Ninth Circuit Bucks Supreme Court on Bank Preemption Case

The Ninth Circuit has refused to reevaluate a case remanded by the US Supreme Court, reaffirming its stance that California’s state law requiring interest on mortgage escrows is not preempted without new briefings from the involved parties. Mercedes Kelley Tunstall of Cadwalader writes about the national bank preemption case on the firm’s website.

In its ruling on Kivett v. Flagstar Bank, the Ninth Circuit relied on its own 2018 precedent in Lusnak v. Bank of America and skipped over the preemption analysis advised by the US Supreme Court. The Supreme Court directed Circuit Courts to apply a “nuanced comparative analysis” consistent with the Barnett Bank standard, a Dodd-Frank Act codification, in another remanded case: Cantero v. Bank of America.

According to the Dodd-Frank Act, state laws are only preempted if they “significantly interfere” with national banks’ powers or discriminate against them. The Court advised that Circuit Courts should make a “practical assessment” of state law interference with national banks.

This refusal to re-evaluate has left financial institutions uncertain about compliance with California’s requirements. The Second Circuit is currently reviewing Cantero, while the First Circuit is reviewing another case involving Citizens Bank and the bank preemption issue. Those two cases might provide clearer guidance.

“[I]t is surprising that the Ninth Circuit did not take the opportunity to reconsider its earlier preemption analysis, as they were directed to do,” Tunstall writes. “This means that the industry can take no comfort in Kivet and must continue to operate in a cloudy post-Cantero world and hope that the opinions that come out from the remands to the First and Second Circuits can better dissipate the fog.”