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While The National Bank Act 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, a federal appeals court ruled Monday. Prior to Monday’s ruling by the 2nd U.S. Circuit Court of Appeals, no federal appeals court had considered whether regulations of the National Banking Act (NBA) and the Office of the Comptroller of the Currency (OCC) pre-empt state banking laws designed to regulate operating subsidiaries of national banks. And only one appeals court — the 8th Circuit in 1980 on a different issue — had ruled that national banking laws did not give banks individual federal rights under 42 U.S.C. �1983. “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,” wrote Judge Chester J. Straub for the unanimous court in Wachovia Bank v. Burke, 04-3770-cv. “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.” The dispute in Wachovia arose in Connecticut over the bank’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 expressly are 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 National Bank Act. 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 U.S. District Court for the District of Connecticut, 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. In its ruling Monday, the 2nd 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 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 Day, Berry & Howard represented Wachovia. Frederick C. Schafrick of 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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