WACHOVIA WINS KEY RULING ON LENDING
Wachovia has won a key decision in the debate over national bank operating subsidiaries. See Wachovia Bank, N.A. v. Burke, No. CIV.A. 303CV0738JCH (D. Ct., May 25, 2004). The Burke court concluded that if a state regulation interferes with a national bank’s operation of the business of banking through an operating subsidiary, a power which national banks are authorized to exercise, then the state regulation is preempted.
Wachovia filed suit in April of 2003 challenging Connecticuts authority to license and supervise Wachovia Mortgage Corporation, a wholly-owned operating subsidiary of Wachovia Bank, N.A. Wachovia claimed that federal law preempts the authority of state officials to regulate the operating subsidiaries of national banks. Thirty-five state attorneys general, supported by 43 state bank commissioners, filed an amicus brief in support of Connecticut Banking Commissioner John P. Burke. In granting Wachovias motion for summary judgment, the court agreed with Wachovias conflict preemption analysis, holding that 12 C.F.R. 7.4006, the Office of the Comptroller of the Currencies rule on operating subsidiaries, is a reasonable interpretation of the National Bank Act, entitling plaintiffs to a declaratory judgment that the Commissioner cannot enforce the Connecticut state laws in issue against Wachovia Bank’s operating subsidiary, Wachovia Mortgage Corporation, in connection with the mortgage lending business of the latter. The OCC’s determination that state regulation of operating subsidiaries to a greater extent than regulation of national banks themselves would potentially hinder the bank’s “incidental” power, granted by regulation and implicitly acknowledged by statute, to conduct its banking business through a subsidiary, is reasonable, the court wrote. The court also found it reasonable for the OCC to conclude that its surveillance, as it applies to the activities here, should be exclusive and preemptive.” (Emphasis in the original.)
This decision opens the door for Wachovia to obtain a favorable ruling in its sister suit Wachovia Bank, N.A. v. Watters, Civ. Act. No. 5:03-CV-0105 (W.D. Mich.), and may impact New York Attorney Generals suit in Spitzer v. First Horizon Home Loan Corp., S. Ct. N.Y. (filed Jan. 17, 2004). Wachovias win in Burke follows a similar win in Wells Fargo Bank, N.A. v. Boutris, 265 F. Supp. 2d 1162 (E.D. Cal. 2003).