Opinion ID: 3009550
Heading Depth: 2
Heading Rank: 3

Heading: does an implied right of action exist for

Text: VIOLATIONS OF REGULATIONS PROMULGATED PURSUANT TO 12 U.S.C. § 92a? Section 92a provides that the Comptroller of the Currency shall be authorized and empowered to grant by special permit to national banks applying therefor, when not in contravention of State or local law, the right to act as trustee. . . . 12 U.S.C. § 92a. Plaintiffs have pled violations of regulations promulgated pursuant to § 92a, namely 12 C.F.R. § 9.15 which allegedly requires a bank to charge a reasonable fee when sweeping, and 12 C.F.R. § 9.18(b)(12) which places limits on the amount a bank can charge to a collective investment fund. Plaintiffs contend that a cause of action exists for violations of § 92a and corresponding regulations by way of the private right of action which has been implied into 12 U.S.C. § 93(a) for violations of the National Bank Act. See Chesbrough v. Woodward, 244 U.S. 72, 37 S. Ct. 579 (1916). Alternatively, plaintiffs maintain that a private right of action exists independently under § 92a. We do not write on tabula rasa. The First and the Fifth Circuits have already written - and divided - on the question whether a private implied right of action exists for violations of § 92a and accompanying regulations. In B.C. Recreational Indus. v. First Nat'l Bank, 639 F.2d 828, 833 n.10 (1st Cir. 1981), the First Circuit posited in dicta that an implied right of action could be found to exist through § 93 for violations of the National Bank Act, including § 92a(a). The B.C. Indus. court failed to fully consider, however, whether § 92a was in fact enacted as part of the National Bank Act. In Blaney v. Florida Nat'l Bank, 357 F.2d 27 (5th Cir. 1966), the Fifth Circuit, in a more detailed analysis, concluded that a private right of action did not exist for violations of § 92a. The Blaney court failed to consider, however, the possibility that a private right of action could exist through § 93(a). As will be seen, the relationship of § 92a to § 93(a) and the National Bank Act is dispositive. A. Can a Private Cause of Action Exist Through § 93(a) for a Violation of § 92a Regulations? The plaintiffs maintain that a cause of action exists for violations of § 92a and corresponding regulations by way of the private right of action which has been implied into § 93(a). See Chesbrough v. Woodward, 244 U.S. at 78, 37 S. Ct. at 582 (finding an implied private cause of action under the predecessor to § 93(a)). Section 93(a) provides in pertinent part that if the directors of any national banking association shall knowingly violate or knowingly permit . . . [a] violat[ion] . . . [of] any of the provisions of title 62 of the Revised Statutes [the National Bank Act] . . . [such] director . . . shall be held liable. . . . 12 U.S.C. § 93(a). The implied right of action under § 93(a), first established by the Supreme Court in Chesbrough, has been recognized and applied to various provisions of the National Bank Act. See Morast v. Lance, 807 F.2d 926, 932 (11th Cir. 1987); Durante Bros. & Sons, Inc. v. Flushing Nat'l Bank, 755 F.2d 239, 243 (2d Cir. 1985); Marx v. Centran Corp., 747 F.2d 1536, 1540 (6th Cir. 1984), cert. denied 471 U.S. 1125 (1985); Harmsen v. Smith, 542 F.2d 496, 499-500 (9th Cir. 1976), cert. denied 464 U.S. 822 (1983). It should be noted, however, that the implied private right of action recognized in Chesbrough relates only to § 93(a), given that until 1978, Section 93 of the National Bank Act consisted only of the paragraph which is now § 93(a). Whether an implied right of action exists for an alleged violation of § 92a via the implied right of § 93(a) will depend upon whether § 92a was enacted as part of the National Bank Act.3 Section 92a was enacted on September 28, 1962 as Public Law 87-722 in order to transfer regulatory authority over the fiduciary operations of national banks from the Federal Reserve Board to the Comptroller 3 . If we were to determine that § 92a were part of the National Bank Act, it is unclear whether a private right of action could exist through § 93(a) for violations of regulations promulgated under § 92a. Since we determine that no private right of action exists for violations of § 92a, we need not address this question. of the Currency, repealing § 11(k) of the Federal Reserve Act (which was codified at 12 U.S.C. § 248). See Public Law 87-722, 76 Stat. 668 (enacting § 92a while repealing § 11(k) of the Federal Reserve Act and explicitly amending two sections of the Internal Revenue Code). While designated by the editors of the U.S. Code as 12 U.S.C. § 92a, the enacting legislation and accompanying legislative history did not amend, repeal or even mention the National Bank Act. The fact that the legislation specifically amends two sections of the Internal Revenue Code, underscores the lack of Congressional intention that § 92a function as an amendment to the National Bank Act. Moreover, later enactments refer to § 92a not as part of the National Bank Act, but as the Act of September 28, 1962. See Act of March 31, 1980, Pub L. 96-221, Title VII § 704, 94 Stat. 187 (1980) (codified as 12 U.S.C. § 92(a)(k)); Garn-St. Germain Depository Institutions Act of 1982, Pub. L. 97-320, Title IV § 424(g), 96 Stat. 1523 (1982) (codified as an amendment to 12 U.S.C. § 93(b)) (referring to the provisions of Title 62 of the Revised Statutes [the National Banking Act] or any of the provisions of section 92a of this title (emphasis added)). For these reasons, we find that § 92a was not enacted as part of the National Bank Act, and hence we conclude that no private cause of action exists through § 93(a) for a violation of § 92a regulations. B. No Implied Right of Action Exists under § 92a. Since § 92a was not enacted as part of the National Bank Act, a private right of action can only exist for violations of regulations promulgated under § 92a if a right of action can be implied under § 92a pursuant to the Supreme Court's four factor test of Cort v. Ash, 422 U.S. 66, 95 S. Ct. 2080 (1975). In deciding whether an implied right of action exists for a violation of regulations, we must first determine whether the statute under which the rule was promulgated properly permits the implication of a private right of action . . . under Cort v. Ash and its progeny. Angelastro v. Prudential-Bache Securities, Inc., 764 F.2d 939, 947 (3d Cir. 1985), cert. denied 474 U.S. 935 (1985).4 Obviously, the regulations cannot themselves aid in answering the question whether a private right of action exists under the enabling statute. See Smith v. Dearborn Financial Services, Inc., 982 F.2d 976, 979 (6th Cir. 1993); Marshall v. Gibson's Products, Inc., 584 F.2d 668, 677-78 & n. 16 (5th Cir. 1978) (holding that an implied private cause of action can be implied only from a statute and not from regulations, since the authority to create federal jurisdiction lies solely with Congress). 4 . In order to imply a private cause of action for a regulatory violation, we would also have to conclude both that (1) the regulation was properly within the scope of the enabling statute, and (2) the private right of action would further the purpose of the enabling statute. Angelastro, 764 F.2d at 947. Under Cort v. Ash we are required to examine four factors in determining whether to imply a private right of action under a federal statute: (1) whether plaintiffs are part of the class for whose especial benefit the statute was enacted; (2) whether there was any indication of Congressional intent to deny or create a private remedy; (3) whether implication of a private remedy is consistent with the underlying purpose of the statute; and (4) whether the matter is traditionally one relegated to the states. Cort v. Ash, 422 U.S. at 78, 95 S. Ct. at 2088. Courts that have already considered the matter, have concluded that it is doubtful that plaintiffs could meet the test of Cort v. Ash in establishing an implied private right of action under § 92a. B.C. Indus., 639 F.2d at 833 n.10; Thompson v. Kerr, 555 F. Supp. 1090, 1098 (S.D. Ohio 1982). Supreme Court precedent has established that the second Cort v. Ash factor, legislative intent, is entitled to the greatest weight in the calculus. Touche Ross & Co. v. Redington, 442 U.S. 560, 575, 99 S. Ct. 2479, 2489 (1979). Specifically, a lack of evidence of legislative intent to create a private right of action, either express of by implication, can by itself provide the answer that a private right of action should not be implied. See Touche, 442 U.S. at 571-76, 99 S. Ct. at 2486-89 ([I]mplying a private right of action on the basis of congressional silence is a hazardous enterprise, at best.). The legislative history accompanying § 92a and its predecessor is void of any indication that Congress intended to create a private remedy. No court had ever recognized a private right of action under the predecessor statute to § 92a,5 and in enacting § 92a, Congress explicitly stated that [n]o change would be made from the substantive provisions of section 11(k) [the predecessor statute of the Federal Reserve Act] other than the transfer of authority, so that there is no alteration of existing law regarding national banks acting in fiduciary capacities. 87th Congress, 2d Sess., S Rep. No. 2039, 1962 U.S. Code Cong. & Ad. Rep. 2735; see also Investment Co. Institute v. Camp, 401 U.S. 617, 621-22, 91 S. Ct. 1091, 1094 (1971) (In 1962 Congress transferred jurisdiction over most of the trust activities of national banks from the Board of Governors of the Federal Reserve System to the Comptroller of the Currency, without modifying any provision of substantive law.). Given that no private cause of action existed under § 92a's predecessor and Congress expressly intended not to change the substantive law, we conclude that Congress did not intend to create a private cause of action when it enacted § 92a. An evaluation of the remaining three Cort v. Ash factors also leads us to decline to recognize a private right of action. 5 . The predecessor statute, 12 U.S.C. § 248 (formerly § 11(k)) vested the authority to regulate the fiduciary operations of national banks with the Federal Reserve System's Board of Governors. First, no indication exists that plaintiffs are part of a class for whose especial benefit the statute was enacted. Congress enacted the predecessor to § 92a merely to place national banks on equal footing with state banks in the performance of trust functions. Blaney, 357 F.2d at 30 (This is obvious from the most cursory reading of . . . 12 U.S.C. § 92a.). Given this purpose, it appears that the statute was not enacted for the benefit of any particular identified class, other than arguably national banks. Under the third Cort v. Ash factor we ask whether the implication of a private remedy is consistent with the underlying purpose of the statute -- to place national banks on equal footing with state banks in the performance of trust functions. In the enacting legislation (in what is now § 92a(k)), Congress created a detailed remedial provision. This section provides that in the event the Comptroller determines that a national bank unlawfully exercised the granted fiduciary powers, the Comptroller should, following specified procedures (i.e. by providing notice and a hearing), revoke the trust powers granted by statute. 12 U.S.C. § 92a(k)(1). If the bank's fiduciary powers were revoked subject to these procedures, the bank could then obtain direct judicial review by a federal appellate court. 12 U.S.C. § 92a(k)(2); 12 U.S.C. § 1818(h). We find that this carefully reticulated enforcement mechanism would not be enhanced by the implication of a private right of action. More specifically, the Congressional grant of enforcement power to the Comptroller, head of the federal agency created and empowered by Congress to develop and exercise expertise in this area,6 would not be furthered by allowing a court, as opposed to the Comptroller, to make the initial determination whether a bank had engaged in conduct inconsistent with the statute. Under the fourth and final Cort factor we must ask whether the matter is one traditionally relegated to the states. One is hard pressed to imagine an area of law more traditionally a province of state law, than the law of trust and estates. Implying a private right of action under § 92a could effectively federalize a not insignificant portion of state trust and estate law, and burden federal courts with numerous cases involving disputes between trust beneficaries and national banks, a most untoward result. We do not believe that Congress could have intended such a result by its enactment of § 92a.7 6 . See Central Nat'l Bank v. United States Dept. of Treasury, 912 F.2d 897, 905 (7th Cir. 1990) ([B]anks are his [the Comptroller's] wards, and his only wards.). 7 . Because we find that no private right of action exists for violations of § 92a, we need not address the validity of Corestate's claim that, in the area of trusts and estates, the federal court should abstain out of deference to the state Orphans Court's expertise. See Ryan v. First Pennsylvania Banking & Trust Co., 519 F.2d 572, 575 (3d Cir. 1975); Reichman v. Pittsburgh Nat'l Bank, 465 F.2d 16, 18 (3d Cir. 1972). However like the Fifth Circuit in Blaney, our decision is reinforced by the understanding that the law of trusts and estates is a primary matter of state concern. Blaney, 357 F.2d at 30. In sum, all four Cort v. Ash factors militate against the plaintiffs' position. Accordingly, we conclude that no private right of action should be implied under § 92a.