CUOMO v. CLEARING HOUSE ASSOCIATION
In 2005, the New York State Attorney General began investigating possible racial discrimination in the real estate lending practices of several national banks. The Attorney General requested that the implicated banks turn over certain non-public information to aid the investigation. The Clearing House Association (CHA), a consortium of national banks including several involved in the investigation, filed a lawsuit in a New York federal district court to prevent the Attorney General from continuing his investigation. The CHA argued that the Office of the Comptroller of the Currency (OCC), the federal agency charged with overseeing national banks, was appropriately responsible for regulating the banks' compliance with activities that fall under the National Bank Act (NBA) and therefore precluded state officials like the Attorney General from doing so. In response, the Attorney General argued that the Federal Housing Act (FHA) provided an exception to the OCC's sole stewardship of the NBA and therefore authorized his investigation. The district court granted the CHA's request for an injunction and stopped the Attorney General's investigation.
On appeal, the U.S. Court of Appeals for the Second Circuit sustained the injunction against the Attorney General's investigation, but used the decision in a separate case, filed by the OCC and utilizing different arguments, to do so. Here, the court of appeals held that the district court lacked jurisdiction to decide the FHA claim. It reasoned that since the Attorney General had not yet filed any lawsuits against the banks under investigation, the issue of whether the FHA provided an exception to the enforcement of the NBA was not ripe for adjudication.
Are state officials precluded from regulating and enforcing banking activities governed by the National Bank Act and the Office of the Comptroller of the Currency's regulations?
Legal provision: National Bank Act
No. The Supreme Court held that the OCC's interpretation of the NBA that precluded state officials from regulating and enforcing banking activities was not reasonable. With Justice Antonin G. Scalia writing for the majority and joined by Justices John Paul Stevens, David H. Souter, Ruth Bader Ginsburg, and Stephen G. Breyer, the Court distinguished between a state's "visitorial powers" – its supervisory powers – and its enforcement powers. The Court stated that the NBA only prevented a state from exercising its visitorial powers over banks. Therefore, the Court reasoned that a state was not precluded from exercising its ordinary powers to enforce state laws.
Justice Clarence Thomas concurred in part and dissented in part. He was joined by Chief Justice John G. Roberts, and Justices Anthony M. Kennedy and Samuel A. Alito. Justice Thomas argued that because the definition of "visitorial powers" was ambiguous, the courts should have deferred to the OCC's interpretation of the term in the NBA.
ORAL ARGUMENT OF BARBARA D. UNDERWOOD ON BEHALF OF THE RESPONDENT
Chief Justice Roberts: We will hear argument next in Case 08-453, Cuomo v. The Clearing House Association.
Ms Underwood: Thank you, Mr. Chief Justice, and may it please the Court: Under the OCC regulation at issue here, State antidiscrimination and consumer protection laws can be enforced against national banks by the Federal OCC and by private parties, but not by State attorneys general.
This unusual enforcement pre-emption, which detaches the State's power to make laws from its power to enforce them, was not written into the National Bank Act by Congress in 1864, and it's implausible that Congress implicitly delegated to OCC the power to read it in now.
We know the NBA did not in 1864 enact enforcement pre-emption against the States for three reasons: First, the words of the statute; second, a long line of cases from this Court, especially St. Louis, upholding the power of the State to enforce laws against a national bank or rejecting it on the ground that the law was substantively pre-empted, but not questioning the power of the State to enforce a valid law; and, finally, the wholly anomalous character, foreign really to our structure of government, of separating the power to make law from the power to enforce it.
Justice Ginsburg: But to some extent, would you concede that interpretation; that is, not only the attorney general under New York's law, but the superintendent of banks as well, has authority over mortgage lending?
Would -- would you agree that the part about the bank superintendent's enforcement could not be enforced against national banks?
Ms Underwood: Well, first of all, the bank superintendent in New York doesn't have authority over national banks.
It has authority only over State banks, as we pointed out in our reply brief.
So we don't assert that authority.
I would say that the -- and the injunction doesn't run -- that's at issue in this case, doesn't run against the superintendent.
It runs against the attorney general.
But I would say--
Justice Ginsburg: But there is -- the provision that you are talking about, 296(a), concerns the authority of the bank superintendent as well as the authority of the attorney general; isn't that so?
Ms Underwood: --I believe that the banking superintendent does not assert authority to enforce in a regulatory fashion against national banks.
If they did, if -- if -- if the bank superintendent asserted a chartering or licensing supervisory regime, that would be a different issue from the question--
Justice Ginsburg: Just with respect to the same issue on mortgage lending where there's a concern about racial discrimination?
Ms Underwood: --Well, the -- the bank -- the banking superintendent of New York does not enforce against national banks.
Justice Ginsburg: Anything?
And you agree to that?
Ms Underwood: Yes, that is right.
Justice Ginsburg: Even if the New York statute--
Ms Underwood: Read differently or interpreted or applied differently.
What's at issue here is a distinction between a supervisory regime -- "visitation" is a regime characterized by routine examinations, no cause needed, by a chartering or a licensing authority for the purpose of enforcing limitations on--
Justice Breyer: How is it supposed to work?
This is what is bothering me at the heart of this case.
I imagine that banks, particularly right in these last few months, are in situations where there are three categories of -- of borrowers.
One might be a category of people whom you are reasonably confident in, and the second is a category of people who are borderline or less so, and there are also minorities.
Now, where you make the decision as a bank to deny them the loan, it sometimes is difficult to say whether that decision was made for a discriminatory reason, namely race, or for a legitimate reason, namely because this was a person unlikely to pay the money back.
Now, how is a bank to function if 50 different attorneys general plus the Federal agencies all look at the books of the bank to look at the individual loan and to make that kind of determination about which quite honestly reasonable people will often differ?
And how -- how is that really a problem, or am I just creating that?
And if it's really a problem, how in your opinion does the Federal law deal with that problem, if not in the way that your opponent suggests?
Ms Underwood: --Well, an -- there is a single standard of discrimination.
It is the case that the -- that the Federal standards applied by the OCC and the State law all look to Title VII law about a prima facie case being--
Justice Breyer: If I may say so, that response overlooks the question.
I don't doubt the single standard.
What I do doubt is in the -- in the category of uncertain cases, that 51 different individuals, 50 State attorneys general plus one Federal individual, will reach the same result.
Ms Underwood: --Well--
Justice Breyer: These are hard and, therefore, they will reach a lot of different results under the same standard.
Ms Underwood: --There has been no such multiplicity of -- of enforcement.
In fact, there is so much antidiscrimination work to go around that having multiple enforcers is a device for--
Justice Breyer: Okay.
So you deny the hypothetical.
You are saying that my analysis of the problem is wrong; there simply is no such problem, and since there is no such problem, it doesn't matter if everyone enforces it.
Ms Underwood: --It is already the case that under the Fair Housing Act, HUD is required to refer--
Justice Breyer: Is your answer yes or no to what I just said, that you deny that the statement of the problem is realistic and therefore there is no problem in your view about having 51 different people enforce the same standard.
Ms Underwood: --There is no record of any such problem.
And should such a -- yes.
Justice Breyer: And should such a problem arise, what?
Ms Underwood: Should such a problem arise, that would be an occasion for considering a kind of burden pre-emption that would be similar -- on evidence of such a problem, that might be a basis for OCC to make a record and enact a regulation to deal with that--
Justice Kennedy: But if OCC thought there might be such a problem, couldn't it act in advance to avoid the risk that Justice Breyer's question explains?
Ms Underwood: --Well, its regulation doesn't say that.
The injunction that was issued in this case doesn't say that.
What the regulation, the rulemaking, and the injunction all rest on is a legal analysis, not an empirical one.
Justice Ginsburg: --May we clarify one thing about the 50 jurisdictions?
The attorney general from New York is not asserting authority over bank lending in Hawaii.
So for each institution, I assume it's going to be two sovereigns, the OCC and the State attorney general, not 50 descending on the single -- single bank with respect to particular loans?
Ms Underwood: That's correct.
And the OCC--
Chief Justice Roberts: Well, that's correct with respect to a particular loan.
It's not respect -- with respect to Federal policy about national banks around the country.
It's conceivable and I suppose likely that the Federal regulator would want the same rule to apply to banks in Michigan as to banks in Hawaii.
Ms Underwood: --It is.
But if the question was would the -- would the actual act of responding to a complaint or to discovery burden particular people because there would be 50 people asking for the same information, that's not the case, because the loans made in New York would be analyzed by a New York enforcer.
Justice Breyer: I want to--
Justice Scalia: Excuse me.
The same rule would not apply in Michigan and Hawaii, anyway, even under the Federal Government.
The Federal Government acknowledges that Michigan can have its own law--
Ms Underwood: The Federal Government--
Justice Scalia: --and Hawaii can have a different law.
All the Federal Government is arguing is: We want to be the ones to enforce the separate Michigan law and the separate Hawaii law, right?
Ms Underwood: --That appears to be the case.
In fact, they have acknowledged that the State law actually applies.
OCC said so in its complaint.
Congress has several times said so, which is presumably why the OCC says so -- said so in the Fair Housing Act savings clause, in the -- in the Equal Credit Opportunity Act savings clause, and in Riegle-Neal, which specifically applies only to national bank branches, but expressly preserves the application of State fair lending and consumer protection laws.
Justice Breyer: --You are just at the point of getting to what I -- the blank in my mind.
And the blank in my mind is when you said, but if there were such a problem, as I had described, but if there were, then they could -- and now that's the blank.
Then they could what?
Ms Underwood: Well, there are many things that they might do.
Justice Breyer: For example, just give me two, a couple.
Ms Underwood: For example, make some provision for -- in fact, I believe there are some regulations that call for conferencing and collaboration and consultation among the State enforcers and between the State and Federal regulators to avoid duplicative regulation.
There is already the potential with respect to State banks that are supervised both by State regulators and by the FDIC.
There are alternate audits in alternate years.
I mean, there -- there is plenty of precedent in bank regulation for mechanisms for consultation and collaboration so that people don't step on each other's toes.
And in Federal criminal enforcement, for example, there are -- there are many -- many occasions where there is both Federal and State authority to enforce.
And the result of that tends to be to get more extensive, fuller enforcement.
People don't tend to both bring the same case.
If somebody is enforcing something, somebody -- a different enforcer will attack a different problem.
Justice Souter: But the -- in the -- in the general -- in the field of criminal enforcement generally there isn't any provision comparable to what is now 36(f)(1)(B), at least to my knowledge, and it's set out on pages 46 and 47, the text is in the government's brief:
"The provisions of any State law to which a branch of a national bank is subject under this paragraph shall be enforced with respect to such branch by the OCC. "
And that mandate, it
"shall be enforced with respect to such branch. "
sounds pretty exclusive to me.
Ms Underwood: Well--
Justice Souter: You can't tell for sure.
But why would -- why would Congress, number one, if it -- if Congress simply assumed that there would be a -- a dual system of enforcement, that OCC could -- could say to the bank, you follow State law, and if you don't, we are going to go after you administratively, and leaving it to the State to go after, in any other fashion, what State law provided.
If that was Congress's assumption, why would it have -- have passed this seeming mandate,
"shall be enforced with respect to such branch. "
by the -- by the OCC?
Ms Underwood: --There are two reasons for that provision.
The purpose of that provision was to confirm that OCC didn't lose its pre-existing enforcement power when Riegle-Neal stated -- that's (1)(B) -- in (1)(A) that national branches would be treated more or less like State branches for purposes of consumer protection and fair lending.
Justice Souter: But that -- that's, in effect, saving clause kind of function could have been performed simply by a statute that says OCC may.
And this says it shall be enforced by OCC.
Ms Underwood: There is another reason in the legislative history, which makes it clear that it was a directive to OCC to mount an enforcement program which Congress thought it had not been doing.
We know that because in the conference report and other legislative history Congress says it's trying to expand, not contract, the enforcement of fair lending and consumer protection laws, and that the law isn't taking any authority away from the States and that they are distressed at the inadequate failure of OCC to exercise its enforcement authority.
Justice Scalia: You don't deny, do you, that the Federal Government can, if it wishes, enforce the State laws?
Ms Underwood: Absolutely.
Justice Scalia: So this provision isn't really contrary to what you are saying.
You are just saying the State can do it as well?
Ms Underwood: That's correct.
It isn't talking -- it doesn't say anything about exclusive authority, and it isn't talking about judicial enforcement, which OCC doesn't do.
It is talking about it's -- it has a savings clause kind of function and it -- it's hortatory, it's directing OCC to exercise the authority that it has.
It seems to be common ground that it didn't give OCC any new power, because it would be odd to give OCC different power over the branches -- this only applies to the branches -- different power to the branches than over the branches than over the banks, different, more extensive power over consumer protection and fair lending than other kinds of bank enforcement.
This was a provision dealing with branches and consumer protection and fair lending that said to OCC: You still have that authority and you should exercise it.
Justice Ginsburg: But we come to the New York Attorney General.
I see your argument that there's a certain incongruity between saying private attorneys general okay, but no public attorney general.
But on the other hand, the attorney general starts out by asking for bank books and records.
And high on the list of visitorial powers is the authority to demand the bank's books and records.
So why isn't that -- his preliminary investigation at least, why doesn't that fit within the visitorial power bundle?
Ms Underwood: Well, because you can look at books and records under various authorities.
Books and -- you can look at books and records under your visitorial authority, if you are the supervisor and have the relationship to the bank that a licensing or chartering authority has and you are looking at them for no particular cause.
Or you can look at books and records if you have a civil suit against the bank and you are engaging in discovery that is -- or for that matter a criminal prosecution against the bank, and ancillary to that discovery is required; or in Guthrie, the inquiry -- the looking at books and records was pursuant to a statutory authority for shareholders to look at books and records.
So the simple fact of a physical act of looking -- or a legal act of looking at books and records doesn't tell you whether visitorial authority is being exercised.
Visitorial authority has long been understood as a whole regime of oversight.
Watters involved a visitorial regime that was ancillary to licensing.
The earlier visitorial regimes that were referenced in the old treatise tended to involve visitorial regimes that were established ancillary to chartering, back when corporate charters had limited purposes, the way banks do still, but most corporate charters, most corporate certificates of incorporation don't anymore.
So the fact that books and records are being examined is neither here nor there on the question whether the visitorial power that is referenced in 484 is -- is being exercised.
Chief Justice Roberts: There is an historic reason for thinking that Congress would be more concerned about States exercising visitorial powers than they would be about private attorneys general or private lawyers.
This goes back to McCulloch v. Maryland.
National banks were always targeted by the States.
They weren't typically targeted by private attorneys.
So that incongruity doesn't strike me as terribly significant.
Ms Underwood: Well, the suggestion is made that 484, and there is some historical basis for it, was -- was meant to protect national banks against -- against, hostile States, which I guess is what you are suggesting, rather than hostile private people.
But actually what it was meant to do was assign responsibility for the supervision of these new entities -- there hadn't been banks like this, private banks which were nevertheless federally chartered.
Before that there was the National Bank that was at issue in McCulloch v Maryland, and to exclude the States from asserting the authority to do audits, to do regular banking examinations, which actually one senator had proposed the States be permitted to do and that was rejected.
I would say the concern about State hostility was apparently much reduced by 1869, not much after this statute was passed, when this Court in National Bank v. Kentucky upheld the power of the States not just to tax shareholders on their shares, but to require the national banks to help, to require the national banks to pay the tax that was due from those shareholders in order to assist in collection.
And the Court -- McCulloch was cited to the Court and the Court said it saw no possibility here, unlike in McCulloch, that the State would somehow use its authority in this way to incapacitate the banks or impair them by eliciting their help to collect a valid tax.
There actually had been some thought when the national banks were first created that they would, in the marketplace, drive State banks out of existence, but they didn't.
And the story has been one legislatively of maintaining competitive equality between them, not of hostility.
Chief Justice Roberts: Do you want to talk a little bit about Chevron?
Ms Underwood: --Yes.
Chief Justice Roberts: Whatever the arguments may be on the merits, it's not clear to me that visitorial powers has an unambiguous meaning that would pre-empt the authority of the OCC to explain it to us.
Ms Underwood: Well, I'd say two thing about that.
484 may have some ambiguity about it.
I think it is not ambiguous as to the matters covered by this regulation.
Visitorials have -- visitorial powers have never been understood to include discrete acts of law enforcement by a jurisdiction that neither has nor asserts supervisory relationship, the kind of supervisory relationship that the chartering or licensing sovereign has.
So I think--
Justice Souter: What do you say about the quotations in the -- the brief that Mr. Waxman filed, as I recall; it may have been the government's brief--
Ms Underwood: --Yes.
Justice Souter: --which -- which do have references to visitorial powers as including general conformance to the law.
Those are not universal provisions, but they -- they were certainly understood in some cases.
Ms Underwood: Well, the strongest quotations that his brief mentioned several times come from Blackstone.
He talks about inquiring into all misbehaviors of the supervised visited corporation.
Those comments are made in a time and place when there was only one sovereign, not the distinctive federalism we have today, and so there was no need to distinguish between the visitorial, the distinctly visitorial powers of the sovereign, and the coexisting police powers of another sovereign.
There was no--
Justice Souter: No, but there was -- there was a point in -- in distinguishing the visitorial powers that Blackstone, in the cases Blackstone was referring to, and those for example that would apply solely to -- to religious or originally religious foundations like Oxford and Cambridge colleges and so on.
So there -- there seems to have been a reason to understand the distinction.
Ms Underwood: --Well, I think that the point about Blackstone's comment to distinguish -- the point about the distinction between the charitable corporations and the public non-charitable corporations is that it may well be that the sovereign was enforcing not just the charter, but the laws of the sovereign with respect to that State.
Justice Souter: But he didn't need visitorial powers to do that.
I mean, the sovereign had that by virtue of the general law.
Ms Underwood: --Yes, but the sovereign might do it in many different -- a supervisor might do it in many different ways, just as OCC here claims to enforce law not by going into court--
Justice Scalia: I thought that was your position, that the -- that the visitation authority includes the power to enforce general laws.
Ms Underwood: --The general laws of the visitor, of the sovereign.
Justice Scalia: Of the sovereign.
But that a separate action to enforce the laws of the sovereign does not necessarily mean that visitorial powers are being exercised.
Ms Underwood: That is correct.
That is correct.
Justice Scalia: So there would be no inconsistency, if you believe that.
Justice Stevens: One thing--
Ms Underwood: --That's--
Justice Stevens: --One thing puzzled me about this.
They are not pre-empting any New York laws; is that correct?
Ms Underwood: --They're pre-empting -- that's correct.
They are preempting our ability to enforce any laws.
Justice Stevens: Did we ever -- do we have any precedents dealing with the question whether preemption of the right to enforce a valid law is appropriate?
Ms Underwood: Well, this Court in, for example, St. Louis said that when the Federal and the State prohibition were the same, that is, a bank couldn't branch at that time or couldn't interstate branch, the -- and the -- and State tried to enforce both provisions -- they were the same, but the State tried to enforce both the Federal charter limitation and the State law, this Court said the State could not enforce the Federal charter, because that was the prerogative of the chartering visitor, but that it could enforce the State prohibition.
And it said that separating -- if the law is valid and can be validly applied, then it's virtually unthinkable to separate the authority to enforce it from the application of the law.
This Court said that in -- in St. Louis; it -- actually it said it in -- in Easton, which went the other way.
That is to say, Easton was a criminal prosecution of a bank officer for taking deposits knowing the bank was insolvent.
Prosecution under State law.
And this Court said that the law itself had to be preempted.
Wasn't clear exactly what Federal law on the subject was.
The Court said there must be some Federal law in this area, but we can't afford to have conflicting laws, so it's substantively pre-empted.
But the Court also said, if it were valid, it would be unthinkable to bar the State from enforcing it.
And that is the correct way, we think, to approach this problem.
Justice Breyer: Is it -- could they -- could the Federal authorities pre-empt the State law, in your opinion?
Ms Underwood: Well, no, because Congress has said to the contrary.
Congress has said, that's why they didn't -- presumably why they didn't do it that way.
Congress has said State law shall apply.
So I think this is an area where Congress clearly had in mind that there would be, not broad pre-emption of this kind, but the laws would apply.
But that it--
Chief Justice Roberts: Well, but -- I'm sorry, but it certainly is pre-empted with respect to visitorial powers.
Ms Underwood: --Yes.
That is correct.
Chief Justice Roberts: This kind of gets us back to where we started.
Ms Underwood: It does.
But think that -- I would like to -- I'd like to reserve some time for rebuttal, if I may.
Chief Justice Roberts: Thank you, counsel.
Ms Underwood: Thank you.
Chief Justice Roberts: Mr. Stewart.
ORAL ARGUMENT OF MALCOLM L. STEWART FOR THE RESPONDENT OFFICE OF THE COMPTROLLER OF THE CURRENCY
Mr. Stewart: Mr. Chief Justice, and may it please the Court: To explain the threat that the OCC believes the State's enforcement regime poses to the national banking system and OCC's administration of that system, I would like to begin by going back to a colloquy between Ms. Underwood and Justice Breyer near the beginning of the argument.
And Justice Breyer raised the possibility that a myriad of State attorneys general would file -- would pursue similar antidiscrimination claims, and Ms. Underwood's response was there really would be no problem because they are all applying the same substantive standard.
And I think at a very high level of generality that is so; that is, the Federal statute and the State statute both say no discrimination on the basis of race in extensions of credit.
But I think when you get to the way in which the statutes are administered, there is at least the potential for significant differences, because--
Justice Scalia: Well, wait a minute.
I -- this is state law.
And if the State supreme court has said that the statute means a certain thing and that certain thing is a little bit different from what the Federal antidiscrimination law is, I assume that the Federal Government in applying State law has to -- has to take that difference into account, doesn't it?
Mr. Stewart: --We would--
Justice Scalia: The Federal Government doesn't -- doesn't have the right to alter State law.
Mr. Stewart: --The Federal Government wouldn't have the right to alter State law.
The Federal Government would have the authority to make its own assessment of whether the State law was pre-empted based upon those distinctions.
Justice Ginsburg: But I thought it is a given in this case -- and tell me if I am wrong on this -- that the State substantive law is not pre-empted.
You refer, I think, to enforcement pre-emption; that is, the State law is governing law.
But the only enforcer is Federal authority; and if that's so, is there any other -- in all of Federal-State relations, any other law where the State as sovereign can prescribe but cannot enforce?
Mr. Stewart: I give two examples from the national banking system, itself.
The first is the Riegle-Neal amendments, which Justice Souter was alluding to.
And the amendments don't simply say that OCC shall enforce non-pre-empted State laws.
It says that those laws shall be enforced by the Comptroller of the Currency.
Justice Souter: But do you -- do you agree that -- that it is possible to read the OCC, but not necessarily as an exclusive ground?
Mr. Stewart: I don't think so with the "shall" in combination with the passive voice.
That is, if you had a statute that said a certain category of suits shall be adjudicated by the Court of Federal Claims, I think that would mean not simply that the Court of Federal Claims would be required to adjudicate them if a case was brought before it, but I think that would unmistakably identify the Court of Federal Claims as the exclusive tribunal--
Justice Stevens: Yes, but if you have a situation in which the OCC, say, has very limited personnel -- they only have ten people in their enforcement division, for example -- and Congress thought they have to get more, wouldn't it be appropriate in that background to say, you shall start enforcing?
And that wouldn't necessarily mean you are excluding States from also enforcing.
Mr. Stewart: --I agree that if the statute simply -- if the statute used the active voice and said the OCC shall enforce these laws, there would be a better argument that the OCC's authority was not exclusive.
But when the statute said -- says these laws shall be enforced by the Comptroller of the Currency, I think the clear implication is this is the exclusive mechanism by which the laws--
Justice Scalia: I don't see any difference whatever in that regard between using the active and passive.
Mr. Stewart: --Well, let me give you another example from the national banking system, and that is 12 U.S.C. 85.
Justice Souter: I want you to come back.
I -- I won't stop -- I don't want to stop you from doing that, but I want to come back to this.
Do you -- do you want to go on to your second example, or do you want to--
Mr. Stewart: Let me just give you a second example very quickly.
12 U.S.C. section 85, which was an issue in Smiley, deals with the maximum rate of interest that national banks may charge, and it says that they may charge as much as the law of the State in which they are located allows and no more.
And that is a similar system in that to determine the maximum rate of interest that the bank may charge, you look to State law.
You defer to the choice of the State legislature, but the enforcement regime with respect to administrative enforcement is exclusively Federal.
It's only the Federal authorities that can go after--
Justice Ginsburg: But that's because -- because it's picking a rate.
It's not saying there is the Federal law and it has this rate, and the State law that has that rate.
Here, the Equal Credit Opportunity Act, a Federal Act, undoubtedly applies.
And that is proper Federal -- Federal law enforced by the Federal authorities.
The State law, as this picture is drawn for us, is applicable.
It's substantive law applicable to these banks, but only the Federal authority can enforce it.
That seems passing strange.
And do you have an example outside the -- the two you gave us in the National Bank Act where the State prescribes but the Federal authorities enforce?
Mr. Stewart: --Well, another example would be the Similar Crimes Act, which provides for the incorporation of State law with respect to--
Justice Scalia: Well, that's not State law applying of its own force, just as your second example was not State law applying of its own force.
It was State law that had been converted into Federal law by the Federal Government's adoption of it.
Mr. Stewart: --Those provisions--
Justice Scalia: That's a different situation.
Mr. Stewart: --Those provisions do accomplish incorporation of State law as Federal law.
But this Court has repeatedly said, most recently in Watters, that State law applies to national banks only insofar as Congress shall see fit to permit it.
Chief Justice Roberts: Is your concern that -- not with the substantive State law, but that leaving enforcement to the States would cause particular problems?
I mean there may be a State law provision that says you shall do this, and the way the attorney general elects to enforce it is by shutting the bank down, jailing the bank officers, doing all sorts of things that -- that the -- the Federal Government may not consider appropriate.
Mr. Stewart: --That is certainly true, that the -- the State's exercise of remedial discretion may be different from the Federal Government's.
But even before that stage, if you look at the letters in the Joint Appendix that the New York Attorney General's Office sent to the national banks in question, basically the thrust of the letters was: We have identified what we believe to be troubling statistical disparities in terms of the terms on which the credit was offered to applicants of different races.
If those disparities are not satisfactorily explained, that it -- you may be in violation of State fair lending laws.
Therefore, give us a wide variety of information that would allow us to determine whether you have a satisfactory explanation.
And I think it's clear that had this process been allowed to run its course, what the New York Attorney General's Office was going to do was assess the bank's own criteria for making lending decisions to decide whether those criteria were suitable and decide, therefore, whether they provided a satisfactory explanation for the statistical disparities that had been observed.
And once the New York A.G. is in the business of passing upon the adequacy of the bank's lending criteria, he is right on the -- the OCC's--
Justice Scalia: You are arguing for conflict pre-emption.
I mean that's a -- that's a different issue than, say, that the -- the State law shouldn't apply.
But don't tell me the State law applies, but only the Federal Government is -- what incentive does the Federal Government have to enforce State law?
Mr. Stewart: --Well--
Justice Scalia: It -- it has so much spare time after enforcing Federal law that it's -- it's going to be worrying about State law?
Mr. Stewart: --Well, the point that has been made at various times in the argument that the State law basically tracks Federal law, I think, is an answer to that question; that is, whatever incentive the Federal Government might have to enforce idiosyncratic features of State law that didn't have a Federal analogue.
Here the State law in question prohibits discriminatory practices that are already prohibited by Federal law.
So whether OCC and HUD set out to enforce State law, if they are vigorously enforcing Federal law, they will in the course of doing that vindicate the State's prerogatives.
Justice Souter: --Is there any -- is there any legislative history whatever to the effect that at the time 36(f)(1)(B) was adopted -- to the effect that its effect was to pre-empt State enforcement for--
Mr. Stewart: They -- they don't say it in -- with quite that degree of clarity, but there is a colloquy quoted in the -- the brief for the Clearing House between -- I believe it's Senator D'Amato and--
Justice Souter: --Senator D'Amato and--
Mr. Stewart: --And it is -- it is to the effect that Senator D'Amato expresses the concern that this may subject the -- the national banks in their branch activities to State supervision.
And the response is that's not the case.
That will happen with branches of State banks, but with respect to branches of national banks the supervision will be by the OCC.
Justice Souter: --Yes, but the -- the problem I have with that is, as a -- as a kind of clear statement of -- of something which is -- is -- would be extraordinary -- is that it talks in terms of supervision.
It doesn't use the -- my recollection is it doesn't use the magic word "enforcement".
And I would have thought that if in the course of that colloquy the -- the statement had been made: The States will not have the authority to enforce this, that there would have been rather a dust-up.
And there wasn't.
It's kind of a "dog that didn't bark" argument.
And, therefore, if -- if there is uncertainty as to how to construe 36(f)(1)(B), I'm not sure that I -- I don't think the legislative history supports your exclusivity view.
Mr. Stewart: Well, section 36(f)(1)(A) refers to a very limited category of State laws that include State fair lending laws and said these laws will not be pre-empted unless they would be pre-empted with respect to national banks generally.
And then 36(f)(1)(B) says the laws in that preceding paragraph shall be enforced by the comptroller of the Currency.
And so even if the colloquy used the term "supervision", the focus of the statutory language was -- was on a pretty narrow category of laws.
I would like also to refer the Court to 12 U.S.C. 484(b), which I think is relevant here, and it is on page 1a of the appendix to the government's brief.
And it is an express exception to the general rule against the exercise of visitorial powers.
And it says,
"Notwithstanding subsection (a) of this section, lawfully authorized State auditors and examiners may at reasonable times and upon reasonable notice to a bank review its records solely to ensure compliance with applicable State unclaimed property or escheat laws. "
Now, the basic thrust of--
Justice Souter: Does that mean -- when they say "review records", does that mean that the State auditors in effect can walk into the bank, as distinguished from what we have here, in which the bank is being requested to produce excerpts from records?
Mr. Stewart: --I think that would be the implication of the provision, but the significant point for our purposes is that it refers solely to ensure compliance with applicable State unclaimed property or escheat laws.
Justice Stevens: May I ask you this question?
Naturally, if it's State laws, clearly they can look at, but what if New York was trying to enforce its discrimination laws in an employment context or in context where they said you are charging minority depositors -- giving them lower rates of interest than you give Caucasian depositors?
Would they have -- would the discrimination and the rates of interests paid on deposits -- assume that was the question.
Would you make the same argument, if that was what New York had alleged?
Mr. Stewart: Yes, we would because that would be going to the banks' federally authorized banking--
Justice Stevens: All you would have to just look at the records.
You can tell from the records whether people of different classes are paying different -- are getting different rates on their deposits.
Mr. Stewart: --I mean, it might be that in that instance the discrimination would be unlikely to persist, but the basic--
Justice Stevens: It would be unlikely to persist.
Maybe it's an unlikely example.
But you are suggesting that that would also interfere with the Comptroller's ability to regulate the banks?
Mr. Stewart: --Yes, the way the regulation is written, it speaks to State efforts to enforce laws that are directed at the bank's federally authorized banking activities.
Justice Ginsburg: So do you think the same answer whether -- Justice Stevens mentioned employment discrimination.
The State has reason to believe the bank is discriminating in its employment policies, and it wants to examine certain employment records in that connection.
Would you say also that, although New York can prescribe its antidiscrimination in employment law, it can't enforce it?
Mr. Stewart: No, the regulation does sweep more categorically with respect to inspection of bank records.
New York would not be forbidden to file lawsuits to enforce its employment discrimination laws.
Justice Kennedy: Does any of this bring us back to the colloquy you began -- began with -- between Justice Breyer and Ms. Underwood with reference to many States?
Mr. Stewart: Yes, a certain--
Justice Kennedy: You -- you began on that, and I never did hear--
Mr. Stewart: --The part of the point I was trying to make was, even if the substantive State law on its face is not pre-empted because it is identical to the Federal law, once we get to the enforcement stage where the relevant enforcement agency is saying your statistical disparity constitutes a violation because it is not justified by sound banking practices, inevitably that judgment is going to put the State regulator in the business of doing what OCC does.
And if 50 different State attorneys general have slightly different ideas of what constitutes an adequate banking justification for lending criteria that produces statistical disparity, then the problem is multiplied.
Justice Scalia: That's conflict pre-emption, and that goes to the -- to the law.
You shouldn't have a separate State law that -- that provides a separate standard that conflicts with the Federal standard.
So you pre-empt the law.
You don't say the law is in effect, but the State can't enforce it.
That's a weird way to solve that problem.
Mr. Stewart: --Well, the other point I would make about this is that it is accurate to say that under the Federal regime the State is entirely disabled from enforcing its own fair lending law.
As Ms. Underwood alluded to in the opening part of the argument and as the Petitioner's reply brief explains at pages 25 and 26, the Fair Housing Act does contain a mechanism by which a State agency -- in the case of New York, it's the Division of Human Resources -- can be certified by HUD to enforce the State fair lending laws.
But that certification entails two different steps: First, HUD has to determine that the substantive State law is -- I believe it's substantially equivalent to the comparable Federal law.
And, second, HUD monitors the performance of the enforcing agency, the particular agency under State law that carries out that responsibility, and HUD can thereby make sure that enforcement as well as the substance of the law are consistent with Federal law.
Chief Justice Roberts: Thank you, counsel.
ORAL ARGUMENT OF SETH P. WAXMAN ON BEHALF OF THE RESPONDENT
Mr. Waxman: Mr. Chief Justice, and may it please the Court: Section 484 plainly has pre-emptive effect, and what it pre-empts, quoting this Court's decision in Watters, is, quote,
"the State's investigative and enforcement machinery. "
Justice Ginsburg: Mr. Waxman, your mention of Watters, which has been mentioned in the briefs, I think is an inaccurate description of what that opinion held.
Watters dealt with a regime that was indisputably visitorial.
It was a registration regime, where annual fees were paid, annual reports were filed with the State financial agency, and the State monitor could go into a lending organization any time for any reason without any suspicion of wrongdoing.
The only -- so everyone agreed that was a visitorial regime.
The sole question was whether the banks -- the national bank's operating subsidiary was to be equated with a division of the national bank.
That was the only question provided the Court.
Mr. Waxman: Oh, I -- I quite agree, and I did not mean to suggest that this Court's decision in Watters, you know, the holding in Watters concludes the outcome of this case.
But this Court, in section II A of Watters -- and we did have a State statutory regime that dealt, yes, with licensure but also with examination, supervision, and enforcement, including judicial enforcement -- this Court repeatedly described that what was pre-empted is -- and this goes to, I think, a point that Justice Scalia was making -- was not substantive pre-emption.
There are substantive pre-emption provisions that are addressed in other sections of the Act, including the one that was at issue in Smiley.
What is exempted, this Court said again and again, is the State's enforcement and investment and -- investigative and enforcement machinery, or its examination and enforcement authority, and that those--
Justice Ginsburg: And that was in the context of a State law that says, mortgage lending institution, you may not lend unless you register and do all the rest.
That was the context of Watters.
And I do not think that excerpts from that opinion should be taken out of that context, which was: You can't be in this business unless you register with us.
Mr. Waxman: --The question in the case is whether or not what the Attorney General here sought to do is the exercise of a visitorial power.
Justice Breyer: Can I -- can I take what Justice Ginsburg just said, and give you a thought that I am interested in your response to?
I haven't seen the letter from the Attorney General.
Is the whole thing in the record?
Mr. Waxman: There -- the letters are in the record in the Joint Appendix.
Justice Breyer: Okay.
Now, reading Judge Parker's description of it, it seemed to me that what he had said was that there are statistical disparities between interest rates and race.
Well, as long as, most unfortunately, income is correlated with race, with minorities being towards the bottom, of course such statistical disparities will exist, some legitimate, some not.
So if the only basis for getting this information is that allegation, it's hard to see how this differs from the case that Justice Ginsburg put.
Mr. Waxman: Yes, that--
Justice Breyer: But it might be quite a different case, if they had gone into court and found individuals who were really getting different interest rates and who really seemed very, very similar, but for race.
But at that point, they'd have to go get this same information, because that's where they would find whether that prima facie case was right or wrong.
Mr. Waxman: --Yes.
Justice Breyer: Do you see what I'm doing?
Mr. Waxman: Right.
Justice Breyer: I'm dividing the matter vertically, instead of, say, horizontally--
Mr. Waxman: I'd like to--
Justice Breyer: --and I want to know if that's possible.
Mr. Waxman: --I'd like to address both the vertical and horizontal axes of what I perceive to be your question.
One is the distinction that this Court drew in Guthrie, where it said there is a -- there's a huge distinction in determining what's a visitorial power between a private individual seeking to vindicate a deprivation of his or her traditional property right, which is what was at issue there, and what the Court -- what this Court said was the public right of visitation, which it also explained was the State's, quote,
"enforcing observance of its laws and regulations. "
There is a public and private distinction, and visitation deals with the former.
Justice Scalia: Sure, there is.
Mr. Waxman: It deals with the sovereign.
Justice Scalia: Would -- would you acknowledge, counsel, that there is a difference between enforcing State laws through visitation and enforcing State laws apart from visitation?
And what Waters involved was enforcing State laws through visitation.
Of course, you can do that through -- through visitation powers, but you can also do apart from that by bringing a lawsuit or whatever.
Mr. Waxman: Justice Breyer, I'll get to the horizontal axis in a moment.
I'm afraid I'm going to forget--
Justice Scalia: I'm sorry, did I skip over an axis here.
I didn't mean to.
Mr. Waxman: --Let me go -- let me go to your axis first, which is to say that anything that is a visitorial power can also be interpreted as a police or enforcement power, and what Congress had in mind -- this is legislation that was born in the crucible of the Civil War, and what Congress sought to pre-empt was State executive action, State examination and enforcement action with respect to these newly created, very important Federal instrumentalities.
That was historically done, this Court explained in Guthrie, and Chancellor Kent and Blackstone and many other authorities agree was historically done through access to the courts; and in fact what Dean Pound in his oft-cited article about visitorial powers said, was -- he said, and this is discussed at pages 16 through 18 of the amicus brief of the Financial Services Roundtable -- what he called, quote,
"the leading case for visitorial powers in equity. "
was a case called the Attorney General v Chicago and Northwest Railroad decided in 1874, in which the Attorney General of Wisconsin was seeking to require this railroad to comply with the State's mandated rate schedule.
That was a visitorial power, even though you could also call it a law enforcement power.
Now, Justice Breyer, on the horizontality of your question: This is not a suit in which the New York Attorney General is trying to enforce its employment discrimination laws or its health laws or its zoning laws.
The attorney general wants the loan records of national banks, and he wants them so that he can evaluate for himself whether the banks are making proper judgments about how to market and how to price their loans.
Justice Stevens: Mr. Waxman, assume -- assume for a minute, this -- what if before writing the letter, the Attorney General of New York said,
"We have conducted 500 interviews with people who have borrowed money from you, and on the basis of all these interviews we have drawn these tentative conclusions that there is discrimination. "
"We would like to give you an opportunity to explain all of this by showing us your records. "
And they say no, we won't do it.
Would they then be pre-empted from bringing their lawsuit?
Mr. Waxman: Yes, they would.
And in fact--
Justice Stevens: Even though they didn't have to look at any bank record to make their prima facie case?
Mr. Waxman: --Well, their -- the OCC in the preamble to its regulations does draw a distinction between State enforcement actions and a pure State declaratory judgment, quote,
"as to the meaning of the applicable law. "
This is a case that -- in which--
Justice Stevens: I am asking about a hypothetical.
I understand your argument here.
But I just don't understand how your argument would apply to my hypothetical.
But I think the regulation would apply to the hypothetical.
Mr. Waxman: --Well, this is -- this case is certainly in the core, but a -- a State authority, whether it's the State banking commission or the State human rights commission or the State attorney general, or for that matter another Federal Government authority, that seeks to call a national bank to account for the manner in which it is conducting an expressly designated, allocated banking power is an exercise of visitorial power.
Justice Souter: Well, it isn't -- it isn't if--
Justice Stevens: He doesn't even want to look at your books; he just wants to prove it by people who have been borrowing money and compare them with -- among them they can orally.
Mr. Waxman: I don't--
Justice Stevens: I don't understand why that would be visitorial power.
Mr. Waxman: --The -- the State's enforcement of any law that is directed at a national bank's authorized banking powers is a visitorial power.
And the fact that it may also be characterized as a police power or a lawsuit is -- is interesting, but not what's at stake.
What Congress aimed at -- Congress in 1864 knew -- the Supreme Court said, Blackstone and Kent had said -- that visitorial powers on civil corporations are exercised A, by the sovereign, not by a private individual, and B, are almost always exercised through access to the courts.
Whether they are invoking the courts' authority to seek records or not, that was the historical core of what visitorial powers--
Justice Ginsburg: So one could say, yes, the Federal authorities have visitorial powers, and they can go to court.
But we have here that the State can prescribe, not a supervisory regime, but -- fair lending.
And the State wants to go into court and say the bank is violating the State substantive law, which is applicable.
Mr. Waxman: --That's correct.
And a sovereign taking a national bank into court with respect to not any old general law, but with respect to the conduct of its specifically authorized national banking powers, is the exercise of visitorial powers.
Justice Souter: --Well, is it--
Mr. Waxman: That was the reason for the courts of justice exception.
Justice Souter: --Is it the exercise of visitorial powers, or is it an action which covers the same subject that an exercise of visitorial powers would do?
Let me -- let me propose a distinction, and I don't know whether this is sound.
You know -- I mean, you tell me.
I would suppose that if someone with visitorial powers dealing with discrimination in lending brought an action against the bank or tried to enforce it against the bank and couldn't do so in any other way then by going to court, it would go to court, and it would say court, tell this institution that I have some responsibility for, to obey the law.
But I also assume that if the Attorney General of New York, which is not a visitor, enforces the law, it would go into court and say tell them to obey the law and to pay damages or recompense of some sort to these people whom they have wronged.
The subject matter of each suit is the same, but the relief that is being requested and the judicial power that is being exercised is different in these two cases.
Is that a fair distinction?
Mr. Waxman: I don't think -- I think that if I understood your question, and I may not have -- if a suit by a private individual or a group of private individuals seeking to vindicate the deprivation of a private traditional right is not visitorial; but if the State, either directly in the enforcement of its general laws or seeking to protect the people of its State, goes into court or asks for records or anything else, it is exercising a traditional visitorial power.
May -- while I have your attention, may I also go back to your question about 36(f) and Riegle-Neal, because there is yet -- there are other additional indicators that when the Congress said in 36(f) that these State laws shall be enforced by the OCC, it was mandatory and exclusive.
First of all, the colloquy that was discussed and is reported in our brief, I think at page 26, does use the word "enforce" as well as "supervise", but more to the point--
Justice Souter: That is the one with Senator D'Amato?
Mr. Waxman: --Yes.
Riegle-Neal -- here's the most important point.
That provision that we've been were looking at had a cognate, had an analogue that was also enforced.
Riegle-Neal basically said out-of-state banks can now branch bank.
When they do so, they are subject to these four categories of State laws.
The provision we have been looking at, which was section 102, said with respect to enforcement of those laws, the OCC shall enforce it.
But section 105 said where the out-of-state bank is a State-chartered bank -- and this is reported, I think it's at section 1820(h) of title 12, when it's a State-chartered bank, the State authorities of the host State shall enforce the laws.
Justice Souter: Uh-huh.
Mr. Waxman: So it enacted a dual regime that demonstrates exactly what Congress had in mind, which is that there would be one regulator making the kind of judgments about, okay, there is a disparity, but let's look at credit history, let's look at the loan to equity value, let's look at income versus debt incurred, and all these factors that the OCC and the Fed have explained have to go into making a judgment about whether or not a particular condition of a particular loan violates Federal law, whether it the Fair Housing Act or the Equal Credit Opportunity Act or the Fed's regulation B.
Justice Ginsburg: Mr. Waxman, you are talking about lending.
And like depositing, those are core banking activities, but today national banks have a lot of incidental -- they have authority to do things incidental to banking.
Does your restriction of State enforcement extend to those matters incidental to banking?
Mr. Waxman: May I answer?
I believe that it would if those incidental authorities are in fact authorized, approved and regulated by the OCC, but this case doesn't require you to address it, because this is an express power under section 371(a).
Chief Justice Roberts: --Thank you, counsel.
Five minutes, Ms. Underwood.
REBUTTAL ARGUMENT OF BARBARA D. UNDERWOOD ON BEHALF OF THE PETITIONER
Ms Underwood: A couple of -- four points or so.
To the extent the subpoena is perceived -- or this discovery request -- it didn't even proceed to this subpoena stage -- is perceived to be burdensome, State laws allows a motion to quash a subpoena for inadequate basis or for harassment.
So there is control in the State courts over anything that is perceived to be excessive.
Two, States have been enforcing consumer protection and fair lending laws since the mid '70s when they were enacted.
The Center for Responsive Lending amicus brief has a discussion of that history of enforcement.
The Conway affidavit at the Joint Appendix at 152 has a description of New York's enforcement activities between 1975 and 2004.
And the Lawyers' Committee for Civil Rights also goes over that history.
And they have been enforcing other laws against national banks for even longer, antitrust laws, branching laws, idiosyncratic laws of various sorts with no evidence that this has impaired the functions of the banks.
Justice Scalia: Ms. Underwood, I -- I forgot the response you made in your brief.
I know you did make some response to subsection (b) of section 484.
How do you -- how do you explain that?
Ms Underwood: In the exceptions?
Justice Scalia: Yes.
Why -- why do they list those exceptions, unless one would think that everything is covered?
Ms Underwood: Virtually every exception was enacted to resolve a controversy over whether something was visitorial or not.
In fact, just as in Guthrie, where this Court said the shareholders' suit for bank records was not visitorial, or alternatively, if it is, it is covered by the courts of justice exception.
So too, each of those exceptions involved a situation where there was a claim, an incorrect claim, but a claim that the action would be banned as visitorial, so Congress--
Chief Justice Roberts: Counsel, why isn't it a complete answer to what I agree is a somewhat unusual situation of pre-empting enforcement but not the substance of law that its enforcement that raises the concerns?
That the Federal Government thinks the State law is fine, but when you get attorneys general enforcing it in a particular way, that's what causes the problem.
And I mean, the problem arises in a lot of areas.
Even within the Federal Government, the FBI and DEA have different ways of enforcing that might conflict with each other.
Why doesn't that make perfect sense?
Ms Underwood: --Well, even without enforcement of State law, OCC would not have exclusive control of enforcement of discrimination laws against national banks.
So the idea that State enforcement poses some special problem to interfere with that exclusive control is just a mistake.
That's not the way Congress set it up.
Chief Justice Roberts: So, why -- why is it a mistake?
Why can't Congress or the OCC think that that's where the difficulties are going to arise?
In other words, it's kind of a less intrusive approach, and saying, well, you can have your State law but we are concerned about enforcement, so we are going to be the ones that enforce it.
Ms Underwood: I didn't mean it's a mistake of policy.
I meant it's a mistake in description of the regime Congress created.
HUD has administrative enforcement.
DOJ has litigation enforcement.
This is a Federal law.
Private parties can enforce Federal fair housing law.
States can probably enforce Federal fair housing laws, too, as -- patriotic for the victim.
The Second Circuit set aside that part of the injunction, the part that barred New York from enforcing Federal law.
Chief Justice Roberts: So your answer is because they have different entities that can enforce it, they are sort of in for a penny, in for a pound?
If you let anybody else enforce it, you have got to let everybody else enforce it?
Ms Underwood: No, I don't say that--
Chief Justice Roberts: Including the entities that have historically have targeted national banks?
Ms Underwood: --I don't make that argument.
What I say is that is strong evidence that Congress didn't intend to give OCC exclusive control here.
Justice Scalia: I suppose if -- if enforcement pre-emption is the lesser step, we probably ought to revise our jurisprudence so as not to tread any more heavily than we have to upon the States so that where there is conflict pre-emption, all we should say is the State law is not invalidated, it is simply not enforceable?
Ms Underwood: Well--
Justice Scalia: I mean that would--
Chief Justice Roberts: No, I suppose the question would not be what we think is a good idea but what Congress has done.
And here the OCC has interpreted what Congress has done is to make exclusive the OCC regulation only with respect to enforcement.
Ms Underwood: --Well--
Chief Justice Roberts: I would suppose you would thank them for that rather than criticize them for it.
Ms Underwood: --I think that in many ways leaving the law intact and denying the States the ability to enforce it is more intrusive then simply finding pre-emption.
In any event, Congress made it quite clear that it didn't want pre-emption.
I think my time is up.
Chief Justice Roberts: Thank you, Ms. Underwood.
The case is submitted.