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In light of State Farm Bank, FSB vs. John B. Reardon (opinion here), Banking Law Prof Blog asks: Are we headed back to the Supreme Court to resolve the exclusive agent question? Watch this space!
Fair enough. We will.
Unless the Court of Appeals overturns the District Court's decision, then we're likely to end up in the SCOTUS, eventually. Perhaps, we might end up there even regardless of what the appeals courts do. The last big preemption case, Watters v. Wachovia, was taken up by the Supreme Court notwithstanding the fact that the circuit courts were unanimous in upholding the OCC's preemption authority with respect to national bank operating subsidiaries.
State Farm won a round last year in Connecticut, and now has lost a round in Ohio. (Lenders are not faring well in Ohio, recently, are they?). In our comments on the Connecticut decision, we bemoaned the waste of state resources devoted to losing efforts like Watters v. Wachovia, and this latest effort, to stop the OCC's iity, biity brother, the OTS, from expanding like rogue viruses until they destroy the Tenth Amendment as it applies to the world of banking. It's money flushed down the drain. Resistance is futile. Surrender or die. Whatever you do, don't waste state tax dollars tilting at windmills. Yet, these state rights die-hards just won't quit. God bless 'em.
This fight reminds me in some respects of the futile battles fought by state's rights advocates over the federal preemption of state limitations on the exercise of due-on-sale provisions of deeds of trust by federal savings and loans during the 1970s and 1980s. The Supreme Court's de la Cuesta decision, as well as a number of other state and federal appellate court decisions on the vast preemptive breadth of the Home Owner's Loan Act of 1933, resulted in a pretty nasty outcome for the states. The outcome in this arena is likely to be no less nasty.
The Ohio judge appears to be engaging in wishful thinking when he tries to impose a requirement upon the OTS to adopt preemption opinions by formal regulation subject to notice and comment requirements of the APA. The OTS is not taking an action that results in preemption of state law, it's merely issuing an interpretation that interprets its own regulations and finds that they preempt the application of state law to federal savings banks' "exclusive agents." The Connecticut determined that where an agency is interpreting its own regulations, as opposed to a federal statute, the court must give deference to that interpretation. The Ohio court disagreed and found that although the OTS might very well have power to preempt state law, it must do so through the formal processes of the APA. I doubt that the OTS will concede that it has to begin adopting preemption regulations that govern each specific state law that it wishes to preempt, rather than doing what it's always done: issue an interpretive letter signed by its Chief Counsel. No other court has imposed such a requirement upon the OTS and before the OTS commences such a practice, I think that it will have to be told to do so by the US Supreme Court.
As much as I'm conflicted about the continued erosion of state banking authority in the face of the continued expansion of federal preemption principles, I see the OTS ultimately prevailing on this issue. At the same time, I have to acknowledge the plaintive cry of one of my correspondents, a former state banking regulator: "Where does this all end?"
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Bank Lawyer's Blog will be on holiday break until next week. Have a great Bird Day!
