Argument Recap: Cuomo v. The Clearing House Ass’n

Stanford student David Schwartz summarizes Tuesday’s argument in Cuomo v. The Clearing House Association. Note: David was on the Stanford team that along with Howe & Russell filed an amicus brief in this case on behalf of Lawyers’ Committee for Civil Rights Under Law et al.  Briefs for the case are at the SCOTUSWiki page here.

Like the previous case addressing conflicts between state and federal bank regulators, Watters v. Wachovia Bank (2007), Tuesday’s oral arguments in Cuomo v. Clearing House Association (“CHA”) presented an intriguing and unusual line-up of Justices.  Moreover, the arguments were notable for what was not discussed: the Chevron doctrine was only brought up directly once during the entire argument, even though the parties dedicated about half of their merits briefs to the issue.  The oral arguments themselves started out somewhat unusually, with Justice Ginsburg beginning her questioning of the petitioner’s counsel, New York Solicitor General Barbara Underwood, on an issue barely discussed in the parties’ briefs:  whether the state law at issue extended authority to the New York state bank superintendent, rather than the actual party here, the Attorney General.

But the argument quickly transitioned into one of the main issues of the day – whether allowing state attorneys general to enforce state laws would force a national bank to deal with 51 regulators, and whether Congress, in constructing the current statutory structure, was trying to avoid this conflict.  Underwood (supported, at times, by Justice Scalia) had three responses to this argument.  First, for any specific loan transaction a national bank would only be subject to two regulators, the Office of the Comptroller of the Currency (“OCC”) and the state attorney general for the specific state in which the loan occurred.  Second, if the state’s enforcement method actually conflicted with the OCC’s methods, that would present a case of conflict preemption, an issue not before the Court.  And third, the OCC’s allegedly exclusive powers exist among a greater ecosystem of enforcers, including individuals, other federal agencies, and other state agencies as well; thus, the OCC already must deal with potentially conflicting interpretations from other entities besides state attorneys general.

Another major issue in Underwood’s portion of the argument was the distinction between “visitorial” and “police” powers.   Justice Ginsburg and Chief Justice Roberts both asked several questions on this point, trying to distinguish between the two.  Underwood agreed that an entity could look at books and records under both powers, and that such powers could be exercised concurrently. One would thus have to look at the entire regimes at issue to determine whether the bank-regulator relationship was supervisory, as in Watters, or whether it was instead prosecutorial, which involves “discrete acts of law enforcement.”

Underwood also received several questions on the historical background of the National Bank Act (“NBA”), enacted during the Civil War, and its conception of visitorial powers.  She offered two responses.  First, state hostility could not have been as worrisome as respondents made it out to be given that the Court in National Bank v. Commonwealth (1869) disagreed, only six years after the NBA’s passage, that there were the state hostility problems of the kind that appeared in McCulloch v. Maryland (1819). Second, historical descriptions of “visitorial powers,” such as those found in Blackstone, dated back to an era in which there was only one sovereign, i.e., the British Crown.

Finally, Underwood also discussed the Riegle-Neal amendments, 12 U.S.C. § 36(f), which provides that “[t]he provisions of any State law to which a branch of a national bank is subject under this paragraph shall be enforced . . . by the [OCC].”  She argued that this section was not exclusive, but rather hortatory to the OCC to begin enforcing state law via authority that Riegle-Neal preserved.  This was especially true given that Riegle-Neal also says that non-visitorial state law shall apply, but at the end of Underwood’s argument this only got the Court, in the words of the Chief Justice, “back to where we started.”

Deputy Solicitor General Malcolm Stewart attempted to make more headway, and launched into his most difficult issue, which was the “passing strange” situation in which state laws themselves were not preempted, but state officials were nonetheless precluded from enforcing the laws.  Several Justices inquired whether this type of preemption appeared elsewhere in U.S. law, and whether it was exclusive.  On the latter point, Stewart argued that the NBA’s passive voice implied exclusivity, though Justice Scalia remained unconvinced.  Moreover, on the former point several Justices disagreed with Stewart’s characterization of other parts of the statute, such as 12 U.S.C. § 85 or the Similar Crimes Act, as containing enforcement preemption.  Indeed, Justice Scalia argued repeatedly with the respondents over their definition of “enforcement preemption.”  When Stewart turned to Justice Breyer’s questions about enforcement conflicts between the state attorneys general and the OCC, Justice Scalia questioned whether Stewart was simply talking about conflict preemption, which was not at issue in this case.

After briefly discussing Riegle-Neal’s legislative history, the argument next turned to the possible implications of a decision in the respondents’ favor.  Justices Stevens and Ginsburg both wanted to know whether holding for respondents would prevent a state from applying its anti-discrimination laws to cases such as a bank engaging in employment discrimination, or giving different interest rates to customers based on their race.  Stewart, however, had trouble drawing a line between this case and the latter example, and once again ran into Justice Scalia’s argument that distinctions based on conflicting enforcement methods are simply cases of conflict preemption.

Representing the CHA, Seth Waxman began with the NBA’s text, arguing that in Watters the Court had said that the NBA preempts “the State’s investigative and enforcement machinery.”  However, Justice Ginsburg immediately and strongly distinguished this case from Watters, which – unlike this case – undisputedly dealt with a visitorial regime.  This again led to a colloquy over the distinction between visitorial and police powers, which Waxman distinguished between public and private rights, and between public enforcement via police or visitorial powers.  While no one disputed the former distinction, being based on Guthrie v. Harkness (1905), the latter raised an extended discussion between the Justices that again focused on ways to draw a workable line between police and visitorial powers, since – as this case demonstrates – the two clearly can overlap.  Waxman maintained that state enforcement of any law “directed at a national bank’s authorized banking powers is a visitorial power,” but Justice Souter still thought that there was a distinction in the type of relief requested and judicial power exercised.

On rebuttal, the Justices again focused on the issue of whether allowing state attorneys general to enforce their own laws would create enforcement conflicts, and whether this is what motivated Congress to construct the NBA and Riegle-Neal the way it did.  Underwood again reinforced the point that wide variety of federal and state agencies can enforce various laws against national banks, demonstrating that Congress simply did not intend to give the OCC exclusive control over banks in this area.  Finally, Justice Scalia concluded the arguments with a foreshadowing statement about whether the Court “ought to revise our jurisprudence” to potentially make room for the concept of enforcement preemption, to which Underwood responded that denying the state enforcement authority is actually more intrusive than preempting the law altogether.