional valuation" (The Appraisal Foundation, http://appraisalfoundation.org [accessed Nov. 14, 2011]). The Appraisal Foundation established USPAP and the Appraisal Standards Board, appointed by The Appraisal Foundation and referenced by FIRREA, "develops, interprets and amends" USPAP (id.). As noted earlier, New York has also incorporated USPAP rules into state law (see 19 NYCRR 1106.1).
In aiming to prevent further real estate appraisal abuse, Congress envisaged a robust partnership with the states. To that end, FIRREA sanctions the establishment and use of state agencies dedicated to certifying and licensing appraisers and delineates requirements for using these appraisers in federally related transactions (see 12 USC § 3331, 3336; 12 CFR 34.44, 564.3). Furthermore, under FIRREA, Congress created the Appraisal Subcommittee, charged with "monitor[ing] State appraiser certifying licensing agencies for the purpose of determining whether a State agency's policies, practices, and procedures are consistent with this chapter" (12 USC § 3347 [a]; see also 12 USC § 3348 [c]). According to the Appraisal Subcommittee, FIRREA "recognize[s] that the States [are] in the best administrative position to certify and license real estate appraisers and to supervise their appraisal-related activities" and permits the States to impose stricter appraisal standards as necessary (Appraisal Subcommittee, https://www.asc.gov/Legal-Framework/ TitleXI.aspx [accessed Nov. 14, 2011]). Thus, this subcommittee has observed that FIRREA "created a unique, complementary relationship between the States, the private sector, and the Federal government" (id.).
Consistent with this understanding of FIRREA, OTS itself stated that a financial "institution should file a complaint with the appropriate state appraiser regulatory officials when it suspects that a state certified or licensed appraiser failed to comply with USPAE) applicable state laws, or engaged in other unethical or unprofessional conduct" (OTS, Mem for Chief Executive Officers, Final Interagency Appraisal and Evaluation Guidelines, CEO Ltr 371, at 23 [Dec. 2, 2010], http:// www.ots.treas.gov/_files/25371.pdf [accessed Nov. 14, 2011]). Similarly, the United States Government Accountability Office, an independent, nonpartisan agency that works for Congress, has observed that FIRREA "relies on the states to . . . monitor and supervise compliance with appraisal standards and requirements" (Government Accountability Office, Report to Congressional Requesters, Regulatory Programs: Opportunities to Enhance Oversight of the Real Estate Appraisal Industry, at 3 [GAO-03-404, May 2003], available at http://www.gao.gov/ new.itemsM03404.pdf [accessed Nov. 14, 2011]).
Despite FIRREA's clear mandate to induce states to regulate real estate appraisers in partnership with federal agencies, defendants ask us to find that 12 CFR 560.2, a subsequent regulation promulgated by the OTS pursuant to its authority under HOLA, nonetheless, supports preemption. 12 CFR 560.2 (a) states that "OTS is authorized to promulgate regulations that preempt state laws affecting the operations of federal savings associations." The regulation further provides that "[t]o enhance safety and soundness and to enable federal savings associations to conduct their operations in accordance with best practices (by efficiently delivering low-cost credit to the public free from undue regulatory duplication and burden), OTS hereby occupies the entire field of lending regulation for federal savings associations."
Paragraph (b) of 12 CFR 560.2 lists illustrative examples of the categories of state laws, such as mortgage processing and origination, preempted under paragraph (a). 12 CFR 560.2 (c), however, states that certain types of state laws, such as contract and commercial law and tort law, are not preempted "to the extent that they only incidentally affect the lending operations of Federal savings associations." According to the OTS, in analyzing whether 12 CFR 560.2 preempts a state law, "the first step [is] to determine whether the type of law in question is listed in paragraph (b). If so, the analysis will énd there; the law is preempted" (61 Fed Reg 50951, 50966-50967 [1996]). Applying this first step, we note the examples recorded in paragraph (b) do not mention real estate appraisals. We also conclude, in accord with the Appellate Division, that the Attorney General's challenge to defendants' alleged misconduct under state law does not correspond with any of the categories of law preempted by paragraph (b).
The OTS further instructs that, "[i]f the law is not covered by paragraph (b), the next question is whether the law affects lending. If it does . . . the presumption arises that the law is preempted" (id.; see also 12 CFR 560.2 [c]). Here, the crux of the Attorney General's complaint is that defendants engaged in unlawful and deceptive business practices in that they failed to adhere to the requirements of USPAE We conclude the Attorney General's authority to prosecute First American and its subsidiary eAppraiselT—an independent appraisal management company—for such faulty practices under Executive Law § 63 (12) and General Business Law § 349 is not preempted because, at most, it would incidentally affect the lending operations of a federal savings association (accord 1996 Ops Chief Counsel OTS, RE: Preemption of State Laws Applicable to Credit Card Transactions, at 10 [Dec. 24, 1996], available at 1996 WL 767462 and http://www.ots.treas.gov/_files/56615.pdf [concluding that impact on lending of an Indiana statute outlawing deceptive acts and practices was "only incidental to the primary purpose of the statute—the regulation of the ethical practices of all businesses engaged in commerce"]; see also In re Ocwen Loan Servicing, LLC Mtge. Servicing Litig., 491 F3d 638, 643 [7th Cir 2007]).
In conclusion, we hold that FIRREA governs the regulation of appraisal management companies and explicitly envisioned a cooperative effort between federal and state authorities to ensure that real estate appraisal reports comport with US-PAR We perceive no basis to conclude that HOLA itself or federal regulations promulgated under HOLA preempt the Attorney General from asserting both common law and statutory state law claims against defendants pursuant to its authority under Executive Law § 63 (12) and General Business Law § 349. Thus, defendants' motion to dismiss on the grounds of federal preemption was properly denied. We also agree with the Appellate Division that the Attorney General has adequately pleaded a cause of action under General Business Law § 349 and that the statute provides him with standing.
Accordingly, the order of the Appellate Division should be affirmed, with costs, and the certified question answered in the affirmative.
. Contrary to defendants' assertion, for purposes of FIRREA, we see no distinction between an individual appraiser and an appraisal management company. FIRREA reaches both.
. As relevant here, a "federally related transaction" means "any real estate-related financial transaction which . . . requires the services of an appraiser" (12 USC § 3350 [4] [B]).
. OTS's interpretation of FIRREA remains unchanged. In its 1994 Inter-agency Appraisal and Evaluation Guidelines, rescinded after the release of the 2010 addition, OTS likewise called upon financial institutions "to make referrals directly to state appraiser regulatory authorities when a State licensed or certified appraiser violates USPAP . . . Examiners finding evidence of unethical or unprofessional conduct by appraisers will forward their findings and recommendations to their supervisory officers for appropriate disposition and referral to the state, as necessary" (OTS, Thrift Bulletin, Interagency Appraisal and Evaluation Guidelines, at 10 [Nov. 4, 1994], http:// www.ots.treas.gov/_files/84042.pdf; see also First Am. Corp., 76 AD3d at 75-76).
. We observe that the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (see Pub L 111-203, 124 US Stat 1376), enacted by Congress after the commencement of this lawsuit, confirms this understanding. For example, 12 USC § 3353 (a) (1) requires appraisal management companies to comply with USPAP and "register with and be subject to supervision by a State appraiser certifying and licensing agency in each State in which such company operates." Significantly, that statute states that "[n]othing in this section shall be construed to prevent States from establishing requirements in addition to any rules promulgated" herein (12 USC § 3353 [b]; see also 12 USC § 1465 [b] [observing that HOLA "does not occupy the entire field in any area of State law" unless such state law conflicts with federal law]).
. In concluding that HOLA preempts this lawsuit, our dissenting colleague principally relies on the analysis of two federal district court cases, Cederlo v IndyMac Bancorp, Inc. (2008 WL 3992304, 2008 US Dist LEXIS 65337 [SD NY 2008]) and Spears v Washington Mut., Inc. (2009 WL 605835, 2009 US Dist LEXIS 21646 [ND Cal 2009]). According to the dissent, this Court should "adopt the federal courts' interpretation of a federal statute unless that interpretation appears to be plainly wrong" (dissenting op at 197). We observe, however, that other federal district courts, consistent with our analysis, have concluded that HOLA does not preempt claims related to real estate appraisals (see e.g. Bolden v KB Home, 618 F Supp 2d 1196, 1205 [CD Cal 2008] [finding that OTS regulations under HOLA do not preempt plaintiffs' claims since those "claims relate to real estate appraisal standards, whereas . . . HOLA was concerned with the credit activities of federal savings associations"]; Fidelity Natl. Info. Solutions, Inc. v Sinclair, 2004 WL 764834, 2004 US Dist LEXIS 6687 [ED PA 2004] [concluding that state laws regulating real estate appraisals do not target federal savings associations or national bank operations]).