Court Opinion

ID: 4567688
Source: CourtListenerOpinion
Date Created: 2020-09-22 17:00:34.986459+00
Date Added: 2024-06-11T08:44:30.433818
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

SUSAN MCSHANNOCK, as Executrix             No. 19-15899
of the Estate of Patricia Blaskower,
on behalf of the Estate of Patricia           D.C. No.
Blaskower and all others similarly         3:18-cv-01873-
situated; MONICA CHANDLER, as                   EMC
Trustee of the Chandler Family
Trust, and all others similarly
situated; MOHAMED MEKY, and all              OPINION
others similarly situated,
                  Plaintiffs-Appellees,

                  v.

JP MORGAN CHASE BANK NA, doing
business as Chase Bank,
               Defendant-Appellant.

      Appeal from the United States District Court
         for the Northern District of California
       Edward M. Chen, District Judge, Presiding

          Argued and Submitted May 13, 2020
               San Francisco, California

                Filed September 22, 2020
2         MCSHANNOCK V. JP MORGAN CHASE BANK

    Before: J. Clifford Wallace and Ryan D. Nelson, Circuit
          Judges, and James S. Gwin, * District Judge.

                  Opinion by Judge R. Nelson;
                    Dissent by Judge Gwin

                          SUMMARY **

           Home Owners’ Loan Act / Preemption

   The panel reversed the district court’s order denying JP
Morgan Chase Bank N.A.’s motion to dismiss, and held that
California’s law requiring the payment of interest on escrow
accounts was preempted by the Home Owners’ Loan Act of
1933 (“HOLA”), and its implementing regulations.

    Plaintiffs obtained residential home mortgages from
Washington Mutual Bank, FA, a federal savings association
organized and regulated under HOLA. Chase Bank, a
national bank organized and regulated under the National
Bank Act, assumed all of Washington Mutual’s mortgage
servicing rights and obligations. Through HOLA, Congress
vested the Office of Thrift Supervision (“OTS”) with broad
authority to shape the regulatory environment for federal
savings associations.

      *
     The Honorable James S. Gwin, United States District Judge for the
Northern District of Ohio, sitting by designation.
    **
       This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
        MCSHANNOCK V. JP MORGAN CHASE BANK                 3

    The panel held that HOLA field preemption principles
applied to plaintiffs’ claims against Chase, a national bank,
even though its conduct giving rise to the complaint occurred
after it acquired the loans in question from Washington
Mutual, a federal savings association. Because California’s
interest-on-escrow law imposed a requirement regarding
escrow accounts; affected the terms of sale, purchase,
investment in, and participation in loans originated by
savings associations; and had more than an incidental effect
on the lending operations of savings associations, the panel
held that it was preempted by 12 C.F.R. § § 560.2(b)(6) and
(b)(10), and 560.2(c) of the OTS regulation governing this
case.

    District Judge Gwin dissented because the majority
opinion reached a conclusion not supported by the statute’s
and regulation’s text, and because California was not
otherwise preempted from requiring banks to pay nominal
interest on escrow account balances.

                        COUNSEL

Alan E. Schoenfeld (argued), Noah A. Levine, and
Alexandra Hiatt, Wilmer Cutler Pickering Hale and Dorr
LLP, New York, New York; David C. Powell and Alexander
J. Gershen, McGuire Woods LLP, San Francisco, California;
Brian D. Schmalzbach, McGuire Woods LLP, Richmond,
Virginia; Nellie E. Hestin, McGuire Woods LLP, Pittsburgh,
Pennsylvania; for Defendant-Appellant.

Glenn A. Danas (argued), Robins Kaplan LLP, Los Angeles,
California; Michael F. Ram and Marie Appel, Robins
Kaplan LLP, Mountain View, California; Michael J. Pacelli,
Robins Kaplan LLP, Minneapolis, Minnesota; Samuel J.
4      MCSHANNOCK V. JP MORGAN CHASE BANK

Strauss, Turke & Strauss LLP, Madison, Wisconsin; Harold
Jaffe, Dublin, California; for Plaintiffs-Appellees.

H. Rodgin Cohen, Matthew A. Schwartz, Corey Omer, and
Y. Carson Zhou, Sullivan & Cromwell LLP, New York,
New York; Gregg L. Rozansky, The Bank Policy Institute,
Washington, D.C.; Thomas Pinder, The American Bankers
Association, Washington, D.C.; Steven P. Lehotsky and
Janet Galeria, U.S. Chamber Litigation Center, Washington,
D.C.; for Amici Curiae The Bank Policy Institute, The
American Bankers Association, and Chamber of Commerce
of the United States of America.

Scott L. Nelson and Allison M. Zieve, Public Citizen
Litigation Group, Washington, D.C., for Amicus Curiae
Public Citizen Litigation Group.

Xavier Becerra, Attorney General; Nicklas A. Akers, Senior
Assistant Attorney General; Michele Van Gelderen,
Supervising Deputy Attorney General; Rachel A. Foodman,
Deputy Attorney General; Office of the Attorney General,
San Francisco, California; for Amicus Curiae State of
California.
         MCSHANNOCK V. JP MORGAN CHASE BANK                        5

                            OPINION

R. NELSON, Circuit Judge:

    This case requires us to decide whether mortgagors are
entitled, under California law, to interest on escrow accounts
for mortgages that were issued by a savings association and
later assigned to a national bank. We hold that California’s
law requiring the payment of interest on escrow accounts is
preempted by the Home Owners’ Loan Act of 1933
(“HOLA”), 12 U.S.C. § 1461 et seq., and its implementing
regulations, even where the mortgage is assigned from a
savings association to a national bank.

                                 I

    Between 2005 and 2007, the Chandler Family Trust, 1
Mohamed Meky, and Patricia Blaskower 2 (collectively,
“Appellees”) obtained residential home mortgages from
Washington Mutual Bank, FA (“WaMu”). Appellees,
whose homes were located in California, would normally
have been entitled to “at least 2 percent simple interest per
annum” on any funds held in escrow under California Civil
Code Section 2954.8 (hereinafter, “California’s interest-on-
escrow law”). But WaMu, a federal savings association
organized and regulated under HOLA, was not required to
pay Appellees interest because HOLA and its implementing

    1
      Monica Chandler is the trustee of the Chandler Family Trust and
one of the named plaintiffs in this case.
    2
      Susan McShannock, the lead named plaintiff in this case, is the
executrix of the Estate of Patricia Blaskower.
6         MCSHANNOCK V. JP MORGAN CHASE BANK

regulations preempted California law. 3 Thus, Appellees did
not receive interest on their escrow accounts while WaMu
held the loans.

    WaMu failed during the 2008 financial crisis and was
placed in the Federal Deposit Insurance Corporation’s
(“FDIC”) receivership. The FDIC sought buyers for
WaMu’s assets, eventually coming to terms with Appellant
JP Morgan Chase Bank NA (“Chase”). Under the terms of
the agreement, Chase assumed “all mortgage servicing rights
and obligations” of WaMu. Unlike WaMu, which was
organized and regulated under HOLA, Chase is a national
bank organized and regulated under the National Bank Act
(“NBA”), 12 U.S.C. § 38, et seq.

    3
       The parties cite 12 C.F.R. § 560 and its subsections throughout
their briefs. After the parties filed their Opening and Answering briefs,
a rule promulgated by the Department of the Treasury took effect
removing all regulations promulgated by the now-defunct Office of
Thrift Supervision (“OTS”) from the Code of Federal Regulations. See
Removal of Office of Thrift Supervision Regulations, 82 Fed. Reg.
47083-02 (Oct. 11, 2018). The Treasury Department’s rule, pursuant to
Dodd-Frank Wall Street Reform and Consumer Protection Act
(hereinafter, the “Dodd-Frank Act”), recognized that section 560’s field
preemption scheme had been replaced by rules promulgated by the
Office of the Comptroller of the Currency (“OCC”). Id. The current
regulation provides that, “[s]tate law applies to the lending activities of
Federal savings associations and their subsidiaries to the same extent and
in the same manner that those laws apply to national banks and their
subsidiaries.” 12 C.F.R. § 160.2. The parties agree, however, that
section 560 provides the rule of decision for this case because it was the
operative rule at the time Appellees obtained their mortgages. See
12 U.S.C. § 5553 (provision of the Dodd-Frank Act mandating that the
Act “shall not be construed to alter or affect the applicability of any
regulation . . . [issued] by . . . the Director of the Office of Thrift
Supervision . . . on or before July 21, 2010.”).
        MCSHANNOCK V. JP MORGAN CHASE BANK                 7

    We recently held in Lusnak v. Bank of America, N.A.,
883 F.3d 1185, 1188 (9th Cir. 2018), cert. denied, 139 S. Ct.
567 (2018), that the NBA does not preempt California’s
interest-on-escrow law. Appellees filed a consolidated class
action complaint against Chase shortly after our decision in
Lusnak was issued, seeking to represent a class of:

       [a]ll mortgage loan customers of Chase (or its
       subsidiaries), whose mortgage loan is for a
       one-to-four family residence located in
       California, and who paid Chase money in
       advance for payment of taxes and
       assessments on the property, for insurance, or
       for other purposes relating to the property,
       and to whom Chase failed to pay interest as
       required by Cal. Civ. Code § 2954.8(a).

     Chase then moved to dismiss the complaint under
Federal Rule of Civil Procedure 12(b)(6). Chase argued that
because Appellees’ mortgages were initially issued by
WaMu—a federal savings association organized and
regulated under HOLA—Chase was not required to pay
Appellees interest even though Chase is a national bank
organized and regulated under the NBA. The district court
denied the motion. The district court held that although the
mortgages were issued by WaMu, HOLA preemption no
longer applied because the Appellee’s complaint sought
redress only for Chase’s nonpayment of escrow interest after
it acquired WaMu’s assets.

   Chase requested interlocutory appeal of the district
court’s denial of its motion to dismiss. The district court
granted the request, and we granted Chase’s permission to
proceed with the interlocutory appeal. We have jurisdiction
under 28 U.S.C. § 1292(b), and we reverse.
8        MCSHANNOCK V. JP MORGAN CHASE BANK

                                  II

      We review de novo a district court’s denial of a motion
to dismiss for failure to state a claim under Rule 12(b)(6).
See Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681,
690 (9th Cir. 2011) (citation omitted). All allegations of
material fact are taken as true and construed in the light most
favorable to the nonmoving party. Id. (citation omitted). A
district court may dismiss a complaint only if it fails to state
“enough facts to state a claim to relief that is plausible on its
face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
“Questions of statutory interpretation are reviewed de novo
. . . as are questions of preemption.” Lopez v. Wash. Mut.
Bank, 302 F.3d 900, 903 (9th Cir. 2002) (internal citation
omitted).

                                  III

                                  A

    Through HOLA, Congress vested the OTS 4 with “broad
authority” to shape the regulatory environment for federal
savings associations. Silvas v. E*Trade Mortg. Corp.,
514 F.3d 1001, 1004–05 (9th Cir. 2008). Consistent with
congressional intent, the OTS decided in 1996 to “occup[y]

     4
       Regulatory responsibility for HOLA has changed hands twice
since the statute was adopted in 1933. First, responsibility passed from
the Federal Home Loan Bank Board (“FHLBB”) to the OTS in 1989.
See Financial Institutions Reform, Recovery, and Enforcement Act of
1989, Pub. L. No. 101–73, § 201, 103 Stat. 183, 201. Responsibility then
passed from the OTS to the OCC in 2011. See Dodd-Frank Act, Pub. L.
No. 111–203, § 312, 124 Stat. 1376 (2010). Our analysis is limited to
the regulatory decisions of the OTS and, to the extent they remained in
force, the FHLBB.
          MCSHANNOCK V. JP MORGAN CHASE BANK                          9

the entire field of lending regulation for federal savings
associations.” 12 C.F.R. § 560.2. In doing so, the OTS:

          intend[ed] to give federal savings
          associations maximum flexibility to exercise
          their lending powers in accordance with a
          uniform federal scheme of regulation.
          Accordingly, federal savings associations
          may extend credit as authorized under federal
          law . . . without regard to state laws
          purporting to regulate or otherwise affect
          their credit activities.

Id.

    The specific question before us is whether HOLA
preempts California’s interest-on-escrow law for loans
issued by WaMu between 2005 and 2007 that were later
assigned to Chase. 5 We have observed that “[w]hether, and
to what extent, HOLA applies to claims against a national
bank when that bank has acquired a loan executed by a
federal savings association is an open question” in our court.
Campidoglio LLC v. Wells Fargo & Co., 870 F.3d 963, 970–
71 (9th Cir. 2017). We resolve that question in this appeal.

   Federal district courts that have addressed the question
have taken three different positions: (1) HOLA preemption

      5
      Chase also argues that the plain terms of the parties’ mortgage
agreement preclude Appellees from collecting interest on their escrow
accounts. Because we conclude California’s interest-on-escrow law is
preempted by HOLA, we do not need to reach that question. We also do
not decide what, if any, relevancy the “valid-when-made” doctrine has
in deciding this case. Professor Adam Levitin offers to “gladly withdraw
his motion [to file a late amicus brief] and tentatively filed brief,”
addressing this issue, and we therefore deny his motion as moot.
10       MCSHANNOCK V. JP MORGAN CHASE BANK

applies to all conduct connected to a loan originating with a
federal savings association; (2) HOLA preemption
necessarily does not apply to national banks; and (3) whether
HOLA preemption applies depends on whether the claims
arise from the conduct of the federal savings association or
of the national bank. See, e.g., Kenery v. Wells Fargo Bank,
N.A., No. 5:13-CV-02411-EJD, 2014 WL 129262, at *4
(N.D. Cal. Jan. 14, 2014). The district court adopted the
third approach, and Chase asks us to adopt the first approach.

     To resolve this dispute, we begin with the text of HOLA,
its amendments, and the regulations implemented pursuant
to HOLA. Appellees point out that OTS’s regulations
“occup[y] the entire field of lending regulation for federal
savings associations.” 12 C.F.R. § 560.2(a). Focusing on
this language, Appellees assert that HOLA preemption does
not apply to the complaint in this case, which exclusively
implicates the conduct of Chase, a national bank. We
disagree.

    The OTS’s preemption regulation is not so limited in
scope to cover only the conduct of a federal savings
association. Section 560.2(a) provides that “OTS is
authorized to promulgate regulations that preempt state laws
affecting the operations of federal savings associations when
deemed appropriate . . . .” Id. (emphasis added). 6 Section

     6
       We agree section 560.2(a) “only preempts a state law when the
state law affects federal savings association operations.” Dissent at 34
(emphasis in original). We diverge with the dissent, however, in its
unnecessarily narrow interpretation of what affects operations. As we
note below, see infra Section III(C), failure to preempt state law
burdening the sale of these mortgages inevitably would directly affect
federal savings associations operations.        We also agree “[t]he
regulation’s preemption language limited preemption to lending
regulation and to federal savings associations.” Dissent at 35. But we
         MCSHANNOCK V. JP MORGAN CHASE BANK                        11

560.2(a) also states that the “OTS intends to give federal
savings associations maximum flexibility to exercise their
lending powers in accordance with a uniform federal scheme
of regulation.” Id. (emphasis added). Applying the plain
meaning of the OTS’s preemption regulation, we hold that
field preemption principles extend to all state laws affecting
a federal savings association, without reference to whether
the conduct giving rise to a state law claim is that of a federal
savings association or of a national bank.

    In addition, in 1982, the FHLBB, the precursor to the
OTS, implemented a regulation preempting “any state law
purporting to address the subject of a Federal association’s
ability or right to . . . sell” mortgages or “directly or
indirectly to restrict such ability or right.” 12 C.F.R.
§ 545.6(a)(2) (emphasis added).           When the OTS
promulgated its own field preemption regulation, OTS
“confirm[ed] and carr[ied] forward its existing preemption
position,” OTS Final Rule, 61 Fed. Reg. 50,951, 50,965
(Sept. 30, 1996), and “restate[d] long-standing preemption
principles applicable to federal savings associations, as
reflected in earlier regulations, court cases, and numerous
opinions issued by OTS and the [FHLBB],” id. at 50,952.

    We defer to the FHBLBB and the OTS’s “broad
authority to issue regulations governing thrifts.” Silvas,
514 F.3d at 1005. Significantly, those regulations have “no
less preemptive effect than federal statutes.” Id. Thus, the

do not reach our conclusion today because of any impact California’s
law has on national banks. Instead, our holding is based solely on the
effect California’s law has had and will have on financial savings
associations and the mortgages they have acquired and may sell.
12        MCSHANNOCK V. JP MORGAN CHASE BANK

text of HOLA and the OTS regulations support applying
field preemption here.

    The district court correctly observed that “at the time
HOLA was enacted in 1933, nothing in its text or legislative
history expressly indicated Congress expected that federal
savings associations would sell their residential mortgage
loans on a secondary market to entities not governed by
HOLA, much less intended for HOLA preemption to attach
to any such loans.” But although there is nothing in the text
or the legislative history of HOLA that references the
transfer of loans from a federal savings association in a
secondary market, the district court erred by discounting the
subsequent amendments to HOLA and the OTS’s
regulations. 7 Indeed, the United States Supreme Court has
rejected the narrow interpretive approach that the district

     7
        We agree “a federal agency may pre-empt state law only when and
if it is acting within the scope of its congressionally delegated authority.”
Dissent at 32, 33 n.15 (quoting La. Pub. Serv. Comm’n v. FCC, 476 U.S.
355, 374 (1986)). But we see no delegation issue here. HOLA, as
amended in 1989, delegated authority to OTS to “provide for the
examination, safe and sound operation, and regulation of savings
associations” and to “issue such regulations as [OTS] determines to be
appropriate[.]” 12 U.S.C. §§ 1463(a)(1)–(2) (1989), amended by
12 U.S.C. § 1463 (2010). More specifically, OTS was to “exercise all
powers granted . . . so as to encourage savings associations to provide
credit for housing safely and soundly.” Id. § 1463(a)(3) (emphasis
added); see also 12 U.S.C. § 1464(a) ( “The lending and investment
powers conferred by this section are intended to encourage such
institutions to provide credit for housing safely and soundly.”) (emphasis
added). As the sale and transfer of mortgages impacts the economic
health and viability of federal savings associations, see infra Section
III(C), failing to extend HOLA’s preemptive effect to these transfers
would discourage savings associations to provide credit for housing.
Thus, applying OTS regulations to the sale and transfer of pre-2011
mortgages falls within OTS’s delegated authority, even if those
mortgages are now held by national banks.
        MCSHANNOCK V. JP MORGAN CHASE BANK                13

court adopted. See Fid. Fed. Sav. & Loan Ass’n v. de la
Cuesta, 458 U.S. 141, 154 (1982) (“A pre-emptive
regulation’s force does not depend on express congressional
authorization to displace state law . . . . Thus, the [lower
court’s] narrow focus on Congress’ intent to supersede state
law was misdirected. Rather, the questions upon which
resolution of this case rests are whether the Board meant to
pre-empt California’s [] law, and, if so, whether that action
is within the scope of the Board’s delegated authority.”
(emphasis added)).

    HOLA’s subsequent amendment and the OTS
regulations support applying field preemption here.
Although a secondary market for mortgage loans did not
exist at the time HOLA was adopted in 1933, Congress
created the Federal National Mortgage Association (“Fannie
Mae”) in 1938, thereby establishing a secondary market for
loans. See National Housing Act Amendments of 1938, ch.
13, 52 Stat. 23. Congress expanded the secondary market
for loans in 1970 by creating the Federal Home Loan
Mortgage Corporation (“Freddie Mac”). See H.R. Rep. No.
91-1311, at 4 (1970); see also S. Rep. No. 91-761, at 1
(1970). Finally, in 1978 Congress amended HOLA to allow
savings associations to sell loans into the secondary market.
See Act of Nov. 10, 1978, Pub. L. No. 95-630, § 1701, 92
Stat. 3641, 3714 (1978). Thus, there is little doubt that
Congress intended HOLA to cover the sale of mortgages
belonging to federal savings associations. de la Cuesta,
458 U.S. at 163. We therefore hold that HOLA preemption
principles extend to a situation where, as here, a loan
originates from a federal savings association, but the state
purports to regulate the conduct of a non-federal savings
association, such as a national bank, over that same loan.
14      MCSHANNOCK V. JP MORGAN CHASE BANK

                              B

    We now turn to and apply the established HOLA
preemption framework. To guide banking institutions and
state legislatures about the contours of HOLA’s field
preemption, the OTS established a tripartite scheme. First,
section 560.2(a) provided 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.” 12 C.F.R. § 560.2(a). Second, in
section 560.2(b), the OTS provided “[i]llustrative examples”
of the “types of state laws preempted” by HOLA, including
“laws purporting to impose requirements regarding,”
“[e]scrow accounts” and the “[p]rocessing, origination,
servicing, sale, or purchase of, or investment or participation
in, mortgages.” 12 C.F.R. § 560.2(b), (b)(6), (b)(10).
Finally, in the event a state law was not among the
illustrative examples listed in section 560.2(b), OTS
preempted any state law having more than an “incidental
effect on the lending operations of” federal savings
associations. 12 C.F.R. § 560.2(c)(6)(ii).

   A three-step process governs our inquiry. See Silvas,
514 F.3d at 1005.

       The first step . . . [is] to determine whether
       the type of law in question is listed in
       paragraph [560.2](b). If so, the analysis will
       end there; the law is preempted. If the law is
       not covered by paragraph (b), the next
       question is whether the law affects lending.
       If it does, then, in accordance with paragraph
       [560.2](a), the presumption arises that the
        MCSHANNOCK V. JP MORGAN CHASE BANK                   15

       law is preempted. This presumption can be
       reversed only if the law can clearly be shown
       to fit within the confines of paragraph
       [560.2](c). For these purposes, paragraph (c)
       is intended to be interpreted narrowly. Any
       doubt should be resolved in favor of
       preemption.

Id. (quoting OTS, Final Rule, 61 Fed. Reg. 50,951, 50,966–
67 (Sept. 30, 1996)). In applying this framework, we are
“not limited to assessing whether the state law on its face
comes within paragraph (b) of the regulation.”
Campidoglio, 870 F.3d at 971–72. “Instead, we ask whether
the state law, ‘as applied, is a type of state law contemplated
in the list under paragraph (b) . . . . If it is, the preemption
analysis ends.’” Id. at 972 (quoting Silvas, 514 F.3d
at 1006).

    We therefore first turn to the question whether
California’s interest-on-escrow law is preempted by sections
560.2(b)(6) and 560.2(b)(10). Section 560.2(b)(6) preempts
state laws “purporting to impose requirements regarding . . .
escrow accounts.” 12 C.F.R. § 560.2(b)(6). California’s
interest-on-escrow law requires the payment of “at least
2 percent simple interest per annum” on funds held in
escrow. Cal. Civ. Code § 2954.8(a). This is certainly a
“requirement[] regarding . . . escrow accounts” under
section 560.2(b)(6). Thus, California’s interest-on-escrow
law is preempted. See Silvas, 514 F.3d at 1006 (holding that
claims for unfair advertising and unfair competition brought
pursuant to California’s consumer protection statute were
preempted by § 560.2(b)(9)).

   Applying section 560.2(b)(10) to California’s interest-
on-escrow law yields the same result. Section 560.2(b)(10)
16      MCSHANNOCK V. JP MORGAN CHASE BANK

preempts state laws “purporting to impose requirements
regarding . . . [the] [p]rocessing, origination, servicing, sale
or purchase of, or investment or participation in, mortgages.”
12 C.F.R. § 560.2(b)(10). We agree with Chase that a state
law, such as California’s interest-on-escrow law, that
directly or indirectly imposes conditions on a federal savings
association’s ability to convey a loan is preempted under
HOLA. Thus, California’s interest-on-escrow law is also
preempted by section 560.2(b)(10) because it affects the
sale, purchase of, investment in, and participation in loans
originated by savings associations.

                               C

    We need not go further because California’s interest-on-
escrow law is “the type of law in question in paragraph
560.2(b).” Silvas, 514 F.3d at 1005 (cleaned up). “So, the
analysis ends there; the law is preempted.” Id. (cleaned up).
But section 560.2(c) preempts California’s interest-on-
escrow law as well, because application of the law would
have more than an “incidental effect on the lending
operations of” savings associations.

    After Congress amended HOLA in 1978, federal savings
associations developed a common lending cycle. A
mortgagor, like Appellees here, applies for a mortgage at a
savings association. The federal savings association extends
the mortgagor funds to purchase the property, in exchange
for future interest payments. Rather than wait to collect
those interest payments, however, the federal savings
association exchanges the original mortgage for a mortgage
backed security from Fannie Mae or Freddie Mac. The
federal savings association then sells this mortgage backed
security to investors on the secondary market. Finally, the
savings association takes the funds generated by the sale of
the mortgage backed security and uses them to fund
        MCSHANNOCK V. JP MORGAN CHASE BANK                  17

additional loans to new mortgagors. A simplified version of
this process follows.

Fannie Mae, Basics of Fannie Mae Single-Family MBS (Oct.
2019), https://www.fanniemae.com/resources/file/mbs/pdf/
basics-sf-mbs.pdf (last accessed Aug. 6, 2020).

    A central component of this cycle is the ability of federal
savings associations to securitize the original loans and sell
them into the secondary market. As the Supreme Court
explained in de la Cuesta, the “marketability of a mortgage
18      MCSHANNOCK V. JP MORGAN CHASE BANK

in the secondary market is critical to a savings and loan, for
it thereby can sell mortgages to obtain funds to make
additional home loans.” 458 U.S. at 155 n.10 (emphasis
added). In 2009, “82 percent of the first-lien home-purchase
and refinance loans for one- to four-family properties . . .
were sold during the year.” Robert B. Avery et al., The 2009
HMDA Data: The Mortgage Market in a Time of Low
Interest Rates and Economic Distress, Fed. Reserve
Bulletin, A45 (Dec. 2010), https://www.federalreserve.gov/
pubs/bulletin/2010/pdf/2009_HMDA_final.pdf (last accessed
Aug. 6, 2020).

    Allowing states to impose a panoply of requirements on
loans originated by savings associations impedes the
securitization of those loans by (1) creating substantial
uncertainty for buyers in the secondary market about the
applicable law governing the loans they are purchasing and
(2) imposing substantial compliance costs on secondary
buyers. See R. H. Coase, The Problem of Social Cost,
56 J.L. & Econ. 837, 850 (2013) (observing that transaction
costs are frequently sufficient to “prevent many transactions
that would be carried out in a world in which the pricing
system worked without cost”). This, in turn, decreases the
value of the loans being held by federal savings associations,
thereby reducing the amount of lending federal savings
institutions can do. See de la Cuesta, 458 U.S. at 155 n.10.
We hold that this result more than “incidentally effect[s] . . .
the lending operations of” savings associations, which
triggers preemption under section 560.2(c).

    Our conclusion is supported by a natural experiment that
took place in the Second Circuit in the wake of Madden v.
Midland Funding, LLC, 786 F.3d 246 (2d Cir. 2015). See In
re Nat’l Collegiate Athletic Ass’n Athletic Grant-in-Aid Cap
Antitrust Litig., 958 F.3d 1239, 1250 (9th Cir. 2020)
         MCSHANNOCK V. JP MORGAN CHASE BANK                          19

(crediting the results of natural experiments in reaching the
conclusion that an increase in compensation to student
athletes did not diminish consumer demand). In Madden,
the Second Circuit held that the NBA did not preempt
application of New York state’s usury law to loans that were
originally issued by national banks and then sold into the
secondary market. 786 F.3d at 251–52.

    In the wake of Madden, the secondary market
“significantly reduced the price of notes backed by above-
usury loans to borrowers in Connecticut and New York.”
Colleen Honigsberg et al., How Does Legal Enforceability
Affect Consumer Lending? Evidence from A Natural
Experiment, 60 J.L. & Econ. 673, 675 (2017). Lenders also
extended “relatively less credit to borrowers” and
“discount[ed] notes backed by above-usury loans to
borrowers in Connecticut and New York.” Id. at 675, 691.
“Not only did lenders make smaller loans in these states after
Madden, but they also declined to issue loans to the higher-
risk borrowers most likely to borrow above usury rates.” Id.
at 675; see also Piotr Danisewicz & Ilaf Elard, The Real
Effects of Financial Technology: Marketplace Lending and
Personal Bankruptcy 22 (2018), https://tinyurl.com/y5s3s7
oh (noting a 64% decrease in the volume of lending to low-
income households in the wake of Madden). 8

   Even before Madden started to impact the market, many
questioned its reasoning, including the United States. See

    8
      We disagree the study’s findings are inapposite. See Dissent at 40.
While the study found that discount for notes backed by noncurrent loans
were “highly economically meaningful,” discounts for current loans
were also statistically significant. Honigsberg et al., supra, at 675.
Moreover, the study unequivocally found lenders extended “relatively
less credit to borrowers” and “declined to issue loans to higher-risk
borrowers most likely to borrow above usury rates.” Id.
20      MCSHANNOCK V. JP MORGAN CHASE BANK

Brief for the United States as Amicus Curiae at *1, Midland
Funding, LLC v. Madden, 786 F.3d 246 (2d Cir. 2015) (No.
15-610), 2016 WL 2997343. The United States explained
why Madden was “incorrect”:

       Properly understood, a national bank’s
       Section 85 authority to charge interest up to
       the maximum permitted by its home State
       encompasses the power to convey to an
       assignee the right to enforce the interest rate
       term of the agreement. That understanding is
       reinforced by 12 U.S.C. 24(Seventh), which
       identifies the power to sell loans as an
       additional power of national banks. The
       court of appeals appeared to conclude that, so
       long as application of New York usury law to
       petitioners’ collection activities would not
       entirely prevent national banks from selling
       consumer debt, state law is not preempted.
       That analysis reflects a misunderstanding of
       Section 85 and of this Court’s precedents.

Id. at *6 (internal quotation marks omitted).

    Basic economic principles, the natural experiment that
took place in the wake of Madden, and the persuasive
arguments put forth by the United States convince us that
enforcing California’s interest-on-escrow law would reduce
the value of the loans and reduce lending by savings
associations, particularly to high-risk borrowers. Id. This is
more than the “incidental effect” required by section
560.2(c) to trigger HOLA preemption, particularly in light
         MCSHANNOCK V. JP MORGAN CHASE BANK                         21

of our rule that “[a]ny doubt should be resolved in favor of
preemption.” Silvas, 514 F.3d at 1005. 9

                                  D

   Appellees and amici’s arguments and the case law on
which they rely do not compel a different conclusion.

    First, Appellees argue “that [the plain text of] § 560.2(a)
limits the field of preemption to lending activities of federal
savings associations.”       Appellees contend that this
necessarily bars a national bank like Chase from benefiting
from HOLA preemption. But by focusing solely on the term
“federal savings association” at the exclusion of the rest of
section 560.2’s text, Appellees miss the forest for the trees.
See McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819)
(per Marshall, C.J.) (observing that interpretation requires
considering “the whole instrument”).

    As we have discussed, supra Section III(C), applying
California’s interest-on-escrow law would the impose
requirements on the “[p]rocessing, origination, servicing,
sale or purchase of, or investment or participation in,
mortgages,” contra § 560.2(b)(10), while at the same time
having more than an “incidental[] effect [on] . . . the lending

    9
      Appellees argue in a footnote that resolution of this case at the
motion to dismiss phase is inappropriate because Chase relies “on the
speculative effect of non-preemption on FSAs, a factual issue very much
in dispute.” Although we agree with the general principle that
affirmative defenses may not be raised on a motion to dismiss, see
ASARCO, LLC v. Union Pac. R.R. Co., 765 F.3d 999, 1004 (9th Cir.
2014), we have previously decided whether the NBA or the HOLA
preempts a state law at the motion to dismiss phase. See Rose v. Chase
Bank USA, N.A., 513 F.3d 1032, 1038 (9th Cir. 2008); Silvas, 514 F.3d
at 1008 (affirming the district court’s decision to grant a motion to
dismiss on the basis of HOLA preemption).
22      MCSHANNOCK V. JP MORGAN CHASE BANK

operations of” savings associations, contra § 560.2(c). A
simple hypothetical demonstrates why Appellees’ cramped
interpretation of section 560.2 fails. Say California adopted
a two-part statute. The first part allows “federal savings
associations to sell their loans to third-parties.” The second
part provides that “third-parties who purchase said loans
may be punished by up to one year in prison.” Under
Appellees’ interpretation of section 560.2, HOLA would not
preempt the second part of the statute because the statute
does not directly regulate savings associations, even though
it obviously affects the market for savings association loans.
This interpretation of section 560.2 would create a sweeping
opportunity for states to make an end run around HOLA
preemption. We doubt Congress or the administering
agencies intended HOLA’s preemptive force to be so feeble.

    Second, the case on which Appellees primarily rely,
Lusnak, does little to support their position. In Lusnak, we
held that the NBA’s conflict preemption regime did not
preempt California’s interest-on-escrow law. 883 F.3d at
1197. But preemption under the NBA is triggered only
where the state law at issue “prevent[s] or significantly
interfere[s] with the exercise of national bank powers.” Id.
Preemption under HOLA, by contrast, is triggered at a much
lower threshold—whenever a state law is the type of law
contemplated by section 560.2(b) or has more than an
“incidental effect on the lending operations of” savings
associations, § 560.2(c). Lusnak’s holding that preemption
did not apply under the NBA’s standard therefore says little
about whether preemption applies under HOLA’s less
onerous standard.

    Finally, we disagree that applying field preemption
would run afoul of a primary purpose of HOLA: consumer
protection. Although there is ordinarily a presumption
          MCSHANNOCK V. JP MORGAN CHASE BANK                          23

against preemption in the context of consumer protection
statutes like California’s interest-on-escrow law, this case
involves field preemption of a sweeping federal law. See
Lusnak, 883 F.3d at 1196. HOLA field preemption is so
broad that the traditional presumption against preemption
does not apply. See Silvas, 514 F.3d at 1004. We have
described “HOLA and its following agency regulations as a
‘radical and comprehensive response to the inadequacies of
the existing state system,’ and ‘so pervasive as to leave no
room for state regulatory control.’” Id. (quoting Conference
of Fed. Sav. & Loan Ass’ns v. Stein, 604 F.2d 1256, 1257,
1260 (9th Cir. 1979) (emphasis added)). Thus, because of
this “history of significant federal presence . . . the
presumption against preemption of state law is
inapplicable.” Id. at 1005.

                                   E

    Our holding also accords with the view of HOLA
preemption expressed in two agency opinion letters. 10 In
1985, the FHLBB was asked to evaluate whether HOLA
preemption extended to a “New York State law requiring the
payment of interest on escrow accounts.” FHLBB Op.
General Counsel, 1985 FHLBB LEXIS 178, at *1 (Aug. 13,
1985). The FHLBB observed that HOLA preempted “state
laws or regulations which would impose upon federal
associations obligations to pay interest on escrow accounts

    10
       The parties contest the level of deference we owe to these letters.
We need not resolve this dispute because the text and history of HOLA
and OTS’s preemption regulation is sufficient for our holding. See Kisor
v. Wilkie, 139 S. Ct. 2400, 2415 (2019) (“[A] court must carefully
consider the text, structure, history, and purpose of a regulation, in all
the ways it would if it had no agency to fall back on. Doing so will
resolve many seeming ambiguities out of box, without resort to Auer
deference.”).
24        MCSHANNOCK V. JP MORGAN CHASE BANK

other than those provided for in their loan contracts.” Id.
at *4. Taking this analysis one step further, the FHLBB
opined that “such preemption would exist regardless of
whether the loans in question are sold by the federal
association to a third party, are being serviced by a third
party, or whether the escrow deposits are held at a federal
association while the loans have been sold in the secondary
market.” Id. at *5 (emphasis added). 11

    The FHLBB’s 1985 letter was cited by the OTS in a
second opinion letter issued seventeen years later. See
Preemption of N.J. Predatory Lending Act, OTS Op. Letter,
P-2003-5, 2003 WL 24040104, at *4 n.18 (July 22, 2003).
In 2003, the OTS was asked to address whether “purchasers
or assignees of loans a federal savings association originates
would be subject to claims and defenses that would not apply
to the federal savings association itself.” Id. at *1.
Answering this question in the negative, the OTS first opined
that purchasers, pursuant to the NJ Act itself, would not be
liable. Id. at *4. The OTS added that “this result would be
consistent with the general principle that loan terms should
not change simply because an originator entitled to federal
preemption may sell or assign a loan to an investor that is
not entitled to federal preemption.” Id. at *4 n.18. The letter
concluded that, in the event liability was created by the NJ
Act, “it might interfere with the ability of federal savings

     11
        The dissent claims this letter has no bearing as section 560.2 was
not issued until 1996. Dissent at 36–37. But before section 560.2 was
promulgated, courts and the FHLBB recognized HOLA’s preemptive
effects. See Implementation of New Powers, 48 Fed. Reg. 23,032,
23,032–33 (May 23, 1983); id. at 23,058 (to be codified at 12 C.F.R.
§ 545.2) (recognizing “plenary and exclusive authority of the [FHLBB]
to regulate all aspects of the operations of Federal associations . . .
preemptive of any state law purporting to address the subject of the
operations of a Federal association”).
        MCSHANNOCK V. JP MORGAN CHASE BANK                 25

associations to sell mortgages that they originate under a
uniform federal system and, thus, be subject to preemption.”
Id.

    Although we need look no further than the text of
HOLA’s implementing regulation to decide this case, the
views expressed by FHLBB and OTS only further bolster
our conclusion that California’s interest-on-escrow law
would interfere with the lending operations of savings
associations, triggering HOLA preemption.

                           ****

    We hold that HOLA field preemption principles apply to
Appellees’ claims against Chase, a national bank, even
though its conduct giving rise to the complaint occurred after
it acquired the loans in question from WaMu, a federal
savings association. Because California’s interest-on-
escrow law imposes a requirement regarding escrow
accounts; affects the terms of sale, purchase, investment in,
and participation in loans originated by savings associations;
and has more than an incidental effect on the lending
operations of savings associations, we hold that it is
preempted by sections 560.2(b)(6) and (b)(10), and 560.2(c)
of the OTS regulation governing the case before us.

     REVERSED and REMANDED. Each party shall bear
its own costs.
26      MCSHANNOCK V. JP MORGAN CHASE BANK

GWIN, District Judge, dissenting:

    Because the majority opinion reaches a conclusion that
the authorizing statute’s text does not support; because the
majority opinion reaches a conclusion that the regulatory
text does not support; and because California is not
otherwise preempted from requiring banks to pay nominal
interest on escrow account balances, I dissent.

                       Introduction

    From the 1930s, federal savings associations and
national banks were separately regulated. With their
different regulation, federal savings association institutions
received different and greater preemption from state laws.
In contrast, national banks were separately regulated and
national banks, like Chase, had less preemption from state
regulations and laws. Under the Supremacy Clause, states
could regulate national banks more than states could regulate
federal savings association institutions.

    The 2011 Dodd-Frank Act changed this. Now, federal
savings associations and national banks face the same state
law preemption exceptions.

    California law requires banks pay consumers a nominal
interest on bank customers’ escrow account balances.
Before the 2011 Dodd-Frank Act, California did not require
similar escrow interest payments by federal savings
association institutions.

    This case asks us to exempt Chase from paying its
California customers nominal interest on escrow balance
monies that Chase can otherwise use—but asks for this
exemption only on accounts that Chase bought from federal
savings association institutions before January 21, 2013.
           MCSHANNOCK V. JP MORGAN CHASE BANK                   27

Chase already pays this escrow interest on loans that Chase
generated and pays this interest on loans generated by other
national banks.

   After January 21, 2013, revised federal regulations
require both national banks and federal savings association
comply with state escrow interest rate requirements.

   Although Chase pays the escrow interest on loans that
Chase or other banks generated, Chase says it should not be
required to compensate customers whose loans originated
with a federal savings association institution before 2013.

                             Background

    In 1933, and during the Depression, Congress adopted
the Home Owners Loan Act (“HOLA”) to charter and
regulate savings associations at a time when a record number
of home loans were in default and many savings associations
were insolvent. 1 “HOLA empowered the regulatory body,
which became the [Office of Thrift Supervision (“OTS”)], to
authorize the creation of federal savings and loan
associations, to regulate them, and, by its regulations, to
preempt conflicting state law.” 2

    At HOLA’s 1933 adoption, federal savings association
loans were not sold. The 1933 HOLA legislation said

    1
        Codified as 12 U.S.C. § 1461 et seq.

     2
       Campidoglio LLC v. Wells Fargo & Co., 870 F.3d 963, 971 (9th
Cir. 2017).
28             MCSHANNOCK V. JP MORGAN CHASE BANK

nothing about loan sales and said nothing about transferring
any state preemption benefits to loan purchasers. 3

    Within ten years of HOLA’s enactment, the Office of
Thrift Supervision’s predecessor promulgated regulations
that suggested that federal savings association loans could
be sold. These early regulations did not say federal
preemption followed the loans. 4

    In 1938, Congress created the Federal National
Mortgage Association (“Fannie Mae”), establishing a new
secondary private market for mortgage loans. The 1938
Fannie Mae legislation did not change HOLA and only
implicitly authorized Fannie Mae’s loan sales in a secondary
market. 5 Once again, the Fannie Mae legislation did not say
that any HOLA state law preemption followed a loan sale to
a buyer not otherwise entitled to the preemption.

    In 1978, Congress amended HOLA and, for the first
time, explicitly authorized the sales of federal savings
association institution generated loans. The 1978 HOLA
amendments said nothing regarding the transferability of any
federal savings association preemption. Congress said
nothing regarding preemption transferability despite obvious
knowledge and approval for federal savings association loan
sales. 6

     3
      McShannock v. JP Morgan Chase Bank N.A., 354 F. Supp. 3d
1063, 1076 (N.D. Cal. 2018).

     4
         Id.

     5
         Id.

     6
         Id.
          MCSHANNOCK V. JP MORGAN CHASE BANK                        29

    On September 30, 1996, the Office of Thrift Supervision
adopted regulations for federal savings associations,
12 C.F.R. § 560.2. 7 Under its own terms, 12 C.F.R. § 560.2
regulated federal savings associations. It did not regulate
national banks.

    Chase is a national bank; Chase is not a federal savings
association. As a national bank, HOLA does not directly
regulate or protect Chase. Nonetheless, Chase argues that
HOLA preemption applies because Appellees’ loans
originated with Washington Mutual, a federal savings
association, before Congress passed Dodd-Frank.

    While this Court has earlier found broad HOLA
preemption, it has not decided whether a non-federal-
savings-association entity that acquires a loan from a federal
savings association receives HOLA protections for its own
post-acquisition conduct.

                             Discussion

    This case should be simple. California requires banks
pay interest on escrow account balances. This Court’s
Lusnak decision found that national banks must pay
California’s escrow interest on loans that national banks
themselves generated. 8 Chase is a national bank with
California escrow accounts. It seems obvious—Chase, a
national bank and not a federal savings association, should
comply with California’s escrow interest law.

   7
       12 C.F.R. § 560.2 (2017).

   8
       Lusnak v. Bank of America, N.A., 883 F.3d 1185 (9th Cir. 2018).
30      MCSHANNOCK V. JP MORGAN CHASE BANK

    The majority, however, finds that HOLA exempts
national banks from paying escrow interest on loans that
national banks purchased from a federal savings association
before 2013.

    First, the majority’s opinion gives this one-off
exemption from state interest law where the underlying
statutory text gives no suggestion that Congress intended to
exempt national bank purchased loans, even when those
loans were purchased from federal thrift associations.

   Second, the majority opinion interprets the critical
regulation beyond what the regulation’s text supports.

    Finally, the majority opinion justifies its disregard of the
underlying statute text and regulation text by positing that
differing state escrow interest rules will make federal
savings association loan sales more difficult because of
regulatory costs.

    The majority reaches this result even though Congress
reached the directly opposite policy judgment in the 2011
Dodd-Frank Act.

    The majority opinion also supports its theory by relying
on an unrelated law review study that speaks to a completely
different issue and says that the described regulatory change
had no impact except for secondary sales of usurious loans
that were already in default. Hardly a surprise.

    We are not legislators charged with weighing the cost
and benefit of the escrow interest requirement. And with
Dodd-Frank, Congress has made its policy judgment by
allowing states to require escrow interest. Even if Dodd-
Frank does not control this case, it suggests that Congress
            MCSHANNOCK V. JP MORGAN CHASE BANK                    31

does not believe HOLA preemption should stop state escrow
interest requirements.

                                       I

                                       A.

     Under the Supremacy Clause, federal law preempts
conflicting state law but only when Congress intends to
preempt state law. 9 In judging whether Congress intended
to preempt state law, including state banking controls, we
first look first at the authorizing statute. As Justice Gorsuch
describes: “Invoking some brooding federal interest or
appealing to a judicial policy preference should never be
enough to win preemption of a state law; a litigant must point
specifically to ‘a constitutional text or a federal statute’ that
does the displacing or conflicts with state law.” 10

   The underlying HOLA statute gives only limited
regulatory authority. Before 2010, HOLA gave the Office
of Thrift Supervision the power to adopt regulations to
“provide for the examination, safe and sound operation, and
regulation of Federal savings associations.” 11 Consistent
with this, HOLA gave the Office of Thrift Supervision

    9
        U.S. Const., art. VI, cl. 2.

    10
       Virginia Uranium, Inc. v. Warren, 139 S. Ct. 1894, 1901 (2019)
(quoting Puerto Rico Dept. of Consumer Affairs v. ISLA Petroleum
Corp., 485 U.S. 495, 503 (1988)).

    11
         12 U.S.C. § 1463(a)(1) (2010).
32          MCSHANNOCK V. JP MORGAN CHASE BANK

authority to adopt regulations “for the . . . operation[] and
regulation of . . . [f]ederal savings associations.” 12

    The controlling statute gives no suggestion that it
authorizes bank regulation. Chase’s argument fails because
there is no statutory support to allow the Office of Thrift
Supervision to regulate banks or to preempt state escrow
account interest regulations.

                                    B.

    The majority recognizes that HOLA includes no
statutory language extending preemption to banks but
suggests we should find such intent from the 1978 HOLA
legislation. 13 The 1978 HOLA legislation allowed the sale
of federal savings association generated loans. The 1978
HOLA says nothing regarding the transferability of federal
savings association state preemption.

    The majority says that Congress’ decision to expand
HOLA to permit savings associations to sell into secondary
markets indicates that HOLA preemption should travel with
a loan after it is sold. 14

    First, Congress’ allowing mortgages to be sold is
different from Congress’ extending the reach of HOLA

     12
          12 U.S.C. § 1464(a).

     13
        Maj. Op. 12 (“Although there is nothing in the text or the
legislative history of HOLA that references the transfer of loans from a
federal savings association in a secondary market, the district court erred
by discounting the subsequent amendments to HOLA and the [Office of
Thrift Supervision]’s regulations.”).

     14
          Maj. Op. 12.
         MCSHANNOCK V. JP MORGAN CHASE BANK                          33

preemption. Congress’ knowledge of and approval for the
sale of federal savings association loans says nothing
regarding whether Congress intended federal preemption to
follow the loan. Congress already regulated national banks
and already decided to give national banks less protection
from state laws. That the 1978 HOLA legislation allowed
the sale of savings association loans says little regarding
Congress’ intent to allow national banks to escape state
regulation.

    Second, what is good for the goose is good for the
gander. If the Court considers the 1978 HOLA legislation
(which contained no specific reference to extending
preemption to banks), then the Dodd-Frank Act and its
attending regulations (explicitly authorizing state escrow
interest requirements) should be considered.

    California’s interest-on-escrow law does not affect the
operation of a federal savings association in this instance.
To excuse Chase from California’s interest-on-escrow law
via 12 C.F.R. § 560.2 would exceed the statutory authority
granted to the Office of Thrift Supervision to regulate federal
savings associations. 15

                                   II

                                   A.

   Even if the Office of Thrift Supervision had authority to
regulate banks’ escrow interest obligations, the relied-upon
regulation, 12 C.F.R. § 560.2, cannot be fairly read to

    15
       Louisiana Pub. Serv. Comm’n v. FCC, 476 U.S. 355, 374 (1986)
(“[A] federal agency may pre-empt state law only when and if it is acting
within the scope of its congressionally delegated authority.”).
34       MCSHANNOCK V. JP MORGAN CHASE BANK

preempt state escrow interest laws when applied to national
banks.

   Section § 560.2(a) described HOLA’s regulatory intent.
Regarding preemption, the regulation says:

        [The Office of Thrift Supervision] is
        authorized to promulgate regulations that
        preempt state laws affecting the operations of
        federal savings associations when deemed
        appropriate to facilitate the safe and sound
        operation of federal savings associations, to
        enable federal savings associations to
        conduct their operations in accordance with
        the best practices of thrift institutions in the
        United States, or to further other purposes of
        the HOLA.

    When the 12 C.F.R. § 560.2(a) language is given its
natural interpretation, it only preempts a state law when the
state law affects federal savings association operations.
And, “operation” is understood as “the fact of operating or
being active,” “a method or manner of functioning,” and
defined as “the action of operating a . . . business.” 16

    Chase is a national bank, not a federal thrift association.
With Washington Mutual long gone, 12 C.F.R § 560.2 does
not affect the operation of a federal thrift association.

    Further, the 12 C.F.R § 560.2 regulation’s field-
preemptive language limited itself to federal savings
associations: “To enhance safety and soundness and to

    16
       Operation, Cambridge Dictionary, https://dictionary.cambridge.
org/us/dictionary/english/operation (last visited Aug. 28, 2020).
              MCSHANNOCK V. JP MORGAN CHASE BANK                  35

enable federal savings associations to conduct their
operations in accordance with best practices . . . [the Office
of Thrift Supervision] hereby occupies the entire field of
lending regulation for federal savings associations.” 17

      The negative inference, expressio unius est exclusion
alterius (the inclusion of one is the exclusion of others),
applies. Under 12 C.F.R. § 560.2, the Office of Thrift
Supervision received express authority to regulate savings
and loan associations but not banks. “As we have held
repeatedly, the canon expressio unius est exclusio alterius
. . . has force only when the items expressed are members of
an ‘associated group or series,’ justifying the inference that
items not mentioned were excluded by deliberate choice, not
inadvertence.” 18

    The regulation’s preemption language limited
preemption to lending regulation and to federal savings
associations. As described in the regulation: “[The Office
of Thrift Supervision] intends to give federal savings
associations maximum flexibility to exercise their lending
powers in accordance with a uniform federal scheme of
regulation.” 19    The regulation went on to cabin its
application: “Accordingly, federal savings associations
may extend credit as authorized under federal law, including
this part, without regard to state laws purporting to regulate
or otherwise affect their credit activities.” 20

   17
        12 C.F.R. § 560.2(a).

   18
        Barnhart v. Peabody Coal Co., 537 U.S. 149, 168 (2003).

   19
        12 C.F.R. § 560.2(a).

   20
        Id.
36          MCSHANNOCK V. JP MORGAN CHASE BANK

    The 1996 adoption of 12 C.F.R. § 560.2 must have been
made with knowledge that federal savings and loan
associated loans had been sold to national banks. The Office
of Thrift Supervision’s failure to seek preemption
protections for federal savings association loans sold to
national banks implies an intent not to preempt California’s
escrow interest state law.

    By the language used, 12 C.F.R. § 560.2 applied to
federal savings associations. By the language used,
12 C.F.R. § 560.2 limited its preemption to state laws
regulating federal savings association credit activities. By
the language used, 12 C.F.R. § 560.2 did not apply to banks.

                             B.

    The majority principally relies on two historical facts in
the evolution of HOLA regulation to show that 12 C.F.R.
§ 560.2 preemption was intended to flow through to a third
party that purchased a loan from a federal savings
association:

    First, the majority cites a 1985 opinion letter from the
predecessor agency to the Office of Thrift Supervision.21
Only a single line in the letter could be read to address the
sale of loans to a third party: “Such preemption would exist
regardless of whether the loans in question are sold by the
federal association to a third party….” 22 This 1985 opinion
letter predates the 1996 12 C.F.R. § 560.2’s implementation

     21
          Maj. Op. 23.

    22
       Id. (citing FHLBB Op. General Counsel, 1985 FHLBB LEXIS
178, at *5 (Aug. 13, 1985)).
           MCSHANNOCK V. JP MORGAN CHASE BANK                        37

and is not an interpretation of, or based upon, the
regulation. 23

    Second, a 2003 opinion letter from the Office of Thrift
Supervision states that loan terms should not change “simply
because an originator entitled to federal preemption may sell
or assign a loan to an investor that is not entitled to federal
preemption.” 24 Although a similar issue, this case does not
involve loan terms.

    These historical notes do not warrant the majority’s
deference and do not indicate Congress’ intent to allow
preemptive effect to travel with loans sold by federal savings
associations to third parties. 25

    As the majority recognizes, the Supreme Court’s
decision in Kisor v. Wilkie, cautions against deference to an
agency’s interpretation when a regulation is not genuinely
ambiguous. Here, 12 C.F.R. § 560.2 regulated federal
savings associations, not national banks. Even if 12 C.F.R.
§ 560.2 was ambiguous, the two historical notes on which
the majority relies do not merit deference because they are
not interpretations that “reflect an agency’s authoritative,
expertise-based, fair[, or] considered judgment.” 26

    23
         See 12 C.F.R. § 560.2.

    24
       Maj. Op. 24 (citing Preemption of N.J. Predatory Lending Act,
Office of Thrift Supervision Op. Letter, P-2003-5, 2003 WL 24040104,
at *4 n.18 (July 22, 2003)).

    25
         Maj. Op. 12.

    26
       Kisor v. Wilkie, 139 S. Ct. 2400, 2414 (2019) (internal quotations
omitted). See also Maj. Op. 12 n.7.
38           MCSHANNOCK V. JP MORGAN CHASE BANK

    The majority does not show that 12 C.F.R. § 560.2
preemption was meant to flow through to a third party that
purchased a loan from a federal savings association. Once
Chase held the loans, the loans were no longer a part of “the
operation of federal savings associations,” and the regulation
does not govern Chase’s conduct. 27

                                         III

    Finally, the majority’s concern about potential “effects”
is misguided.

    Section 560.2(c) provides that state laws that have “only
an incidental effect on lending operations” are not
preempted. 28 The majority argues that a finding against
preemption would allow “states to impose a panoply of
requirements on loans originated by savings associations
[that would] impede[] the securitization of these loans” by
creating uncertainty and leading to compliance costs. 29 The
majority believes that non-preemption would create more
than an “incidental effect” because Chase would have to
adhere to California’s interest-on-escrow law.

   In this case, we consider the California escrow-interest
provision. We do not bear responsibility for protecting
Chase from some panoply of not-yet-enacted state banking
regulation.

   Also, this decision will have no going-forward effect.
Regardless of how this case is decided, for contracts entered

     27
          12 C.F.R. § 560.2(a).

     28
          12 C.F.R. § 560.2(c)(6)(ii).

     29
          Maj. Op. 18.
           MCSHANNOCK V. JP MORGAN CHASE BANK                         39

after January 21, 2013, federal-thrift-generated loans receive
the same preemption treatment as national-bank-generated
loans. Since January 21, 2013, both federal savings
associations and banks must now “pay interest to the
consumer on the amount held in any impound, trust, or
escrow account . . . in the manner as prescribed by that
applicable State or Federal law.” 30

    Additionally, it is not clear that permitting Chase to
evade California’s law for loans purchased from federal
savings association institutions before January 21, 2013,
would make the secondary market for loans less attractive
overall. Chase already complies with California’s escrow
interest laws on loans that Chase or other national banks
underwrote.

    The majority also cites a study based on a “natural
experiment” following the Second Circuit’s decision in
Madden v. Midland Funding, LLC to support its argument
that ruling against preemption will cause more than an
“incidental effect.” 31

   In Madden, the Second Circuit held that the National
Banking Act did not preempt New York’s and Connecticut’s
usury law’s application to debts originally issued by national
banks and then sold in the secondary market. 32

   30
        15 USC § 1639d(g)(3). Section 1639d—requiring savings
association compliance with state escrow interest laws—became
effective on January 21, 2013. Lusnak, 883 F.3d at 1197.
   31
        786 F.3d 246 (2d Cir. 2015), cert. denied, 136 S. Ct. 2505 (2016).

   32
        Id. at 249–51. See also Maj. Op. 18–19.
40              MCSHANNOCK V. JP MORGAN CHASE BANK

    The article measures the Second Circuit’s opinion’s
impact on the secondary sales of usurious loans in three
states. 33 The Madden decision allowed all New York and
Connecticut usurious loan customers to walk away from
their usurious loans without any liability.

     Against this backdrop, where secondary purchasers
could lose all right to recover, the article surprisingly finds
little impact: “[T]he discount is highly economically
meaningful for notes backed by noncurrent loans but close
to 0 for current loans. These findings indicate that debt
holders . . . were not especially concerned unless borrowers
were already late on their payments.” 34

    Madden is wildly different from this case. After
Madden, the law review article finds no secondary loan sales
impact for current loans and only limited secondary loan
sales impact for non-current loans that are not enforceable. 35

    Madden also disrupted a long-held belief that national
banks were exempt, under federal banking law, from state
limits on interest rates. Uncertainty and risk to lenders
stemmed from the unknown disposition of the Madden case;
for example, there was a chance that the Supreme Court
would take up the case, which it did not. 36 In this case, a

     33
      Colleen Honigsberg et al., How Does Legal Enforceability Affect
Consumer Lending? Evidence from a Natural Experiment, 60 J.L. &
Econ. 673, 674–75 (2017).

     34
          Id. at 675.

     35
          Id.

    36
       Again, the study the majority cites only reviewed data from the
year following the Madden decision. Id. at 673–74.
          MCSHANNOCK V. JP MORGAN CHASE BANK                       41

ruling against preemption would treat these loans as they
would have been treated if they had been originated post-
Dodd-Frank and there is no evidence that post-Dodd-Frank-
originated loans have disrupted the secondary market.

                            Conclusion

    This case is fundamentally about statutory interpretation.
Justice Gorsuch appropriately describes how the actual text
of statutes and regulations should control:

          Rather than beginning with legislative history
          or making economic hypotheses about social
          consequences, a textualist starts with
          dictionary definitions, rules of grammar, and
          the historical context in which a law was
          adopted to see what its language meant to
          those who adopted the law. In this way,
          textualism offers a known and knowable
          methodology for judges to determine
          impartially and fix what the law is, not simply
          declare what it ought to be—a method to
          discern the written law’s content without
          extraneous value judgments about person or
          policies. 37

Instead of heeding this advice, the majority ignores the text
of the relevant statutes and regulations and instead
hypothesizes about the economic impact of a finding against
preemption.

   For the foregoing reasons, I believe that the majority
should not stretch the HOLA’s application and its

   37
        Neil M. Gorsuch, A Republic, If You Can Keep It 131–32 (2019).
42      MCSHANNOCK V. JP MORGAN CHASE BANK

accompanying regulations to excuse Chase from
California’s interest-on-escrow law. I respectfully dissent.