Opinion ID: 3033121
Heading Depth: 3
Heading Rank: 1

Heading: Operating Subsidiaries and the Bank Act

Text: [1] At the core of these appeals is 12 C.F.R. § 7.4006, a regulation promulgated by the OCC in 2001, which states: “Unless otherwise provided by Federal law or OCC regulation, State laws apply to national bank operating subsidiaries to the same extent that those laws apply to the parent national bank.” See Investment Securities; Bank Activities and Operations; Leasing, 66 Fed. Reg. 34,784, 34,788-89 (July 2, 2001). Section 7.4006 does not define “operating subsidiary.” Instead, the term is defined, indirectly, in both the Bank Act and OCC regulations, as a subsidiary that “engages solely in activities that national banks are permitted to engage in directly and are conducted subject to the same terms and conditions that govern the conduct of such activities by national banks.” 12 U.S.C. § 24a(g)(3)(A); see also 12 C.F.R. § 5.39(d)(6)(i).9 The federal banking statutes do not otherwise mention operating subsidiaries. 9 The definition is indirect because it is contained within the exceptions to the definition of “financial subsidiary” in 12 U.S.C. § 24a(g)(3) and 12 C.F.R. § 5.39(d). A financial subsidiary, by contrast, is “any company that is controlled by 1 or more insured depository institutions other than a[n operating] subsidiary [or a subsidiary that] . . . a national bank is specifically authorized by the express terms of a Federal statute (other than this section), and not by implication or interpretation, to control . . . .” 12 U.S.C. § 24a(g)(3). In the original version of current 12 C.F.R. § 5.34, the comprehensive rule governing “operating subsidiaries” to which we return shortly, an operating subsidiary was defined as “a corporation the functions or activities of which are limited to one or several of the functions or activities that a national bank is authorized to carry on.” Acquisition of Controlling Stock Interest in Subsidiary Operations Corporation, 31 Fed. Reg. 11,459, 11,459 (Aug. 31, 1966) (formerly codified at 12 C.F.R. § 7.10) [hereinafter “Operating Subsidiary Rule”]. The current regulation, codified at § 5.34, contains no such definition. 10466 WELLS FARGO BANK v. BOUTRIS The Commissioner’s central contention is that this regulation is beyond the scope of the OCC’s delegated authority. More specifically, the Commissioner maintains that because operating subsidiaries are not, themselves, “national banks,” they are therefore not subject to exclusively federal regulation to the same extent as are national banks. His argument therefore challenges the propriety of the regulation, raising a question of first impression in this circuit.10 Although posed in the singular, the question whether the OCC may preempt contrary state law as applied to operating subsidiaries of national banks depends, in our view, on the answer to two logically prior questions: First, we must resolve whether the OCC regulation allowing national banks to create and operate subsidiaries that perform national bank functions is consistent with the Bank Act. Second, we need to consider whether the OCC may regulate such entities. Only after answering these first two questions can we decide whether the OCC may regulate such entities to the exclusion of the states in the two areas pertinent here — visitorial authority and licensing requirements. One final point bears mention at the outset: Because the parties’ arguments turn almost entirely on the OCC’s interpretation of the Bank Act, a necessary threshold question to our analysis here is whether, and to what extent, the OCC’s implementation of the Act, as manifested in § 7.4006, is entitled to deference. 10 Besides the district court in this case, the other courts that have ruled on this specific issue (which appears to have been litigated only since the promulgation of 12 C.F.R. § 7.4006 in July 2001) are the Second Circuit, see Wachovia Bank, N.A. v. Burke, No. 04-3770-CV, 2005 WL 1607740 (2d Cir. July 11, 2005), and the U.S. District Courts for the District of Maryland, see Nat’l City Bank of Ind. v. Turnbaugh, 367 F. Supp. 2d 805 (D. Md. 2005), and the Western District of Michigan, see Wachovia Bank, N.A. v. Watters, 334 F. Supp. 2d 957 (W.D. Mich. 2004), appeal docketed, No. 04-2257 (6th Cir. Oct. 14, 2004). Each of the other courts held, as did the district court here and as do we, that the Bank Act preempts the relevant state laws. WELLS FARGO BANK v. BOUTRIS 10467 [2] The OCC is the agency “charged with supervision of the National Bank Act.” NationsBank of N.C., N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251, 256 (1995). Its rulemaking authority is codified at 12 U.S.C. § 93a, which provides: Except to the extent that authority to issue such rules and regulations has been expressly and exclusively granted to another regulatory agency, the Comptroller of the Currency is authorized to pre- scribe rules and regulations to carry out the responsibilities of the office, except that the authority conferred by this section does not apply to section 36 of this title [the McFadden Act] or to securities activities of National Banks under the Act com- monly known as the “Glass-Steagall Act”. As the definition makes clear, this conferral of regulatory authority is as broad as the OCC’s statutory responsibilities, defined piecemeal throughout the Bank Act. See, e.g., 12 U.S.C. §§ 25a(e), 26, 29, 71, 84(d), 92, 92a(a), 93(d), 211(a), 371, 481, 633(b); see also Conference of State Bank Supervisors v. Conover, 710 F.2d 878, 883 (D.C. Cir. 1983) (per curiam).11 [3] Given this rulemaking authority, the OCC’s interpretation of ambiguous language in the Bank Act is entitled to deference under the two-step framework of Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984): Under the familiar two-step analysis in Chevron, if Congress has “directly spoken to the precise ques11 The Supreme Court has affirmed that the OCC is the agency generally responsible for the administration of the Bank Act, citing 12 U.S.C. §§ 1, 26-27, and 481 in support of that conclusion. See NationsBank, 513 U.S. at 256; see also Inv. Co. Inst. v. Camp, 401 U.S. 617, 626-27 (1971) (citing First Nat’l Bank v. Missouri, 263 U.S. 640, 658 (1924)). 10468 WELLS FARGO BANK v. BOUTRIS tion at issue,” then the matter is capable of but one interpretation by which the court and the agency must abide. By contrast, where we determine that a statute is not clear, “the question for the court is whether the agency’s answer is based on a permissible construction of the statute.” Vigil v. Leavitt, 381 F.3d 826, 834 (9th Cir. 2004) (quoting Chevron, 467 U.S. at 842-43). As the statutory interpretation issues we must address to determine the validity of § 7.4006 devolve into separate questions, as we have explained, the relevant authority for each inquiry has separate statutory sources, and the Chevron inquiry is necessarily step-by-step. We therefore proceed to analyze the validity of § 7.4006 — and the appropriate deference, if any, to accord to the OCC’s relevant interpretations — incrementally.