Supremes Hear Preemption Case Important to Senior and Consumer Advocates
Keywords
On Wednesday,
November 29, the Supreme Court heard argument in a significant case testing the
scope of federal agencies’ authority to preempt state law. Typical of many such
cases, this matter, Linda A. Watters,
Commissioner, Michigan Office of Insurance and Financial
Services, v. Wachovia Bank, N.A., et al., No. 10-1342, pits
business-friendly federal regulators and their industry allies against state
regulators and consumer advocates. As subscribers to this listserv know, it is
from a line of similar cases, in which the Court has tended to take a broad view
of federal authority, that civil rights and safety net beneficiary plaintiffs
have recently derived arguments for advancing supremacy clause-based preemption
as an alternative to 42 U.S.C. §1983 to ground jurisdiction to challenge state
governmental action.
It is hazardous to base forecasts on justices’ remarks during oral argument. But in Wednesday’s session Chief Justice Roberts and Justice Scalia in particular signaled that, in this case, they may prove as skeptical of business claims to broaden federal power as they often are of liberal advocates’ similar contentions in “federalism” cases in which conservative constituencies favor states’ rights.
The bottom-line
issue of law and public policy at stake in Wachovia is whether the National Banking
Act empowers the Office of the Comptroller of the Currency, which licenses and
regulates national banks, to immunize the subsidiaries of such banks against
state banking regulation. Consumer advocates especially fear the nullification
of state predatory lending and similar consumer protection safeguards – which
generally have little or inadequate counterparts in federal law. In 2004 the OCC
issued regulations purporting to have precisely that effect. After
Michigan’s financial services
regulatory agency challenged the regulations, both the District Court and the
Sixth Circuit upheld the OCC’s preemptive authority. 431 F.3d 556
(6th Cir. 2005)
The Sixth Circuit’s decision matched results in other circuits (the Second and Ninth) to which the same question had been presented. Hence, the Supreme Court surprised some observers when it granted Michigan’s petition for certiorari, and may have by that act alone foreshadowed sympathy for the states’ cause. In any event, both sides saw the case as potentially a watershed. Leading banking associations and conservative think tanks joined Wachovia’s side as amici, represented by three former Solicitors General and leading banking law experts. All 49 states signed an amicus brief on Michigan’s side, led by New York State Attorney General and Governor-elect Eliot Spitzer; the Center for Responsible Lending filed an amicus brief supporting Michigan joined by major consumer groups, including AARP, the Consumer Federation of America, the National Consumer Law Center, PIRG, and other public interest groups as well as 17 law professors.
The Court’s grant of certiorari specified two questions – whether Chevron deference was owed to OCC’s determination that the National Banking Act authorized preemption of state regulation of National Bank corporate subsidiaries, and whether the Act, if it could be so construed, violated states’ rights prescribed by the 10th Amendment. During the oral argument virtually no attention was paid to either question. Implicitly, the Court appeared to take seriously neither the OCC-Wachovia assertion that Chevron effectively shielded the OCC’s action from judicial scrutiny, nor Michigan’s assertion that the 10th Amendment shielded its bank regulatory laws from Congressionally authorized preemption – if Congress in fact authorized preemption. Instead, the justices seemed to focus on whether OCC had been justified in concluding that it possessed such broad preemptive authority.
Chief Justice
Roberts several times appeared to embrace a catchy argument militating against
OCC’s decision to equate separate national bank subsidiaries with their parent
banks, hence barring state regulation of the former as well as the latter. He
asked the lawyers arguing for Michigan, Wachovia, and the United States
(supporting Wachovia, of course) wasn’t it the case that, by deliberately
choosing to conduct mortgage banking activities through a separate subsidiary
rather than as a division of the bank, Wachovia was attempting to “have its cake
and eat it too?” Roberts suggested that Wachovia was exempting itself from
exposure to state law-based liability, and then, by virtue of the OCC’s sweeping
preemption regulation, immunizing its corporate affiliate from the state
regulatory burdens to which the affiliate’s state-chartered competitors were
subject.
Justice Scalia
sounded a “runaway bureaucracy” theme which listserv subscribers will recognize
from instances such as Alexander v.
Sandoval, 532 U.S. 275 (2001) in particular. In Sandoval, Scalia opined, for a 5-4
majority, that federal agency regulations banning “disparate impact”
(non-intentional) discrimination, purporting to implement a statute the terms of
which prohibited only intentional (“disparate treatment”) discrimination, did
not confer rights that individual victims could enforce in court. In his
questions in the Wachovia
argument, Justice Scalia similarly made much of the fact that the National
Banking Act distinguished between national banks and their “affiliates,” but
that the OCC regulation appeared to obliterate this distinction with no apparent
warrant in the statutory text. If the Court’s decision in Wachovia reflects Justice Scalia’s
skepticism about federal agencies’ power to supersede state authority in the
absence of clear statutory direction, that result could reinforce appellate
decisions – recently discussed on this listserv – strictly limiting plaintiffs’
ability to ground §1983 suits in federal regulatory provisions.
Justices Breyer and Stevens focused on whether the OCC was effectively claiming a species of “field preemption” authority (the authority to “occupy the field” and bar any state regulation in an area) as distinguished from narrower “conflict preemption” authority (the prohibition of only those state measures that actually conflict with the terms or goals of pertinent federal law). The two justices pressed the lawyers for Wachovia and the United States to specify the actual conflict between Michigan’s regulatory regime and relevant federal law. Chief Justice Roberts seemed to drive home this characterization of the issue in suggesting to Michigan’s Attorney General that the best way to answer a question posed by Justice Breyer would have been to say:
“[T]hey [the federal agency] get to regulate to the extent they want to, and the state does, and if there’s conflict, the federal regulation will prevail, but what’s the problem here is that they’re issuing a categorical regulation saying the state can’t regulate at all.”
If the Court’s decision turns on whether such an actual conflict has been demonstrated, or what the appropriate standards are for making such a demonstration, that would probably tend to reduce the downside potential of Wachovia for listserv subscribers. This is because, in cases where civil rights and safety net beneficiary plaintiffs invoke preemption as an alternative to §1983, an alleged direct violation of pertinent federal law would necessarily be involved – hence, the alleged conflict would be clear in all cases. Neither Justice Scalia, who seemed most attracted to the position of requiring clear Congressional direction for agency displacement of state authority, nor any other justice or party, expressed doubt that a federal regulation would preempt state measures that in fact conflict with its requirements or objectives.
More generally, while oral argument exchanges are no more than straws in the wind, if the final decision reflects the sentiments emphasized on Wednesday, Wachovia could bring closer together the two, heretofore disparate, contemporary streams of Supreme Court “federalism” jurisprudence.