Opinion ID: 1802601
Heading Depth: 1
Heading Rank: 1

Heading: pre-emption principles

Text: National banks were brought into existence under federal legislation, are instrumentalities of the federal government, and are necessarily subject to the paramount authority of the United States. First National Bank v. Missouri, 263 U.S. 640, 656, 44 S.Ct. 213, 215, 68 L.Ed. 486 (1924). As such, Congress has the authority to determine the extent to which state law is pre-empted with respect to a national bank's activities. See Federal Land Bank of St. Paul v. Lillehaugen, 404 N.W.2d 452, 455 (N.D.1987). The standards for deciding a pre-emption question are well established. Essentially, federal pre-emption of state law can occur in one of three ways. First, Congress may explicitly define the extent to which it intends to pre-empt state law. See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 95-96, 103 S.Ct. 2890, 2898-2900, 77 L.Ed.2d 490 (1983). Express pre-emption of state law occurs when Congress specifically declares in a federal statute that it intends to pre-empt state law in a particular field. See Exxon Corp. v. Hunt, 475 U.S. 355, 106 S.Ct. 1103, 89 L.Ed.2d 364 (1986); Aloha Airlines, Inc. v. Director of Taxation, 464 U.S. 7, 104 S.Ct. 291, 78 L.Ed.2d 10 (1983). Second, even when there is no express pre-emptive language, Congress may indicate an intent to occupy an entire field of regulation and thereby impliedly preempt state law. See City of Burbank v. Lockheed Air Terminal, 411 U.S. 624, 93 S.Ct. 1854, 36 L.Ed.2d 547 (1973). Implied or occupation of the field pre-emption can be inferred where the pervasiveness of the federal regulation precludes supplementation by the States, where the federal interest in the field is sufficiently dominant, or where `the object sought to be obtained by the federal law and the character of obligations imposed by it ... reveal the same purpose.' Schneidewind v. ANR Pipeline Co., ___ U.S. ___, ___, 108 S.Ct. 1145, 1150, 99 L.Ed.2d 316 (1988) [quoting Rice v. Sante Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947)]. See also Pacific Gas & Electric Company v. St. Energy Resources Conserv., 461 U.S. 190, 103 S.Ct. 1713, 75 L.Ed.2d 752 (1983). Third, even when Congress has not intended to entirely displace state law in a particular area, state law is pre-empted to the extent that it actually conflicts with federal law. Michigan Canners & Freezers v. Agricultural Bd., 467 U.S. 461, 469, 104 S.Ct. 2518, 2523, 81 L.Ed.2d 399 (1984). Conflict pre-emption occurs where compliance with both federal and state laws is a physical impossibility, Florida Lime and Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-143, 83 S.Ct. 1210, 1217, 10 L.Ed. 2d 248 (1963), or where state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941). See also Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 104 S.Ct. 2694, 81 L.Ed.2d 580 (1984); Philko Aviation, Inc. v. Shacket, 462 U.S. 406, 103 S.Ct. 2476, 76 L.Ed.2d 678 (1983); Ray v. Atlantic Richfield Co., 435 U.S. 151, 98 S.Ct. 988, 55 L.Ed.2d 179 (1978). Courts are reluctant to infer preemption, Federal Land Bank of St. Paul v. Lillehaugen, supra , and it is the burden of the party claiming Congress intended to pre-empt state law to prove it. Perdue v. Crocker Nat'l Bank, 38 Cal.3d 913, 216 Cal.Rptr. 345, 362, 702 P.2d 503, 520 (1985), appeal dismissed, 475 U.S. 1001, 106 S.Ct. 1170, 89 L.Ed.2d 290 (1986). We also recognize that the pre-emption doctrine is not inapplicable ... simply because real property law is a matter of special concern to the States: `The relative importance to the State of its own law is not material when there is a conflict with a valid federal law, for the Framers of our Constitution provided that the federal law must prevail.' Fidelity Federal Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 153, 102 S.Ct. 3014, 3022, 73 L.Ed.2d 664 (1982) [quoting Free v. Bland, 369 U.S. 663, 666, 82 S.Ct. 1089, 1092, 8 L.Ed.2d 180 (1962)]. In the final analysis, the question whether federal law in fact preempts state action in any given case necessarily remains largely a matter of statutory construction. L. Tribe, American Constitutional Law § 6-25, at p. 480 (2d ed. 1988). See also Schneidewind v. ANR Pipeline Co., supra [A pre-emption question requires an examination of congressional intent.] Liberty National does not contend that Congress has expressly pre-empted state holding periods for real estate. Nor does it contend that Congress, through enactment of the National Bank Act, has impliedly pre-empted the entire field of regulation over national banks. See First National Bank v. Missouri, supra [[N]ational banks are subject to the laws of a State in respect to their affairs unless such laws interfere with the purposes of their creation, tend to impair or destroy their efficiency as federal agencies or conflict with the paramount law of the United States.]; McClellan v. Chipman, 164 U.S. 347, 356-357, 17 S.Ct. 85, 87, 41 L.Ed. 461 (1896); Biby v. Union National Bank of Minot, 162 N.W.2d 370, 375 (N.D.1968). Rather, the Bank asserts that the state holding period for real estate is pre-empted by the federal law because an actual conflict exists. The Bank does not contend that the conflict exists because compliance with both the state and federal laws is a physical impossibility, but because the state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. 12 U.S.C. § 29 12 U.S.C. § 29 currently provides:  § 29. Power to hold real property A national banking association may purchase, hold, and convey real estate for the following purposes, and for no others: First. Such as shall be necessary for its accommodation in the transaction of its business. Second. Such as shall be mortgaged to it in good faith by way of security for debts previously contracted. Third. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings. Fourth. Such as it shall purchase at sales under judgments, decrees, or mortgages held by the association, or shall purchase to secure debts due to it. But no such association shall hold the possession of any real estate under mortgage, or the title and possession of any real estate purchased to secure any debts due to it, for a longer period than five years except as otherwise provided in this section. For real estate in the possession of a national banking association upon application by the association, the Comptroller of the Currency may approve the possession of any such real estate by such association for a period longer than five years, but not to exceed an additional five years, if (1) the association has made a good faith attempt to dispose of the real estate within the five-year period, or (2) disposal within the five-year period would be detrimental to the association. Upon notification by the association to the Comptroller of the Currency that such conditions exist that require the expenditure of funds for the development and improvement of such real estate, and subject to such conditions and limitations as the Comptroller of the Currency shall prescribe, the association may expend such funds as are needed to enable such association to recover its total investment. Notwithstanding the five-year holding limitation of this section or any other provision of this chapter, any national banking association which on the date of enactment of this paragraph held, directly or indirectly, real estate, including any subsurface rights or interests therein, that since December 31, 1979, had not been valued on the books of such association for more than a nominal amount, may continue to hold such real estate, rights, or interests for such longer period of time as would be permitted a State chartered bank by the law of the State in which the association is located if the aggregate amount of earnings from such real estate, rights, or interests is separately disclosed in the annual financial statements of the association. When originally enacted in 1864 as part of the National Bank Act, § 29 did not provide for any exceptions to the five-year holding limitation for possession of real estate purchased to secure debts. The Supreme Court has stated that the primary objective of the restrictions placed upon national banks was obviously threefold. It was to keep the capital of the banks flowing in the daily channels of commerce; to deter them from embarking in hazardous real-estate speculations; and to prevent the accumulation of large masses of such property in their hands, to be held, as it were, in mortmain. National Bank v. Matthews, 98 U.S. (8 Otto) 621, 626, 25 L.Ed. 188 (1878); see also First Nat'l Bank of Bellaire v. Comp. of Currency, 697 F.2d 674, 681 (5th Cir.1983). It has also been said that the restrictions were designed to protect bank depositors and stockholders from risky investments. Central Nat'l Bank v. Fleetwood Realty Corp., 110 Ill.App.3d 169, 65 Ill.Dec. 730, 736-37, 441 N.E.2d 1244, 1250-1251 (1982); see also Exchange Bank of Commerce v. Meadors, 199 Okl. 10, 184 P.2d 458, 463 (1947). The legislative history reveals that although the primary purpose of the original five-year limitation was undoubtedly to prevent national banks from becoming extensive and monopolistic holders of real estate, Congress also considered the adverse consequences of forced divestitures on the banks. As originally proposed, the National Bank Act contained no time limitation on the holding of real estate. The House of Representatives sought to remedy this lack of a limitation period by an amendment requiring real estate not necessary for the bank's business to be offered for sale at public auction at the door of the banking house of such association within six months after acquiring the title to the same.... Cong. Globe, 38th Cong., 1st Sess. at 1352 (1864) (statement of Rep. Holman). This amendment was withdrawn by its sponsor after an opponent termed it vicious and injudicious and stated that [i]f there be such a depression as there was in 1837 and 1857, and it should continue for two or three years, this provision would compel the banks to sell the land which they might hold instead of letting them hold it to a future time when it may be disposed of to advantage. Cong. Globe, supra (statement of Rep. Stevens). The five-year limitation period was subsequently offered as an amendment in the Senate. See Cong. Globe, 38th Cong., 1st Sess. at 2019-2020 (1864). This amendment was also attacked because it would allegedly operate very injuriously and be hard on the banks and would restrain them or compel them to sell unreasonably or may even impose on them an impossible condition. Cong. Globe, supra, at 2020 (statement of Sen. Sherman). The amendment was agreed to, however, after its sponsor stated: It seems to me that it would be impolitic and might turn out to be mischievous to allow a bank thus indefinitely to acquire and indefinitely to hold the title and possession of real estate. I think it is a monopoly in the acquisition of real estate that ought not to be allowed to a bank. The time of five years which I have fixed within which to compel it to part with the title and possession of real estate that it may purchase in satisfaction of its debts, may be too short, but I should think it would be ample. If that time is too short, let a further extension within a reasonable period be proposed. It seems to me that five years is ample time to enable a bank to make every prudent and proper arrangement in the disposition of any real estate it may purchase in satisfaction of its debts. Cong. Globe, supra (statement of Sen. Davis). Thus, Congress' choice of the five-year limitation period reflects its reasoned judgment in tempering the adverse consequences arising from its primary goal of preventing banks from becoming monopolistic holders of real estate. Although the benefit of providing an extension of the five-year limitation was first recognized in the debates concerning the 1864 legislation, it was not until 1980 that Congress amended § 29 to allow an extension under certain circumstances. The current provision, allowing the Comptroller of the Currency to extend the holding period to a maximum of ten years if a good faith attempt is made to dispose of the property within the five-year period or if it appears that disposal would be detrimental to the bank, was introduced at the request of the Comptroller as one of several noncontroversial, housekeeping amendments to the national banking laws which became part of the Depository Institutions Deregulation and Monetary Control Act of 1980, Pub.L. No. 96-221, § 701(a), 94 Stat. 132, 186 (1981). See S.Rep. No. 96-368, 96th Cong., 2d Sess. 13, reprinted in 2 1980 U.S.Code Cong. & Ad.News 236, 249; 125 Cong.Rec. 14,597 (1979). In seeking the amendment, the Comptroller expressed concern that the five-year limitation period does not take into account depressed economic conditions which might prevent disposal of real estate at prices reflecting the bank's investment.... 125 Cong.Rec. 14,599 (1979) (letter from John G. Heimann, Comptroller of the Currency, to William Proxmire, Chairman, Committee on Banking, Housing and Urban Affairs, U.S. Senate, dated May 31, 1979). The most recent amendment to § 29 came two years later when Congress enacted the Garn-St. Germain Depository Institutions Act of 1982, Pub.L. No. 97-320, § 413, 96 Stat. 1469, 1521-1522 (1984). This amendment permits certain national banks holding real estate which has been nominally valued in their books since December 31, 1979, to continue to hold this real estate for such further period of time as permitted by the law applicable to state chartered banks in the state in which the owning bank is located. See Sen.Rep. No. 97-536, 97th Cong. 2d Sess. 33, 62, reprinted in 3 1982 U.S.Code Cong. & Ad.News 3054, 3087, 3116. The legislative history on this particular provision, however, is sparse. The primary purpose of § 29 remains unchanged. Section 29 is still directed to the goal of preventing national banks from accumulating large amounts of real estate. However, the 1980 and 1982 amendments reflect Congress' intent to provide banks some relief from the rigidity of the original absolute five-year limitation.