By Passing Buck to Second Circuit, Supreme Court Leaves National Bank Preemption in Limbo

On May 30, the Supreme Court issued its opinion in Cantero v. Bank of America, in which it reversed and remanded the case to the Second Circuit to determine whether the National Bank Act preempts a New York state law that requires the payment of 2% interest on mortgage escrow accounts. In remanding, the Supreme Court instructed the Second Circuit to apply the preemption standard described in Dodd-Frank and added a provision that such a law is preempted “only if” it “prevents or significantly interferes with the exercise by the national bank of its powers.” The added provision goes on to specify that courts are to apply “the legal standard for preemption in the decision of the Supreme Court of the United States in Barnett Bank [v. Nelson].”

Ronald Mann, a Columbia University law professor, wrote in Scotusblog about the Cantero opinion: “This opinion will satisfy few, as it provides no substantive guidance at all as to whether this [New York] statute, one of many similar statutes various states have adopted, is or is not preempted by the National Bank Act. It is as if a parent told a child ‘you haven’t even tried your homework yet, so I refuse to tell you the right answer.’ The court has said not a word, for example, to tell the lower court whether the proper test depends on how ‘significant’ the ‘interference’ is to the balance sheet of this bank in particular, a question that might make the laws preempted as to some banks but not others.”

On June 10, 2024, the Supreme Court granted the petition for a writ of certiorari and issued a summary disposition in Flagstar Bank, N.A. v. Kivett. The Supreme Court vacated the judgment and remanded the case to the Ninth Circuit for further consideration in light of the court’s recent decision in Cantero. Similar to Cantero, Kivett involved a California law that requires lenders to pay interest on mortgage escrow accounts. In Kivett, the Ninth Circuit concluded its prior 2018 ruling in Lusnak v. Bank of America, N.A required a finding that the National Bank Act does not preempt California’s interest on mortgage escrow account law. In Lusnak, the Ninth Circuit ruled the NBA does not preempt California’s law requiring interest to be paid on mortgage escrow accounts, which the Supreme Court declined to review. The Second Circuit in Cantero reached an opposite conclusion and created a circuit split.

The First Circuit also has an interest-on-escrow case pending before it, Conti v. Citizens Bank, N.A., which the court stayed awaiting the outcome of Cantero and Kivett. With the Supreme Court’s decision in Cantero, the parties have proposed a new briefing schedule.

In this webinar roundtable, we will consider the following questions:

• How will the First, Second, and Ninth Circuits go about determining preemption in light of scanty guidance from Supreme Court? Do the cases cited by the Supreme Court provide any insight into whether a state law significantly interferes with a national banks' authority?

• What does “significant interference” mean? Does it require an evidentiary hearing and, if so, will the Supreme Court need to remand the case to district court? Does it involve determining financial impact on national banks income statements, balance sheets, or both?

• Do OCC regulations, which preempt categories of state laws, have any continued viability in light of the final footnote in the Cantero opinion?

• In the meantime while the cases are pending, what state laws should national banks comply with?

• Will national banks be insulated from liability if they continue to rely on OCC regulations?

• Will any of these cases end up back at the Supreme Court?

We have brought together for this webinar roundtable the same four distinguished lawyers—who all filed amicus briefs in the case—that participated in our earlier one, following oral arguments, when they shared their views on the case and predictions on the outcome.

They include:

• Jonathan Y. Ellis, Partner at McGuireWoods LLP
• William M. Jay, Partner, Appellate and Supreme Court Litigation at Goodwin Procter LLP
• Matthew A. Schwartz, Partner at Sullivan & Cromwell LLP
• Arthur E. Wilmarth, Jr. Professor Emeritus of Law at George Washington University Law School

CLE Language: This program is pending approval for 1.0 CLE credits in CA, NV, NY, & PA; and 1.2 NJ CLE credits. Uniform Certificates of Attendance will also be provided for the purpose of seeking credit in other jurisdictions.

Login details can be found in the calendar hold and will be resent the day before the webinar. For more information, contact questions@ballardspahr.com.