Tuesday, October 20, 2009

Eighth Circuit Affirms FDIC's Unilateral Removal Right And HOLA Preemption

In Casey, et al. v. North American Savings (09-1096), the Eighth Circuit reached two conclusions: 1) As soon as the FDIC becomes involved in an action the case arises under federal law and the FDIC can remove the case without the consent of any other party; and (2) the Home Owners’ Loan Act (HOLA), 12 U.S.C. §§ 1461–1468 preempted the state law claims against the federal thrift institutions. [the case style is Casey, et al v. Federal Deposit Insurance Corporation, et al., however, Casey v. North American is how the court listed the decision on its opinion list.].

The case took an interesting road to get to the Eighth Circuit.  The Missouri state court initially concluded HOLA preempted the claims.  The plaintiff's appealed the decision to the Missouri Court of Appeals.  While the case was pending in the Missouri Court of Appeals, the FDIC was named the receiver for Washington Mutual Bank.  After being substituted as a party, the FDIC removed the appeal in the Missouri Court of Appeals to the United States District Court for the Eastern District of Missouri.

Once the case was in the federal district court, the plaintiffs sought to (1) dismiss the FDIC as a party;  (2) have the action remanded to the state appellate court; and (3) again argued the action was not preempted by HOLA.  The district court denied the motion to dismiss without prejudice, adopted the state court's decision finding the action preempted and transferred the case to the Eighth Circuit for the completion of the appellate review originally started in the Missouri Court of Appeals.


The Eighth Circuit first denied the plaintiff's motion to remand to the state appellate court.  "Section 1447(c) requires that a case removed to federal court be remanded if at any time it is determined that subject matter jurisdiction is lacking...Because we retain subject matter jurisdiction under 12 U.S.C. § 1819(b)(2)(A), however, remand is not required by § 1447(c)."  Relying upon a RTS case, Kansas Pub. Emples. Retirement Sys. v. Reimer & Koger Assocs., 77 F.3d 1063, 1067 (8th Cir. 1996),  the court held: "We find our holding in KPERS persuasive here and conclude that all claims in a case to which the FDIC is a party have "arising under" federal subject matter jurisdiction. The subsequent dismissal of the claim against the FDIC did not defeat that jurisdiction or withdraw the court's jurisdiction over the state law claims filed against the other FSA lenders. Because we retain jurisdiction over the latter claims, section 1447(c) does not require that they be remanded to the Missouri Court of Appeals."

The court then rejected the plaintiff's argument that the case should be remanded because the FDIC failed to get the consent of the other defendants prior to removal.  The court stated: "This case was removed under § 1819(b)(2)(B), however, and that statute allows the FDIC to remove any case to which it is a party from state to federal court within ninety days of its becoming a party. The FDIC’s authority to remove under the statute is unilateral: it does not depend upon the consent of other defendants." 

The final remand argument was also rejected. 
When a case arising under federal law is removed from state court, § 1441(c) affords the federal court discretion to 'remand all [otherwise nonremovable] matters in which State law predominates.'  The question of predominance is informed by the precept that “[p]re-emption, the practical manifestation of the Supremacy Clause, is always a federal question.” Int’l Longshoreman’s Ass’n v. Davis, 476 U.S. 380, 388 (1986).

The homeowners urge us to exercise our statutory discretion to remand because Missouri law governing the practice of law allegedly predominates over the question of the preemptive effect of 12 C.F.R. § 560.2. With the exception of their renewed motion to remand, however, the sole issue on appeal is whether § 560.2 preempts the Missouri laws upon which the homeowners base their claims. And since “[p]reemption . . . is always a federal question,” Missouri law is not even at issue, let alone predominant. Davis, 476 U.S. at 388. Remand under § 1441(c) would be inappropriate because the requirement that state law predominate is unmet.

The court also affirmed the Missouri state court's decision concluding that state law claims were preempted by HOLA.
The Missouri Circuit Court dismissed the homeowners’ claims against the FSA lenders because it found the predicate state laws preempted by 12 C.F.R. § 560.2, a federal regulation issued by the Office of Thrift Supervision (OTS) under the authority of the Home Owners’ Loan Act (HOLA) of 1933, 12 U.S.C. §§ 1461–1468.
We begin with the regulation itself, which declares unequivocally the OTS’ intent “[to] occupy the entire field of lending regulation for [FSAs].” § 560.2(a). Paragraph (a) of § 560.2 defines the extent to which state law is preempted: “[FSAs] may extend credit . . . without regard to state laws purporting to regulate or otherwise affect their credit activities.” Id. Paragraph (b) provides a nonexhaustive list of the types of state laws that are preempted by paragraph (a). § 560.2(b). Paragraph (c) provides the exception, sheltering from the regulation’s preemptive scope state contract, commercial, real property, homestead, tort, and criminal law “to the extent that they only incidentally affect the lending operations of [FSAs] or are otherwise consistent with the purposes of paragraph (a).” § 560.2(c).
Our analysis thus begins by determining whether the state laws in question fall within the scope of § 560.2(b). “If so, . . . the law[s] [are] preempted.” 61 Fed. Reg. at 50966.
The conclusion that § 560.2(b) contemplates an “as applied” analysis finds further support in an amicus curiae brief filed by the OTS in Jenkins v. Concorde Acceptance Corp., 802 N.E. 2d 1270 (Ill. App. 2003)—a case factually similar to the case before the court. As here, the Jenkins plaintiffs sought to enforce against FSA lenders a state statute prohibiting the imposition of fees for the preparation of legal documents by nonlawyers. Id. at 1270. And as here, the statute was facially neutral. It did not mention lending and thus was not a type of law listed in § 560.2(b). The OTS maintained that the statute was nevertheless preempted because, as applied, it imposed requirements regarding loan related fees—making it one of the types of laws enumerated in § 560.2(b). Brief of the Office of Thrift Supervision as Amicus Curiae Supporting Defendant Cititbank, F.S.B. and Similarly Situated Defendants at 10, Jenkins, 802 N.E. 2d 1270 (No. 02-2738).

In sum, the OTS adheres to the analytic approach advocated by the FSA lenders. That approach is not only sensible, it is owed deference. See Auer v. Robbins, 519 U.S. 452, 461 (1997). We conclude that a state law that either on its face or as applied3 imposes requirements regarding the examples listed in § 560.2(b) is preempted. A generally applicable state law that imposes no such requirements will not be preempted if, as applied, it “only incidentally affect[s] the lending operations of [FSAs] or [is] otherwise consistent with the purposes of [§ 560.2(a)].” § 560.2(c).
We deny the homeowners' renewed motion to remand to the Missouri Court of Appeals because we retain arising under jurisdiction over the remaining state law claims lodged against the FSA lenders, the FDIC's removal power under 12 U.S.C. § 1891(b)(2)(B) is undiminished by the rule of unanimity, the requirement under 28 U.S.C. § 1441(c) that state law predominate is not met, and Burford abstention would be inappropriate. Furthermore, we conclude that the Missouri laws upon which the homeowners base their claims are, as applied, types of laws identified in 12 C.F.R. § 560.2(b). As a result federal law preempts their enforcement here, and the homeowners' claims fail to state causes of action. We therefore affirm the dismissal of the homeowner claims on grounds of preemption.


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