Cantero v. Bank of America, N. A., 602 U.S. ___ (2024)
The case revolves around a dispute between Alex Cantero, Saul Hymes, Ilana Harwayne-Gidansky, and others (the plaintiffs) and Bank of America. The plaintiffs had obtained home mortgage loans from Bank of America, which required them to make monthly deposits into escrow accounts. These accounts were used by the bank to pay the borrowers' property taxes and insurance premiums. Under New York law, banks are required to pay borrowers interest on the balance of such escrow accounts. However, Bank of America did not pay interest on the money in the plaintiffs' escrow accounts, arguing that the New York law was preempted by the National Bank Act. The plaintiffs filed class-action suits against Bank of America, alleging that the bank violated New York law by failing to pay them interest on the balances in their escrow accounts.
The U.S. District Court for the Eastern District of New York ruled in favor of the plaintiffs, agreeing that New York law required Bank of America to pay interest on the escrow account balances. The court concluded that nothing in the National Bank Act or other federal law preempted the New York law. However, the U.S. Court of Appeals for the Second Circuit reversed this decision, holding that the New York interest-on-escrow law was preempted as applied to national banks. The Court of Appeals argued that federal law preempts any state law that attempts to exercise control over a federally granted banking power, regardless of the magnitude of its effects.
The Supreme Court of the United States, in reviewing the case, focused on the standard for determining when state laws that regulate national banks are preempted. The Court noted that the Dodd-Frank Act of 2010 expressly incorporated the standard articulated in Barnett Bank of Marion County, N. A. v. Nelson, which asks whether a state law "prevents or significantly interferes with the exercise by the national bank of its powers." The Supreme Court found that the Court of Appeals did not apply this standard in a manner consistent with Dodd-Frank and Barnett Bank. Therefore, the Supreme Court vacated the judgment of the Court of Appeals and remanded the case for further proceedings consistent with its opinion.
A state law that regulates a national bank is preempted if the state law prevents or significantly interferes with the exercise by the national bank of its powers.
SUPREME COURT OF THE UNITED STATES
Syllabus
CANTERO et al., individually and on behalf of all others similarly situated v. BANK OF AMERICA, N. A.
certiorari to the united states court of appeals for the second circuit
No. 22–529. Argued February 27, 2024—Decided May 30, 2024
The United States maintains a dual system of banking. Banks with federal charters—called national banks—are subject primarily to federal oversight and regulation. Banks with state charters are subject to additional state oversight and regulation. As relevant here, the National Bank Act expressly grants national banks the power to administer home mortgage loans. 12 U. S. C. §371(a). When national banks make home mortgage loans, they often offer escrow accounts designed to protect both the bank and the borrower. Escrow accounts ensure the availability of funds to pay the insurance premium and property taxes on the borrower’s behalf. Escrow accounts operated by national banks are extensively regulated by the Real Estate Settlement Procedures Act of 1974. RESPA was designed to protect borrowers from “certain abusive practices” that were being carried on by national banks. §2601(a). But RESPA does not mandate that national banks pay interest to borrowers on the balances of their escrow accounts. New York state law is different. It provides that a bank “shall” pay borrowers “interest” on the balance held in an escrow account maintained in connection with a mortgage on certain real estate. N. Y. Gen. Oblig. Law Ann. §5–601.
In this case, petitioner Alex Cantero and petitioners Saul Hymes and Ilana Harwayne-Gidansky obtained home mortgage loans from Bank of America, a national bank chartered under the National Bank Act. Both contracts required the borrowers to make monthly deposits into escrow accounts. Bank of America did not pay interest on the balances held in either escrow account, but informed the borrowers that the New York interest-on-escrow law was preempted by the National Bank Act. The borrowers brought putative class-action suits in Federal District Court. The District Court concluded that nothing in the National Bank Act or other federal law preempted the New York law. The Second Circuit reversed, holding that because the New York law “would exert control over” national banks’ power “to create and fund escrow accounts,” the law was preempted.
Held: The Second Circuit failed to analyze whether New York’s interest-on-escrow law is preempted as applied to national banks in a manner consistent with Dodd-Frank and Barnett Bank. Pp. 5–14.
(a) Congress has instructed courts how to analyze federal preemption of state laws regulating national banks in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Dodd-Frank ruled out field preemption. Instead, Dodd-Frank provides that the National Bank Act preempts a state law “only if” the state law (i) discriminates against national banks as compared to state banks; or (ii) “prevents or significantly interferes with the exercise by the national bank of its powers,” as determined “in accordance with the legal standard for preemption” in the Court’s decision in Barnett Bank of Marion Cty., N. A. v. Nelson, 517 U.S. 25. §§25b(b)(1)(A), (B). Because the New York law does not discriminate against national banks, the preemption question must be analyzed under Dodd-Frank’s “prevents or significantly interferes” preemption standard “in accordance with” Barnett Bank. Pp. 5–12.
(1) In Barnett Bank, a dispute arose because a national bank wanted to sell insurance in a Florida small town, but the State prohibited most banks from selling insurance. The Court held the Florida law preempted because it significantly interfered with the national bank’s ability to sell insurance—a federally authorized power. Importantly, Barnett Bank made clear that a non-discriminatory state banking law can be preempted even if it is possible for the national bank to comply with both federal and state law. 517 U. S., at 31. The Court reasoned that “normally Congress would not want States to forbid, or to impair significantly, the exercise of a power that Congress explicitly granted.” Id., at 33. But the Court added that its ruling did not “deprive States of the power to regulate national banks, where (unlike here) doing so does not prevent or significantly interfere with the national bank’s exercise of its powers.” Ibid. Pp. 6–7.
(2) Barnett Bank did not purport to establish a clear line to demarcate when a state law “significantly interfere[s]” with a national bank’s ability to exercise its powers. 517 U. S., at 33. Instead, the Court analyzed its precedents on that issue, looking to prior cases where the state law was preempted and where the state law was not preempted. Given Dodd-Frank’s direction to identify significant interference “in accordance with” Barnett Bank, courts addressing preemption questions in this context must do the same and likewise take account of those prior decisions. §25b(b)(1)(B). The paradigmatic example of significant interference identified by Barnett Bank occurred in Franklin National Bank of Franklin Square v. New York, 347 U.S. 373, where a New York law prohibiting most banks “from using the word ‘saving’ or ‘savings’ in their advertising or business” was held preempted because it interfered with the national bank’s statutory power “to receive savings deposits.” Id., at 374, 378–379. The Court in Franklin found the New York law preempted—even though it did not bar national banks from receiving (or even advertising) savings deposits—because the New York law interfered with the banks’ ability to advertise “using the commonly understood description which Congress has specifically selected.” Id., at 378. Barnett Bank also pointed to a second example of significant interference—Fidelity Federal Savings & Loan Association v. De la Cuesta, 458 U. S. 141—where the state law similarly limited a federally authorized power. For purposes of applying Dodd-Frank’s preemption standard, Franklin, Fidelity, and Barnett Bank together illustrate the kinds of state laws that significantly interfere with the exercise of a national bank power and thus are preempted. Pp. 7–9.
(3) The primary example of a case identified in Barnett Bank where state law was not preempted is Anderson National Bank v. Luckett, 321 U.S. 233. There, a Kentucky law required banks to turn over abandoned deposits to the State. The Anderson Court held that the Kentucky law did not interfere with national banks’ federal power to collect deposits because that power includes the inseparable “obligation to pay” deposits to those “entitled to demand payment.” Id., at 248–249. Anderson distinguished a similar California law at issue in First National Bank of San Jose v. California, 262 U.S. 366, where the Court had found the state law to be preempted, and its reasons for differentiating the California law help demonstrate when a state law regulating national banks crosses the line from permissible to preempted. In contrast to the Kentucky law in Anderson, the California law in First National Bank of San Jose allowed the State to claim dormant deposits without proof of abandonment. The Court noted that California’s law could therefore cause customers to “hesitate” before depositing funds at the bank—and thus interfere with the “efficiency” of the national bank in receiving deposits. 262 U. S., at 369–370. Barnett Bank also cited two other examples of state laws that were not preempted, both of which regulated banks in “their daily course of business.” See National Bank v. Commonwealth, 9 Wall. 353; McClellan v. Chipman, 164 U.S. 347. Pp. 9–11.
(b) The Court’s precedents applying Barnett Bank furnish content to the significant-interference test—and therefore also to Dodd-Frank’s preemption standard incorporating Barnett Bank. A court applying that standard must make a practical assessment of the nature and degree of the interference caused by a state law. If the state law’s interference with national bank powers is more akin to the interference in cases like Franklin, Fidelity, First National Bank of San Jose, and Barnett Bank, then the state law is preempted. But if the state law’s interference with national bank powers is more akin to the interference in cases like Anderson, National Bank, and McClellan, then the state law is not preempted. In this case, the Second Circuit did not conduct the kind of nuanced comparative analysis required by Barnett Bank, but instead distilled a categorical test that would preempt virtually all state laws that regulate national banks. Congress expressly incorporated Barnett Bank into Dodd-Frank, and Barnett Bank did not draw a bright preemption line. The Court of Appeals must conduct a preemption analysis in a manner consistent with that standard. Pp. 12–14.
49 F. 4th 121, vacated and remanded.
Kavanaugh, J., delivered the opinion for a unanimous Court.
Judgment VACATED and case REMANDED. Kavanaugh, J., delivered the opinion for a unanimous Court. |
Argued. For petitioners: Jonathan E. Taylor, Washington, D. C.; and Malcolm L. Stewart, Deputy Solicitor General, Department of Justice, Washington, D. C. (for United States, as amicus curiae.) For respondent: Lisa S. Blatt, Washington, D. C. |
Reply of Alex Cantero, et al. submitted. |
Motion of the Solicitor General for leave to participate in oral argument as amicus curiae and for divided argument GRANTED. |
Reply of petitioners Alex Cantero, et al. filed. (Distributed) |
Record received electronically from the United States District Court for the Eastern District of New York and available with the Clerk. |
Record received electronically from the United States Court of Appeals for the Second Circuit and available with the Clerk. |
Amicus brief of The Bank Policy Institute, American Bankers Association, Consumer Bankers Association, Mortgage Bankers Association, and Mid-Size Bank Coalition of America submitted. |
Amicus brief of Former Comptrollers of the Currency and Senior OCC Officials submitted. |
Amicus brief of Flagstar Bank, N.A. submitted. |
Amicus brief of Joseph R. Mason submitted. |
Brief amici curiae of The Bank Policy Institute, et al. filed. (Distributed) |
Amicus brief of United States Chamber of Commerce submitted. |
Brief amici curiae of Former Comptrollers of the Currency and Senior OCC Officials filed. (Distributed) |
Brief amicus curiae of Joseph R. Mason filed. (Distributed) |
Brief amicus curiae of Chamber of Commerce of the United States of America filed. (Distributed) |
Brief amicus curiae of Flagstar Bank, N.A. filed. (Distributed) |
Brief amicus curiae of United States Chamber of Commerce filed. (Distributed) |
Brief amicus curiae of Professor Dori K. Bailey filed. (Distributed) |
Amicus brief of Professor Dori K. Bailey submitted. |
Brief amicus curiae of Washington Legal Foundation filed. (Distributed) |
Amicus brief of Washington Legal Foundation submitted. |
Brief of Bank of America, N.A. submitted. |
Brief of respondent Bank of America, N.A. filed. (Distributed) |
Motion of the Solicitor General for leave to participate in oral argument as amicus curiae and for divided argument filed. |
Motion of United States for leave to participate in oral argument and for divided argument submitted. |
CIRCULATED. |
Record requested from the United States Court of Appeals for the Second Circuit. |
Motion to dispense with printing the joint appendix filed by petitioners GRANTED. |
SET FOR ARGUMENT on Tuesday, February 27, 2024. |
Brief amici curiae of Flagstar Plaintiffs filed. |
Amicus brief of States of New York, Iowa, Alaska, Arizona, California, Colorado, Connecticut, Delaware, Georgia, Hawai‘i, Illinois, Indiana, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nebraska, Nevada, New Jersey, North Carolina, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Texas, Utah, Vermont, and Washington, and the District of Columbia submitted. |
Amicus brief of United States submitted. |
Amicus brief of Flagstar Plaintiffs submitted. |
Amicus brief of Conference of State Bank Supervisors; American Association of Residential Mortgage Regulators submitted. |
Amicus brief of Constitutional Accountability Center submitted. |
Brief amicus curiae of United States filed. |
Brief amicus curiae of United States supporting vacatur filed. |
Brief amici curiae of New York, et al. filed. |
Brief amicus curiae of Constitutional Accountability Center filed. |
Brief amici curiae of Conference of State Bank Supervisors, et al. filed. |
Amicus brief of Public Citizen, Consumer Federation of America, National Association of Consumer Advocates, National Consumer Law Center, and Public Justice submitted. |
Brief amici curiae of Public Citizen, et al. filed. |
Brief amici curiae of Public Citizen, Consumer Federation of America, National Association of Consumer Advocates, National Consumer Law Center, and Public Justice filed. |
Brief of Alex Cantero, et al. submitted. |
Brief of petitioners Alex Cantero, et al. filed. |
Motion of Alex Cantero, et al. to dispense with joint appendix submitted. |
Motion to dispense with printing the joint appendix filed by petitioners Alex Cantero, et al. |
Motion to extend the time to file the briefs on the merits granted. The time to file the joint appendix and petitioners' brief on the merits is extended to and including December 8, 2023. Petitioners will file the reply brief no later than February 16, 2024. |
Motion to extend the time to file the briefs on the merits granted. The time to file the joint appendix and petitioners' brief on the merits is extended to and including December 8, 2023. The time to file respondent's brief on the merits is extended to and including January 18, 2024. Petitioners will file the reply brief no later than February 16, 2024. |
Motion of Alex Cantero, et al. for an extension of time submitted. |
Motion for an extension of time filed. |
Petition GRANTED. |
DISTRIBUTED for Conference of 10/13/2023. |
DISTRIBUTED for Conference of 10/6/2023. |
Supplemental brief of petitioners Alex Cantero, et al. filed. (Distributed) |
Brief amicus curiae of United States filed. VIDED. |
The Solicitor General is invited to file a brief in this case expressing the views of the United States. |
DISTRIBUTED for Conference of 3/24/2023. |
Reply of petitioners Alex Cantero, et al. filed. (Distributed) |
Brief of respondent Bank of America, N.A. filed. |
Response Requested. (Due February 16, 2023) |
DISTRIBUTED for Conference of 2/17/2023. |
Waiver of right of respondent Bank of America, N.A. to respond filed. |
Petition for a writ of certiorari filed. (Response due January 9, 2023) |