[00:00:00] Speaker 04: I will go ahead and hear argument in the sole case, which is Kivett versus Flagstar Bank, case number 21-15667. [00:00:08] Speaker 04: And just let us know if you want to reserve time for rebuttal. [00:00:15] Speaker 02: Thank you, Your Honor. [00:00:15] Speaker 02: Good morning. [00:00:16] Speaker 02: I would like to reserve three minutes for rebuttal. [00:00:19] Speaker 02: May it please the Court, Jonathan Ellis, on behalf of Flagstar Bank. [00:00:24] Speaker 02: To determine whether California Civil Code 2954.8 is preempted, this court must do as Barnett Bank did and compare the type of interference that this law imposes on national bank powers to the type of interference that was imposed. [00:00:38] Speaker 04: So, counsel, you started out, do what Barnett Bank did. [00:00:45] Speaker 04: Shouldn't it be do what Cantero did? [00:00:47] Speaker 02: Absolutely, your honor. [00:00:48] Speaker 02: And what Cantero instructs is that Dodd-Frank codified Barnett Bank and directed courts to determine significant interference in the same way, in the same manner that the Supreme Court did in Barnett Bank. [00:01:01] Speaker 04: But the problem, potential problem, I mean, do you see daylight between Cantero and Barnett Bank? [00:01:10] Speaker 02: I think Cantaro described Barnett Bank's methodology in a way that perhaps lower courts had not recognized before the Cantaro decision. [00:01:19] Speaker 02: It did, of course, hold that Dodd-Frank codified Barnett Bank. [00:01:23] Speaker 03: So what's different between Cantaro and Barnett Bank? [00:01:26] Speaker 02: I don't think anything is different between Barnett Bank and Quintero. [00:01:29] Speaker 02: I mean, that's what the court said. [00:01:30] Speaker 03: If there's no difference, how does this panel have the right to overrule a prior panel? [00:01:34] Speaker 02: But I think what it did do is articulate what Barnett Bank did in a way that lower courts had not always followed, and I think in a way that the Luznack decision did not. [00:01:43] Speaker 03: And that's the nuanced assessment of the prior cases? [00:01:47] Speaker 03: That's right. [00:01:47] Speaker 03: What did the court think we were doing? [00:01:49] Speaker 03: in Losnack? [00:01:50] Speaker 03: Well, in any of these cases. [00:01:52] Speaker 03: Barnett Bank is codified by name in the statute. [00:01:57] Speaker 03: We recognize that. [00:01:58] Speaker 03: We cited Barnett Bank. [00:02:01] Speaker 03: And the reason I'm asking the question this way is this panel has two questions before it. [00:02:08] Speaker 03: One is the question that your clients are most interested in. [00:02:10] Speaker 03: Is this preempted? [00:02:12] Speaker 03: But our panel has to struggle with the second question, which is [00:02:15] Speaker 03: is Luznack so inconsistent with Cantaro that we have the right as a three-judge panel to overrule a prior three-judge panel? [00:02:22] Speaker 03: It's a second-order question, and it's a hard question. [00:02:25] Speaker 02: So I think there's the two reasons, two things about Luznack that make clear that what Cantaro did [00:02:31] Speaker 02: was to effectively overrule Luznak. [00:02:35] Speaker 02: The first, I think, is the point we've been talking about, that I think Luznak, although it did certainly cite Barnett Bank and Dodd-Frank and the significant interference standard, it did not apply the methodology that Cantero instructed lower courts to apply. [00:02:48] Speaker 02: And that methodology is what? [00:02:50] Speaker 02: It is the nuance comparative analysis of the cases that Barnett Bank, the state law in Barnett Bank and the state laws in the cases in which Barnett Bank... Remind me what, are there intervening cases after Barnett Bank? [00:03:04] Speaker 04: I think there are. [00:03:05] Speaker 02: There are Waters and Cuomo. [00:03:06] Speaker 04: And when were those issued? [00:03:08] Speaker 04: uh... as i stand here today on account exact dates uh... but i i wonder if that's another thing that that is slightly different because as i as i read the test the test is it's very odd test not crazy but it says it doesn't lay out a test to follow it basically says [00:03:26] Speaker 04: look at our prior cases and compare them. [00:03:28] Speaker 04: And were any of those cases, I guess none of those cases were post-Lesnack though. [00:03:33] Speaker 02: None of those cases were post-Lesnack because Barnett Bank was... But Cantero was. [00:03:36] Speaker 02: Cantero was. [00:03:37] Speaker 04: So I guess we could look at Cantero and say, hey, this is another data point that we need to look at for part of the task. [00:03:43] Speaker 02: Absolutely. [00:03:44] Speaker 02: You could, and I think you should. [00:03:45] Speaker 02: If I could, if you look at Miller v. Gammie, I actually don't think... I think this is a pretty consistent pattern with what happened in Miller v. Gammie, the case, of course, that governs the effective ruling standard. [00:03:55] Speaker 02: In that case, what this court on Bonk decided and said is that intervening Supreme Court decisions had adopted a different methodology for determining absolute immunity. [00:04:06] Speaker 02: Those decisions, if you take a look at them, they're Antoine v. Byers and Anderson and Kalina v. Fletcher. [00:04:12] Speaker 02: They too, from the Supreme Court, purported to be interpreting its prior cases and applying a consistent approach, but they articulated it in a different way. [00:04:21] Speaker 02: They laid out a different methodology. [00:04:23] Speaker 02: What they said is although this court's prior panel decision had looked at the relationship of the individual for absolute immunity to the judicial proceedings, these subsequent Supreme Court cases, intervening Supreme Court cases, [00:04:35] Speaker 02: had said that the right way to go about determining absolute immunity was to look at the functions and compare that to the common law. [00:04:43] Speaker 02: Again, that was not a recognized departure from the Supreme Court's previous cases. [00:04:47] Speaker 02: It just articulated it in a different way, and when it got to this court in Miller v. Gamme, [00:04:51] Speaker 02: this Court en banc recognized that that's a different approach, that Babcock, the prior decision, hadn't followed that methodology, and so the Court needed to follow that new methodology afresh, and I think the Court should do that here. [00:05:03] Speaker 03: Does Cantero relieve us of the responsibility of using other tools of statutory interpretation? [00:05:10] Speaker 02: I think it instructs how the 25B is to be interpreted and applied. [00:05:15] Speaker 03: Is there anything in Cantero that tells us, for example, that we should not look at TILA? [00:05:19] Speaker 02: It does not say that, Your Honor, although I will point out that it does. [00:05:23] Speaker 02: TILA was before the court, 1639D. [00:05:24] Speaker 02: Got it. [00:05:25] Speaker 02: It's in the footnote. [00:05:26] Speaker 02: In the footnote, and the court didn't rely on it. [00:05:29] Speaker 03: That's another way of fulfilling our responsibility of trying to figure out preemption is to look at, is to use other [00:05:36] Speaker 03: tools of statutory interpretation. [00:05:37] Speaker 03: So is there anything inconsistent in Cantero between this nuanced view of prior cases, which doesn't seem to be a particular departure from anything that we do, and being able to use other tools of statutory interpretation to inform us? [00:05:53] Speaker 02: No, I don't think so. [00:05:54] Speaker 02: But I actually think that what is in Cantero suggests that the way that this court understood 1639D and how it bore on the significant intervener standard was incorrect. [00:06:04] Speaker 02: And if I could, I'll explain why. [00:06:06] Speaker 02: What the court said in Quintero is that when you're asking and doing this comparative analysis, what you should look at is the text and structure of the laws, its prior precedents, and common sense. [00:06:16] Speaker 02: And you should compare and specifically the kind of interference that was at issue. [00:06:20] Speaker 02: It was not an empirical sort of factual showing of burden, not asking about the financial burden. [00:06:25] Speaker 02: It made clear that federal courts could comply with state law and federal law. [00:06:30] Speaker 02: It's the kind of interference, the kind of law that's at issue. [00:06:34] Speaker 02: So if you look at 1639DG3, in Luznack this court looked at that law and said, in TILA, Congress had required national banks in some circumstances for higher priced mortgages to comply with state IOE laws. [00:06:47] Speaker 02: And it concluded that it must not be the sort of financial burden that's going to be [00:06:50] Speaker 02: too much on a bank if that's what it's required in some circumstances, and so it could be required in all circumstances. [00:06:57] Speaker 02: But if you're asking about the kind of interference, I think that the understanding goes exactly the opposite way. [00:07:03] Speaker 02: I think what the 1639D G3 says is in some circumstances state law can apply, but then it leaves [00:07:11] Speaker 02: flexibility for banks to determine how it's going to pay interest on escrow, where for mortgages that don't fall under TILA, the mortgages like the ones in this case, and when you look at a case like Fidelity that was one of the ones cited in Barnett Bank and the court expressly called it out in Hintero, [00:07:26] Speaker 02: That sort of flexibility, where a federal law has preserved flexibility, and that a state law comes in and tries to limit it, is exactly the kind of significant interference that is not permissible under a Barnett Bank. [00:07:39] Speaker 03: Fidelity just doesn't seem to be terribly useful because you're expressly preempted by a regulation that the court says the Federal Home Loan Bank Board had the power to issue. [00:07:51] Speaker 03: It would have been far more analogous here [00:07:53] Speaker 03: if the court had taken up the regulation adopted by the OCC. [00:07:58] Speaker 02: So I don't think that's the right way to read fidelity in light of Barnett Bank and Quintero. [00:08:02] Speaker 03: If you look, I recognize... Would the law have been preempted in fidelity if there had been no regulation? [00:08:08] Speaker 02: You know, I don't know exactly, but what I can say is... That would be a completely different case, wouldn't it? [00:08:13] Speaker 02: If you look at Barnett Bank and the way it describes fidelity, and look at Quintero the way it describes fidelity, [00:08:17] Speaker 02: It doesn't focus on any sort of expressed conflict. [00:08:21] Speaker 02: Indeed, Barnett Bank and Cantero both make very clear that both enumerated powers and incidental powers, those not expressed, are ordinarily preempt state law and ordinarily are not subject to restriction. [00:08:34] Speaker 02: And they don't mention in Cantero or Barnett any sort of expressed conflict at all in fidelity. [00:08:40] Speaker 02: And so I think what's important from Barnett Bank and Cantero is that federal law had maintained flexibility for banks [00:08:47] Speaker 02: and that the California law in that case attempted to limit it or take it away. [00:08:52] Speaker 02: If you look at TLAB, I've already described that, I think RESPA itself and REG X, as the Quintero Court recognized, extensively regulate escrow accounts and don't require interest on escrow. [00:09:03] Speaker 00: Go back to part of the test, my favorite part, the one that says to apply common sense, which is as nonspecific as you can get. [00:09:15] Speaker 00: So where is the common sense in saying in the Truth in Lending Act, it's not an interference, expressly stated by Congress, to require interest on escrow accounts. [00:09:29] Speaker 00: These are presumably because they're mandated [00:09:33] Speaker 00: for these higher priced mortgages. [00:09:36] Speaker 00: But it defies common sense to require national banks to do it when they require an escrow account on a regular ordinary mortgage. [00:09:44] Speaker 02: So I'd offer you a couple different thoughts on that, Your Honor. [00:09:48] Speaker 02: The first, I think, is that really, as I say, it's not about the financial burden. [00:09:53] Speaker 02: It's about whether Congress has authorized this sort of interference with national banks. [00:10:00] Speaker 02: And I think the common sense and the ordinary way of reading a statute is when it calls out one section, one category of cases where state law will apply, that implies that state law should not apply in others. [00:10:12] Speaker 02: Take, for example, Section 85 of the National Bank Act. [00:10:15] Speaker 02: That's a provision that applies state interest caps in some circumstances to national banks. [00:10:21] Speaker 02: But I don't think anyone thinks that Section 85, because it allows state law interest caps to apply in national banks in some circumstances, means that applying state law interest caps in other circumstances wouldn't be a significant interference. [00:10:32] Speaker 02: Indeed, I think the inference goes exactly the other way. [00:10:36] Speaker 00: You raised the other point that I wanted to get your comment on. [00:10:41] Speaker 00: The amicus brief on your side from the Bank Policy Institute seemed to focus its argument on the mandated 2% and saying that that was the interference. [00:10:56] Speaker 00: It didn't seem to suggest requiring interest on escrow was the interference. [00:11:01] Speaker 00: It was mandating what they argue is an excessive interest rate if you look at the recent history [00:11:08] Speaker 00: of interest rates. [00:11:09] Speaker 00: I take it that you don't adopt that. [00:11:11] Speaker 02: We do not. [00:11:12] Speaker 02: I do think the 2 percent interest rate makes the interference here particularly egregious. [00:11:16] Speaker 02: At times, that is many, many times the market rate for a savings account, and indeed it was during the relevant period here. [00:11:22] Speaker 02: But our argument doesn't depend on the interest rate. [00:11:25] Speaker 02: It depends on the kind of interference that it is setting and dictating a core financial term of a bank's products. [00:11:31] Speaker 00: Let me go back to common sense one more time. [00:11:35] Speaker 00: In the briefs, it talks about that [00:11:37] Speaker 00: Flagstar Bank services loans that it didn't make and then it has approximately 20% of the mortgages that it makes that are at issue here and that you pay interest on the escrow on 80% of what you service but not on the 20% that you're servicing and originated. [00:12:02] Speaker 00: Does common sense suggest that if you can [00:12:06] Speaker 00: pay interest on escrow, on 80% of them, that there's not a whole lot of interference with your national banking powers? [00:12:14] Speaker 02: Again, Your Honor, I think that's the wrong way to think about significant interference. [00:12:17] Speaker 02: It says over and over again in Cantero that the test is at the kind of interference that was found to be preempted in Brunet Bank and its cases that it relied on. [00:12:26] Speaker 02: It's not about the financial burden. [00:12:29] Speaker 02: It's not about the economic burden. [00:12:30] Speaker 02: Indeed, again, both those cases all made very clear that the banks could reply with state and federal law. [00:12:37] Speaker 02: Indeed, if I could talk about Franklin for a moment. [00:12:39] Speaker 02: In Franklin, what the courts below said and the proponents of the state law said is this must not be a significant interference because every other bank in the state is complying with this law and they're thriving. [00:12:52] Speaker 02: And indeed, Franklin National Bank had complied with the law for a period of time before it decided not to. [00:12:56] Speaker 02: And therefore, it must not cause significant interference. [00:13:00] Speaker 02: But then the Supreme Court reversed, right? [00:13:02] Speaker 02: And it did not look at the financial burden, the economic burden that it imposed. [00:13:07] Speaker 02: Instead, it said, this is just the kind of interference that when you try to dictate the terms of a national bank's advertisements, that's out of bounds. [00:13:16] Speaker 02: And if that's a paradigmatic example of significant interference, which is how Quintero described it, [00:13:21] Speaker 02: then it must be a significant interference for a state to purport to set and dictate the core financial terms of the banking's product itself, not just its advertisements. [00:13:33] Speaker 04: I have some more questions. [00:13:34] Speaker 04: And don't worry, we'll give you some time for a bottle. [00:13:36] Speaker 04: But there's no way to rule for you and say that this is preempted unless we either take less neck en banc or say that it's clearly irreconcilable with Cantero, correct? [00:13:48] Speaker 04: That's correct. [00:13:49] Speaker 04: I looked for a way and I didn't find one, so I just wanted to confirm. [00:13:55] Speaker 03: But let's go back to Franklin for a minute because I think Franklin is probably the best case for you. [00:14:01] Speaker 03: I think it's got the broadest language and it's a much better case than Fidelity Federal Savings and Loan. [00:14:08] Speaker 03: One way of looking at Franklin, adverse to you, because I think there's lots of language in there that is very helpful to you, but one other way of looking at it that might not be helpful, so I'm going to ask how you help us distinguish this, is that what New York had done was discriminate against certain kinds of banks. [00:14:25] Speaker 03: And so it is discriminating. [00:14:26] Speaker 03: It's an equal opportunity discriminator. [00:14:28] Speaker 03: It is discriminating between savings alone and mutual savings banks on one side and other banks, including New York state chartered banks that wanted to offer interest on savings loans. [00:14:41] Speaker 03: So in that sense, it looks like it really is discriminating. [00:14:44] Speaker 03: It's choosing winners and losers between banks. [00:14:48] Speaker 03: And although some of them, it's not a perfect discriminator against federal banks. [00:14:52] Speaker 03: which would have been just a flat violation of the preemption laws, it's one way of characterizing that, and the court didn't like that. [00:14:59] Speaker 03: And the court has a footnote at the end, in footnote seven, that says, you know something, this does not mean that states can't regulate banks, federal banks, in other ways. [00:15:10] Speaker 03: So how do you deal with that argument? [00:15:13] Speaker 02: Yeah, so I think that the answer is really banked into the premise of your question, or acknowledged in your question, [00:15:18] Speaker 02: What is separately preempted are discriminatory laws on national banks, right? [00:15:25] Speaker 02: But as you point out, the law in Franklin was not discriminatory against national banks. [00:15:30] Speaker 02: Indeed, the Appellate Division made that clear. [00:15:33] Speaker 03: It does discriminate against all national banks. [00:15:37] Speaker 03: It also discriminates against some state banks in favor of other state banks. [00:15:42] Speaker 02: And so what I'd say is that the appellate division took up that argument and rejected the discriminatory argument as a grounds for preemption. [00:15:49] Speaker 02: And then when you look at the Supreme Court's decision, the U.S. [00:15:51] Speaker 02: Supreme Court's decision, it does not depend on that discrimination. [00:15:55] Speaker 02: Instead, what it depends on is the nature of the interference, right? [00:15:58] Speaker 02: It says that you're putting a burden on an incidental power here, the power to advertise. [00:16:04] Speaker 02: And that burden is significant. [00:16:07] Speaker 02: It is of the kind, the nature, and degree that is not permissible under Barnett Bank, not because it distinguishes between commercial banks and savings banks, but because it is an important aspect. [00:16:20] Speaker 02: It really goes to what you need to do to advertise these accounts. [00:16:24] Speaker 02: And again, I think if you're talking about a state law that takes one word off the table for advertisements of savings accounts, [00:16:32] Speaker 02: And that is a paradigmatic example of significant interference. [00:16:36] Speaker 02: Then it must be that a law like this one, that it's not about advertising that's at the core, it's about the terms, the financial terms of the product, and sets the interest rate. [00:16:44] Speaker 02: It's the same as if the state law, California law, had come in and said, you must pay 3% interest rate on your savings accounts. [00:16:50] Speaker 02: or you must not charge ATM fees higher than $2. [00:16:55] Speaker 02: There may be reasons to be doing that, but that's inconsistent with the dual banking system and the competitive regulatory scheme that the Congress has established in the National Bank Act and that the Supreme Court just emphasized and can tarot. [00:17:08] Speaker 02: It's that kind of interference that we say is out of bounds for states and I think it's truly true here. [00:17:14] Speaker 04: One question and we'll like to sit down. [00:17:19] Speaker 04: Can taro in the second circuit and conti in the first circuit? [00:17:22] Speaker 04: Do you have is there any update on either of those cases? [00:17:25] Speaker 02: They've both been argued your honor fully briefed and argued on remodel can taro on remand and then Conti was conti also vacated and sent back conti had not been decided. [00:17:34] Speaker 02: They just held it Okay, that's right pending the can taro, so they were argued in the last month As far as I know last I checked that neither one had been decided. [00:17:43] Speaker 02: Okay. [00:17:43] Speaker 02: Thank you We'll give you a couple minutes for rebuttal. [00:17:46] Speaker 02: Thank you honors [00:18:01] Speaker 01: Morning, your honors. [00:18:03] Speaker 01: May it please the court. [00:18:05] Speaker 01: My name is Peter Fredman. [00:18:06] Speaker 01: I'm counsel for the plaintiff appellees, the class of Flagstar mortgage customers. [00:18:13] Speaker 01: I'd like to reserve three minutes for rebuttal. [00:18:17] Speaker 01: As you know, we were last here three years ago. [00:18:22] Speaker 01: At that time, Flagstar was contending that significant interference was a question of fact, perhaps strategically so, but that was what happened. [00:18:30] Speaker 01: Thus, this case was decided with evidence on cross motions for summary judgment, though the ultimate judgment was ultimately entered and affirmed based on the precedent of Lusnack. [00:18:43] Speaker 04: So, counsel, let me start with the question that's on my mind. [00:18:46] Speaker 04: If we apply Cantaro, I feel like we get to a different result than what Lusnack reached. [00:18:56] Speaker 04: I take it you don't agree with that. [00:18:57] Speaker 04: So explain to me why you don't agree with that. [00:19:03] Speaker 01: As I read Cantaro and Barnett Bank, the Barnett Bank standard is you look at the two laws and you see if they conflict. [00:19:17] Speaker 01: And in all the cases, with one possible exception, in Franklin, the main cases, Franklin Fidelity and Barnett Bank itself, [00:19:31] Speaker 01: The two laws just flat out conflict with each other on their faces. [00:19:35] Speaker 01: So you can look at those laws and make an evaluation of whether the state law significantly interferes with the federal law or not. [00:19:45] Speaker 01: This case is more like Anderson. [00:19:48] Speaker 01: There is no explicit federal power that it conflicts with. [00:19:55] Speaker 01: It's a question of degree. [00:19:58] Speaker 01: And at that point, you have to look at the likely effect. [00:20:02] Speaker 01: What is the effect of the state law on the federal law? [00:20:06] Speaker 01: And in this case, we know the effect because we have all this evidence. [00:20:10] Speaker 01: And the effect is it doesn't interfere. [00:20:13] Speaker 01: Compliance with Section 2954.8 doesn't interfere with [00:20:19] Speaker 01: with banking. [00:20:21] Speaker 04: So the Supreme Court asked for the Solicitor General's views in Cantero, and the Solicitor General came in and said expressly that Lasnek was wrongly decided. [00:20:32] Speaker 04: It couldn't be squared with prior Supreme Court precedent. [00:20:36] Speaker 04: It seems like the Supreme Court, they didn't say anything about that specifically, but in ruling and adopting the Solicitor General's argument, [00:20:46] Speaker 04: Isn't the Supreme Court almost implicitly saying that Lusnak had to be incorrectly decided? [00:20:52] Speaker 01: No, I think the Supreme Court bent over backwards not to overrule Lusnak. [00:20:59] Speaker 01: Lusnak was central to the Second Circuit's opinion in Cantero. [00:21:03] Speaker 01: It's all over the place, and the Supreme Court just stayed completely away from it. [00:21:07] Speaker 01: And I think that's also the reason they didn't [00:21:10] Speaker 01: touch our case because they didn't want to make any, they didn't want to decide, they didn't want to overturn Lesnak, they just wanted to develop some parameters. [00:21:17] Speaker 04: Right, but they adopted the rule, they adopted a rule that the Solicitor General was advocating for. [00:21:22] Speaker 04: And the Solicitor General said if you adopt this rule, Lesnak has to be wrongly decided. [00:21:28] Speaker 04: So I get it, the Supreme Court rarely, they've done it before, but rarely have they reversed a decision, you know, without having it squarely before them. [00:21:39] Speaker 04: So I understand they didn't expressly say this. [00:21:41] Speaker 04: That's why we're here today. [00:21:44] Speaker 04: But I just don't understand how you can segregate out this idea that the Supreme Court is taking a position that seems like everyone, the Second Circuit, the Solicitor General, everybody agrees [00:21:58] Speaker 04: is inconsistent with how we decided Lesnak. [00:22:02] Speaker 01: Can I ask for a little clarification on what the rule is? [00:22:05] Speaker 01: You say the Solicitor General. [00:22:06] Speaker 04: Well, the Solicitor General was asked about Lesnak. [00:22:10] Speaker 04: I mean, Solicitor General said, if you go back and apply what the Supreme Court did in Barnett Bank and you look at the test that's been adopted and prior and subsequent Supreme Court precedent, [00:22:28] Speaker 04: Lost neck doesn't fit within that it has lost neck is inconsistent with that with respect to 1639 D Yeah, well with respect to the the level of interference that is normally required For for preemption to find preemption [00:22:46] Speaker 04: I mean, maybe I'm catching you off guard. [00:22:48] Speaker 04: Were you aware that the Solicitor General had made those comments? [00:22:51] Speaker 01: Sure. [00:22:52] Speaker 01: I've listened to the argument twice. [00:22:54] Speaker 01: I didn't go to the, my case was up there at the Supreme Court, not in the panel. [00:23:00] Speaker 01: So I just listened to it twice and I didn't pick up the same thing. [00:23:05] Speaker 01: I do feel like the [00:23:08] Speaker 01: Solicitor felt that Lesnack overplayed 1639D, but I didn't get that. [00:23:17] Speaker 01: It was... [00:23:18] Speaker 01: that there was an adoption of an opinion that said that was flat out wrong. [00:23:22] Speaker 04: So the court called for the views of the U.S. [00:23:24] Speaker 04: Solicitor General and the U.S. [00:23:26] Speaker 04: Solicitor General in their brief, I guess I can't speak to what was said at argument, but in their brief, they said that Lussnack erred in treating Section 1639D as determinative of the preemption question. [00:23:39] Speaker 04: I guess it's fair. [00:23:39] Speaker 04: Maybe they didn't go so far as to say Lussnack reached the wrong result, but they did say that the analysis was [00:23:47] Speaker 01: Yeah, I don't think Lesnack treated 1639D as determinative. [00:23:54] Speaker 01: It was the final straw. [00:23:56] Speaker 01: It was the final indicator of congressional intent. [00:24:01] Speaker 01: But the fact that Wells Fargo [00:24:05] Speaker 01: the biggest mortgage servicer in the country was paying interest on escrow was a big consideration. [00:24:10] Speaker 01: The fact that there was no conflicting explicit power that the interest on escrow law conflicted with, that was a big consideration. [00:24:19] Speaker 01: 1639D, they liked it. [00:24:26] Speaker 01: I agree with Lesnack that 1639D does show some congressional intent that these types of laws [00:24:32] Speaker 04: Well, and just to put another finer point on it, the Solicitor General also said Lesnack elided the practical degree of interference assessment that Dodd-Frank requires. [00:24:43] Speaker 04: And it makes me wonder, you know, we asked about the difference between Barnett Bank and Cantero. [00:24:49] Speaker 04: One of the differences is that Dodd-Frank was intervening there, right? [00:24:54] Speaker 04: Because Dodd-Frank comes in in 2010 and Cantero's the first case, well I don't know if it's the first case, but it's the most recent case after [00:25:02] Speaker 01: dot frank and so doesn't that suggest that we need to revisit this uh... question in light of dot frank i think loose that was the first circuit court i agree well i don't about the first but you clearly less neck was it was post dot frank to interpret the this provision we're talking about a particular provision to of dot frank that's designed on its face to protect state consumer financial laws against [00:25:31] Speaker 01: preemption so Lou snack was the first case to look at that the first published circuit court case, I think and Cantaro is the first published Supreme Court case to look at that I've lost sort of track of the question, but Well, let me reorient it this way if the Supreme Court comes down with a analytical framework that is different from [00:26:01] Speaker 04: than what the Ninth Circuit has previously said. [00:26:04] Speaker 04: Aren't we bound to follow the analytical framework in the Supreme Court case? [00:26:11] Speaker 01: I don't think the idea of looking at the precedent of Barnett Bank and the cases it cites is a unique analytical framework. [00:26:19] Speaker 01: I do think it's sort of a path that Cantero is suggesting can be taken if you don't have a record. [00:26:28] Speaker 01: on, you know, in order to look at these cases on a motion to dismiss. [00:26:35] Speaker 01: But I think if you take that path, in our case, you see that there is no actual conflict. [00:26:41] Speaker 01: It's just an implied conflict. [00:26:46] Speaker 04: Let's see. [00:26:46] Speaker 04: And then I'll let my colleagues ask questions. [00:26:49] Speaker 04: But just one more question on this. [00:26:51] Speaker 04: If we apply what we see as the analytical framework in Kentaro, and we would reach a different conclusion in Lesnack [00:26:58] Speaker 04: Does that in and of itself mean that it's clearly irreconcilable, or do you think that Supreme Court precedent could dictate a different result, but it's not clearly irreconcilable with the prior precedent? [00:27:13] Speaker 01: I think the Supreme Court [00:27:17] Speaker 01: methodology, the expanded Supreme Court methodology is flexible enough to take Lusnak into account. [00:27:27] Speaker 01: So Lusnak looked at, remember what was happening with Lusnak is the Bank of America was still riding on its 2000 [00:27:36] Speaker 01: 11 preemption determination from the OCC that Lesnack threw out. [00:27:40] Speaker 01: Lesnack covered a lot of ground. [00:27:41] Speaker 01: Lesnack got us here. [00:27:43] Speaker 01: A lot of what Cantaro does is stuff that Lesnack did and is now sort of taken for granted. [00:27:49] Speaker 01: We're not talking about OCC preemption rulings post Dodd-Frank and we're not talking about Skidmore deference. [00:27:56] Speaker 01: All those things are [00:27:58] Speaker 01: are passed because of Lesnack, and then Cantero just sort of built on it, which is sort of how the law often works, I think. [00:28:13] Speaker 01: If the question is, if I'm telling you as a fact that I would, if I look at less Cantero, it leads me to a different result. [00:28:26] Speaker 01: If I leave out less SNAC, I don't think [00:28:29] Speaker 01: You should leave out Lesnack. [00:28:31] Speaker 01: I think you need to take it. [00:28:32] Speaker 01: The fact that Lesnack looked at this law and the factors it looked at and found no significant interference, that itself is an indicator of no significant interference. [00:28:44] Speaker 01: It's a panel of the Ninth Circuit. [00:28:45] Speaker 01: They looked at what was before them, which wasn't yet this nuanced comparative analysis. [00:28:52] Speaker 01: They just looked at what was before them, and they came to the conclusion they did. [00:28:55] Speaker 01: And that's significant because in the end somebody has to decide if there's significant interference. [00:29:01] Speaker 00: I want to hear your view on the facts and whether the facts are important or whether this is something that rather than being decided on a motion for summary judgment, which it was on a full record, could have just as easily been decided on a motion to dismiss. [00:29:18] Speaker 00: Is the factual development significant for the Quintero analysis or is this a more [00:29:26] Speaker 00: theoretical, it doesn't really matter what the facts are. [00:29:29] Speaker 00: We're looking at these statutes and seeing if there can be a significant, or if there is a significant interference, as opposed to looking at what practically is happening out there with banks. [00:29:42] Speaker 01: The real canteral methodology is to make a practical, you must make a practical assessment of the nature and degree of the interference. [00:29:51] Speaker 01: The standard is [00:29:54] Speaker 01: the same standard as Barney Bank, prevent or significantly interfere. [00:30:00] Speaker 01: The methodology is a practical assessment. [00:30:02] Speaker 01: The word practical itself means concerning the actual doing or use of something and not theories or ideas. [00:30:11] Speaker 01: And so I think practical overrides [00:30:18] Speaker 01: You can't have an idea come and override a practical fact under Canterra. [00:30:24] Speaker 01: That shouldn't be available. [00:30:27] Speaker 01: The way I see it, the way we would analyze it is, [00:30:34] Speaker 01: When you have that start conflict, you can just look at the two different texts of the law and decide whether there's significant interference. [00:30:43] Speaker 01: But in a case like Anderson and juxtaposed against Bank of San Jose, [00:30:50] Speaker 01: You have to sort of, if you're not going to get a factual record, you have to sort of reach some conclusion about the likely effect of the state law on the federal law. [00:31:03] Speaker 01: And that's what they did. [00:31:04] Speaker 01: And then you decide if that likely effect is significant interference. [00:31:10] Speaker 01: I do think, given what [00:31:13] Speaker 01: 12 usb 25 usc 25b says and what cantero says about a practical assessment there will be situations where you need some kind of record maybe not a purely factual record but like a Mixed question evidentiary hearing or or or summary judge cross motions for summary judgment something to act to [00:31:35] Speaker 01: In the non prima facie conflict cases, the courts may need something to make their decision on. [00:31:43] Speaker 01: And that seems to be built into the 25B. [00:31:48] Speaker 01: And it seems to be built into Cantero. [00:31:50] Speaker 01: I don't think there's a rule in Cantero. [00:31:52] Speaker 01: You can never look at the facts. [00:31:54] Speaker 01: You have to throw away the facts and rely on theory and ideas. [00:31:59] Speaker 01: I think practical assessment means the opposite of that. [00:32:09] Speaker 04: Well, there's no reserving. [00:32:12] Speaker 04: I mean, the more you argue, you don't get the luxury of a server rebuttal. [00:32:21] Speaker 01: You can tell I really know what I'm doing. [00:32:23] Speaker 01: No, you're helpful. [00:32:24] Speaker 04: Thank you. [00:32:25] Speaker 01: So we've talked about the facts. [00:32:27] Speaker 01: I'll take my last 38 seconds to just address one little point, which is that mortgage escrow accounts are not savings accounts. [00:32:38] Speaker 01: They're not deposit accounts. [00:32:41] Speaker 01: They're not banking products. [00:32:44] Speaker 01: They're not voluntary. [00:32:46] Speaker 01: They're funds that arise out of adhesive provisions of the Deed of Trusts. [00:32:51] Speaker 01: The contracts in California, they're called Deed of Trusts. [00:32:54] Speaker 01: They're the contracts that secure the real estate collateral to the loan. [00:32:59] Speaker 01: And they're the contracts that allow lenders to foreclose. [00:33:02] Speaker 01: And so we can see why the banks want to analogize mortgage escrow accounts to savings accounts. [00:33:16] Speaker 01: But there's really no, it's not a valid analogy, particularly under the [00:33:25] Speaker 01: the rule described at 25B, we have one of the, we're fortunate, we have a record in this case, we can look at it, at ER 73, we have the Bravo Deed of Trust, and at section three it describes the escrow provision, and it says that we get to pay your taxes and insurance for you, and we get to collect the money up front and hold it and pay it, and we don't have to pay interest on it unless applicable law requires us to pay interest. [00:33:52] Speaker 01: And, and, [00:33:55] Speaker 01: All these deeds of trust, most have that language I just described. [00:33:59] Speaker 01: All of them are going to say they're governed by applicable law. [00:34:02] Speaker 01: And remember, these deeds of trust, they change hands, they move around. [00:34:08] Speaker 01: Not every holder of a loan is a bank. [00:34:15] Speaker 01: Whether or not, we know that there's most of the time interest is paid in states where the law requires it. [00:34:24] Speaker 04: Okay, I think we've got your argument. [00:34:27] Speaker 04: Thank you. [00:34:27] Speaker 04: Thank you. [00:34:28] Speaker 04: Thank you, counsel. [00:34:29] Speaker 04: We'll give you two minutes for rebuttal. [00:34:38] Speaker 02: So if I could just want to make one point about Lesnack and then a couple points about Cantero. [00:34:42] Speaker 02: On Luznak, I do think that the history of this litigation is relevant, as you point out, Your Honor. [00:34:48] Speaker 02: The SG in fact did reject in its CBSG brief the Luznak analysis. [00:34:54] Speaker 02: It said on page 19, the Ninth Circuit and Flagstar on Luznak thus failed to make the practical degree of interference [00:35:00] Speaker 04: assessment that 25B1 requires. [00:35:16] Speaker 04: to make of that. [00:35:17] Speaker 04: It's relevant, but I don't know if it's dispositive. [00:35:21] Speaker 02: I think the other point that's relevant is that the court then turned around and granted our petition vacated the last decision and remanded. [00:35:29] Speaker 04: Yeah, but they do that a lot. [00:35:31] Speaker 04: I think what you gain from that is we don't want to deal with this now, which is fair use of the resources. [00:35:37] Speaker 02: We do rest primarily on the methodology distinction. [00:35:40] Speaker 02: I think that's the key under Miller v. Gammie. [00:35:42] Speaker 02: But I don't think that it is all that usual. [00:35:44] Speaker 02: Indeed, I think it is unusual for the court to take two cases from opposite sides of a split to then reverse the other side and then GVR both sides. [00:35:54] Speaker 03: Yeah, but the Second Circuit was a categorical decision, really based on McCullough rather than anything that was in Barnett Bank. [00:36:03] Speaker 02: I'm not arguing that this court should adopt the Cantaro approach. [00:36:07] Speaker 02: I think it's the Second Circuit's approach to Cantaro. [00:36:09] Speaker 02: It obviously isn't. [00:36:09] Speaker 02: I do think it would be particularly odd in that history, with the SG's brief, with the GVR, to then not apply the Cantaro methodology with fresh eyes. [00:36:19] Speaker 04: Well, and I guess the question comes back to can we do that as a panel or do we need to ask for the en banc court to do it? [00:36:24] Speaker 02: And I think the key there is the point I made before, that the Supreme Court in Cantaro adopted a new methodology that this court did not apply. [00:36:32] Speaker 02: That's what the SG was saying. [00:36:33] Speaker 02: And that's exactly the instance in Miller v. Gammie in which the prior panel decision had been overruled. [00:36:41] Speaker 03: One procedural point. [00:36:42] Speaker 03: So neither Cantaro nor Conte has been decided yet by those courts. [00:36:48] Speaker 03: Did the Second Circuit in Cantaro deal with Fannie Mae v. Lefkowitz, the 1975 decision that's a three-judge constitutional court? [00:36:57] Speaker 02: Right. [00:36:57] Speaker 02: I don't recall if it did. [00:36:59] Speaker 02: I don't think that has much bearing here. [00:37:00] Speaker 03: Obviously, it's not... It's not binding on us, but it should have been binding on them. [00:37:04] Speaker 03: I mean, under our rules, it would have been binding on us. [00:37:06] Speaker 02: I think the key is that that case actually didn't concern National Bank Agription at all. [00:37:10] Speaker 02: It was about Fannie Mae, not about a national bank. [00:37:12] Speaker 02: It did, of course, analogize to Anderson, but then it actually pointed out distinctions, right? [00:37:17] Speaker 02: That the law in New York was applying to Fannie Mae, not the national bank, so it was imposing interest on escrow requirements, [00:37:23] Speaker 02: on the acquire of the mortgage, not on the bank itself. [00:37:28] Speaker 02: So I actually don't even think that would be applying. [00:37:30] Speaker 02: I think it's just a different situation than what we're facing here. [00:37:34] Speaker 00: What is your view, in light of Cantera, of the factual record that was developed [00:37:41] Speaker 00: for this case before the district court. [00:37:43] Speaker 02: So that was one of the two points I wanted to make about Cantaro. [00:37:45] Speaker 02: We do not think that that factual record is relevant here. [00:37:48] Speaker 02: I think if you look at Cantaro, you look specifically at footnote three about what the court is saying, how this analysis should apply. [00:37:56] Speaker 02: Nothing about that suggests that a factual record is relevant. [00:38:00] Speaker 02: Indeed, what it says is do what Barnett Bank did. [00:38:02] Speaker 02: And if you look at Barnett Bank, at Fidelity, at Franklin, at Anderson and McClellan, and at Commonwealth, [00:38:07] Speaker 02: not a single one of those is relying on a factual record or suggesting that a factual record is relevant. [00:38:13] Speaker 02: I think Franklin is the key there. [00:38:15] Speaker 02: There actually was a federal, a factual record like there is here and yet the court mentioned it in the procedural history. [00:38:20] Speaker 02: It knew it was there and then in the analysis it said not a word about that factual record and I think that's for good reason. [00:38:26] Speaker 02: I think it's an unworkable preemption system that relies on a factual record. [00:38:30] Speaker 02: I think you've got two ways for that to play out. [00:38:32] Speaker 02: Either you're gonna have preemption that varies from bank to bank depending on the record that a bank [00:38:36] Speaker 02: puts together in a case, which I think no one in the court or in Congress thinks is the right way to go about it. [00:38:43] Speaker 02: Or you've got a preemption decision that's going to bind all national banks that depends on the factual record that one litigant puts together. [00:38:50] Speaker 02: I can't think of another spot in which a preemption analysis turns that sort of factual record. [00:38:55] Speaker 02: I think it will be an odd thing to do in this circumstance, specifically in a case where the law is intending to create a uniform national rule for national banks. [00:39:03] Speaker 00: Is that a change of position from what [00:39:06] Speaker 00: Flagstar had below, though. [00:39:08] Speaker 02: It absolutely changed the position from pre-Luznak, of course. [00:39:11] Speaker 02: And of course, we've flipped sides. [00:39:13] Speaker 02: You can look at their brief. [00:39:14] Speaker 02: They say it's clearly a legal determination. [00:39:16] Speaker 02: The reason for that, of course, is that Luznak was the law of the circuit when we were here last. [00:39:20] Speaker 02: We were trying to figure out a way to distinguish Luznak on those grounds. [00:39:24] Speaker 02: Post-Cantaro, we don't think we need to do that anymore. [00:39:26] Speaker 02: As we discussed, Your Honor, I think that Cantaro just effectively overrules Luznak. [00:39:31] Speaker 02: And now we're trying to apply Cantaro here. [00:39:35] Speaker 04: OK. [00:39:35] Speaker 04: Thank you. [00:39:35] Speaker 04: Thank you to both parties for your arguments and the case is now submitted and that concludes our arguments for today.