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While the National Bank Act (NBA) pre-empts the application of certain state banking laws to operating subsidiaries, it does not give national banks federal rights to bring suits under the Civil Rights Act, the 2d U.S. Circuit Court of Appeals has ruled. Wachovia Bank v. Burke, No. 04-3770-cv. No federal appeals court has ever considered whether regulations of the NBA and the Office of the Comptroller of the Currency (OCC) pre-empt state banking laws designed to regulate operating subsidiaries of national banks. “Finding that Wachovia Bank has rights enforceable under � 1983 would likely allow national banks to pursue � 1983 claims whenever preemption exists by virtue of the NBA and OCC regulations,” Judge Chester J. Straub wrote for the unanimous panel. “Such a finding is inappropriate in light of the complex regulatory framework and the ever-changing nature of the industry and the powers exercised by national banks.” Straub added: “Allowing � 1983 claims in this context could also mean that � 1983 claims-and the potential for damages and attorneys’ fees-may arise out of any number of regulatory statutes with preemptive effect and could have widespread repercussions for the balance of federal and state regulatory authority in general.” Connecticut statutes disputed The dispute arose in Connecticut over Wachovia’s mortgaging subsidiary. It concerned six state statutes. In Connecticut, first and second mortgage lenders are required to obtain a state license. National banks are exempt from the requirement, but subsidiaries of national banks are expressly not exempt. Wachovia Mortgage had been a North Carolina corporation licensed to offer mortgages in Connecticut. But in 2003, it became a subsidiary of the parent Wachovia Bank, which is a national banking association under the NBA. In doing so it surrendered its mortgage license in Connecticut. John P. Burke, the state’s banking commissioner, warned Wachovia via letter that it was issuing mortgages without a license. Wachovia agreed to apply for re-licensing while reserving its right to sue. In a suit filed in a Connecticut federal court, Wachovia argued that the federal act and the comptroller’s regulations pre-empt state law. It also sued under 42 U.S.C. 1983 for abridgement of rights provided by federal law. It sought, and won, declaratory relief in both instances. The 2d Circuit pointed out that the Office of the Comptroller changed its regulations in 2001, in part, to read: “Unless otherwise provided by Federal law or OCC regulation, State laws apply to national bank operating subsidiaries to the same extent that those laws apply to the parent national bank.” The implication, the court said, was that state laws would be pre-empted equally for both national banks and their subsidiaries. However, the court dismissed the idea that banks had federal rights to sue for damages under 42 U.S.C. 1983. The court said such an interpretation was not in keeping with the intent of national banking laws. “There is no clear intent to benefit national banks as private entities with individual rights, and the powers granted to national banks simply operate to establish federal regulatory authority vis-�-vis the states,” Straub wrote. Judges Joseph M. McLaughlin and Peter W. Hall concurred on the ruling. Daniel L. Fitzmaurice of Hartford, Conn.’s Day, Berry & Howard represented Wachovia. Frederick C. Schafrick of Boston-based Goodwin Procter represented numerous banking associations, including the American Bankers Association, that filed amici curiae in support of Wachovia. Mark F. Kohler, an assistant attorney general in Connecticut, represented the state. William L. Brauch, an assistant attorney general in Iowa, represented 40 states that filed amici curiae in support of Connecticut.

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