KATHERINE POLK FAILLA, District Judge:
Plaintiff New York Bankers Association, Inc. ("NYBA") initiated this action on May 26, 2015, seeking (i) a declaratory judgment that City Local Law 38 for the Year 2012, entitled the Responsible Banking Act (the "RBA"), is preempted by federal and state law; and (ii) a permanent injunction prohibiting the operation and implementation of the RBA. Plaintiff now moves for summary judgment on its claims, or, in the alternative, for an order preliminarily enjoining Defendants City of New York (the "City"), the New York Department of Finance (the "DOF"), and the Community Investment Advisory Board (the "CIAB") (collectively, "Defendants") from enforcing the RBA. Simultaneously, Defendants move to dismiss the Complaint on the grounds that the RBA is not preempted and, in the alternative, ask the Court to sever any provisions of the RBA that it deems preempted.
A review of the extensive record in this case confirms that while the animating concerns of the City Council are valid, the means by which it sought to harness banks to redress those concerns intrudes on the province of the federal and state governments. Accordingly, and for the reasons discussed in the remainder of this Opinion, Plaintiff's motion for summary judgment is granted.
The instant litigation is Plaintiff's second challenge to the RBA. As such, the Court assumes a degree of familiarity with its Opinion in New York Bankers Association v. City of New York ("N.Y. Bankers"), No. 13 Civ. 7212(KPF), 2014 WL 4435427
A word about that legislative history is in order: It is lengthy, and marked by an abrupt change in position following the change in mayoral administrations. Broadly speaking, the Bloomberg administration concluded that the RBA was thoughtful but misguided, and, more importantly, preempted by federal and state law; the de Blasio administration concluded that the Act was an appropriate exercise of the City's discretion vis-à-vis the banks with which it deposited millions of dollars in City funds. The legislative history is contained here, despite its length, because it illuminates the motivations of the RBA's sponsors and supporters. In addition, the change in the City's position is discussed in detail, because that discussion yields contemporaneous insights into the legal issues now raised by the parties in this litigation.
Plaintiff NYBA is an association of approximately 140 commercial banks and federal savings associations located in New York State. (Pl. 56.1 ¶ 9). NYBA's members include national banks chartered pursuant to the National Bank Act of 1864 (the "NBA"), ch. 106, 13 Stat. 99 (codified as amended in scattered sections of Titles 12, 19, and 31 of the United States Code); federal savings associations chartered pursuant to the Home Owners' Loan Act of 1933 (the "HOLA"), Pub.L. No. 73-43, 48 Stat. 128 (codified as amended at 12 U.S.C. §§ 1461-1470); and commercial and thrift depository institutions chartered pursuant to the New York Banking Law (the "NYBL"). (Id.). Fifteen NYBA members serve as depositories for City funds. (Id. at ¶ 8).
The New York City Banking Commission (the "Banking Commission") was created in 1873 under the City Charter. (Pl. 56.1 ¶ 1). The members of the Banking Commission include the Mayor of the City (the "Mayor"), the City Comptroller (the "Comptroller"), and the Commissioner of the DOF. (Id. at ¶ 2). Among other things, the Banking Commission is responsible for designating which banks and savings associations may hold the City's funds. (Id. at ¶ 3; see also N.Y.C. Charter § 1524(1) ("[The Banking Commission] designate[s] the banks or trust companies in which all moneys of the city shall be deposited, and may ... from time to time change the banks and trust companies thus designated.")). Only financial institutions that are designated as "Deposit Banks" by the Banking Commission may hold City funds. (Pl. 56.1 ¶ 4).
To become a Deposit Bank, an institution must submit an application that includes audited financial statements, historical financial information, an overview of the current managerial structure, its most recent federal Community Reinvestment Act ("CRA") rating,
In the wake of the 2008 financial crisis, the New York City Council (the "City Council") Committee on Finance (the "Finance Committee") convened a hearing on November 23, 2010 (the "November 23 Hearing"), in order "to examine the process used by the Banking Commission when selecting the [City's] depository banks." (Pl. 56.1 ¶ 10). Domenic M. Recchia, Jr., then Chair of the Finance Committee, declared at the outset that
(Id. at ¶ 11).
Treasurer of the City of New York, Elaine Kloss, testified at the November 23 Hearing on behalf of the then-Commissioner of the DOF, David M. Frankel. (Pl. 56.1 ¶ 12). Treasurer Kloss explained that
(Id. at ¶ 13). Treasurer Kloss further testified that the Banking Commission "is not a regulatory body" and "is not a regulator." (Id. at ¶ 14).
Recalling his opening statements, Chairman Recchia asked Treasurer Kloss whether the City Comptroller's annual survey of City bank accounts sought information such as "what work [Deposit Banks] do in the community, how many loans they give out to small business[es]... [and] how many mortgages they have modified." (Pl. 56.1 ¶ 15). Treasurer Kloss replied, "No I don't believe they do
(Id. at ¶ 17). City Council Member Lewis A. Fidler added that he wanted to "know what efforts the [Banking] Commission makes to review and to in effect use the enormous power of [the] City as a depository to force banks or to pressure banks into being more cooperative with [the federal Home Affordable Modification Program]." (Id. at ¶ 18).
After hearing testimony from a City resident concerning his problems with obtaining loan modification, Chairman Recchia informed the resident that
(Pl. 56.1 ¶ 19).
Following the November 23 Hearing, Introductory Number 485 ("Intro 485") was introduced before the City Council on February 16, 2011. (Pl. 56.1 ¶ 21). Intro 485 provided, in relevant part:
(Pl. 56.1 ¶ 22).
On March 7, 2011, the Finance Committee and the City Council's Committee on Community Development held a joint hearing to consider Intro 485 (the "March 7 Hearing"). (Pl. 56.1 ¶ 23). Chairman Recchia again presided, and summarized the progress of both the bill and its animating policy goals:
(Pl. 56.1 ¶ 24).
Albert Vann, Chairman of the Committee on Community Development and a co-sponsor of Intro 485, explicitly linked the City's financial relationship with its deposit banks to the realization of those policy goals. Specifically, he noted that the City deposits
(Pl. 56.1 ¶ 25).
In contrast, Treasurer Kloss testified at the March 7 Hearing on behalf of the Commissioner of the DOF, in order "to explain the Administration's opposition to Intro 485, which would require the creation of a new classification system for banks." (Pl. 56.1 ¶ 26). Specifically, Treasurer Kloss testified that:
(Pl. 56.1 ¶ 27).
During this first hearing on Intro 485, Treasurer Kloss raised the issue of whether the proposed legislation was preempted by federal and state law. To that end, Treasurer Kloss explained the DOF's "primary concerns with this bill," which stemmed from preemption concerns:
(Pl. 56.1 ¶ 28).
In response to these concerns, Chairman Vann asked Treasurer Kloss:
(Pl. 56.1 ¶ 29). Treasurer Kloss reiterated her concern about the message such an information-gathering exercise by the City would send: "If we ask for that information, it will appear as though the city is governing banks. We do not regulate banks. We're preempted by federal and state law." (Id. at ¶ 30). Putting a finer point on it, Treasurer Kloss stated the DOF's position that "this bill is preempted by federal and state law." (Id.).
Chairman Vann disputed the DOF's assessment, stating:
(Pl. 56.1 ¶ 33).
Chairman Recchia echoed Chairman Vann, asking Treasurer Kloss, "what is wrong with a bank ... be[ing] rewarded because they're doing a lot in our community?... Could you tell me what's wrong with that?" (Pl. 56.1 ¶ 34). Treasurer Kloss explained that, while she thought the "intention [was] well taken," "the city has very complicated banking processes [that]... only a handful of banks ... can handle.... If we lose one of those banks[,] and [it is] not allowed to participate because we've excluded [it] due to some rating, that's a hazard to our operation." (Id. at ¶ 35).
(Pl. 56.1 ¶ 36).
The Finance Committee and the Committee on Community Development also
(Id. at ¶ 41). However, Takahisa "strongly urge[d] the City Council to consider an alternative method to achieve this worthy objective." (Id.). While the NYSBD "applaud[ed] the legislative intent to encourage banks to lend more, invest more and provide more services in New York City," it "believe[d] this goal can be achieved by using the existing CRA ratings, allowing the city to increase accountability for banks without using additional government resources or increasing the regulatory burden on banks." (Id. at ¶ 42).
Ms. Takahisa also submitted written testimony on behalf of the NYSBD, again invoking preemption concerns. In this testimony, Ms. Takahisa noted that "New York is one of only seven jurisdictions in the country that has a state or local CRA statute," and that the State "attempt[s] to conduct the CRA examinations concurrently with [its] federal counterparts to maximize consistency in the examination process and ratings." (Pl. 56.1 ¶ 43). Ms. Takahisa went on to explain that these "CRA examinations are quite intensive":
(Id. at ¶ 44).
City Council members, aware of federal and state regulatory regimes, expressed concern that those regimes did not go far enough in obtaining information or influencing bank conduct, thereby necessitating action by the City. Council Member Brad Lander, for one, inquired into the granularity of federal and state CRA examinations. When Ms. Takahisa testified that the federal and state CRA examinations "go down generally to the count[]y level," and "look at Brooklyn, Bronx, [and] Manhattan separately," Mr. Lander expressed dissatisfaction: "We need to get a lot more detail than that," because "there is a whole set of neighborhood issues in our communities... we need a local law that helps us really meet the community credit needs of our neighborhoods, not just our counties." (Pl. 56.1 ¶ 47).
Intro 485 was amended following the March 7 Hearing, and, on April 30, 2012, the Committee on Finance held another hearing (the "April 30 Hearing") to vote on the amended Intro 485 ("Intro 485-A").
Notably, Intro 485-A established a Community Investment Advisory Board (the "CIAB"), consisting of eight members. (Pl. 56.1 ¶ 53). The CIAB was established "to assess the needs of all of our communities for banking services and to evaluate how well those needs are being met." (Id. at ¶ 54). Its members were to include representatives on all sides of issues identified by the City Council, including organizations involved in community development, small business, and city banking. See Local Law No. 38 Int. No. 485-A ("LL 38"), sec. 1, subdiv. 2 (2012).
The Bloomberg administration remained opposed, citing preemption and competence issues. In this vein, DOF Commissioner Frankel submitted a statement of opposition to Intro 485-A "to share [the DOF]'s continued opposition to th[e] bill and [the DOF's] heightened concerns about the unwarranted regulatory intervention this bill proposes":
(Pl. 56.1 ¶ 60).
The dispute between the mayor and the City Council over the RBA came to a head in May 2012. At a May 15 City Council meeting (the "May 15 Meeting"), the City Council voted on Intro 485-A. (Pl. 56.1 ¶ 63). Before the vote, Chairman Vann reiterated the concerns that had remained constant since the original introduction of the bill:
(Id. at ¶ 64). Providing his perspective on the intra-governmental debate over whether the RBA was intended to "regulate" banks, Chairman Vann added: "Our bill does not regulate banks; it simply creates transparency which ... 99% of the time is in the best interest of our society and indeed our city." (Def. 56.1 Response ¶ 64). The City Council passed Intro 485-A by a vote of 44 to 4. (Pl. 56.1 ¶ 65).
On May 30, 2012, Mayor Bloomberg vetoed Intro 485-A. (Pl. 56.1 ¶ 66). He explained that Intro 485-A was "a misguided attempt to influence ... banks ... by overlaying extensive existing federal and State bank regulation with yet another layer of City regulation." (Id. at ¶ 67). He went on to echo the complaints of the bill's opponents:
(Id.).
On June 28, 2012, the City Council overrode Mayor Bloomberg's veto and enacted Intro 485-A as Local Law 38 of 2012, by a vote of 46 to 5. (Pl. 56.1 ¶ 68). Prior to the City Council's vote, then-Speaker Christine Quinn offered her support of the bill:
Chairman Vann further added that:
(Pl. 56.1 ¶ 70 (Plaintiff's emphases omitted)).
The June 28, 2012 Fiscal Impact Statement for Intro 485-A stated that Intro 485-A "will have no impact on City tax revenue"; instead, the estimated expenditures for fiscal year 2013 associated with Intro 485-A were estimated at $551,025. (Pl. 56.1 ¶¶ 71-72).
The RBA has several components. Principally, the RBA establishes the CIAB, comprised of eight members: (i) the Mayor or his designee; (ii) the Comptroller or his designee; (iii) the Council Speaker (the "Speaker") or her designee; (iv) the Commissioner of the Department of Housing Preservation and Development; (v) the Commissioner of the DOF; (vi) a member of a community-based organization "whose principal purpose is community and/or economic development, or consumer protection" designated by the Speaker; (vii) a representative of an organization or association that represents small business owners designated by the Speaker; and (viii) a representative of the City banking industry designated by the Mayor. LL 38 sec. 1, subdiv. 2.
The CIAB, in turn, has three primary functions. First, it is tasked with completing a written assessment of the "credit, financial and banking services needs throughout the City with a particular emphasis on low and moderate income individuals and communities" (the "Needs Assessment"). LL 38 sec. 1, subdiv. 1(a). To achieve this goal, the CIAB must (i) convene "at least one public hearing in each borough of the city"; (ii) "accept[], review[], and consider[] public comments which describe the nature and extent of such needs"; and (iii) consider certain data and information pertaining to the City's Deposit Banks. Id. The first Needs Assessment was to have been published on the DOF's website no later than March 1, 2014. Id.
To complete the Needs Assessment, the CIAB is specifically tasked with collecting information at the "census tract level"
Second, the CIAB must use the information it gathers to "establish benchmarks, best practices, and recommendations for meeting the needs identified" in the Needs Assessment. LL 38 sec. 1, subdiv. 1(a).
Third, the CIAB must compile and publish a report of its findings (the "CIAB Report" or the "Annual Report"). The first such report was to have been published on the DOF website and transmitted to the Banking Commission by March 1, 2015, and each March 1 thereafter. LL 38 sec. 1, subdiv. 1(b).
The CIAB Report must (i) evaluate how each Deposit Bank performed "relative to the benchmarks and best practices" established by the CIAB; (ii) identify "areas of improvement from past evaluations" as well as "areas where improvement is necessary" by the Deposit Banks in relation to the CIAB's "benchmarks and best practices"; (iii) "specifically identif[y] any [Deposit Bank]'s failure to provide information requested in writing by" the CIAB; (iv) summarize any written comments submitted to the CIAB, and the role of those comments; and (v) "summarize[], in tabular format, the data collected" from the Deposit Banks, "to the extent not deemed confidential or proprietary by the bank," at the "community district, borough, and citywide levels of aggregation." LL 38 sec. 1, subdiv. 1(b). Lastly, the RBA provides that the Banking Commission "may... consider[]" the CIAB Report when evaluating whether to designate or de-designate an institution as a Deposit Bank. Id.
Having failed in his effort to veto the RBA, Mayor Bloomberg delayed its implementation by declining to appoint any individuals to the CIAB. (See Pl. 56.1 ¶ 73). Those appointments were to have been made by no later than August 27, 2012, but
On November 3, 2013, Bill de Blasio was elected as the Mayor of the City. (Pl. 56.1 ¶ 78). On December 24, 2013, shortly before his inauguration, the DOF issued a Request for Information (the "RFI") seeking information from vendors to help the CIAB implement the RBA and collect information from Deposit Banks. (Id. at ¶ 79). The RFI stated that "[t]he first CIAB annual report must be provided to the Banking Commission ... and published on [the DOF]'s website along with collected bank data." (Id. at ¶ 81). It also posed questions to potential data collection vendors, including, "How would you collect data from 25 Designated Banks and coordinate with [the DOF] and the CIAB?" and "How will you safeguard propriet[ary] information?" (Def. 56.1 Response ¶ 82).
The RFI indicated the CIAB's intent to collect "proprietary or confidential information" down to "the census tract level." (Pl. 56.1 ¶ 83). It noted, however, that any information posted on the DOF's website would be "summarized at the community, borough and citywide levels of aggregation," and would not include information relating to any bank's plan to address the credit, financial, and banking services needs of the City identified in the Needs Assessment, insofar as deemed proprietary or confidential by the producing banks. (Def. 56.1 Response ¶ 83).
Several months later, on July 21, 2014, the DOF issued a Request for Proposals (the "RFP"), in which it sought bids from vendors to help the CIAB implement the RBA and to set a schedule for collecting information from the Deposit Banks. (Pl. 56.1 ¶ 87). The RFP echoed the RFI's assertion that the City will "collect ... data at the census tract level," which may include data that is "proprietary or confidential." (Id. at ¶ 88). Additionally, the RFP noted that the data would also include "relevant information ... from publicly available sources[.]" (Def. 56.1 Response ¶ 88).
A further logjam was broken after the change in administration, when the remaining CIAB members were appointed. The CIAB currently comprises Tracey Gardner (representing the Commissioner of Housing Preservation and Development), Jeffrey Shear (representing the Commissioner for the DOF), Blondel Pinnock (appointed by Mayor de Blasio), Tanisha Edwards (appointed by the City Council Speaker), Peter Hatch (representing Mayor de Blasio), Brian Cook (appointed by the City Comptroller), Christopher Kui (appointed by the City Council Speaker), and Bernell Grier (the representative of community development, housing, and consumer protection organizations). (Pl. 56.1 ¶ 97). As it happens, two members of the CIAB, Hatch and Cook, also hold positions as two of the three members of the City Banking Commission. (Id. at ¶¶ 93-95).
In September 2014, the City selected Econsult to implement the RBA, and formally contracted with Econsult to provide services in November 2014. (Pl. 56.1 ¶ 98). Econsult intends to collect and to analyze data regarding Deposit Banks, to "produce a ranking of [Deposit Banks] in key banking categories related to the topics delineated in the [RBA]," and to "narrate ... how each [Deposit Bank] is meeting the needs identified" by the CIAB. (Id. at ¶ 99). It will focus on "business lending and home mortgage lending ... in moderate income neighborhoods." (Id. at ¶ 100).
On December 18, 2014, Treasurer Kloss — now reflecting the views of an administration that supports the RBA — notified the City's Deposit Banks that the DOF "has engaged the services of Econsult Solutions, Inc. to assist the CIAB with the preparation of the biennial banking needs assessment and annual report. In the coming weeks Michael Geffrard from LGR Group, LLC, which is a subcontractor of Econsult Solutions, Inc.[,] will contact you to request bank data in connection with [the RBA]." (Pl. 56.1 ¶ 101).
On January 13, 2015, the CIAB held a public meeting and announced its plan to publish the first Needs Assessment on April 9, 2015, and the first Annual Report on November 9, 2015. (Pl. 56.1 ¶ 102). At the January 13, 2015 hearing, City subcontractor Michael Geffrard stated that Econsult will "solicit ... information" from the City's Deposit Banks "about how they can do things differently and better." (Id. at ¶ 103). Lee Huang, the Senior Vice President and Principal of Econsult, also stated that the City's Deposit Banks would "need to respond to some of our findings and recommendations." (Id. at ¶ 104). Both Geffrard and Huang emphasized that, despite anticipated collection efforts from individual Deposit Banks, much of the data they intended to analyze was already publicly available. (Def. 56.1 Response ¶¶ 103-04).
Since its organizational meeting, the CIAB has held five public hearings, one in each borough. (Pl. 56.1 ¶ 106). The Association for Neighborhood and Housing Development, Inc. ("ANHD"), which is not an agency of the City, advertised these meetings in a February 5, 2015 email, which stated that: "The RBA lets the city use the power of [its] money to hold banks accountable to better meet the needs of our local communities. Th[e] RBA gives us a powerful tool to hold banks accountable and reward the best local bank reinvestment practices." (Id.; see also Def. 56.1 Response ¶ 107 (noting that the ANHD is not a City agency)).
On February 9, 2015, the CIAB held the public hearing for the Borough of Brooklyn (the "Brooklyn Hearing"). (Pl. 56.1 ¶ 108). At the Brooklyn Hearing, Treasurer Kloss testified that the purpose of the Brooklyn Hearing was for the CIAB "to hear from the public how New York City designated banks are meeting their local credit, financial, and banking needs throughout the city with special emphasis on low and moderate income individuals." (Id. at ¶ 109).
At the Brooklyn Hearing, Jamie Weisberg testified on behalf of the ANHD. (Pl. 56.1 ¶ 110). Ms. Weisberg testified that the RBA "lets us use the power of our money to hold banks accountable." (Id. at ¶ 111). She also testified that banks "need to support small businesses with banking services," and that "not nearly enough money is being dedicated to neighborhood based community organizations." (Id.)
City Council Member Darlene Mealy testified at the Brooklyn Hearing. She
(Id. at ¶ 113).
At the Brooklyn Hearing, Clifford Rosenthal, who had previously worked at the Consumer Financial Protection Bureau, testified in support of the RBA and thanked the CIAB "for going beyond what [the] CRA does. .... It's really very encouraging." (Pl. 56.1 ¶ 115).
On February 10, 2015, the CIAB held the public hearing for the Borough of Staten Island (the "Staten Island Hearing"). (Pl. 56.1 ¶ 116). Ms. Weisberg testified again, noting that "we need banks making responsible loans. ... People need access to banks, access to mainstream financial institutions, and also to products that meet their needs." (Id. at ¶ 118). Ms. Weisberg concluded by testifying that "it's really important that banks are acting responsibly. We know what happens when they don't. So thank you." (Id. at ¶ 119).
The only other individual to testify at the Staten Island Hearing was City Council Member Deborah Rose. (Pl. 56.1 ¶ 120). Ms. Rose testified that "we must address the locations of banks in my district," and posed the question, "if banks are not giving loans to the community then what is happening to the money that residents are depositing? The money should be flowing back into the community." (Id. at ¶ 122). She further opined that "[p]eople who have proof of their credit worthiness and have funds should be able to buy a home and shouldn't ... fall prey to predatory lenders." (Id. at ¶ 123)
On February 12, 2015, the CIAB held the public hearing for the Borough of the Bronx (the "Bronx Hearing"). (Pl. 56.1 ¶ 124). Jim Buckley, an employee of the University Neighborhood Housing Program, testified at the Bronx Hearing that "the importance of the Federal Community Reinvestment Act cannot be emphasized in the return of bank investment to so many communities. The RBA is a positive and logical next step for the City to take in order to make banks more accountable." (Id. at ¶ 125).
At the final public hearing, held in Manhattan on February 18, 2015, Blondel Pinnock, a CIAB member, stated:
(Pl. 56.1 ¶ 126; see also Def. 56.1 Response ¶ 126).
During the CIAB's organizational meeting, and later at the meetings held in the five Boroughs, ANHD handed out a pamphlet, funded in part by the City, describing the RBA as an attempt to make "banks invest responsibly" and "to encourage banks seeking to hold city deposits to be more accountable to low-and moderate-income New Yorkers." (Pl. 56.1 ¶ 127). ANHD's pamphlet encouraged attendees at public hearings to ask, inter alia, whether banks: "provide the services you need and can afford"; have "bank employees [that] speak your language"; "help people become homeowners by offering loans and supporting first-time home buyer programs"; "make grants to community organizations"; ensure there are "enough jobs for people in your neighborhood"; and "offer services and make loans to small businesses." (See id. at ¶ 128; Def. 56.1 Response ¶ 128). ANHD advertises that its pamphlet was funded by the "New York City Department of Cultural Affairs in partnership with the City Council." (Pl. 56.1 ¶ 129).
On April 1, 2015, the CIAB held a hearing to preview the Needs Assessment. (Pl. 56.1 ¶ 130). There, members confirmed that "[t]he interpretation of what [the Needs Assessment] means from a policy standpoint ... will really intensify as we look at the second half of this exercise, which is how are the individual designated banks doing relative to the citywide averages, relative to the needs that have been expressed in the assessment." (Id. at ¶ 131). Dan Miles of Econsult also stated that the CIAB would "make some direct requests ... of the banks for information that is only partially publicly available." (Id. at ¶ 132; Def. 56.1 Response ¶ 132). Mr. Miles indicated that, through an "iterative process," the CIAB will be requesting information relating to, among other things, bank "economic development efforts, foreclosed properties, and outreach efforts," and asking Deposit Banks "to verify the data [it] ha[s] on them." (Pl. 56.1 ¶ 132).
On February 2, 2015, the Deposit Banks were sent a "2015 re-designation notice" and a list of the documentation required for designation. (Pl. 56.1 ¶ 133).
On April 30, 2015, the CIAB released its Needs Assessment. (Pl. 56.1 ¶ 135). The Needs Assessment announced its purpose as that of "impact[ing] public policy and improv[ing] private lending behavior to address the gaps in access and resources that [it] identified." (Id. at ¶ 136). It further stated that "this Needs Assessment report and the Annual Report that will follow represent an important first for NYC: a comprehensive assessment of banking activities." (Id. at ¶ 137). As part of its effort to "improve private lending behavior," the Needs Assessment evaluated City banks based on the number of home loans, small business loans, and branch locations to see whether they were serving "the needs of ... low-income
The Needs Assessment stated that, to prepare the forthcoming Annual Report, the CIAB will be conducting an "examination of [Deposit Banks]." (Pl. 56.1 ¶ 141). The Needs Assessment stated that the "examination" would involve a "specific exploration of individual [Deposit Banks'] performance in meeting the banking needs of NYC residents and businesses." (Id. at ¶ 142). The process would involve gathering information about "what each [Deposit Bank] is doing to serve low-income communities in NYC, identify[ing] areas of improvement, and rank[ing] the [Deposit Banks] based on their performance in the previous year." (Id. at ¶ 143). In conducting its "examination," the CIAB would be "interfac[ing]" with Deposit Banks as "part of the preparation of the Annual Report" to gather data about each bank's "policies, programs, and performance." (Id. at ¶ 144). The Annual Report was intended to "directly and decisively comment on the lending performance or underlying motivations of individual banks or groups of banks as it relates to any disparities across communities throughout NYC." (Id. at ¶ 145).
The Needs Assessment noted particular categories as to which it was believed the CIAB would need to collect information not available under the Federal CRA, including: depository banks at the census tract level, multi-family loan portfolios, mortgage loan modifications, servicing of distressed mortgages, foreclosure prevention initiatives, and financial products for low to moderate-income residents. (Pl. 56.1 ¶ 146). The Needs Assessment also noted that the CIAB
(Id. at ¶ 147).
Similarly, the Needs Assessment noted that the CIAB "[did] not have access to some of the key variables that determine whether or not a borrower is offered a home loan and the type of loan that the individual receives (prime vs. subprime). These variables included credit score, debt-to-income ratio, wealth, and other measures." (Pl. 56.1 ¶ 148). To that end, the Needs Assessment stated that "the Annual Report will explore further which [Deposit Banks] are making home loans in which NYC communities." (Id. at ¶ 149). It also noted that "the forthcoming Annual Report will evaluate each [Deposit Bank's] performance in making loans to small businesses" as well as "where [Deposit Banks] are making business loans." (Pl. 56.1 ¶ 151; see also id. at ¶ 152 ("[t]he forthcoming Annual Report will review the bank branch locations of each [Deposit Bank]")).
A large number of the Needs Assessment's areas of focus related to low-to moderate-income residents. For example, it noted that: (i) the "strict requirements used by the Bank Chex System to evaluate credit worthiness, including credit history,... prevent[s] many low and moderate-income residents from being qualified by banks to open an account"; (ii) "[m]any deem the bank fees for basic account services to be too high for low and moderate income NYC residents"; (iii) "[b]ank locations closest to unserved or underserved neighborhoods are traditionally clustered along commercial corridors," and "the scarcity of these bank branches has led to
On May 13, 2015, the CIAB sent an "introductory letter" to the City's Deposit Banks "for the purpose of requesting specific bank data in connection with the RBA reporting act requirements." (Pl. 56.1 ¶ 164). The letter was sent to the individual at each Deposit Bank responsible for maintaining the bank's depository relationship with the City. (Id. at ¶ 165). It recited that the CIAB had collected "preliminary data ... from public sources relating to branch location, home lending and business loans," and asked the Deposit Bank recipients to "review the data ... and confirm that it is correct," because "[t]his information will appear in the annual report." (Id. at ¶ 166). The CIAB's letter also asked Deposit Banks to provide information on "each [Deposit] Bank's efforts to" address each of the eight categories set forth in the RBA that sought to gauge whether the Deposit Banks were meaningfully addressing the credit and financial needs of the City and its constituent communities. (Pl. 56.1 ¶ 167; see also LL 38 sec. 1, subdiv. 3(a)-(h)).
The topics on which the CIAB seeks information, including the number of "foreclosure actions," "loan modifications," and the number of loans "at least sixty days delinquent," can reflect the financial health of a Deposit Bank. (Pl. 56.1 ¶ 189). Plaintiff advises, and Defendants do not seriously dispute, that much of the information sought by the CIAB from the Deposit Banks is confidential and involves trade secrets or personal or proprietary information. (Id. at ¶ 190). Although the RBA requires the publication of "all supporting materials submitted by such banks ... on the [DOF's] website," LL 38 sec. 1, subdiv. 4, and the introductory letter "cites no provision of the RBA allowing the CIAB to ignore the express terms of the Act" (Pl. 56.1 ¶ 192), Defendants nonetheless "aver that the CIAB is not bound by the RBA to publish confidential or proprietary information that it might receive" (Def. 56.1 Response ¶ 192).
NYBA members invest substantial resources ensuring compliance with applicable federal laws and regulations, including the Federal CRA. (Pl. 56.1 ¶ 186). Certain NYBA members that are Deposit Banks have stated that the RBA is more invasive than the Federal CRA and asks for information beyond what is required under the Federal CRA. (Id. at ¶ 183). Complying with the CIAB's "introductory" letter will be burdensome for certain NYBA members who are Deposit Banks and they will need to expend resources to do so. (Id. at ¶ 200 (citing declarations from representatives of nine Deposit Banks)). Indeed, at least one bank has chosen to cease being a Deposit Bank because of the "the economic burden associated with gathering the information required by the Responsible Banking Act." (Id. at ¶ 199). Certain NYBA members who are Deposit Banks are also concerned about the consequences to their reputation, and consequently to their business, if they do not comply with the CIAB's introductory letter and/or receive a favorable evaluation from the CIAB. (Id. at ¶ 201).
Plaintiff filed its complaint in N.Y. Bankers on October 11, 2013. 2014 WL 4435427, at *1. On October 25, 2013, the City's Law Department sent a letter to the Court, stating, in part, that:
(Pl. 56.1 ¶ 77). On March 21, 2014, after Mayor de Blasio took office, the City's Law Department submitted a letter to this Court stating "that the City has reconsidered its position concerning the validity of Local Law 38 of 2012 ... and now supports its validity." (Id. at ¶ 85). On September 9, 2014, upon consideration of dispositive motions filed by the parties, the Court dismissed the complaint for lack of standing. N.Y. Bankers, 2014 WL 4435427, at *1.
In dismissing the complaint, the Court noted that "Plaintiff brings serious substantive claims, and while it did not have standing to pursue them in October 2013, the Court takes no position on whether pleading modified in accordance with this Opinion, in addition to the events of the intervening year — or, alternatively, the occurrence of certain anticipated events, such as the convening of the CIAB or the award of the contract to provide support services to the CIAB — would be sufficient to establish standing." N.Y. Bankers, 2014 WL 4435427, at *14.
Plaintiff filed the instant action on May 26, 2015, after, inter alia, the Deposit Banks received the CIAB's introductory letter. (Dkt. # 1). The parties requested a pre-motion conference on an expedited basis, in no small part because of the looming June 12, 2015 deadline for compliance with the CIAB's introductory letter. (Dkt. # 4, 6). The Court held a pre-motion conference on June 4, 2015, the earliest date the parties were available, to discuss a briefing schedule. (See Dkt. # 15).
At the conference, the Court inquired as to whether the June 12, 2015 deadline could be extended to permit dispositive motion practice, or if the parties anticipated submitting briefing on whether a temporary restraining order ("TRO") should issue. Counsel for Defendants indicated he would confer with his clients to see if the deadline could be extended to obviate the need for TRO briefing. During the conference, Defendants also conceded that, since the RBA is now being enforced, the NYBA's standing was no longer at issue. (Dkt. # 15 at 13-14).
Following the conference, Defendants submitted a letter stating that the June 12, 2015 deadline would be extended for 60 days, to August 11, 2015. (Dkt. # 11). After holding a subsequent telephone conference with the parties, the Court issued a scheduling order that provided for expedited briefing of dispositive cross-motions. (Dkt. # 14). To address Plaintiff's concern regarding the imminence of the August 11, 2015 deadline, the parties agreed to file, simultaneously, briefing on the issue of whether a preliminary injunction should issue. The parties' opening briefs were filed on June 18, 2015; their opposition
On July 2, 2015, amici American Bankers Association, the Independent Community Bankers of America, and the Independent Bankers Association of New York filed a brief in support of Plaintiff's motion for summary judgment ("ABA Br." (Dkt. # 36)), and amici ANHD, Legal Services-NYC, New Economy Project, and the National Community Reinvestment Coalition filed a brief in support of Defendants' motion to dismiss ("ANHD Br." (Dkt. # 38)).
The Court held oral argument on August 5, 2015, and informed the parties thereafter that a decision from the Court would issue before August 11, 2015.
Under Federal Rule of Civil Procedure 56(a), summary judgment may be granted only if all the submissions taken together "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The moving party bears the initial burden of demonstrating "the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323, 106 S.Ct. 2548. A fact is "material" if it "might affect the outcome of the suit under the governing law," and is genuinely in dispute "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S.Ct. 2505; see also Jeffreys v. City of New York, 426 F.3d 549, 553 (2d Cir.2005) (citing Anderson). The movant may discharge this burden by showing that the nonmoving party has "fail[ed] to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322, 106 S.Ct. 2548; see also Selevan v. N.Y. Thruway Auth., 711 F.3d 253, 256 (2d Cir.2013) (finding summary judgment appropriate where the non-moving party fails to "come forth with evidence sufficient to permit a reasonable juror to return a verdict in his or her favor on an essential element of a claim" (internal quotation marks omitted)).
If the moving party meets this burden, the nonmoving party must "set out specific facts showing a genuine issue for trial" using affidavits or otherwise, and cannot rely on the "mere allegations or denials" contained in the pleadings. Anderson, 477 U.S. at 248, 250, 106 S.Ct. 2505; see also Celotex, 477 U.S. at 323-24, 106 S.Ct. 2548; Wright v. Goord, 554 F.3d 255, 266 (2d Cir.2009). The nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts," Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986), and cannot rely on "mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment," Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 12 (2d Cir.1986) (citing Quarles v. Gen. Motors Corp., 758 F.2d 839, 840 (2d Cir.1985)). Furthermore, "[m]ere conclusory allegations or denials cannot by themselves create a genuine issue of material fact where none would otherwise exist." Hicks v. Baines, 593 F.3d 159, 166 (2d Cir.2010) (quoting Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d Cir.1995) (internal quotation marks and citations omitted)).
The Supremacy Clause invalidates any state law that is contrary to federal law. U.S. CONST., ART. VI, cl. 2; Gibbons v. Ogden, 22 U.S. 1, 211, 9 Wheat. 1, 6 L.Ed. 23 (1824). "Where the Constitution grants the Federal Government the power to act, the Supremacy Clause dictates that federal enactments will prevail over competing state exercises of power." United States v. Gillock, 445 U.S. 360, 370, 100 S.Ct. 1185, 63 L.Ed.2d 454 (1980). Simply put, a state law (and, by extension, a local law) that conflicts with federal law is of no effect. Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516, 112 S.Ct. 2608, 120 L.Ed.2d 407 (1992) (quoting Maryland v. Louisiana, 451 U.S. 725, 746, 101 S.Ct. 2114, 68 L.Ed.2d 576 (1981)).
The exercise of federal supremacy is not to be lightly presumed. Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 522, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981) (internal citations omitted). In fact, there is a strong presumption against federal preemption of local legislation. Richmond Boro Gun Club, Inc. v. City of New York, 97 F.3d 681, 687 (2d Cir.1996). "The presumption against federal preemption disappears, however, in fields of regulation that have been substantially occupied by federal authority for an extended period of time. Regulation of federally chartered banks is one such area." Wachovia Bank, N.A. v. Burke, 414 F.3d 305, 314 (2d Cir. 2005) (quoting Flagg v. Yonkers Sav. & Loan Ass'n, FA, 396 F.3d 178, 183 (2d Cir.2005)); see also Cuomo v. Clearing House Ass'n, L.L.C., 557 U.S. 519, 554, 129 S.Ct. 2710, 174 L.Ed.2d 464 (2009) (Thomas, J., concurring in part and dissenting in part) ("[T]his presumption is not triggered when the State regulates in an area where there has been a history of significant federal presence. National banking is the paradigmatic example[.]" (internal citations and quotation marks omitted)).
"Federal preemption of a state statute can be express or implied, and generally occurs: [i] where Congress has expressly preempted state law, [ii] where Congress has legislated so comprehensively that federal law occupies an entire field of regulation and leaves no room for state law, or [iii] where federal law conflicts with state law." Pac. Capital Bank, N.A. v. Connecticut, 542 F.3d 341, 351 (2d Cir. 2008) (citing SPGGC, LLC v. Blumenthal, 505 F.3d 183, 188 (2d Cir.2007)); accord Madden v. Midland Funding, LLC, 786 F.3d 246, 249 (2d Cir.2015).
In analyzing whether a statute is preempted by federal law, a court must first determine whether this law is "proprietary, rather than regulatory," Healthcare Ass'n of N.Y. State v. Pataki, 471 F.3d 87, 108 (2d Cir.2006), because "pre-emption doctrines apply only to ... regulation," Bldg. Indus. Elec. Contractors Ass'n v. City of New York ("BIECA"), 678 F.3d 184, 187 (2d Cir.2012) (quoting Bldg. & Const. Trades Council of Metro. Dist. v. Associated Builders & Contractors ("Boston Harbor"), 507 U.S. 218, 227, 113 S.Ct. 1190, 122 L.Ed.2d 565 (1993) (emphasis in Boston Harbor)). Thus, if the RBA is regulatory, the Court must determine whether this law is preempted because it conflicts with federal law. See Barnett Bank, N.A. v. Nelson, 517 U.S. 25, 31, 116 S.Ct. 1103, 134 L.Ed.2d 237 (1996).
As the Second Circuit has explained, "[i]n distinguishing between proprietary action that is immune from preemption and impermissible attempts to regulate..., the key is to focus on two questions":
Healthcare Ass'n, 471 F.3d at 109 (quoting Cardinal Towing & Auto Repair, Inc. v. City of Bedford, 180 F.3d 686, 693 (5th Cir.1999)). The same analysis applies to state preemption. See Matter of Council of City of N.Y. v. Bloomberg, 6 N.Y.3d 380, 392, 813 N.Y.S.2d 3, 846 N.E.2d 433 (2006) (deeming local law regulatory where "the Council ... [did] not seriously assert that the purpose and likely effect of the law [wa]s to make the City's contracts cheaper or their performance more efficient," and where the law was instead "obviously designed as an enactment of social policy" (internal quotation marks and citations omitted)).
"[W]hen a court assesses whether a governmental policy has a regulatory purpose, it looks primarily to the objective purpose clear on the face of the enactment, not to allegations about individual officials' motivations in adopting the policy. ... [P]reemption doctrine evaluates what legislation does, not why legislators voted for it or what political coalition led to its enactment." BIECA, 678 F.3d at 191 (emphasis in original). That said, courts "do not blindly accept the articulated purpose of a state statute for preemption purposes"; "legislative history is an important source for determining whether a particular statute was motivated by an impermissible motive in the preemption context." Entergy Nuclear Vermont Yankee, LLC v. Shumlin, 733 F.3d 393, 416, 419 (2d Cir. 2013) (citations and alteration omitted); see also Loyal Tire & Auto Ctr., Inc. v. Town of Woodbury, 445 F.3d 136, 145 (2d Cir.2006) (Sotomayor, C.J.) ("[W]e must consider any specific expressions of legislative intent in the statute itself as well as the legislative history[.]").
Plaintiff contends that the RBA is regulatory because (i) the text of the RBA and its legislative history evidence a motivation to advance distinct policy goals; and (ii) it serves no proprietary purpose. (Pl. Br. 13-16; Pl. Reply 5-7; Pl. Opp. 8-14). Defendants, in turn, argue that the RBA is not regulatory because (i) the bulk of the RBA serves a purely informational purpose; (ii) alternatively, it furthers the City's proprietary interests; (iii) the decision of whether to designate or de-designate banks is vested in an independent administrative body (i.e., the Banking Commission); and (iv) it sets forth no compulsory
On its face, the RBA is concerned with "assess[ing] the credit, financial and banking services needs throughout the City with a particular emphasis on low and moderate income individuals and communities." LL 38 sec. 1, subdiv. 1(a). Defendants suggest a variety of purposes for such an assessment, but only one appears on the face of the RBA: it "may be considered by the [Banking Commission] in reviewing a bank's application for designation or redesignation as a [Deposit bank]." Id. at subdiv. 1(b). The RBA thus unambiguously seeks to advance general societal goals and encourage a general policy. See BIECA, 678 F.3d at 189; Cardinal Towing, 180 F.3d at 692. These aims, however commendable, evince a regulatory purpose.
What is obvious from the text is confirmed by the legislative history. The legislators who sponsored and who spoke in support of this bill did so with one voice: federal and state laws were seen as ineffectual in terms of both the collection of information and the influence over bank conduct regarding community reinvestment in New York City. Legislators enacted the RBA to counteract these perceived failures of federal and state law, by "encouraging" banks to modify loans, increase lending, and provide more products and services to certain underserved or poorly-served segments of the population. Indeed, as detailed in the Facts section, a certain regulatory braggadocio permeates the legislative history of the RBA. (See, e.g., Pl. 56.1 ¶ 19 ("We're trying to be creative and finding ways that we could bring banks to the table, bring them out to the forefront to say now it's time to start modifying these loans, stop playing games, let's help those people that want to be helped, that could be helped, and we're trying to be creative."); id. at ¶ 36 ("The City Council is no longer going to sit back and let banks get[] millions of dollars in deposits and let the Banking Commission just sit back and do nothing."); id. at ¶ 52 (explaining the need for the RBA and noting that "state and federal CRA ratings actually provide very little meaningful information regarding a bank's community level of services"); id. at ¶ 59 (articulating the goal of the RBA to "encourage the banks that receive city deposits to become more responsive[,] more accountable," and "more responsible to the city and to our communities within the city"); id. at ¶ 69 ("This bill is going to ... allow us to actually create a benchmark, if you will, for what is the state of banking in our neighborhoods and what do we need to improve it. It is an incredibly important piece of legislation to make sure that community voices are part of the banking process."); id. at ¶ 70 ("[The bill] really enacts the strongest local community reinvestment law in the nation.")). In the face of this evidence, Defendants are left to argue that each speaker "expresses only his [or her] opinion on the power of [the RBA]." (See, e.g., Def. 56.1 Response ¶ 70). Even were that true, the Court cannot overlook the absence of any contemporaneous evidence — indeed, any legislative history — espousing a permissible, non-regulatory purpose behind the RBA.
Along these same lines, the City's argument that the RBA serves distinct, non-regulatory "planning and policymaking purposes" (Def. Reply 3; see also Def. Br. 31 (referring to the RBA's "research and analysis scheme")), is difficult to credit. To begin with, the Court perceives no difference between an ostensibly permissible "policymaking" purpose and an impermissible "regulatory" purpose. These terms are used interchangeably in common parlance and in preemption case law. See Boston Harbor, 507 U.S. at 229, 113 S.Ct. 1190 ("[A] State may act without offending... pre-emption principles ... when it acts as a proprietor and its acts therefore are not tantamount to regulation or policymaking." (internal quotation marks omitted)); Mayor of City of N.Y. v. Council of City of N.Y. ("Mayor of N.Y.C."), 4 Misc.3d 151, 780 N.Y.S.2d 266, 270 (N.Y.Sup.Ct.2004) ("Local Law 36 sets policy."). With respect to the "planning" goal of the RBA — to the extent this is not simply a euphemism for further regulation — the legislative history of the RBA and the spirited debate that ushered it into law belie a purpose so toothless.
Defendants argue that Plaintiff has cast an unreliable account of the legislative history, primarily because the legislative history it cites includes comments made by legislators before the bill was drafted. (Def. Reply 9). To the extent Defendants believe comments made by Chairman Recchia and Chairman Vann during the November 23 Hearing "shed no light whatsoever" on the issue of legislative intent, they are incorrect. The comments of Chairman Recchia and Chairman Vann during the November 23 Hearing were consistent with comments they made thereafter, and are particularly relevant because these legislators served as co-sponsors of the bill that would become the RBA. Indeed, it is Defendants' argument that the legislative history "unequivocally" demonstrates that the RBA is not regulatory that beggars belief. (Id. at 9). Numerous individuals with experience in municipal finance and community reinvestment testified at length regarding their concerns with the RBA's regulatory aims. (See Pl. 56.1 ¶ 27 ("[W]e are concerned that the bill may lead to confusion
The Court's finding that the RBA's primary purpose is to regulate banks leads a fortiori to the conclusion that its primary purpose is not "proprietary." This conclusion is further borne out by the undisputed facts. Nowhere in the text of the RBA or the legislative history cited by the parties is there even a suggestion that the City's role as proprietor drove this law.
Defendants argue for a broad interpretation of a municipality's proprietary function, relying primarily on the Second Circuit's decision in Sprint Spectrum L.P. v. Mills, 283 F.3d 404 (2d Cir.2002). Specifically, Defendants argue that Sprint Spectrum demonstrates that a municipal actor's "concerns for the health and safety" of its constituents can constitute a permissible proprietary purpose. (Def. Br. 21 (quoting Sprint Spectrum, 283 F.3d at 410)). A review of that case, however, makes clear that Defendants' reliance is misplaced. The school district in Sprint Spectrum "entered into a single lease agreement with respect to a single building" to allow a private company to place a cellular tower on school property. 283 F.3d at 420. As part of the agreement, the school district placed restrictions on the radio frequency emissions that the cellular tower could emit. Id. Although the school district placed these conditions on this single lease, it "did not purport to punish [the lessee] for any past conduct or to impose any condition with respect to" other lease agreements. Id. at 420-21. Calling this activity "plainly proprietary," id. at 420, the Second Circuit would not infer that the school district "sought to establish a[] general municipal policy," id. at 421.
The critical distinction here is that Defendants are not attempting to place conditions on deposits or transactions that the City makes as a bank customer — i.e., as proprietor — when "interact[ing] with private participants in the marketplace." Sprint Spectrum, 283 F.3d at 417 (quoting Boston Harbor, 507 U.S. at 227, 113 S.Ct. 1190). Instead, Defendants purport to place conditions on (or at least set forth criteria for) transactions taking place among other private participants dealing in financial markets far afield from municipal deposit-taking. See BIECA, 678 F.3d at 189 n. 2 ("[I]f [the contract] governs ... unrelated matters to which the state might not even be a party," this "[e]xtracontractual effect is an indicator of regulatory rather than proprietary intent[.]"). The difference can be illustrated by imagining that the school district in Sprint Spectrum had attempted to regulate the emissions emanating from cellular towers placed on property owned by its constituents — that is, teachers, parents, and students. Such activity would no longer be "plainly proprietary";
That the RBA does not emanate from the City's proprietary concerns is brought into sharper relief when one considers that the RBA will cost the City more than $500,000 per year, but will yield the City — as banking customer — no discernable financial benefits. See Mayor of N.Y.C., 780 N.Y.S.2d at 270 ("The City Council explains its interest as economic. ... Defendants, however, have not demonstrated that the City, rather than individual borrowers, would benefit financially[.]").
In addition, Plaintiff is correct that the City here does not remotely resemble a "typical market consumer." (Pl. Opp. 12). A typical consumer does not hold public hearings, collect and compile an enormous amount of information directly from banks, and then publish its own comprehensive rating system. Metro. Taxicab Bd. of Trade v. City of New York, No. 08 Civ. 7837(PAC), 2008 WL 4866021, at *11 (S.D.N.Y. Oct. 31, 2008) ("[T]he process the City followed in promulgating the [challenged] Rules belies any claim that the City is acting as a proprietor rather than a regulator. The City published notice of its intent to adopt new rules in the City Record, took public comments, and then adopted the new rules. It even held additional public hearings. This is not the kind of conduct the City engages in when it purchases vehicles for its own use."). Simply put, the RBA seeks to harness the City's power in the marketplace to leverage its own policy goals. This it may not do. See Council of City of N.Y., 6 N.Y.3d at 395, 813 N.Y.S.2d 3, 846 N.E.2d 433 ("[A] state may [not] escape the force of federal preemption by using its power in the marketplace to implement governmental policies. To the contrary, ... a state acts as a regulator, not a proprietor, when it uses its bargaining leverage as a means of attaining policy ends." (citing Boston Harbor)).
Defendants contend — reviving arguments made by early proponents of the RBA — that the RBA requires nothing of banks, and therefore cannot regulate conduct. (See Def. Br. 15). They further argue that since the Banking Commission "may," but is not "required to," consider the CIAB's report when designating or de-designating Deposit Banks, the RBA does
Plaintiff counters that the RBA's threat of branding non-compliant banks that do not produce information, and potentially withdrawing their depository status, brings to bear a cognizable and coercive force on Deposit Banks. (Pl. Opp. 14-19). The RBA, it argues, will force the Deposit Banks to expend significant resources complying with a third wave of regulatory data production requests regarding community reinvestment efforts. Moreover, Plaintiff argues that the RBA, by requiring production of "census tract"-level detail, far exceeds the burden imposed by the Federal CRA and its state-law analogue. (See Pl. Br. 20-22).
Before addressing these arguments, the Court observes that the focus of the inquiry at this stage — i.e., determining whether a law is "regulatory" — is generally "centered on regulatory purpose rather than effect." BIECA, 678 F.3d at 190 (emphasis in original). Cf. Discussion Sec. B(2) (explaining that both purpose and effect are relevant to whether local regulation in a given field so interferes with federal regulation as to be deemed preempted by the federal statute). Nevertheless, the Court will address these arguments because "manifest purpose and inevitable effect," Gould, 475 U.S. at 291, 106 S.Ct. 1057, are somewhat difficult to disentangle here.
Plaintiff has the better of these arguments for several reasons. First, the RBA's very structure secures compliance through public shaming of banks and/or threatening to withdraw deposits from banks that do not provide information to the CIAB. The Court sees no reason why regulation through coercive power, rather than by explicit demand or stricture, should be immune from preemption scrutiny. See N.Y. News, Inc. v. State of N.Y., 745 F.Supp. 165, 171 (S.D.N.Y.1990) ("Because of the coercive and pervasive effect the Board will have ... we find ... that the establishment of a board of inquiry under the circumstances such as these is preempted."); id. at 172 ("Its powers are inherently coercive, and were intended to be so, and its report will inevitably, and is intended to, force the parties to reach a particular agreement, in accordance with the public pressure generated by the Board's report and recommendations."); Cab Operating Corp. v. City of New York, 243 F.Supp. 550, 558 (S.D.N.Y.1965) (comparing "[a] mere informal poll of employees by a private party" to "a formal election sponsored and conducted by public officials under governmental aegis and expected to exert the coercive pressure of public opinion"); Skilled Craftsmen of Tex., Inc. v. Tex. Workers' Comp. Comm'n, 158 S.W.3d 89, 95 (Tex.App.2005) ("It appears clear that the disparaging label ... is designed to make an example out of an employer in order to coerce a change in the conduct of [those] who wish to avoid such a stigma.").
The Court also agrees with Plaintiff that because two of the three Banking Commission members sit on the CIAB, the theoretical possibility that the Banking Commission may not adhere to the CIAB's rankings when choosing Deposit Banks is unlikely to be borne out in practice. But that is beside the point. The RBA authorizes the Banking Commission to consider its rankings; it encourages this by requiring the CIAB to send the Banking Commission its Annual Report; and its raison d'être depends on the Banking Commission taking its findings into account. A law need not remove all discretion from an agency's hands to be considered regulatory. See Mayor of N.Y.C., 780 N.Y.S.2d at 276 (finding local law preempted where "the City could impose various penalties" (emphasis added)), abrogating Local Law 36 sec. 2(e)(1) (2002) ("The comptroller may, in his or her discretion, recommend that city moneys or funds not be invested or permitted to remain invested in the stocks, securities or other obligations of any financial institution that is a predatory lender or of an affiliate of a predatory
Because the Court has found the RBA to be regulatory, it must address whether it is preempted by federal or state law.
"[C]onflict pre-emption, which is at issue here, occurs when compliance with both state and federal law is impossible, or when the state law stands as an obstacle to the accomplishment and execution of the full purposes and objective[s] of Congress." Pac. Capital, 542 F.3d at 351 (internal citations and quotation marks omitted). "State law is in `irreconcilable conflict' with federal law, and hence preempted by federal law, when compliance with the state statute would frustrate the purposes of the federal scheme." Id. (quoting Rice v. Norman Williams Co., 458 U.S. 654, 659, 102 S.Ct. 3294, 73 L.Ed.2d 1042 (1982)).
To determine whether a local law is preempted by federal law, the Court must look to legislative history and intent. See Entergy Nuclear, 733 F.3d at 419 ("We therefore believe that legislative history is an important source for determining whether a particular statute was motivated by an impermissible motive in the preemption context."). That said, courts have "refused to rely solely on the legislature's professed purpose and have looked as well to the effects of the law." Gade v. Nat'l Solid Wastes Mgmt. Ass'n, 505 U.S. 88, 105, 112 S.Ct. 2374, 120 L.Ed.2d 73 (1992); see also Vango Media, Inc. v. City of New York, 34 F.3d 68, 73 (2d Cir.1994)
Plaintiff first contends that the RBA is preempted by the NBA, specifically, that the RBA improperly grants the CIAB visitorial powers, powers that are exclusively reserved for the federal government. (Pl. Br. 16-18). "[A] national bank ... is an `instrumentalit[y] of the Federal government, created for a public purpose, and as such necessarily subject to the paramount authority of the United States.'" Pac. Capital, 542 F.3d at 351 (quoting Marquette Nat. Bank of Minneapolis v. First of Omaha Serv. Corp., 439 U.S. 299, 308, 99 S.Ct. 540, 58 L.Ed.2d 534 (1978)). Accordingly, "the States can exercise no control over [national banks], nor in any wise affect their operation, except in so far as Congress may see proper to permit." Id. (quoting Watters v. Wachovia Bank, N.A., 550 U.S. 1, 11, 127 S.Ct. 1559, 167 L.Ed.2d 389 (2007) (emphasis in Pac. Capital)).
The congressional intent in this instance is clear. Section 484(a) of Title 12 of the United States Code, a provision of the NBA, reads as follows:
Visitorial powers are defined as (i) examination of a bank; (ii) inspection of a bank's books and records; (iii) regulation and supervision of activities authorized or permitted pursuant to federal banking law; and (iv) enforcing compliance with any applicable federal or state laws concerning those activities. 12 C.F.R. § 7.4000.
The Supreme Court has described these powers as follows:
Clearing House, 557 U.S. at 535-36, 129 S.Ct. 2710 (majority opinion); see also Watters, 550 U.S. at 11, 127 S.Ct. 1559 ("Federally chartered banks are subject to state laws of general application in their daily business to the extent such laws do not conflict with the letter or purposes of the NBA.").
Plaintiff's argument is based upon its contention that the RBA's authorization of data and information collection constitute the "quintessential example" of a demand for books and records. (Pl. Br. 16-17). Plaintiff also notes that the Needs Assessment specifically refers to an "examination" of Deposit Banks. (Id. at 17). The City responds that the CIAB's RFI "could similarly be made by letter from a public official, by a journalist, or by a member of the public," and therefore that "[i]t carries no visitorial power." (Def. Opp. 25).
The critical question is whether RFIs issued pursuant to the RBA are sufficiently backed by an "implicit ... threat that if the request [is] not voluntarily honored, that other action [will] be taken." Clearing House, 557 U.S. at 536, 129 S.Ct. 2710. They are. Certainly, the threat of an executive subpoena (as in Clearing House) is substantively different from the threat of reputational injury through public shaming or de-designation, primarily in terms of the type of governmental power involved. But this distinction makes little difference. The Court is persuaded that this particular local law is preempted because it entails an "examination of a bank's books and records" for the purpose of determining whether a national bank fits within an "independent code of lender conduct." Mayor of N.Y.C., 780 N.Y.S.2d at 272. The Clearing House Court's reference to examinations of books and records made "on demand" is no barrier to this result. Again, a review of the legislative history, as well as the text of the law as a whole, compels a finding that RFIs issued pursuant to the RBA are demands. Accompanied by all indicia of regulatory power, and stamped with the imprimatur of a governmental agency, they effectively (and by design) hold hostage a bank's reputation and deposit bank status in exchange for information.
Plaintiff next argues that the RBA is preempted by federal law because it seeks to regulate or influence national banks' core banking activities. (Pl. Br. 18-19). It contends that the RBA was enacted specifically to influence banks' behavior, and that federal law, including regulations promulgated by the Office of the Comptroller of the Currency (the "OCC"), occupies this precise space. (Id. at 18 ("OCC
Plaintiff's argument is supported by both the legislative history and the text of the statute. The Council was dissatisfied with, inter alia, Deposit Banks' lending to certain low- and moderate-income communities; it therefore included a provision targeted to address that concern in the RBA. The RBA empowers the CIAB to (i) publish benchmarks and best practices; (ii) collect information from banks regarding their efforts to achieve those benchmarks and best practices; (iii) evaluate whether those efforts are sufficient; (iv) include that finding in its ratings of those banks; and (v) make information and ratings public. The Banking Commission may then use these ratings in its decision to de-designate a bank. This regime conflicts with federal regulations and the Federal CRA, which provide national banks with more circumscribed directives; therefore, the Court concludes that the RBA stands "as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Barnett Bank, 517 U.S. at 31, 116 S.Ct. 1103 (citation omitted). Accordingly, it is preempted by federal law.
Members of the NYBA also include state-chartered banks. Accordingly, Plaintiff contends that the RBA is preempted by the NYBL (the "NYBL"), since the State intends exclusively to occupy the field for state-chartered banks. As noted previously, under New York law, preemption occurs where "the State has evidenced its intent to occupy the field," Albany Area Builders Ass'n, 74 N.Y.2d at 377, 547 N.Y.S.2d 627, 546 N.E.2d 920, or there is otherwise a "conflict between local
The NYBL provides that it is "the policy of the state of New York that the business of all [state-chartered] banking organizations shall be supervised and regulated through the department of financial services" (the "DFS"). N.Y. Banking Law § 10. "The Superintendent of [the DFS] and [the DFS] have broad powers of regulation to control and police the banking institutions under their supervision." N.Y. State Bankers Ass'n v. Albright, 38 N.Y.2d 430, 440, 381 N.Y.S.2d 17, 343 N.E.2d 735 (1975). On this basis, Plaintiff argues, New York has evinced its intention to occupy the field of banking regulation for state-chartered institutions. (Pl. Br. 23). Defendants argue that the RBA is not preempted by the NYBL "for all of the reasons shown ... that the RBA is not preempted by" federal law. (Def. Opp. 28). Here, too, Plaintiff is correct. As the NYBL "evince[s] an intent to preempt the field of regulating" state-chartered banks, Eric M. Berman, 25 N.Y.3d at 691-92, 16 N.Y.S.3d 25, 37 N.E.3d 82, the Court concludes that the RBA is preempted by New York State law.
Finally, the Court must address Defendants' argument that, "[i]f the Court concludes that the RBA regulates the [Deposit Banks]," it should sever the RBA provisions that: (i) permit the public identification of non-compliant banks; and (ii) allow the Banking Commission to consider the CIAB Report in making Deposit Bank designations. (Def. Opp. 32). Defendants argue that severance of the "purportedly coercive provisions" would leave the "legislative scheme largely intact" (Def. Br. 31), and do no violence to the "RBA's research, analysis, and reportage scheme" (Def. Opp. 32).
"Severability is a question of state law[.]" Concerned Home Care Providers, Inc. v. Cuomo, 783 F.3d 77, 88 (2d Cir.2015). In the absence of a severance clause — an absence the parties concede (see Def. Br. 31; Pl. Opp. 30) — Defendants bear the "burden [of] show[ing] that the unconstitutional provisions are severable." Nat'l Adver. Co. v. Town of Babylon, 900 F.2d 551, 557 (2d Cir.1990).
The parties recite the standard for severability in two subtly different ways. The first iteration of the standard would, as Plaintiff advocates, consider the "[t]he critical issue ... whether the [RBA] would have been enacted if it had not included the unconstitutional provisions." Town of Babylon, 900 F.2d at 557 (emphasis added). The second version of the standard, which Defendants advocate, would focus "on whether the Legislature would have wished the [RBA] to be enforced with the invalid part exscinded, or rejected altogether." Concerned Home Care Providers, 783 F.3d at 88 (internal quotation marks and citation omitted) (emphasis added). The latter more accurately states the inquiry under New York law. See
Defendants argue that a neutered, toothless RBA can still serve salutary (and constitutionally inoffensive) purposes. (Def. Br. 31-32). However true this may be, it "is not relevant to the issue of whether [the City Council] would have enacted the [RBA] in the manner proposed[.]" Town of Babylon, 900 F.2d at 557 (emphasis added). A review of the legislative history makes clear that the City Council would not have passed a version of this bill that omitted these provisions. Rather, the provisions Defendants urge the Court to sever were the subject of serious debate, and many voices in opposition informed the Council of their concerns regarding preemption. In vetoing the legislation, Mayor Bloomberg opined that the RBA "impermissibly use[d] the City's power to designate banks" and "pressure[d] banks into adopting certain practices with respect to core banking matters." (Pl. 56.1 ¶ 67). This message, which applies most directly to the two provisions Defendants seek here to sever, was heard — and rejected by — the City Council. A clear window into what the legislature would have done is usually unavailable. Not so here. In overriding the Mayor's veto, the City Council made plain that it passed the precise bill it intended to. Accordingly, if the Court were to follow the standard as articulated in Town of Babylon, these provisions could not be severed.
With respect to the second iteration of the severability standard, as most recently articulated by the Second Circuit in Concerned Home Care Providers, the Court must ask whether the legislature would have wished the RBA to be enforced with the invalid part excised. 783 F.3d at 88. "The answer must be reached pragmatically, by the exercise of good sense and sound judgment, by considering how the statutory rule will function if the knife is laid to the branch, instead of at the roots." People ex rel. Alpha Portland Cement Co. v. Knapp, 230 N.Y. 48, 60, 129 N.E. 202 (1920) (Cardozo, J.); accord Anonymous v. City of Rochester, 13 N.Y.3d 35, 53, 886 N.Y.S.2d 648, 915 N.E.2d 593 (2009).
Defendants have failed to meet their burden of showing severability under this standard. They argue that the RBA should survive, with coercive branches pruned, so that the CIAB can "retain all of its functions to assess community credit and banking needs and report on whether those needs are being met." (Def. Br. 31). The Court is not persuaded. The RBA costs the City more than $500,000 a year. In return, the RBA was to encourage certain behavior on the part of the banks. (See Pl. 56.1 ¶ 59 ("[The RBA will] encourage the banks that receive city deposits to become more responsive and more accountable to New York City communities."); id. at ¶ 64 ("Today we are taking an affirmative step to ensure, encourage and support responsible banking in our city."); id. at ¶ 70 ("This override which you are about to do ..., it really enacts the strongest local community reinvestment law in the nation. Th[e] [RBA] emphasizes transparency and encourages community reinvestment."); id. at ¶ 127 ("[The RBA] encourage[s] banks seeking to hold city deposits to be more accountable to low- and moderate-income New Yorkers.")). The RBA's power to do so has been eviscerated, and with it too the Court's confidence that the legislature would have found the game worth the candle.
The RBA is preempted by federal and state law. Its unconstitutional provisions
The Clerk of Court is directed to terminate all pending motions, adjourn all remaining dates, and close this case.
SO ORDERED.
(Pl. 56.1 ¶ 37).
In contrast, there are good reasons why the Court may accord less weight to Defendants' argument that "[o]nly where the local measure deprives private actors of any meaningful economic choice can it arguably be deemed sufficiently coercive as to be regulatory." (Def. Opp. 22). To begin with, the Court disagrees with Defendants' interpretation of preemption case law addressing the effect of economic incentives. In New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co., the Supreme Court "acknowledge[d] that a state law might produce such acute, albeit indirect, economic effects, by intent or otherwise, as to force an ERISA [Employee Retirement Income Security Act of 1974] plan to adopt a certain scheme of substantive coverage or effectively restrict its choice of insurers, and that such a state law might indeed be pre-empted[.]" 514 U.S. 645, 668, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995). The Court is not, therefore, persuaded of the categorical assertion that "laws ... seek[ing] to influence market behavior in preempted areas are not regulatory so long as they leave economically-viable choices." (Def. Opp. 21). Moreover, as the Travelers Insurance Court emphasized, ERISA preempts only those state laws that "relate to an[] employee benefit plan," and "nothing in the language of the Act or the context of its passage indicates that Congress chose to displace general health care regulation, which historically has been a matter of local concern." 514 U.S. at 651, 661, 115 S.Ct. 1671 (quoting 29 U.S.C. § 1144(a)). Unlike the NLRA, for example, ERISA's preemptive scope is significantly narrower than the preemptive scope of federal banking law. See Pac. Capital, 542 F.3d at 351.
