Opinion ID: 3033121
Heading Depth: 2
Heading Rank: 2

Heading: Bank Act Preemption

Text: As we observed three years ago: Congress has legislated in the field of banking from the days of M’Culloch v. Maryland, creating an extensive federal statutory and regulatory scheme. The history of national banking legislation has been “one of interpreting grants of both enumerated and incidental ‘powers’ to national banks as grants of authority not normally limited by, but rather ordinarily pre-empting, contrary state law.” Bank of Am. v. City & County of San Francisco, 309 F.3d 551, 558 (9th Cir. 2002) (quoting Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 32 (1996)) (citation omitted). In light of this history, we held in Bank of America that the usual presumption against federal preemption of state law is inapplicable to federal banking regulation. See 309 F.3d at 558-59. Thus, “[i]n defining the pre-emptive scope of statutes and regulations granting a power to national banks, [the Supreme Court’s jurisprudence] take[s] the view that normally Congress would not want States to forbid, or to impair significantly, the exercise of a power that Congress explicitly granted.” Barnett Bank, 517 U.S. at 33. As shall become WELLS FARGO BANK v. BOUTRIS 10465 apparent, our analysis draws on these animating principles of federal primacy and exclusivity in the field of banking regulation. Cf. Beneficial Nat’l Bank v. Anderson, 539 U.S. 1, 10 (2003) (recognizing “the special nature of federally chartered banks”).
[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.
Operate Through Operating Subsidiaries As noted, the Bank Act is silent regarding “operating subsidiaries.”12 Congress has thus not addressed, except indirectly, whether banks may organize and delegate banking functions to such entities in the first place. 12 The Commissioner argues that Congress’s silence in the Bank Act regarding operating subsidiaries resolves step one of the Chevron inquiry in his favor. The district court in Wachovia Bank, N.A. v. Burke explained why this expressio unius argument must fail: “While this silence might have been significant to the court were it to interpret the statute de novo, it does not answer the question asked by the first step of Chevron — namely, whether Congress has ‘unambiguously expressed [its] intent.’ ” 319 F. Supp. 2d 275, 285 n.5 (D. Conn. 2004) (quoting Chevron, 467 U.S. at 843) (alteration in original), aff’d in part, rev’d and vacated in part on other grounds, No. 04-3770-CV, 2005 WL 1607740 (2d Cir. July 11, 2005). We agree. The absence of any reference to operating subsidiaries in the Bank Act does not unambiguously provide that national banks may not create and perform banking functions through such entities. WELLS FARGO BANK v. BOUTRIS 10469 [4] The Bank Act, however, does bestow upon national banks the authority “[t]o exercise by its board of directors or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking; . . . .” 12 U.S.C. § 24(Seventh) (emphasis added). This “incidental powers” provision is central to our analysis here, as it is the basis for the OCC’s permission to national banks to create and operate banking functions, through subsidiaries. Because § 24(Seventh) is not explicit on the limits of “incidental powers,” the OCC is entitled to Chevron step-two deference as to whether the Bank Act supports the creation of operating subsidiaries pursuant to that provision. See Indep. Ins. Agents of Am., Inc. v. Hawke, 211 F.3d 638, 640 (D.C. Cir. 2000) (holding that the “incidental powers” provision permits “the Comptroller [to] authorize additional activities if encompassed by a reasonable interpretation of § 24(Seventh)”). Our inquiry, then, is whether the agency interpretation allowing operating subsidiaries as an exercise of “incidental powers” is reasonable. See, e.g., Hemp Indus. Ass’n v. Drug Enforcement Admin., 357 F.3d 1012, 1015 (9th Cir. 2004) (citing Barnhart v. Walton, 535 U.S. 212, 217-18 (2002)). We hold that it is. The Supreme Court has approved the OCC’s interpretation of the “incidental powers” provision as permitting a range of bank authority beyond that specified in the statute. As the Court has noted, because “the ‘business of banking’ is not limited to the enumerated powers[13] in § 24 Seventh . . . the Comptroller therefore has discretion to authorize activities 13 Section 24(Seventh) mentions some of the banks’ powers, including “discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt,” “receiving deposits,” “buying and selling exchange, coin, and bullion,” “loaning money on personal security,” and “obtaining, issuing, and circulating notes according to the provisions of title 62 of the Revised Statutes [the Bank Act].” 10470 WELLS FARGO BANK v. BOUTRIS beyond those specifically enumerated.” NationsBank, 513 U.S. at 258 n.2; see also Bank of Am., 309 F.3d at 562. At the same time, “[t]he exercise of the Comptroller’s discretion, however, must be kept within reasonable bounds. Ventures distant from dealing in financial investment instruments — for example, operating a general travel agency — may exceed those bounds.” NationsBank, 512 U.S. at 258 n.2.14 [5] We have endorsed the approach adopted by the First Circuit in Arnold Tours, Inc. v. Camp, 472 F.2d 427 (1st Cir. 1972), for delineating the scope of “incidental powers” under § 24(Seventh): [A] national bank’s activity is authorized as an incidental power, “necessary to carry on the business of banking,” within the meaning of 12 U.S.C. § 24, Seventh, if it is convenient or useful in connection with the performance of one of the bank’s estab- lished activities pursuant to its express powers under the National Bank Act. If this connection between an incidental activity and an express power does not exist, the activity is not authorized as an incidental power. Id. at 432, quoted in M & M Leasing Corp. v. Seattle First Nat’l Bank, 563 F.2d 1377, 1382 (9th Cir. 1977); see also Nat’l Retailers Corp. of Ariz. v. Valley Nat’l Bank of Ariz., 604 F.2d 32, 33 (9th Cir. 1979) (per curiam) (discussing our adoption of Arnold Tours in M & M Leasing). Applying this standard, we agree with the district court that the Comptroller had the authority under § 24(Seventh) to permit banks to delegate some of their banking functions to operating subsidiaries. 14 Congress, not the OCC, has explicitly authorized national banks to engage in real estate lending. See 12 U.S.C. § 371(a). The Commissioner’s argument, at various points in his briefs, that the regulation of real estate lending falls outside the substantive scope of the OCC’s delegated authority is therefore unavailing. WELLS FARGO BANK v. BOUTRIS 10471 Allowing national banks to create, control, and delegate banking functions to operating subsidiaries provides some assistance to banks in performing their authorized activities. Indeed, the stated considerations motivating the initial adoption of the operating subsidiary rule in 1966 were that developing such subsidiaries would aid banks in “controlling operations costs, improving effectiveness of supervision, [providing for] more accurate determination of profits, decentralizing management decisions[,] or separating particular operations of the bank from other operations.” Operating Subsidiary Rule, 31 Fed. Reg. at 11,460. At the same time, permitting operating subsidiaries does not expand the functions carried out by the banks. The determination whether to conduct business through operating subsidiaries or, instead, through subdivisions of the bank itself is thus essentially one of internal organization, so long as the operating subsidiary form of organization cannot be used to evade the rules that apply to national banks. Under 12 C.F.R. § 5.34, the rule governing operating subsidiaries, such evasion is not permitted. See 12 C.F.R. § 5.34(e)(1) (providing that “[a] national bank may conduct in an operating subsidiary activities that are permissible for a national bank to engage in directly either as part of, or incidental to, the business of banking, as determined by the OCC, or otherwise under other statutory authority”); id. § 5.34(e)(3) (“An operating subsidiary conducts activities authorized under this section pursuant to the same authorization, terms and conditions that apply to the conduct of such activities by its parent national bank.”). [6] Allowing national banks to conduct business through operating subsidiaries is therefore a permissible construction of those banks’ incidental powers under the Bank Act. We hold that the OCC’s interpretation of 12 U.S.C. § 24(Seventh) as authorizing it to allow national banks to conduct business through operating subsidiaries is a permissible one. 10472 WELLS FARGO BANK v. BOUTRIS
Subsidiaries That the Bank Act may be construed as allowing private national banks to conduct business through operating subsidiaries does not, however, necessarily resolve whether the Act also delegates to the OCC the authority to regulate such entities. That is to say, § 24(Seventh) concerns the incidental powers of national banks, not the extent of the OCC’s regulatory authority. Determining the reach of that authority is a separate question, involving the interpretation of 12 U.S.C. § 93a. Section 93a, like the rest of the Bank Act, is silent as to the OCC’s authority to regulate operating subsidiaries. This court has recognized, however, that the OCC’s authority to interpret the reach of the “incidental powers” conferred by § 24(Seventh) necessarily includes the authority to regulate the exercise of those powers to assure that they remain “incidental” to the “business of banking.” We so held in M & M Leasing, in which the central question was whether the leasing of automobiles by national banks was within the “incidental powers” of such banks, as the Comptroller had determined. After determining that, within limits, it is, we made clear that the Comptroller has both the authority and the “duty” “to promulgate reasonably detailed regulations which will confine leasing within the channels of the ‘business of banking.’ ” 563 F.2d at 1384. M & M Leasing’s conclusion that “[p]reparation of a comprehensive charter [for the exercise of “incidental powers”] is a function that belongs to the Comptroller,” id., necessarily makes the promulgation of such regulations one of the “responsibilities of the office” contemplated by § 93a, as to which the Commissioner has rulemaking power. [7] M & M Leasing’s logic applies here. Just as the Comptroller’s authority to regulate national banks’ leasing activities WELLS FARGO BANK v. BOUTRIS 10473 is inherent in his authority to interpret the “incidental powers” provision to allow such leasing in the first place, his authority to regulate operating subsidiaries also follows from the OCC’s authority to allow such entities. Further, the OCC operating subsidiary regulations most pertinent to the present inquiry quite directly address the reach of the national banks’ “incidental powers” authority to create and conduct their business through such entities. Those regulations, quoted above, restrict the range of activities that operating subsidiaries may conduct to those in which their parent banks may engage, see 12 C.F.R. §§ 5.34(e), 5.39(d)(6)(i), and state that such subsidiaries are subject to the same federal rules and standards “that apply to the conduct of such activities by its parent national bank.” Id. § 5.34(e)(3). These provisions ensure that the decision to conduct banking activities through subsidiaries neither expands the national banks’ scope of activities nor undermines the authority of the OCC to regulate those activities. By establishing these principles, the regulations circumscribe the decision to use operating subsidiaries so that it remains only “incidental” to the “business of banking.” In regulating the conduct of operating subsidiaries, moreover, the OCC is regulating only those activities it is explicitly authorized to regulate under the Bank Act. For federal regulatory purposes, in other words, the OCC is treating each operating subsidiary for the most part as if it were a national bank itself, conducting the same activities. In the latter instance, of course, the OCC’s regulatory authority is unquestioned. As we concluded twenty-eight years ago, “whatever the scope of such [incidental] powers may be, we believe the powers of national banks must be construed so as to permit the use of new ways of conducting the very old business of banking.” M & M Leasing, 563 F.2d at 1382. [8] We conclude that the OCC has permissibly applied 12 U.S.C. § 93a to regulate operating subsidiaries of national banks. 10474 WELLS FARGO BANK v. BOUTRIS
Operating Subsidiaries [9] As the Supreme Court has explained: When the administrator promulgates regulations intended to pre-empt state law, the court’s inquiry is . . . limited: “If [h]is choice represents a reasonable accommodation of conflicting policies that were committed to the agency’s care by the statute, we should not disturb it unless it appears from the statute or its legislative history that the accommodation is not one that Congress would have sanctioned.” Fidelity Fed. Sav. & Loan Ass’n v. de la Cuesta, 458 U.S. 141, 154 (1982) (quoting United States v. Shimer, 367 U.S. 374, 383 (1961)) (alteration in original); see also La. Pub. Serv. Comm’n v. F.C.C., 476 U.S. 355, 369 (1986) (“Preemption may result not only from action taken by Congress itself; a federal agency acting within the scope of its congressionally delegated authority may pre-empt state regulation.”); Credit Suisse First Boston Corp. v. Grunwald, 400 F.3d 1119, 1128 (9th Cir. 2005); Lopez v. Wash. Mut. Bank, FA, 302 F.3d 900, 906 (9th Cir. 2002), amended by 311 F.3d 928 (9th Cir. 2002). [10] Applying these principles here, we conclude that promulgating § 7.4006 was within the OCC’s authority. Section 7.4006 provides that a state law is preempted as applied to an operating subsidiary only if it would be preempted as applied to a national bank. By so stating, the OCC has simply explicated further its specification, in 12 C.F.R. § 5.34(e)(1) and (3), that operating subsidiaries are to have the same authority as, and be subject to the same governmental regulation as, their national banks parents, by making clear in § 7.4006 that the principle is symmetrical: Operating subsidiaries are subject to no less and no more governmental regulation, state and federal, than national banks. The connection between the WELLS FARGO BANK v. BOUTRIS 10475 OCC’s substantive determinations regarding the authority of national banks to conduct their business through operating subsidiaries and the preemption regulation is thus close and logical. We are therefore convinced that once the OCC’s authority to allow the creation of and to regulate operating subsidiaries as it has done is established, its authority to displace contrary state regulation where the Bank Act itself preempts contrary state regulation of national banks follows.15 That § 7.4006 is “a reasonable accommodation of conflicting policies that were committed to the agency’s care by the statute,” Fidelity, 458 U.S. at 154 (internal quotation marks omitted), is further supported by an unusual provision in the Bank Act itself. Indeed, 12 U.S.C. § 43 specifically contemplates that the OCC sometimes has authority to preempt state laws such as those here at issue. See 12 U.S.C. § 43 (setting procedural prerequisites for OCC regulations preempting “[s]tate law regarding community reinvestment, consumer protection, fair lending, or the establishment of intrastate branches” (emphasis added)).16 With this general approval of the OCC’s preemptive authority regarding state law regulation of national bank operating subsidiaries in mind, we turn to the specific state laws that WFHMI and the OCC maintain are preempted under § 7.4006. 15 Accord Wachovia Bank, N.A. v. Burke, No. 04-3770-CV, 2005 WL 1607740 (2d Cir. July 11, 2005) (holding the Bank Act and OCC regulations preempt state banking laws concerning subsidiaries of nationally chartered banks to the same extent that they preempt regulation of the parent national bank). 16 As the Commissioner here maintains, the laws he is seeking to enforce concern consumer protection. Section 43 prescribes the procedures that “the appropriate Federal banking agency,” in this instance the OCC, see 12 U.S.C. § 1813(z), must follow whenever it issues an “opinion letter or interpretive rule” concluding that certain state laws, including consumer protection laws, are preempted as applied to national banks, see id. § 43(a). There is no allegation in this case that the OCC did not follow the requisite procedures. 10476 WELLS FARGO BANK v. BOUTRIS
WFHMI and the OCC submit that the Commissioner’s state law authority to conduct or require audits of national bank operating subsidiaries is displaced by § 7.4006. Their argument, with which we agree, is that section 54 of the Bank Act, 12 U.S.C. § 484, makes federal “visitorial” authority — but not necessarily federal substantive law — exclusive with regard to national banks, and § 7.4006 extends that exclusivity to operating subsidiaries. [11] Since shortly after the Bank Act was enacted in 1864,17 see Nat’l Bank v. Kentucky, 76 U.S. (9 Wall.) 353, 362 (1870), the Supreme Court has oft reiterated that federal substantive authority over national banks is not exclusive. Rather, states may regulate national banks where “doing so does not prevent or significantly interfere with the national bank’s exercise of its powers.” Barnett Bank, 517 U.S. at 33; see also id. (citing cases). “Thus, states retain some power to regulate national banks in areas such as contracts, debt collection, acquisition and transfer of property, and taxation, zoning, criminal, and tort law.” Bank of Am., 309 F.3d at 559. [12] One area of authority over national banks that has historically been the exclusive province of the federal government, however, is the “visitorial” power. For purposes of the Bank Act and OCC regulations, the OCC has defined “visitorial” power as “(i) [e]xamination of a bank; (ii) [i]nspection of a bank’s books and records; (iii) [r]egulation and supervision of activities authorized or permitted pursuant to federal banking law; and (iv) [e]nforcing compliance with any applicable federal or state laws concerning those activities.” 12 17 Although the Bank Act was promulgated in 1864, the current banking statutes largely derive from the Bank Act’s immediate predecessor, the National Currency Act of 1863, ch. 58, 12 Stat. 665. See U.S. Nat’l Bank of Ore. v. Indep. Ins. Agents of Am., Inc., 508 U.S. 439, 449 & n.4 (1993) (summarizing the statutory history). WELLS FARGO BANK v. BOUTRIS 10477 C.F.R. § 7.4000(a)(2). The exclusivity of federal visitorial authority over national banks is codified in the Bank Act, section 54 of which provides that: No national bank shall be subject to any visitorial powers except as authorized by Federal law, vested in the courts of justice or such as shall be, or have been exercised or directed by Congress or by either House thereof or by any committee of Congress or of either House duly authorized. 12 U.S.C. § 484(a).18 As the definition makes clear, the preemption of state law accomplished by § 484(a) is entirely procedural, not substantive. The exclusively federal power to “visit” national banks is not the power to oust all state regulation of those entities. Instead, the exclusivity of visitorial authority preempts only enforcement of state visitation laws by state officials, subject to the exceptions stated in § 484(a) itself. See, e.g., Nat’l State Bank, Elizabeth, N.J. v. Long, 630 F.2d 981, 989 (3d Cir. 1980); cf. Conference of Fed. Sav. & Loan Ass’ns v. Stein, 604 F.2d 1256, 1260 (9th Cir. 1979) (holding that regulatory control provided by California’s Housing Financial Discrimination Act is procedurally preempted by Federal Home Loan Bank Board authority), summarily aff’d, 445 U.S. 921 (1980) (mem.). National banks remain bound by state laws and regulations, except for those laws substantively preempted by other provisions of the Bank Act. [13] Still, despite its procedural limitation, § 484(a) does “evidence[ ] a broad intent to preempt state law as to national banks.” Wachovia Bank, N.A. v. Burke, 319 F. Supp. 2d 275, 279 (D. Conn. 2004), aff’d in part, rev’d and vacated in part 18 But for minor technical corrections in 1913 and 1982, the provision remains unchanged from its initial codification in 1864. See Act of June 3, 1864, ch. 106, § 54, 13 Stat. 99, 116. 10478 WELLS FARGO BANK v. BOUTRIS on other grounds, No. 04-3770-CV, 2005 WL 1607740 (2d Cir. July 11, 2005); see also Guthrie v. Harkness, 199 U.S. 148, 159 (1905) (“It was the intention that this statute should contain a full code of provisions upon the subject, and that no state law or enactment should undertake to exercise the right of visitation over a national corporation. Except in so far as such corporation was liable to control in the courts of justice, this act was to be the full measure of visitorial power.”); Tiffany v. Nat’l Bank of Mo., 85 U.S. (18 Wall.) 409, 412 (1873). The power the Commissioner claimed in ordering WFHMI and NCMC to audit their loan records rests on precisely the inspection and enforcement authority preempted by § 484(a). The OCC’s conclusion that § 484(a) and § 7.4006, taken together, foreclose the exercise of such authority by the states, is thus eminently “permissible.” Chevron, 467 U.S. at 843. [14] We hold that the Commissioner is preempted from ordering regulatory audits of national bank operating subsidiaries such as WFHMI and NCMC, and that the injunction issued by the district court is valid insofar as it precludes the Commissioner from doing so.
WFHMI and, particularly, the OCC also argue that California’s state real-estate lending licensing requirements are preempted as applied to national bank operating subsidiaries. The state law requirements here at issue are codified in sections 50120-50130 of the California Finance Code, part of the CRMLA.19 Although the licensing requirements as a whole are too exhaustive to recount here, the most significant provisions are section 50121, which imposes four conditions on the 19 We focus here on the CRMLA licensing requirements. The CFLL licensing requirements, which, as noted above, are relevant only where the CRMLA does not apply, see ante at 10461 n.5, are codified at CAL. FIN. CODE §§ 22100-22112. WELLS FARGO BANK v. BOUTRIS 10479 granting of a license,20 and section 50125(a), which empowers the Commissioner to refuse to issue a license if “[t]he applicant is not in material compliance with a provision of [the CRMLA] or an order or rule of the commissioner.” In light of the foregoing discussion, one might expect that the proper route to evaluating whether the state law provisions can apply to national bank operating subsidiaries would be to apply the same analysis we applied to the visitorial preemption issue: If state licensing requirements are preempted as applied to national banks, then § 7.4006 precludes applying those requirements to operating subsidiaries. As it turns out, this straightforward approach does not work as applied to licensing requirements. 20 Specifically, the provision authorizes the Commissioner to issue a license only after: (a) The filing with the commissioner of a complete and verified application for licensure. (b) The filing as an exhibit to the application of a listing of material judgments filed against, and bankruptcy petitions filed by, the applicant for the preceding five years, and the disposition thereof. (c) The payment of a nonrefundable investigation fee of one hundred dollars ($100), plus the cost of fingerprint processing and clearance, and an application filing fee of nine hundred dollars ($900). (d) An investigation of the statements required by [California Financial Code §] 50124 based upon which the commissioner is able to issue findings that the financial responsibility, criminal records (verified by fingerprint, at the discretion of the commissioner), experience, character, and general fitness of the applicant and of the partners or members thereof, if the applicant is a partnership or association, and of the principal officers and directors thereof, if the license applicant is a corporation, support a finding that the business will be operated honestly, fairly, and in accordance with the requirements of this division. CAL. FIN. CODE § 50121. 10480 WELLS FARGO BANK v. BOUTRIS Licensing is one mode of regulation as to which there is no ready parallel between national banks and their operating subsidiaries. The California licensing requirements at issue here, for example, do not apply to national banks. See CAL. FIN. CODE § 50003(g)(1) (exempting from the CRMLA’s licensing requirements “[a]ny bank . . . doing business under the authority of or in accordance with a license, certificate, or charter issued by the United States”); see also id. § 22050(a) (providing that the CFLL’s licensing requirements do not apply to “any person doing business under any law of this state or the United States relating to banks”). That California saw fit to exempt national banks from its mortgage-lending licensing requirements despite their prevalent activity in that area of business may well reflect the state’s own conclusion — almost certainly a correct one — that the chartering of national banks by the federal government is an exclusive function, inconsistent with state licensing requirements unless they are federally authorized.21 Operating subsidiaries, however, are not directly chartered by the federal government; instead, they are incorporated under a state’s law — WFHMI in California; NCMC in Ohio. This chartering distinction is the one irreducible difference between national banks and their operating subsidiaries, and precludes the direct transfer of the banks’ immunity from state entry barriers, such as licensing requirements, to their operating subsidiaries. We are convinced, however, by the OCC’s alternative argument — that California’s attempt to license operating subsidiaries is field-preempted by the OCC’s own licensing regulations.22 21 The Bank Act itself refers to the charter as the “organization certificate,” which is created by the bank according to the terms of 12 U.S.C. §§ 21-23, and approved by the Comptroller pursuant to the procedures set forth in 12 U.S.C. §§ 26-27. 22 The substantive limits of the Bank Act’s express preemption provisions do not preclude the possibility of implicit preemption. “[T]he incluWELLS FARGO BANK v. BOUTRIS 10481 [15] The OCC regulations establish a comprehensive and finely calibrated scheme for the creation of operating subsidiaries. Denominated “Licensing Requirements,” see 12 C.F.R. § 5.34(b), these regulations prescribe the specific circumstances in which a national bank needs formal approval from the OCC to establish operating subsidiaries. A national bank must ordinarily “submit an application to, and receive approval from, the OCC,” before it acquires or establishes any operating subsidiary. See id. § 5.34(e)(5) (i)(A). “The application must include a complete description of the bank’s investment in the subsidiary, the proposed activities of the subsidiary, the organizational structure and management of the subsidiary, the relations between the bank and the subsidiary, and other information necessary to adequately describe the proposal.” Id. In some circumstances, national banks can create or acquire an operating subsidiary without OCC approval, although notice to the OCC is required: Under 12 C.F.R. § 5.34(e) (5)(iv), operating subsidiaries can be established by a “well capitalized” and “well managed” national bank (as defined by 12 C.F.R. § 5.34(d)(2)-(3)) solely by providing notice to the OCC, so long as the activity falls within one of twenty-five categories specifically delineated in 12 C.F.R. § 5.34(e)(5)(v). No notice is required, however, for a well-capitalized bank to establish an operating subsidiary, if the new subsidiary is conducting activities already approved for an earlier operating subsidiary of the same bank; those activities are legally permissible for the subsidiary; and the new subsidiary abides by any conditions the OCC imposed on the activities of prior operating subsidiaries of that bank. See id. § 5.34(e)(5)(vi). If sion of an express preemption provision in a statute does not by itself obviate implied preemption . . . .” Allarcom Pay Television, Ltd. v. Gen. Instrument Corp., 69 F.3d 381, 387 (9th Cir. 1995); see also Ass’n of Banks in Ins., Inc. v. Duryee, 270 F.3d 397, 404 (6th Cir. 2001) (citing Anderson Nat’l Bank v. Luckett, 321 U.S. 233 (1944)). 10482 WELLS FARGO BANK v. BOUTRIS the bank, however, “controls the subsidiary but owns 50 percent or less of the voting (or similar type of controlling) interest of the subsidiary,” then an application and OCC approval are always necessary, and the exceptions noted above are inapplicable. See id. § 5.34(e)(5)(i)(B). The OCC thus has a role in either pre-approving or later reviewing the creation of an operating subsidiary in most instances. That the OCC has chosen to require formal agency approval in certain cases but not in others, to require notice in certain cases but not in others, and to specify the content of the application or notice in great detail indicates to us that § 5.34 manifests the OCC’s intent to regulate pervasively the field of licensing operating subsidiaries. Allowing certain national banks to create certain classes of operating subsidiaries without case-by-case approval is itself a regulatory decision. Where such a decision not to regulate represents, as in § 5.34, a considered determination that no regulation is appropriate, that choice preempts contrary state law imposing governing standards. See, e.g., Lodge 76, Int’l Ass’n of Machinists & Aerospace Workers v. Wis. Employment Relations Comm’n, 427 U.S. 132, 140 (1976) (holding that, by regulating certain forms of economic pressure used during labor disputes but not others, Congress expressed a clear intent to leave other economic weapons free from federal or state regulation). Such field preemption can occur when an agency, acting pursuant to its delegated authority, promulgates regulations that evidence a clear intent to occupy a specific field. See, e.g., R.J. Reynolds Tobacco Co. v. Durham County, N.C., 479 U.S. 130, 149 (1986) (“[W]here, as in this case, Congress has entrusted an agency with the task of promulgating regulations to carry out the purposes of a statute, as part of the pre-emption analysis we must consider whether the regulations evidence a desire to occupy a field completely.” (citation omitted)). [16] As we emphasized earlier, Congress and the OCC, acting pursuant to congressional authority, have left some room WELLS FARGO BANK v. BOUTRIS 10483 for substantive regulation by the states in the field of banking. In the specific context of licensing requirements for operating subsidiaries authorized only to conduct those activities that their parent national banks may conduct, however, the OCC’s regulations “evidence a desire to occupy a field completely.”23 Id. A state’s attempt to require advance licensing before an operating subsidiary may engage in the activities covered by the Bank Act, including real estate lending, runs headlong into the OCC’s finely nuanced licensing scheme. [17] We hold that California’s real-estate lending licensing requirements as applied to operating subsidiaries of national banks are field-preempted by 12 C.F.R. § 5.34.