|People v First Am. Corp.|
|2011 NY Slip Op 08450|
|Decided on November 22, 2011|
|Court of Appeals|
|Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.|
|This opinion is uncorrected and subject to revision before publication in the Official Reports.|
Decided on November 22, 2011
First American Corporation, et al., Appellants.
Andrew L. Deutsch, for appellants.
Richard P. Dearing, for respondent.
In that regard, defendants insist that "HOLA and FIRREA so occupy the field that these two statutes preempt any and all state laws speaking to the manner in which appraisal management companies provide real estate appraisal services" (First Am. Corp., 76 AD3d at 73). We disagree.
READ, J. (DISSENTING):
"OTS is authorized to promulgate regulations that preempt state laws affecting the operations of [FSAs] . . . OTS hereby occupies the entire field of lending regulation for [FSAs]. OTS intends to give [FSAs] maximum flexibility to exercise their lending powers in accordance with a uniform federal scheme of regulation. Accordingly, [FSAs] may extend credit as authorized under federal law, including this part, without regard to state laws purporting to regulate or otherwise affect their credit activities, except to the extent provided in paragraph (c) of this section... For purposes of this section, 'state law' includes any state statute, regulation, ruling, order or judicial decision" (12 CFR 560.2 [a]).
"state laws purporting to impose requirements regarding:
"(5) Loan-related fees . . .
"(9) Disclosure and advertising . . . [and]
"[b]ecause lending lies at the heart of the business of a federal thrift, OTS and its predecessor . . . have long taken the position that the federal lending laws and regulations occupy the entire field of lending regulation for [FSAs], leaving no room for state regulation. For these purposes, the field of lending regulation has been defined to encompass all laws affecting lending by federal thrifts, except certain specified areas such as basic real property, contract, commercial, tort, and criminal law" (id. [emphasis added]).
"When confronted with interpretive questions under § 560.2, we anticipate that courts will, in accordance with well established principles of regulatory construction, look to the regulatory history of § 560.2 for guidance. In this regard, OTS wishes to make clear that the purpose of paragraph (c) is to preserve the traditional infrastructure of basic state laws that undergird commercial transactions, not to open the door to state regulation of lending by [FSAs]. When analyzing the status of state laws under § 560.2, the first step will be to determine whether the type of law in question is listed in paragraph (b). If [*12]so, the analysis will end there; the law is preempted. If the law is not covered by paragraph (b), the next question is whether the law affects lending. If it does, then, in accordance with paragraph (a), the presumption arises that the law is preempted. This presumption can be reversed only if the law can clearly be shown to fit within the confines of paragraph (c). For these purposes, paragraph (c) is intended to be interpreted narrowly. Any doubt should be resolved in favor of preemption" (id. at 50966-50967 [emphasis added]).
"The question before the Court is whether the plaintiff's claims under state contract law and California and New York state deceptive practice statutes are brought in an effort to regulate IndyMac's appraisal practices in a way that interferes with an area defined in paragraph (b) or more than incidentally affects IndyMac's federally regulated thrift operations for purposes of paragraph (c)" (id. at *23 [emphasis added]).
Given his disposition of the case, the judge did not need to analyze whether the plaintiff's claim under the California deceptive practice statute "more than incidentally affect[ed]" lending within the meaning of 12 CFR 560.2 (c). He nonetheless added that the statute also ran afoul of this provision because "[t]he practices the plaintiff [sought] to regulate relate[d] directly to the valuation of the collateral security for loans"; and "[t]he relief the plaintiff [sought] would plainly set particular requirements on IndyMac's lending operations" (id. at *26).
Applying the same analysis, the court held that the plaintiff's claim under New York's General Business Law § 349 was likewise preempted because "[a]s applied to the allegations in this case, [she was] relying on a state law to regulate a loan-related fee, disclosure of information relating to the fee, and the processing and origination of a mortgage," which were preempted under 12 CFR 560.2 (b) (5), (9) and (10), respectively. Moreover, although it was therefore again unnecessary to analyze the statute's application under 12 CFR 560.2 (c), the judge concluded that "the New York statute as applied in this case more than incidentally affect[ed] federal thrift lending operations" (id. at *27).
"[t]he contract claim is simply another means to attempt to regulate the method used by IndyMac to assess the value of collateral in securing its loans. Granting the plaintiff the relief she seeks would have the same effect as a direct regulation of appraisal practices — causing IndyMac to alter the methods it uses to evaluate [*15]loans and more than incidentally affecting lending operations of federally chartered savings associations" (id. at *32).
"[e]ach of these claims relate directly to the processing and origination of mortgages. Appraisals are required for many real-estate transactions. 12 C.F.R. 34.43 (requiring a certified or licensed appraisal for all real-estate financial transactions except those falling within enumerated exceptions). And those appraisals must be performed according to certain standards in order to protect the public and federal financial interests. 12 C.F.R. 34.41 (b). Indeed, plaintiffs' theory of the case, that lenders and appraisers conspired to inflate appraisals in order to increase mortgage resale prices, demonstrates the importance and interrelationship of impartial appraisals to mortgage origination and servicing" (id. at *17 [emphases added]).
* * * * * * * * * * * * * * * * *
Order affirmed, with costs, and certified question answered in the affirmative. Opinion by Judge Ciparick. Chief Judge Lippman and Judges Graffeo, Smith, Pigott and Jones concur. Judge Read dissents and votes to reverse in an opinion.
Decided November 22, 2011