GONZALEZ, P.J.
This appeal calls upon us to determine whether the regulations and guidelines implemented by the Office of Thrift Supervision (OTS) pursuant to the Home Owners' Loan Act of 1933 (HOLA) (codified as 12 USC § 1461 et seq.) and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) (Pub L 101-73, 103 US Stat 183 [amending HOLA and codified in scattered sections of 12 USC]) preempt state regulations in the field of real estate appraisal.
The Attorney General claims that defendants engaged in fraudulent, deceptive and illegal business practices by allegedly permitting eAppraiseIT residential real estate appraisers to be influenced by nonparty Washington Mutual, Inc. (WaMu) to increase real estate property values on appraisal reports in order to inflate home prices. We conclude that neither federal statutes nor the regulations and guidelines implemented by the OTS preclude the Attorney General of the State of New York from pursuing litigation against defendants First American Corporation and First American eAppraiseIT, LLC. We further
In a complaint dated November 1, 2007, plaintiff, the People of the State of New York, commenced this action against defendants asserting claims under Executive Law § 63 (12) and General Business Law § 349, and for unjust enrichment. The complaint alleges that in spring 2006, WaMu hired two appraisal management companies, defendant eAppraiseIT and nonparty Lender's Service, Inc., to oversee the appraisal process and provide a structural buffer against potential conflicts of interest between WaMu and the individual appraisers. The gravamen of the Attorney General's complaint asserts that defendants misled their customers and the public by stating that eAppraiseIT's appraisals were independent evaluations of a property's market value and that these appraisals were conducted in compliance with the Uniform Standards of Professional Appraisal Practice (USPAP), when in fact defendants had implemented a system allowing WaMu's loan origination staff to select appraisers who would improperly inflate a property's market value to WaMu's desired target loan amount.
Defendants moved for dismissal of the complaint pursuant to CPLR 3211, asserting that the Attorney General is prohibited from litigating his claims because HOLA and FIRREA impliedly place the responsibility for oversight of appraisal management companies on the OTS, and asserting a failure to state a cause of action. Supreme Court denied defendants' motion, finding that HOLA and FIRREA do not occupy the entire field with respect to real estate appraisal regulation and that the enforcement of USPAP standards under General Business Law § 349 neither conflicts with federal law nor does it impair a bank's ability to lend and extend credit. We affirm.
The Supremacy Clause of the United States Constitution provides that federal laws "shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding" (US Const, art VI, cl 2) and it "vests in Congress the power to supersede not only State statutory or
Congressional intent to preempt state law may be established "by express provision, by implication, or by a conflict between federal and state law" (Balbuena v IDR Realty LLC, 6 N.Y.3d 338, 356 [2006], quoting New York State Conference of Blue Cross & Blue Shield Plans v Travelers Ins. Co., 514 U.S. 645, 654 [1995]). Express preemption occurs when Congress indicates its "pre-emptive intent through a statute's express language or through its structure and purpose" (Altria Group, Inc. v Good, 555 US ___, ___, 129 S.Ct. 538, 543 [2008]). Absent explicit preemptive language, implied preemption occurs when
Further, when "[a] conflict occurs either because compliance with both federal and state regulations is a physical impossibility, or because the State law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress," the state law is preempted (City of New York v Job-Lot Pushcart, 213 A.D.2d 210, 210 [1995], affd 88 N.Y.2d 163 [1996], cert denied sub nom. JA-RU v City of New York, 519 U.S. 871 [1996] [internal quotation marks and citations omitted]).
Here, defendants do not argue, nor have they directed this Court's attention to any language within HOLA or FIRREA that establishes, that Congress expressly created these statutes to supersede state law governing the causes of actions asserted in the Attorney General's complaint. Defendants also have not argued that there exists a conflict between federal and state laws or regulations. Rather, defendants assert that because Congress has legislated so comprehensively, and that federal law so completely occupies the home lending field, the Attorney
In 1933, Congress enacted HOLA "to provide emergency relief with respect to home mortgage indebtedness at a time when as many as half of all home loans in the country were in default" (Fidelity Fed. Sav. & Loan Assn. v de la Cuesta, 458 U.S. 141, 159 [1982] [internal quotation marks and citations omitted]). HOLA created a general framework to regulate federally chartered savings associations that left the regulatory details to the Federal Home Loan Bank Board (FHLBB). The FHLBB's authority to regulate federal savings and loans was virtually unlimited and "[p]ursuant to this authorization, the [FHLBB] promulgated regulations governing the powers and operations of every Federal savings and loan association from its cradle to its corporate grave" (id. at 145 [internal quotation marks and citation omitted]).
When Congress passed FIRREA in 1989, it restructured the regulation of the savings association industry by abolishing the FHLBB and vested many of its functions into the newly-created OTS (see FIRREA § 301, amending 12 USC § 1461 et seq. [establishing the OTS], § 401 [see 12 USCA § 1437 Historical and Statutory Notes (abolishing the FHLBB)]). According to FIRREA's legislative history
FIRREA was also designed
Further, 12 USC § 3331, which was enacted as part of FIRREA, states that the general purpose of this statute is
The uniform standards described in 12 USC § 3331 are defined in 12 USC § 3339 which requires that the OTS, as a
Indeed, the OTS encourages financial institutions
In looking at the legislative history it becomes clear that Congress intended to establish
Thus, we conclude that neither HOLA nor FIRREA preempts or precludes the Attorney General from pursuing his claims.
Having rejected defendants' general arguments for preemption under HOLA and FIRREA, "[t]he Court's task, then, is to decide which claims fall on the regulatory side of the ledger and which, for want of a better term, fall on the common law side" (Cedeno v IndyMac Bancorp, Inc., 2008 WL 3992304, *7, 2008 US Dist LEXIS 65337, *22 [SD NY 2008] [internal quotation marks and citation omitted]). Defendants assert that the Attorney General is preempted from pursuing his claims because subsequent to FIRREA's passage, the OTS issued extensive regulations specifically addressing the composition and construction of appraisal programs undertaken by federal savings and loans.
It is well settled that "[a]gencies delegated rulemaking authority under a statute . . . are afforded generous leeway by the courts in interpreting the statute they are entrusted to administer" (Rapanos v United States, 547 U.S. 715, 758 [2006, Roberts, Ch. J., concurring]). Indeed, the OTS regulations "have no less pre-emptive effect than federal statutes" (Fidelity Fed. Sav. & Loan Assn., 458 US at 153). 12 CFR 545.2 states that
12 CFR 560.2 (b) provides a nonexhaustive list of illustrative examples of the types of state laws preempted by 12 CFR 560.2 (a). Further, 12 CFR 560.2 (c) states that the following types of state laws are not preempted
The OTS advises that when a court is
Defendants argue that the Attorney General's challenges to defendants' business practices are preempted because the conduct falls within 12 CFR 560.2 (b) (5), which provides examples of loan-related fees "including without limitation, initial charges, late charges, prepayment penalties, servicing fees, and overlimit fees." Defendants also assert that their alleged conduct is within 12 CFR 560.2 (b) (9), which provides "[d]isclosure and advertising, including laws requiring specific statements, information, or other content to be included in credit application forms, credit solicitations, billing statements, credit contracts, or other credit-related documents and laws requiring creditors to supply copies of credit reports to borrowers or applicants." Lastly, defendants assert that their alleged conduct falls within 12 CFR 560.2 (b) (10), which states that "[p]rocessing, origination, servicing, sale or purchase of, or investment or participation in, mortgages" is preempted.
The Attorney General's complaint asserts that defendants engaged in conduct proscribed by Executive Law § 63 (12)
Under the first prong of the preemption analysis, we find that this action brought pursuant to Executive Law § 63 (12), General Business Law § 349 (b) and on the theory of unjust enrichment is not preempted by 12 CFR 560.2 (b) (5) because it involves no attempt to regulate bank-related fees. We also find, under the first prong of the preemption analysis, that there is no preemption pursuant to 12 CFR 560.2 (b) (9) because these claims do not involve a state law seeking to impose or require any specific statements, information or other content to be disclosed. Although at least one case has held that claims similar to those asserted here were preempted (see Spears v Washington Mut., Inc., 2009 WL 605835, 2009 US Dist LEXIS 21646 [ND Cal 2009]), we find under the first prong of the preemption analysis that 12 CFR 560.2 (b) (10) does not preclude the Attorney General's complaint because prosecution of the alleged conduct will not affect the operations of federal savings associations (FSAs) in how they process, originate, service, sell or purchase, or invest or participate in, mortgages.
The question then becomes whether the Attorney General is nevertheless precluded from litigating his claims under the second prong of the preemption analysis. Because enjoining a real estate appraisal management company from abdicating its publicly advertised role of providing unbiased valuations is within the confines of 12 CFR 560.2 (c), we answer it in the negative.
Defendants argue that the OTS's authority under HOLA and FIRREA is not limited to oversight of an FSA and that its authority under these two statutes extends over the activity regulated and includes the activities of third-party agents of an FSA. Defendants assert that providing real estate appraisal services is a critical component of the processing and origination of mortgages and represents a core component of the controlling federal regime. Defendants cite 12 USC § 1464 (d) (7) (D) and State Farm Bank v Reardon (539 F.3d 336 [6th Cir 2008]) for support. 12 USC § 1464 (d) (7) (D) (i) states, in pertinent part, that
Here, it is alleged eAppraiseIT and Lender's Service, Inc., were hired by WaMu to provide appraisal services. However, defendants are incorrect in asserting that providing real estate appraisal services is an authorized banking activity under HOLA. In an opinion letter dated October 25, 2004, the OTS concluded that it had the authority to regulate agents of an FSA under HOLA because
State Farm Bank v Reardon (539 F.3d 336 [2008]) follows this principle. In Reardon, the plaintiff, an FSA chartered by the OTS under HOLA, decided to offer, through its independent contractor agents, first and second mortgages and home equity loans in the State of Ohio. The Sixth Circuit concluded that although the statute at issue
Since appraisal services are not authorized banking products or services of an FSA, defendants have failed to show that the Attorney General is preempted from pursuing his claims under 12 USC § 1464 (d) (7) (D). Consequently, under the second prong of the preemption analysis, the result of the Attorney General litigating his claims against a company that independently administers an FSA's appraisal program would "only incidentally affect the lending operations of [the FSA]" (12 CFR 560.2 [c]). Thus, defendants have failed to show that the OTS's regulations and guidelines preempt or preclude the Attorney General from pursuing his claims.
Defendants assert that Cedeno v IndyMac Bancorp, Inc. (2008 WL 3992304, 2008 US Dist LEXIS 65337 [2008]) provides this Court with persuasive authority that the federal government and its regulators alone regulate the mortgage loan origination practices of FSAs including all aspects of the appraisal programs they utilize. In Cedeno, the Southern District found preemption precluded a private individual from maintaining a cause of action against a bank. It was alleged that the bank failed to disclose to the plaintiff that it selected appraisers, appraisal companies and/or appraisal management firms who would inflate the value of residential properties in order to allow the bank to complete more real estate transactions and obtain greater profits. This practice resulted in the plaintiff being misled as to the true equity in her home. The Southern District found that the conduct of the bank was
Contrary to defendants' assertions, we find that Cedeno is not applicable here because Cedeno does not reach the question as to whether HOLA, FIRREA or the OTS's regulations and guidelines are intended to regulate the conduct of real estate appraisal companies.
Annexed to the OTS's October 25, 2004 opinion letter is a document entitled "APPENDIX A — CONDITIONS." In this document, the OTS requires FSAs that wish to use agents to perform marketing, solicitation, customer service, or other activities related to the FSAs' authorized banking products or services to enter into written agreements that "(4) expressly set[] forth OTS's statutory authority to regulate and examine and take an enforcement action against the agent with respect to the activities it performs for the association, and the agent's acknowledgment of OTS's authority" (2004 OTS Op P-2004-7, at 16, available at http://www.ots.treas.gov/_files/560404.pdf, 2004 WL 3272094, *11, 2004 OTS LEXIS 6, *37). We note that defendants have neither asserted that such written agreements exist nor produced such documents. Thus, we conclude that the Attorney General may proceed with his claims against defendants because his challenge to defendants' allegedly fraudulent and deceptive business practices in providing appraisal services is not preempted by federal law and regulations that govern the operations of savings and loan associations and institution-affiliated parties.
Defendants assert that the Attorney General cannot rely upon a substantive violation of a federal law to support a claim under General Business Law § 349 because this is an improper attempt to convert alleged violations of federal law into a violation of New York law. Defendants claim that where a plaintiff seeks to rely upon a substantive violation of a federal law to support a claim under General Business Law § 349, the federal law relied upon must contain a private right of action.
However, the Attorney General is statutorily charged with the duty to
Indeed, when the Attorney General becomes aware of allegations of persistent fraud or illegality of a business, he
It is well settled that "[o]n a motion to dismiss pursuant to CPLR 3211, the court must `accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory'" (Wiesen v New York Univ., 304 A.D.2d 459, 460 [2003], quoting Leon v Martinez, 84 N.Y.2d 83, 87-88 [1994]). The Attorney General's complaint alleges that defendants publicly claimed on their eAppraiseIT Web site that eAppraiseIT provides a firewall between lenders and appraisers so that customers can be assured that USPAP and FIRREA guidelines are followed and that each appraisal is being audited for compliance. The Attorney General charges that defendants deceived borrowers and investors who relied on their proclaimed independence by allowing WaMu's loan production staff to select the appraiser based upon whether they would provide high values.
We find defendants' assertions that the Attorney General lacks standing under General Business Law § 349 and that his complaint fails to state a cause of action are without merit. Indeed, the Attorney General's complaint references misrepresentations and other deceptive conduct allegedly perpetrated on the consuming public within the State of New York, and "[a]s
Consequently, we conclude that defendants have failed to demonstrate that HOLA, FIRREA or the OTS's regulations and guidelines preempt or preclude the Attorney General from pursuing the causes of action articulated in his complaint. We additionally find that the Attorney General has standing under General Business Law § 349. We have reviewed defendants' remaining contentions and we find them without merit.
Accordingly, the order of the Supreme Court, New York County (Charles Edward Ramos, J.), entered April 8, 2009, which, insofar as appealed from as limited by the briefs, denied defendants' motion to dismiss the complaint on the ground of federal preemption, should be affirmed, without costs.
Order, Supreme Court, New York County, entered April 8, 2009, affirmed, without costs.
