MacPherson v JPMorgan Chase: Fair Credit Reporting Act Pre-empts State Law Claims

United States Court of Appeals,Second Circuit

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MacPHERSON v. JPMORGAN CHASE BANK

Sean Stewart MacPHERSON, Plaintiff–Appellant, v. JPMORGAN CHASE BANK, N.A.,Defendant–Appellee.

Docket No. 10–3722–cv.
Argued: Sept. 22, 2011. -- December 23, 2011

Before POOLER, B.D. PARKER, and CARNEY, Circuit Judges.
Sean Stewart Macpherson, pro se, Redding, CT.Noah A. Levine (Daniel S. Volchok, on the brief), Wilmer Cutler Pickering Hale and Dorr LLP, New York, NY, and Washington, D.C.; (Thomas Edward Stagg and Debra Lynne Wabnik, Stagg, Terenzi, Confusione & Wabnik, LLP, Garden City, NY, on the brief), for Appellee.

Proceeding pro se, Sean Stewart Macpherson appeals from a judgment of the United States District Court for the District of Connecticut (Thompson, J.), dismissing his state common law tort claims against JPMorgan Chase Bank, N.A. Because we agree that the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. § 1681t(b)(1)(F), preempts Macpherson's state law claims against Chase, we affirm the district court's judgment.

Macpherson alleges that Chase willfully and maliciously provided false information about his finances to Equifax, a consumer credit reporting agency. Based on these reports, Equifax reduced his credit score, to his detriment. Macpherson sued Chase in state court in Connecticut for this alleged conduct, asserting state common law claims against Chase for defamation and intentional infliction of emotional distress.

Chase removed the suit to federal court and moved for dismissal under Federal Rule of Civil Procedure 12(b)(6), arguing that Macpherson's claims are preempted by FCRA. In a careful and thorough decision, the district court agreed and granted Chase's motion. No. 3:09CV 1774, 2010 WL 3081278 (D.Conn. Aug. 5, 2010). Macpherson timely appealed.

The sole issue on appeal is whether FCRA preempts Macpherson's state law claims. We review de novo a district court's application of preemption principles. Drake v. Lab. Corp. of Am. Holdings, 458 F.3d 48, 56 (2d Cir.2006). Chase contends, and the district court held, that Macpherson's claims are preempted by § 1681t(b)(1)(F) of FCRA. This section, a general preemption provision enacted in 1996—over twenty years after FCRA first took effect—provides, in relevant part:

No requirement or prohibition may be imposed under the laws of any State—
(1) with respect to any subject matter regulated under—
․
(F) section 1681s–2 of this title, relating to the responsibilities of persons who furnish information to consumer reporting agencies․
15 U.S.C. § 1681t(b)(1)(F). Macpherson acknowledges that his allegations of false reporting concern conduct regulated by § 1681s–2. Read literally, therefore, § 1681t(b)(1)(F) bars Macpherson's state law tort claims.

Macpherson contends, however, that his claims survive the 1996 preemption provision by virtue of another section of the statute, § 1681h(e). Enacted in 1970 as a part of the original legislation, § 1681h(e) provides, as relevant here:

[N]o consumer may bring any action or proceeding in the nature of defamation, invasion of privacy, or negligence with respect to the reporting of information against ․ any person who furnishes information to a consumer reporting agency, ․ except as to false information furnished with malice or willful intent to injure such consumer.

15 U.S.C. § 1681h(e) (emphasis supplied). Notwithstanding the broad language of the 1996 amendment, Macpherson maintains that § 1681h(e) amounts to an explicit authorization of certain state common law tort claims that are based on “false information furnished with malice or willful intent to injure.” He urges us to reconcile the conflict that his reading of § 1681h(e) engenders by holding that the 1996 amendment preempts only state statutes, and not state common law actions, that are inconsistent with FCRA.

In Premium Mortgage Corp. v. Equifax, Inc., 583 F.3d 103 (2d Cir.2009), we expressly rejected the argument that § 1681t(b) preempts only state statutory law. Id. at 106. We adopted instead a more literal reading of the phrase “[n]o requirement or prohibition”—a reading that was endorsed by a plurality of the Supreme Court in Cipollone v. Liggett Group, Inc., 505 U.S. 504 (1992), in its discussion of a similar preemption argument: “The phrase ‘[n]o requirement or prohibition’ sweeps broadly and suggests no distinction between positive enactments and common law; to the contrary, those words easily encompass obligations that take the form of common-law rules.” Id. at 521. The same section and introductory language—“[n]o requirement or prohibition may be imposed under the laws of any State”—applies here, and our holding in Premium Mortgage forecloses Macpherson's limited reading of the 1996 amendment.

Moreover, and more importantly, Macpherson's basic premise is false: the 1996 provision, § 1681t(b)(1)(F), is not in conflict with § 1681h(e), and § 1681h(e) does not insulate state tort actions from preemption. As the Seventh Circuit recently explained in Purcell v. Bank of America, 659 F.3d 622 (7th Cir.2011), “[s]ection 1681h(e) preempts some state claims that could arise out of reports to credit agencies; § 1681t(b)(1)(F) [simply] preempts more of these claims.” Id. at 625 (emphasis supplied). Put differently, the operative language in § 1681h(e) provides only that the provision does not preempt a certain narrow class of state law claims; it does not prevent the later-enacted § 1681t(b)(1)(F) from accomplishing a more broadly-sweeping preemption. As the Purcell court persuasively reasoned:
Section 1681h(e) does not create a right to recover for wilfully false reports; it just says that a particular paragraph does not preempt claims of that stripe. Section 1681h(e) was enacted in 1970.

Twenty-six years later, in 1996, Congress added § 1681t(b)(1)(F) to the United States Code. The same legislation also added § 1681 s–2. The extra federal remedy in § 1681 s–2 was accompanied by extra preemption in § 1681t(b)(1)(F), in order to implement the new plan under which reporting to credit agencies would be supervised by state and federal administrative agencies rather than judges. Reading the earlier statute, § 1681h(e), to defeat the later-enacted system in § 1681s–2 and § 1681t(b)(1)(F), would contradict fundamental norms of statutory interpretation.
Id. We agree.

Having determined that § 1681h(e) is compatible with § 1681t(b)(1)(F), and that Macpherson's state law claims are preempted by the plain language of § 1681t(b)(1)(F), we need not address Macpherson's remaining statutory interpretation arguments.

Accordingly, the judgment of the district court is AFFIRMED.

Attorney Frederic Powell Disbarred For Grand Larceny, Possession of a Forged Instrument, and Attempted Bribery

Is Stealing Money by an Attorney Legal Malpractice?
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While theft by an attorney may be many things, it is questionable whether it might be called legal malpractice. In B & R Consol., L.L.C. v Zurich Am. Ins. Co. 2011 NY Slip Op 51142(U) ; Decided on June 22, 2011 ; Supreme Court, Nassau County ; DeStefano, J. we see an upside-down mirror image of the usual legal malpractice case. Here plaintiff's attorneys are well known legal malpractice defense counsel, plaintiff in the underlying legal malpractice case is suing the malpractice insurer, and the argument is over whether the insurance policy covers the alleged acts. Here, for the moment it does.

"In an action filed on November 6, 2008, encaptioned B & R Consolidated, L.L.C. v Frederic A. Powell, Esq. and Robin Powell, Index No. 020049/08 (the "underlying action"), B & R asserted, inter alia, causes of action in fraud, unjust enrichment, conversion, breach of contract, and breach of fiduciary duty based upon an admission by attorney Frederick A. Powell ("Powell") that he "stole four hundred and fifty thousand ($450,000.00) dollars of B & R's money from his escrow account for other personal projects'" and did this "without any authorization from B & R" (Ex. "1" to Plaintiff's Opposition). Specifically, it was alleged in the complaint that:
Unbeknownst to B & R, [Powell] received the money from the repayment of a mortgage owned by B & R in June of 2007. [Powell] neglected to inform B & R that the money had been received until September 2008, more than an entire year later! Instead, [Powell] made periodic payments to B & R under the guise of interest payments being made by a third party on the mortgage held by B & R
Accordingly, the Court finds unrebutted plaintiff's proof that Powell took possession of funds belonging to the plaintiff, hid that fact from it, and then lost or misappropriated those funds for his own use. This constitutes an established breach of fiduciary duty owed to B & R by Powell as its attorney. Further, damages resulting from that breach have been shown as a result of the [*4]misappropriation of the clients' funds, which is distinct from any claim for negligence or legal malpractice. Summary judgment therefore is granted to the plaintiff on its third and fifth causes of action, breach of "the fiduciary duty of care", and "of loyalty", as they most closely comport with the foregoing authority regarding breach of fiduciary duty generally. The Court notes that such a breach would also allow for a recovery for any attorney's fees that were improperly charged as being incident the to [sic] breach rendering the continued pursuit of the negligence and malpractice causes of action unnecessary. Summary judgment is therefore denied as to these claims. "
"The Insurer argues that liability in the underlying action was not based upon Powell's rendition of legal services but, rather, on his misappropriation of B & R's funds and, thus, the Insurer has no obligation to indemnify. In the underlying action, Justice Palmieri stated in his decision that "the amended complaint is framed in terms of negligence, malpractice, and breach of fiduciary duty to Powell. This in turn is premised on bad advice from Powell as attorney and a failure to keep B & R informed of the true status of its loan to Lyons" (Ex. "7" to Plaintiff's Opposition at p. 5).
Under the circumstances, and considering that the causes of action asserting breach of fiduciary duty are based upon the same facts constituting the causes of action alleging negligence and legal malpractice, it cannot be said as a matter of law that Powell's conduct falls outside the scope of risk covered by the policy (Ex. "7" to Plaintiff's Opposition at p 8; see Ulico Casualty Co., v Wilson, Elser, Moskowitz, Edelman & Dicker, 56 AD3d 1 [1st Dept 2008]; Burkhart, Wexler & Hirschberg, LLP v Liberty Insurance Underwriters, Inc., 60 AD3d 884 [2d Dept 2009]).[FN3] "

 

Long Island real-estate lawyer disbarred after bribery attempt

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NEW YORK, Dec 30 (Reuters) - A Long Island real-estate attorney was formally banned from practicing law in New York after he admitted to trying to pay a government official $250 to expedite his request for public information on a property.

The Appellate Division, Second Department, on Thursday granted a motion by the Grievance Committee for the Tenth Judicial District to disbar Frederic Powell, who pleaded guilty in March to grand larceny, criminal possession of a forged instrument and attempted bribery.

According to the court record, Powell admitted to stealing property worth more than $50,000 and to putting a person's name on a mortgage without her knowledge or consent.

He was also caught in 2010 trying to bribe a Hempstead Township clerk to speed up a request he made under the Freedom of Information Law for information on a piece of property.

According to a statement from Nassau County District Attorney Kathleen Rice, Powell was told by the clerk that it would take up to five days to process his request. Powell told the clerk that he needed the information that day and put a $100 bill on the counter, asking if it would be possible to expedite the process.

After the clerk said that there was nothing she could do to speed up the request, Powell pushed a second $100 bill across the counter, according to prosecutors. When the clerk refused, saying she would call him when she received the requested information, Powell crumpled up and threw a $50 bill at the clerk.

The clerk returned all of the money to Powell before he left, the DA said. A spokeswoman for Rice said that Powell's case is still active and that he has not yet been sentenced.

Powell could not immediately be reached for comment on Friday. He did not oppose the grievance committee's motion for disbarment and did not respond to the disciplinary action, according to the court ruling.

The case is In the Matter of Frederic Powell, in the Supreme Court for the State of New York, Appellate Division: Second Judicial Department, No. 2009-04002.

For the disciplinary committee: Daniel Mitola of Hauppauge, N.Y.

(Reporting by Jessica Dye)

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Attorney Luis Rosado Suspended From The Practice of Law For One Year

MATTER OF LOUIS ROSADO, AN ATTORNEY, RESPONDENT. GRIEVANCE COMMITTEE OF THE EIGHTH JUDICIAL DISTRICT, PETITIONER.

OPINION AND ORDER Order of suspension entered.

Per Curiam Opinion: Respondent was admitted to the practice of law by the Appellate Division, First Department on August 6, 1990, and maintains an office in Buffalo. The Grievance Committee filed a petition charging respondent with acts of misconduct including neglecting client matters and failing to cooperate with the investigation of the Grievance Committee. Respondent filed an answer denying material allegations of the petition, and a referee was appointed to conduct a hearing. Prior to the hearing, the parties executed a stipulation resolving all outstanding factual issues. Based upon that stipulation, the Referee filed a report, which the Grievance Committee moves to confirm. Respondent filed no papers in opposition to the motion, and he appeared before this Court and submitted matters in mitigation.

With respect to the first charge of the petition, the Referee found that, in December 2007, respondent was retained to secure a qualified domestic relations order (QDRO) concerning certain pension benefits belonging to his client's former spouse. Although the benefits became available in February 2008 and respondent obtained an order directing his client's former spouse to show cause why his client was not entitled to a portion of the benefits, the Referee found that respondent thereafter failed to respond to inquiries from his client and failed to take further action on the matter until August 2010 when, upon penalty of contempt, the court presiding over the matter directed respondent to submit a proposed QDRO to the court. The Referee further found that, after respondent submitted the proposed QDRO, he failed to follow up with the court to secure a portion of the pension benefits for his client.

With respect to charge two, the Referee found that, in May 2007, respondent was retained to obtain a judgment of divorce against a resident of El Salvador. The Referee found that, although respondent filed a summons and notice and sent them to El Salvador for service, he twice thereafter received a defective affidavit of service from the process server in El Salvador. The Referee further found that respondent, through February 2011, failed to obtain a proper affidavit of service, failed to communicate with his client regarding the matter and failed to take further action to complete the matter.

With respect to charge three, the Referee found that respondent was retained in April 2008 to file a petition for bankruptcy on behalf of a married couple, and he was paid funds in the amount of $1,525 for his legal fees and the bankruptcy filing fee. The Referee found that, for at least nine months, respondent kept the sum of $299, which his clients intended to be used for payment of the bankruptcy fee, in an unlocked filing cabinet. The Referee further found that, although respondent possessed all information necessary to file the bankruptcy petition in August 2008, he did not file the petition until August 2009, after his clients filed a complaint with the Grievance Committee.

With respect to charge four, the Referee found that respondent was retained in September 2008 to represent an individual as the purchaser of certain residential real property. Respondent received four separate checks from his client, which were for the purpose of satisfying an existing mortgage, satisfying arrears for municipal water and garbage user fees and paying the closing costs of the transaction, including respondent's legal fee. The Referee found that respondent delegated the matter to a non-employee who mistakenly paid to the mortgage holder the funds that were intended to satisfy the arrears for municipal water and garbage user fees. The [*2]Referee further found that respondent thereafter failed to respond to inquiries from his client regarding the matter and failed to take action to complete the matter. In addition, the Referee found that respondent failed to file with the County Clerk the deed relating to the transaction and that, in 2010, respondent's client incurred additional expenses to retain replacement counsel in order to complete the matter.

With respect to charge five, the Referee found that respondent was retained in March 2007 to prosecute a criminal appeal and, although he took certain preliminary steps to prosecute the matter, he failed to perfect the appeal. The Referee further found that respondent did not provide a refund to his client until April 2009, after she filed a complaint with the Grievance Committee.

The Referee additionally found that, with respect to charges one and two, respondent failed to provide his clients with a statement of client's rights, a written retainer agreement and billing statements at regular intervals as required by the Appellate Division rules governing domestic relations matters. The Referee further found that, in three of the above-referenced matters, respondent failed to make and keep records concerning the receipt, maintenance or disbursement of client funds. In addition, the Referee found that, from January through June 2010, respondent failed to respond in a timely manner to repeated requests from the Grievance Committee for information regarding the above matters.

We confirm the findings of fact made by the Referee and conclude that respondent has violated the following former Disciplinary Rules of the Code of Professional Responsibility and the following Rules of Professional Conduct:

DR 1-102 (a) (5) (22 NYCRR 1200.3 [a] [5]) and rule 8.4 (d) of the Rules of Professional Conduct (22 NYCRR 1200.0) - engaging in conduct that is prejudicial to the administration of justice;

DR 1-102 (a) (7) (22 NYCRR 1200.3 [a] [7]) and rule 8.4 (h) of the Rules of Professional Conduct (22 NYCRR 1200.0) - engaging in conduct that adversely reflects on his fitness as a lawyer;

DR 2-106 (c) (2) (ii) (22 NYCRR 1200.11 [c] [2] [ii]) and rule 1.5 (d) (5) (ii) of the Rules of Professional Conduct (22 NYCRR 1200.0) - entering into an arrangement for, charging or collecting a fee in a domestic relations matter without a written retainer agreement signed by the lawyer and client setting forth in plain language the nature of the relationship and the details of the fee arrangement;

DR 2-106 (f) (22 NYCRR 1200.11 [f]) and rule 1.5 (e) of the Rules of Professional Conduct (22 NYCRR 1200.0) - failing to provide a prospective client in a domestic relations matter with a statement of client's rights and responsibilities at the initial conference and prior to the signing of a written retainer agreement;

DR 2-110 (a) (3) (22 NYCRR 1200.15 [a] [3]) and rule 1.16 (e) of the Rules of Professional Conduct (22 NYCRR 1200.0) - failing to refund promptly any part of a fee paid in advance that has not been earned;

DR 6-101 (a) (3) (22 NYCRR 1200.30 [a] [3]) and rule 1.3 (b) of the Rules of Professional Conduct (22 NYCRR 1200.0) - neglecting a legal matter entrusted to him;

DR 9-102 (b) (1) (22 NYCRR 1200.46 [b] [1]) and rule 1.15 (b) (1) of the Rules of Professional Conduct (22 NYCRR 1200.0) - failing to maintain client funds in a special account separate from his business or personal accounts;

DR 9-102 (c) (3) (22 NYCRR 1200.46 [c] [3]) and rule 1.15 (c) (3) of the Rules of Professional Conduct (22 NYCRR 1200.0) - failing to maintain complete records of all funds of [*3]a client coming into his possession and to render appropriate accounts to his client regarding them;

DR 9-102 (d) (9) (22 NYCRR 1200.46 [d] [9]) and rule 1.15 (d) (2) of the Rules of Professional Conduct (22 NYCRR 1200.0) - failing to make accurate, contemporaneous entries of all financial transactions in his records of receipts and disbursements, his special accounts, his ledger books and in any other books of account kept by him in the regular course of his practice;

rule 1.3 (a) of the Rules of Professional Conduct (22 NYCRR 1200.0) - failing to act with reasonable diligence and promptness in representing a client; and

rule 1.4 (a) (2) - (4) of the Rules of Professional Conduct (22 NYCRR 1200.0) - failing to consult with a client in a reasonable manner about the means by which the client's objectives are to be accomplished; failing to keep a client reasonably informed about the status of a matter; and failing in a prompt manner to comply with a client's reasonable requests for information.

Finally, we conclude that respondent has violated 22 NYCRR part 1400 by failing to provide clients in domestic relations matters with a statement of client's rights, a written retainer agreement and itemized billing statements at regular intervals.

In determining an appropriate sanction, we have considered the ongoing nature of respondent's misconduct inasmuch as respondent has previously received two letters of caution and has been censured by this Court for similar misconduct (Matter of Rosado, 64 AD3d 123). In addition, we have considered that respondent's misconduct caused harm to several of his clients. Accordingly, after consideration of all of the factors in this matter, we conclude that respondent should be suspended from the practice of law for a period of one year and until further order of the Court. 
PRESENT: CENTRA, J.P., PERADOTTO, LINDLEY, GREEN, AND MARTOCHE, JJ. (Filed Nov. 25, 2011.)

Commission On Judicial Conduct Starts Hearing Bronx Surrogate Court Judge Lee Holtzman's Corruption Case on Dec. 14, 2011

Corruption case against Bronx Surrogate Lee Holzman by judicial conduct panel is persuasive

EDITORIALS

DAILY NEWS STAFF WRITER

Wednesday, September 14, 2011

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The state Commission on Judicial Conduct has persuasively laid out a case as to why Bronx Surrogate Judge Lee Holzman should be removed from office.

Panel director Robert Tembeckjian unveiled the findings of an investigation that was triggered by Daily News reports about Holzman's questionable behavior.

As surrogate, Holzman is responsible for probating wills and overseeing the estates of the dead, particularly when there is no will and no readily identifiable executor.

The commission staff found that Holzman let lawyer pal Michael Lippman loot estates, taking hundreds of thousands of dollars to which he was not entitled. Lippman has since been indicted by the Bronx district attorney and pleaded not guilty.

Matter of Lee L. Holzman

The Appellate Division, First Department, has denied a motion by Surrogate Lee L. Holzman (Bronx County) to stay the Commission's disciplinary proceeding against him, pending his appeal of a lower court decision that also denied his application for a stay.

The Commission authorized formal disciplinary charges against Surrogate Holzman in January 2011. Judge Holzman filed an Answer, and the matter was referred to retired Supreme Court Justice Felice K. Shea, as Referee to hear and report proposed findings of fact and conclusions of law. The hearing commenced on the morning of September 12, 2011, at which time Judge Holzman signed a written waiver of confidentiality.

Prior to September 12, 2011, Judge Holzman commenced a proceeding pursuant to Article 78 of the CPLR, seeking to stay the Commission proceedings against him. The matter was assigned to Acting Supreme Court Justice Barbara Jaffe in Manhtattan. Justice Jaffe sealed the record of the Article 78 proceeding, pending her decision. She rendered decision dated September 8, 2011, dismissing Judge Holzman's Article 78 petition.

Judge Holzman, by counsel, returned to Supreme Court on the morning of September 12, 2011, to renew his application to stay the Commission proceedings against him. Judge Jaffe issued a stay, pending decision. The Commission proceeding before Referee Felice Shea was therefore halted. Judge Jaffe thereafter issued a decision, denying Judge Holzman's renewed application.

The hearing before Referee Felice Shea was scheduled to resume on October 11.

On October 5, 2011, Judge Holzman, by counsel, again sought a stay of the Commission proceedings, pending his appeal of the Supreme Court decision dismissing his Article 78 petition. Associate Justice Sheila Abdus-Salaam of the Appellate Division, First Department, granted an interim stay, pending determination by a full panel of the Court as to Judge Holzman's request for a stay. Justice Abdus-Salaam set an expedited schedule for submission of briefs and consideration of the application by the court. Briefs were filed and the matter was fully submitted on October 12.

Accordingly, the hearing before Referee Felice Shea, scheduled to resume on October 11, was postponed, pending decision by the Appellate Division on Surrogate Holzman's application.

On December 6, 2011, the Appellate Division issued an Order, denying Judge Holzman's application for a stay of Commission proceedings, pending appeal. The disciplinary hearing against Judge Holzman will therefore resume. The Referee has scheduled the following dates: December 14, 15, 16 and 19; January 3, 4, 5, 6, 9, 10, 11, 12 and 13.

The documents as to both the Commission disciplinary proceeding against Surrogate Holzman, and his Article 78 proceeding against the Commission, are available at Holzman Proceedings.

Matter of P. Michael Shanley

The Commission has determined that Oswego City Court Judge P. Michael Shanley (Oswego County) should be censured. The determination is available at Shanley Decision. An accompanying press release is available at 2011 Releases.

Matter of Shari R. Michels

The Commission has determined that New York City Civil Court Judge Shari R. Michels (New York County) should be admonished. The determination is available at Michels Decision. An accompanying press release is available at 2011 Releases.

Matter of John W. Riordan

The Commission has determined that Gouverneur Town Court Justice John W. Riordan (St. Lawrence County) should be admonished. The determination is available at Riordan Decision. An accompanying press release is available at 2011 Releases.

Matter of Kevin V. Hunt

The Commission has determined that Shawangunk Town Court Justice Kevin V. Hunt (Ulster County) should be censured. The determination is available at Hunt Decision. An accompanying press release is available at2011 Releases.

Matter of Lafayette D. Young, Jr.

The Commission has determined that Macomb Town Court Justice Lafayette D. Young, Jr. (St. Lawrence County) should be removed from office. The determination is available at Young Decision. An accompanying press release is available at 2011 Releases.

Judge Young has notified the Court of Appeals that he requests review of the Commission's determination. On November 17, the Court suspended Judge Young from judicial office, with pay, pending disposition of his request for review of the determination. The Court's order is available atYoung Suspension. Judge Young has until December 20, 2011, to submit his brief and the record on review to the Court of Appeals.

The Commission authorized formal disciplinary charges against Lee L. Holzman, Surrogate of Bronx County, in January 2011. Judge Holzman filed an Answer, and the matter was referred to retired Supreme Court Justice Felice K. Shea, as Referee to hear and report proposed findings of fact and conclusions of law. The hearing commenced on the morning of September 12, 2011, at which time Judge Holzman signed a written waiver of confidentiality.

Prior to September 12, 2011, Judge Holzman commenced a proceeding pursuant to Article 78 of the CPLR, seeking to stay the Commission proceedings against him. The matter was assigned to Acting Supreme Court Justice Barbara Jaffe in Manhtattan. Justice Jaffe sealed the record of the Article 78 proceeding, pending her decision. She rendered decision dated September 8, 2011, dismissing Judge Holzman's Article 78 petition.

Judge Holzman, by counsel, returned to Supreme Court on the morning of September 12, 2011, to renew his application to stay the Commission proceedings against him. Judge Jaffe issued a stay, pending decision. The Commission proceeding before Referee Felice Shea was therefore halted. Judge Jaffe thereafter issued a decision, denying Judge Holzman's renewed application.

The hearing before Referee Felice Shea was scheduled to resume on October 11.

On October 5, 2011, Judge Holzman, by counsel, again sought a stay of the Commission proceedings, pending his appeal of the Supreme Court decision dismissing his Article 78 petition. Associate Justice Sheila Abdus-Salaam of the Appellate Division, First Department, granted an interim stay, pending determination by a full panel of the Court as to Judge Holzman's request for a stay. Justice Abdus-Salaam set an expedited schedule for submission of briefs and consideration of the application by the court. Briefs were filed and the matter was fully submitted on October 12.

Accordingly, the hearing before Referee Felice Shea, scheduled to resume on October 11, was postponed, pending decision by the Appellate Division on Surrogate Holzman's application.

On December 6, 2011, the Appellate Division issued an Order, denying Judge Holzman's application for a stay of Commission proceedings, pending appeal. The disciplinary hearing against Judge Holzman will therefore resume. The Referee has scheduled the following dates: December 14, 15, 16 and 19; January 3, 4, 5, 6, 9, 10, 11, 12 and 13.

Formal Complaint against Judge Holtzman

Order To Show Cause

Attorney General Eric Schneiderman's Memorandum of Law in Support of the CJC

Judge Barbara Jaffe Dismisses The Article 78 Filed By Holtzman

The People v First American Corporation

People v First Am. Corp.

2011 NY Slip Op 08450

Decided on November 22, 2011

Court of Appeals

Ciparick, J.

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

No. 184 

[*1]TTThe People, by Andrew M. Cuomo, Attorney General of the State of New York, Respondent, 

v

First American Corporation, et al., Appellants.

Andrew L. Deutsch, for appellants. 
Richard P. Dearing, for respondent.

CIPARICK, J.:

This appeal arises out of an action commenced by the New York State Attorney General against defendants The First American Corporation (First American) and eAppraiseIT, LLC (eAppraiseIT) seeking injunctive and monetary relief as well as civil penalties for violations [*2]of New York's Executive Law and Consumer Protection Act (see Executive Law § 63 [12]; General Business Law § 349) as well as the common law. The primary issue we are called upon to determine is whether federal law preempts these claims alleging fraud and violations of real estate appraisal independence rules. We conclude that federal law does not preclude the Attorney General from pursuing these claims against defendants.

I.

First American provides real estate appraisal services to lending institutions, including savings and loan associations and banks. It supplies these services through its wholly owned subsidiary, eAppraiseIT, an appraisal management company that conducts business in New York. eAppraiseIT publicly advertises that its appraisals conform with the Uniform Standards of Professional Appraisal Practice (USPAP) and that they are "audited for compliance." USPAP, incorporated into both federal and New York law (see 12 CFR § 34.44; 19 NYCRR 1106.1), requires appraisers to "perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests."

In a complaint filed in November 2007, the Attorney General initiated this action against defendants, pursuant to its authority under Executive Law § 63 (12) and General Business Law § 349, asserting claims that defendants engaged in repeated fraudulent and deceptive acts in the conduct of its business to the detriment of consumers and the public. The Attorney General also alleges that defendants "unjustly enriched themselves by receiving payment for independent, accurate, and legal appraisals, but failing to provide such appraisals" in violation of the common law.

According to the complaint, in the spring of 2006, nonparty Washington Mutual, Inc. (WaMu), then the largest nationwide savings and loan institution, retained eAppraiseIT and another company to perform independent appraisals on WaMu loan applications. WaMu soon became eAppraiseIT's largest client, providing close to 30% of its business in New York. The complaint alleges that, in response to stricter federal appraisal regulations, WaMu hired eAppraiseIT in order to create "a structural buffer between the banks and the appraisers that eliminates potential pressure or conflicts of interest."

Nevertheless, the Attorney General asserts that WaMu, throughout the course of its relationship with defendants, cajoled eAppraiseIT employees to augment the appraised values assigned to certain homes in order to allow the loans associated with those homes to proceed to closing. The complaint highlights that, shortly after WaMu hired eAppraiseIT, WaMu's loan production personnel complained that "eAppraiseIT's staff and fee appraisers were not 'hitting value,' that is, were appraising homes at a value too low to permit loans to close." On August 15, 2006, eAppraiseIT's Executive Vice President advised the company's President that WaMu loan officers' unsubstantiated requests for appraisal adjustments amounted to "direct pressure on the appraiser[s] for a higher value without" justification. [*3]

Initially, eAppraiseIT management attempted to thwart the coercion exerted by WaMu. During the latter part of 2006, however, WaMu allegedly continued to express its dissatisfaction with the appraisal reports issued by eAppraiseIT. It purportedly indicated to First American that any future business with WaMu would be "expressly conditioned" on eAppraiseIT's ability to furnish appraisals with "high enough values." Furthermore, in February 2007, WaMu allegedly directed eAppraiseIT to cease utilizing its panel of fee appraisers and instead employ appraisers from a panel previously selected by WaMu's loan origination staff who inflate the values of homes "in a greater majority of the time."

As a result of this mounting pressure, the complaint asserts that eAppraiseIT eventually capitulated to WaMu's demands. According to the Attorney General, by April 2007, "WaMu ha[d] complete control over eAppraiseIT's appraiser panel" and that defendants knew that their compliance with WaMu "violated appraiser independence regulations" under USPAP.

The Attorney General filed the complaint in Supreme Court and defendants removed the action to the United States District Court for the Southern District of New York, asserting that District Court had federal question jurisdiction of the action (see28 USC § 1331). Defendants also sought dismissal of the complaint in federal court. The Attorney General, in response, moved to remand the case back to Supreme Court. District Court granted the Attorney General's motion, and, in so doing, did not address defendant's motion to dismiss (see People v First Am. Corp., 2008 WL 2676618, 2008 US Dist LEXIS 51790 [SD NY 2008]).

Back in Supreme Court, defendants moved to dismiss the complaint pursuant to CPLR 3211. Defendants contended that the Home Owners' Loan Act (HOLA) and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) and their concomitant regulations preempt the Attorney General from raising these claims. Defendants premised their preemption arguments on two theories: they maintained that the relevant federal statutory and regulatory scheme occupied the entire field of real estate appraisals. Alternatively, defendants posited that New York's attempt to regulate eAppraiseIT conflicted with federal law in that it obstructed WaMu's ability to finance real estate transactions. Lastly, defendants asserted that the complaint failed to state a cause of action under General Business Law § 349.

Supreme Court denied the motion. Addressing the preemption arguments, Supreme Court first concluded that "federal regulation does not occupy the entire field with respect to real estate appraisal regulation" (People v First Am. Corp., 24 Misc 3d 672, 680-681 [Sup Ct, NY County 2009]). The court reasoned that "[i]n the area of real estate appraisals, Congress expressly envisioned a unique regulatory system overseen and enforced by both the federal government and the states" (id. at 679). Supreme Court likewise concluded that defendants failed to "articulate[] how the enforcement of USPAP standards under New York law or the application of General Business Law § 349 conflicts with federal law, or otherwise interferes with a bank's nationwide operations or ability to lend" (id. at 682). Finally, the court [*4]opined that the Attorney General adequately pleaded a cause of action under General Business Law § 349.

The Appellate Division affirmed the order of Supreme Court. Before the Appellate Division, defendants abandoned their conflict preemption arguments (see People v First Am. Corp., 76 AD3d 68, 72 [1st Dept 2010]) but still maintained that, given the comprehensive nature of HOLA and FIRREA, it is clear that Congress intended to occupy the entire home lending field. The Appellate Division disagreed and concluded, like Supreme Court, that Congress did not intend to occupy the entire field with respect to appraisal management companies (see id. at 73-76). The court also determined that the Attorney General articulated a cause of action under General Business Law § 349 and had standing to do so, reasoning that the complaint "references misrepresentations and other deceptive conduct allegedly perpetrated on the consuming public within the State of New York (id. at 83).

The same panel of the Appellate Division granted defendants leave to appeal to this Court and certified a question inquiring whether its order, which affirmed the order of Supreme Court, was "properly made." We now affirm and answer the certified question in the affirmative.

II.

Preemption analysis begins, as always, with reference to the well-familiar Supremacy Clause of the United States Constitution, which 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). Indeed, the Supremacy Clause "vests in Congress the power to supersede not only State statutory or regulatory law but common law as well" (Guice v Charles Schwab & Co., 89 NY2d 31, 39 [1996], cert denied 520 US 1118 [1997]). In determining whether federal law preempts state law, the United States Supreme Court has instructed that a court's "sole task is to ascertain the intent of Congress" (California Fed. Sav. & Loan Assn. v Guerra, 479 US 272, 280 [1987]; see also Medtronic, Inc. v Lohr, 518 US 470, 485 [1996] ["(T)he purpose of Congress is the ultimate touchstone in every pre-emption case" (internal quotation marks omitted)]); Matter of People v Applied Card Sys., Inc., 11 NY3d 105, 113 [2008]).

Of course, "[p]reemption can arise by: (i) express statutory provision, (ii) implication, or (iii) an irreconcilable conflict between federal and state law" (Applied Card Sys., 11 NY3d at 113, citing Balbuena v IDR Realty LLC, 6 NY3d 338, 356 [2006]). This appeal requires us to focus our analysis solely on implied preemption or field preemption, which occurs when:

"[t]he scheme of federal regulation [is]

so pervasive as to make reasonable the

inference that Congress left no room for the [*5]

States to supplement it . . . [o]r the Act of

Congress may touch a field in which the

federal interest is so dominant that the

federal system will be assumed to preclude

enforcement of state laws on the same subject"

(Rice v Santa Fe Elevator Corp., 331 US 218,

230 [1947]). 
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.

The Great Depression of the 1930s and the financial devastation that ensued triggered Congress to enact HOLA. HOLA created "a system of federal savings and loan associations, which would be regulated by the [Federal Home Loan Bank] Board" (FHLBB) (Fidelity Fed. Sav. & Loan Assn. v de la Cuesta, 458 US 141, 160 [1982]). The purpose of this comprehensive legislation was "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" (id. at 159 [internal quotation marks and citations omitted]). HOLA gave the FHLBB "plenary authority" to "promulgate[] regulations governing the powers and operations of every Federal savings and loan associations from its cradle to its corporate grave" (id. at 144-145 [internal quotation mark and citation omitted]).

During the mid-1980s, the federal savings and loan crisis erupted, prompting Congress in 1989 to pass FIRREA. In enacting FIRREA, Congress restructured the regulation of federal savings and loan associations by disbanding the FHLBB and replacing it with the Office of Thrift Supervision (OTS) (see FIRREA § 301, amending 12 USC § 1461 et seq. [establishing the OTS], § 401 [see 12 USC § 1437 Historical and Statutory Notes (disbanding the FHLBB)]). As relevant here, FIRREA's legislative history reveals that Congress designed the statute, in part, "to thwart real estate appraisal abuses . . . [by] establish[ing] a system of uniform national real estate appraisal standards" (HR Rep 101-54[I], 101st Cong, 1st Sess, at 311, reprinted in 1989 US Code Cong & Admin News, at 107; see also 12 USC § 3331 ["real estate appraisals utilized in connection with federally related transactions are performed . . . in accordance with uniform standards"]).

To effectuate this stated goal, Congress enacted 12 USC § 3339 as part of FIRREA, which mandates that the OTS "prescribe appropriate standards for the performance of real estate appraisals." The statute "require[s], at a minimum . . . that real estate appraisals be performed in accordance with generally accepted appraisal standards as evidenced by the appraisal standards promulgated by the Appraisal Standards Board of the Appraisal Foundation" [*6](12 USC § 3339 [1]). In 1987, prior to the FIRREA legislation, the United States appraisal profession formed The Appraisal Foundation, a private "not-for-profit organization dedicated to the advancement of professional valuation" (The Appraisal Foundation, http://appraisalfoundation.org [accessed November 14, 2011]). The Appraisal Foundation established USPAP and the Appraisal Standards Board, appointed by the Appraisal Foundation and referenced by FIRREA, "develops, interprets and amends" USPAP (id.). As noted earlier, New York has also incorporated USPAP rules into State law (see 19 NYCRR 1106.1).

In aiming to prevent further real estate appraisal abuse, Congress envisaged a robust partnership with the States. To that end, FIRREA sanctions the establishment and use of state agencies dedicated to certifying and licensing appraisers ^[FN1] and delineates requirements for using these appraisers in federally related transactions ^[FN2] (see 12 USC § 3331, 3336; 12 CFR 34.44, 546.3). Furthermore, under FIRREA, Congress created The Appraisal Subcommittee, charged with "monitor[ing] State appraiser certifying licensing agencies for the purpose of determining whether a State's agency's policies, practices, and procedures are consistent with this chapter" (12 USC § 3347 [a]; see also 12 USC § 3348 [c]). According to The Appraisal Subcommittee, FIRREA "recognize[s] that the States [are] in the best administrative position to certify and license real estate appraisers and to supervise their appraisal-related activities" and permits the States to impose stricter appraisal standards as necessary (Appraisal Subcommittee, https://www.asc.gov/Legal-Framework/TitleXI.aspx [accessed November 14, 2011]). Thus, this subcommittee has observed that FIRREA "created a unique, complementary relationship between the States, the private sector, and the Federal government" (id.).

Consistent with this understanding of FIRREA, OTS itself stated that a financial "institution should file a complaint with the appropriate state appraiser regulatory officials when it suspects that a state certified or licensed appraiser failed to comply with USPAP, applicable state laws, or engaged in other unethical or unprofessional conduct" (OTS, Thrift Bulletin, Interagency Appraisal and Evaluation Guidelines, at 23 [December 2, 2010], http://fdic.gov/news/news/financial/201 0/fil10082a.pdf [accessed November 14, 2011])^[FN3]. [*7]Similarly, the United States Government Accountability Office, an independent, nonpartisan agency that works for Congress, has observed that FIRREA "relies on the states . . . to monitor and supervise compliance with appraisal standards and requirements" (Government Accountability Office, Opportunities to Enhance Oversight of the Real Estate Appraisal Industry, at 3 [May 2003], http://www.gao.gov/new.items /d03404.pdf [accessed November 14, 2011]).

Despite FIRREA's clear mandate to induce States to regulate real estate appraisers in partnership with federal agencies,^[FN4] defendants ask us to find that 12 CFR 560.2, a series of subsequent regulations promulgated by the OTS pursuant to its authority under HOLA, nonetheless, support preemption. 12 CFR 560.2 (a) states that "OTS is authorized to promulgate regulations that preempt state laws affecting the operations of federal savings associations." The regulations further provide that "[t]o enhance safety and soundness and to enable federal savings associations to conduct their operations in accordance with best practices (by efficiently delivering low-cost credit to the public free from undue regulatory duplication and burden), OTS hereby occupies the entire field of lending regulation for federal savings associations."

Paragraph (b) of 12 CFR 560.2 lists illustrative examples of the categories of state laws, such as mortgage processing and origination, preempted under paragraph (a). 12 CFR 560.2 (c), however, states that certain types of state laws, such as contract and commercial law and tort law, are not preempted "to the extent that they only incidentally affect the lending operations of Federal savings associations." According to the OTS, in analyzing whether 12 CFR 560.2 preempts a state law, "the first step is to determine whether the type of law in [*8]question is listed in paragraph (b). If so, the analysis will end there; the law is preempted" (61 Fed Reg 50951-01, 50966-50967 [1996]). Applying this first step, we note the examples recorded in paragraph (b) do not mention real estate appraisals. We also conclude, in accord with the Appellate Division, that the Attorney General's challenge to defendants' alleged misconduct under state law does not correspond with any of the categories of law preempted by paragraph (b).

The OTS further instructs that, "[i]f the law is not covered by paragraph (b), the next question is whether the law affects lending. If it does . . . the presumption arises that the law is preempted" (id.; see also 12 CFR 560.2 [c]). Here, the crux of the Attorney General's complaint is that defendants engaged in unlawful and deceptive business practices in that they failed to adhere to the requirements of USPAP. We conclude the Attorney General's authority to prosecute First American and its subsidiary eAppraiseIT — an independent appraisal management company — for such faulty practices under Executive Law § 63 (12) and General Business Law § 349 is not preempted because, at most, it would incidentally affect the lending operations of a federal savings association (accord Preemption of State Laws Applicable to Credit Card Transactions, Opinion of OTS Chief Counsel, at 10 [December 24, 1996]; 1996 WL 767462 [concluding that impact on lending of an Indiana statute outlawing deceptive acts and practices was "only incidental to the primary purpose of the statute — the regulation of ethical practices of all businesses engaged in commerce"]; see also In re Ocwen Loan Servicing, LLC Litigation, 491 F3d 638, 643 [7th Cir 2007]).^[FN5]

In conclusion, we hold that FIRREA governs the regulation of appraisal management companies and explicitly envisioned a cooperative effort between federal and state [*9]authorities to ensure that real estate appraisal reports comport with USPAP. We perceive no basis to conclude that HOLA itself or federal regulations promulgated under HOLA preempt the Attorney General from asserting both common law and statutory state law claims against defendants pursuant to its authority under Executive Law § 63 (12) and General Business Law § 349. Thus, defendants' motion to dismiss on the grounds of federal preemption was properly denied. We also agree with the Appellate Division that the Attorney General has adequately pleaded a cause of action under General Business Law § 349 and that the statute provides him with standing.

Accordingly, the order of the Appellate Division should be affirmed, with costs, and the certified question answered in the affirmative. 


READ, J. (DISSENTING):

The Depression-era Home Owners Loan Act (HOLA) (12 USC § 1462 et seq.), until recently amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) (Pub L No 111-203, 124 Stat 1376 [2010]), occupied the field of the regulation of federal savings associations (FSAs) and was implemented by the Office of Thrift Supervision (OTS)^[FN6]. Further, HOLA's broad language "expresse[d] no limits on the [OTS's] authority to regulate the lending practices of [FSAs]," such that "it would have been difficult for Congress to give the [OTS] a broader mandate" (Fidelity Fed. Sav. & Loan Assn. v de la Cuesta, 458 US 141, 161 [1982] [discussing the power of the Federal Home Loan Bank Board, OTS's predecessor] [internal quotation marks omitted]). The issue here is whether the real estate appraisal activities that are the subject of this lawsuit fall within the field occupied by OTS in the exercise of its [*10]broad regulatory authority over FSAs, thus preempting this action for injunctive and monetary relief (i.e., disgorgement of profits, including appraisal fees paid by borrowers, restitution and damages) for alleged violations of Executive Law § 63 (2) (fraudulent or illegal business practices), General Business Law § 349 (deceptive acts or practices) and unjust enrichment. The federal courts that have considered the comparable question (in particular, the United States District Court for the Southern District of New York) have answered in the affirmative (see Cedeno v IndyMac Bancorp., 2008 US Dist LEXIS 65337 [SD NY 2008]); Spears v Washington Mut. Bank, 2009 US Dist LEXIS 21646 [ND Cal 2010]). Since I would not second-guess how the federal courts have reasonably interpreted the preemptive effect of a federal statute, I respectfully dissent.

I.

Federal Preemption under HOLA

To carry out its "broad[] mandate" under HOLA with respect to the lending practices of FSAs, OTS "promulgated regulations governing the powers and operations of every Federal savings and loan association from its cradle to its corporate grave," and "regulate[d] comprehensively the operations of these associations, including their lending practices and, specifically, the terms of loan instruments" (de la Cuesta, 458 US at 145, 167 [internal quotation marks omitted]).

In 12 CFR 560.2 (a), entitled "Occupation of field," OTS expressed its preemptive intent in the clearest possible terms:

"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]).

OTS then sets out 13 "[i]llustrative examples," of the "types of state laws preempted by [CFR 560.2 (a)], without limitation." As relevant to this discussion, these examples include

"state laws purporting to impose requirements regarding:

[*11]

"(5) Loan-related fees . . .

"(9) Disclosure and advertising . . . [and]

"(10) Processing, origination, servicing[] . . . [of] mortgages" (12 CFR 560.2 [b]).

Immediately following the non-exclusive list of types of preempted laws, the regulation identifies types of state laws that "are not preempted to the extent that they only incidentally affect the lending operations of [FSAs] or are otherwise consistent with the purposes of paragraph (a) of this section" (12 CFR 560.2 [c]). These laws include "(1) Contract and commercial law; (2) Real property law; (3) Homestead laws specified in 12 USC 1462a (f); (4) Tort law; (5) Criminal law; and (6) Any other law that OTS, upon review, finds: (i) Furthers a vital state interest; and (ii) Either has only an incidental effect on lending operations or is not otherwise contrary to the purposes expressed in paragraph (a) of this section" (12 CFR 560.2 [c]).

OTS adopted 12 CFR 560.2 in 1996 to express its "longstanding position . . . on the federal preemption of state laws affecting the lending activities of federal savings associations," meant to "confirm and carry forward its existing preemption position" (OTS, Final Rule, 61 Fed Reg 50951, 50965 [Sept. 30, 1996]). Stated another way, OTS explained that

"[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]).

OTS then provided the courts with an interpretive framework for 12 CFR 560.2, as follows:

"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]).

II.

Cedeno

Cedeno was a purported class action brought on behalf of the plaintiff and a similarly situated class of residential home mortgage borrowers against defendant IndyMac, an FSA, and its receiver, the Federal Deposit Insurance Corporation (FDIC). The plaintiff alleged violations of two federal statutes, California's deceptive practice law and New York's General Business Law § 349, and claimed breach of contract and unjust enrichment.

IndyMac moved to dismiss all claims, and asserted federal preemption as the basis for dismissing the plaintiff's state law claims. In deciding the motion, the judge accepted as true the plaintiff's allegations that IndyMac did not "disclose to the plaintiff that it selected appraisers, appraisal companies and/or appraisal management firms who performed faulty and defective appraisal services which inflated the value of residential properties in order to allow [IndyMac] to complete more real estate transactions and obtain greater profits"; neglected "to provide the necessary insulation and separation between its own internal production or sales personnel responsible for providing the mortgage services . . . and the credit or valuation personnel who were responsible for overseeing and verifying the accuracy of the appraisal services," which led to "pressure" for "approva[al of] inflated appraisals so that loans and profits could be increased"; failed "to ensure that the appraisals were accurate and allowed its own quality control staff to approve inflated and defective appraisals"; "communicated" to appraisers "that there was a certain 'target value' or 'qualifying value' necessary to close the loan" so that they "understood that if they met the targeted value, they would be selected for future referral of business from IndyMac"; and "hired appraisal management firms or appraisers whose prior performance repeatedly returned the values needed to match the qualifying loan values" (2008 US Dist LEXIS 65337 at *2, *5-6).

With respect to IndyMac's preemption defense, the court first noted that HOLA vested OTS with the "principal responsibility for regulating federally chartered savings associations"; that in 12 CFR 560.2, OTS had stated "its intention to occupy the entire field of the lending regulation for FSAs" and that "[p]ursuant to the plenary authority granted under HOLA to regulate the operations of FSAs," OTS had issued "extensive regulations governing [their] [*13]operations" (id. at *17-*18). The judge then turned to 12 CFR 560.2 (b) and (c), observing that included among the "illustrative examples of the types of state laws preempted by OTS regulation" were "state laws purporting to impose requirements regarding loan-related fees (§ 560.2 [b] [5]), disclosure and advertising (§ 560.2 [b] [9]), and processing or origination of mortgages (§ 560.2 [b] [10])"; and that 12 CFR 560.2 (c) "identif[ied] certain types of state laws, such as state contract, tort, and commercial law, that [were] not preempted to the extent that they only incidentally affect[ed]" a thrift's "lending operations" (id. at *18-19 [internal quotation marks omitted]).

IndyMac argued that "the plaintiff's state law claims [were] specifically directed at loan-related fees as contemplated by Section 560.2 (b) (5) and directly challenge[d] both IndyMac's disclosure and advertising and the processing or origination of mortgages as described in Sections 560.2 (b) (9) and 560.2 (b) (10)," such that "the Court should not even reach the 'incidental effect' analysis contained in section (c)" (id. at *19). To evaluate Indymac's argument, the court turned to OTS's 1996 regulation because "[w]hen considering, as here, laws that do not on their face purport to impose regulations on the areas listed in paragraph (b), it is necessary to determine whether the law, as applied to the claims raised, is the type of law listed in paragraph (b)" (id. at *20 [emphases added]; see also two cases discussed by the court as examples of the foregoing proposition: Silvas v E*Trade Mtge. Corp., 514 F3d 1001 [9th Cir 2008] [finding claims under the California deceptive practice statute for allegedly faulty disclosure and an allegedly improper lock-up fee preempted under 12 CFR 560.2 (b) (9) and (b) (5), respectively] and In re Ocwen Loan Servicing, LLC Mtge. Servicing Litig., 491 F3d 638 [7th Cir 2007]) [finding that some of the claims asserted under the California deceptive practice statute would be preempted and others would not]). Of course, the plaintiff countered that "her state law claims challenging IndyMac's appraisal practices [were] state contract and commercial challenges that [fell] within the exceptions outlined in paragraph (c)," while IndyMac insisted that she was "merely trying to circumvent HOLA preemption by pleading plainly preempted claims as violations of state contract law and consumer protection statutes" (id. at *22-*23).

The judge summed up the issue that he was required to decide as follows:

"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]).

Evaluating this question first in the context of the California deceptive practice statute, the judge concluded that the plaintiff did, indeed, attempt to apply this statute to "impose requirements in [*14]areas explicitly preempted by federal law" because the challenged appraisal practices "appear[ed] to relate directly to the processing or origination of mortgages" and thus fell within 12 CFR 560.2 (b) (10); and "relate[d] directly to the appraisal fee . . . charged in connection with the mortgage," and thus sought to regulate loan-related fees within the meaning of 12 CFR 560.2 (b) (5) (id. at *25). Further, by challenging the disclosure made to her, the plaintiff also attempted to use the deceptive practices statute "to regulate disclosures made in connection with the mortgage," as encompassed by 12 CFR 560.2 (b) (9). The judge therefore concluded that "as applied to the plaintiff's allegations," the California statute was preempted under 12 CFR 560.2 (b) (id.). 
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).

Finally, the court addressed the plaintiff's contract claim and her claim for unjust enrichment. As to the former, the judge first observed that plaintiff did not allege that IndyMac had breached any specific provision of any contract that she had entered into with the thrift; rather, the "the gist" of her claim, as was the case with her state statutory claims, was that she was provided with an inaccurate appraisal, thereby breaching the covenant of good faith and fair dealing. The court decided that the plaintiff's state law claim for breach of contract was foreclosed by 12 CFR 560.2 (10) because "like the claims under California and New York deceptive practice statutes, . . . it relies on state law purporting to impose a requirement on the processing and origination of the mortgage" (id. at *31). And as he had before, the judge also evaluated the claim under 12 CFR 560.2 (c), concluding that the regulation sought by the plaintiff would more than incidentally affect IndyMac's lending operations. As he explained,

"[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).

Finally, the judge opined that the plaintiff's unjust enrichment claim failed to state a cause of action "because it [was] a quasi-contractual claim and the relationship between the plaintiff and IndyMac [was] regulated by contract"; and "[w]hile there [might] be a dispute as to the scope of the contract, there [was] no dispute as to the existence of the contract between the plaintiff and IndyMac" (id.). As a result, any potentially valid claim for unjust enrichment would be preempted for the same reasons stated with respect to the plaintiff's contract claim.^[FN7]

Spears

The plaintiffs brought this class action against defendants Washington Mutual Bank FA (WaMu), an FSA, First American eAppraiseIT (a defendant in this case) and Lender's Service, Inc. (LSI), claiming that they "participated in a scheme to provide home-loan mortgage borrowers with inflated appraisals of the property they sought to purchase" (2009 US Dist LEXIS 21646 at *2). Specifically, the complaint alleged that WaMu retained First American eAppraiseIT and LSI to run its appraisal program; that subsequently, First American eAppraiseIT and LSI performed virtually all of WaMu's appraisals, and, as a result, WaMu's borrowers became these firms' largest source of business; that WaMu's loan origination staff created a list of "preferred appraisers" to perform appraisals for WaMu borrowers; that WaMu maintained the contractual right with these "preferred appraisers" to challenge an appraisal by requesting reconsideration; that WaMu would use such a request to coerce First American eAppraiseIT and LSI to increase the appraised value of property; and that WaMu asked First American eAppraiseIT and LSI to hire business managers to be given authority to override the values determined by third-party appraisers.

The plaintiffs asserted that this alleged scheme violated a federal law and four provisions of California consumer protection statutes, and constituted a breach of contract and unjust enrichment. After the complaint was filed, the FDIC was substituted as receiver for WaMu, and the plaintiffs stipulated to dismiss all claims against WaMu/the FDIC. First American eAppraiseIT and LSI moved to dismiss all claims.

The defendants argued that the plaintiffs' state statutory claims were preempted by HOLA. The judge followed the analysis employed by the Cedeno court under OTS's 1996 regulations — i.e., he first looked at whether, as applied, the four state statutory provisions were the type of state law contemplated under 12 CFR 560.2 (b). The plaintiffs based one cause of [*16]action on First American eAppraiseIT's alleged unlawful conduct in contravention of the Uniform Standards of Professional Appraisal Practice (USPAP); specifically, the plaintiffs asserted that the appraisal management firm violated USPAP's requirement that "an appraisal be performed with impartiality, objectivity, and independence" (id. at *16). They based two other causes of action on the same conduct, asserting that "the impartiality of the offered appraisals constituted unfair and fraudulent business practices" (id.) Finally, the plaintiffs alleged in a fourth cause of action that First American eAppraiseIT "represented that their home appraisal services were of a standard or quality that they were not" in violation of state statute (id. at *16-*17).

The judge concluded that

"[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]).

Citing Cedeno, the judge found that these state statutory claims, "as applied, relate[d] to the processing and origination of, and participation in, mortgages, and [were] thus preempted under § 560.2 (b) (10)" (id.)^[FN8]. [*17]

III.

Analysis

This complaint and the complaints in Cedeno and Spears present the same basic storyline: the FSAs (IndyMac in Cedeno; WaMu in this case and Spears) shifted from a business model where they held real estate mortgages until the underlying loans were repaid by the borrowers to one where they sold security interests in aggregated mortgages in the financial markets; and in order to maximize their profits from this endeavor, the FSAs coerced or conspired with the appraisal management firms to which they outsourced their real estate appraisal work (unidentified appraisal management firms and appraisers in Cedeno; First American eAppraiseIT in this case and Spears) to inflate the appraised value of the real property backing the home loans that they made. As the majority put it, "the crux of the Attorney General's complaint is that defendants [thereby] engaged in unlawful and deceptive business practices in that they failed to adhere to the requirements of USPAP," as required by 12 CFR 564.4 (majority op at 14).

As an initial matter, there can be no doubt that real estate appraisals affect the lending operations of an FSA. This is why Congress amended HOLA in 1989 by adopting the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) (12 USC § 3331 et seq.). FIRREA expanded federal oversight of FSAs explicitly to include review and regulation of their real estate appraisal practices. In general, Congress sought thereby to improve lending by requiring real estate appraisals used in connection with federally-related transactions to be performed in writing, in accordance with uniform standards (i.e., USPAP) by competent and independent appraisers (see 12 CFR Part 564). As the House Report recommending passage of FIRREA pointed out, "[a]ppraisal deficiencies go hand-in-hand with poor underwriting and administration standards" (1996 USCCAN 86, 96). "Given the crucial role appraisals play in the safety and soundness of the underwriting of real estate related loans and investments," Congress envisaged that FIRREA would "protect Federal financial and public policy interests in real estate related financial transactions requiring the services of an appraiser" (id. at 274).

This suit is preempted because, in substance, and particularly on the allegations before us, it challenges a thrift's lending practices. The complaint details alleged collusion [*18]between thrift managers and appraisers, the precise activity that Congress found would undermine sound real estate loans. Even if it were theoretically possible for a lawsuit in this vein not to be preempted, it cannot be the case here, where the sole relevance of the alleged misrepresentations is how they affected loans and lending. That is, while the State claims that First American eAppraiseIT's misrepresentations to the public are an independent harm, that cannot be the case: any misrepresentations are only harmful to the extent they affect lending practices; put another way, the only reason the appraisers' alleged misrepresentations matter is because of the way in which they affected the thrift's underwriting. Since those matters are properly matters of federal law, this suit should not proceed. For the same reasons,Cedeno and Spears both found that allegedly fraudulent real estate appraisal practices concerned mortgages, and that suits seeking to impose liability for these practices were preempted as attempts to impose substantive requirements in an area regulated by OTS (Cedeno, 2008 US Dist. LEXIS 65337 at *25; Spears, 2009 US Dist LEXIS 21646 at *17).

The bulk of the complaint in this case alleges, in effect, a failure to disclose, an area that is expressly preempted (12 CFR 560.2 [b] [9]); the Attorney General seeks to recoup the appraisal fees paid to the thrift by borrowers, and laws that affect loan-related fees are also expressly preempted (id. 560.2 [b] [5]). More broadly, appraisal is so important to mortgage underwriting that it cannot be separated from the processing or origination of mortgages (id. 560.2 [b] [10]), as the courts concluded inCedeno and Spears. Even if the Attorney General's claims arguably do not fall within subsection (b), they affect lending; therefore, they are presumptively preempted and this presumption "can be reversed only if the law can clearly be shown to fit within the confines of paragraph (c)" (61 Fed. Reg. at 50967). But the Congressional findings in support of FIRREA make clear that a thrift's appraisal practices do not merely "incidentally affect" lending within the meaning of subsection (c); they are, in fact, critical to the making of safe and sound real estate loans. As a result, the Attorney General seeks to regulate practices directly related to the valuation of the collateral security for such home loans (see Cedeno, 2008 US Dist LEXIS 65337 at *26-*27).

The majority bases its conclusion that the Attorney General's claims are not preempted principally on the notion that FIRREA "governs the regulation of appraisal management companies and explicitly envisioned a cooperative effort between federal and state authorities to ensure that real estate appraisal reports comport with USPAP" (majority op at 14-15)^[FN9]. FIRREA establishes a role for the states, but that role is confined to its traditional one of [*19]certifying and licensing individual appraisers (see 12 USC §§ 3346-3348)^[FN10]. Notably, FIRREA did not purport to amend HOLA preemption so as to allow the states to regulate a thrift's real estate appraisal practices. As the Dodd-Frank Act shows, Congress certainly knows how to draft provisions that expressly disclaim any intent to preempt non-conflicting state statutes falling within the same subject area as federal law. And since real estate appraisal activities clearly fall within the subject area pervasively regulated and occupied by HOLA — a thrift's lending operations — Congress would have to have expressly narrowed HOLA preemption by carving out an exception for real estate appraisal practices: by definition, there can be no such thing as an implied exception from field preemption.

Finally, the Attorney General attempts to get around Cedeno and Spears the only way he can — by characterizing these decisions as "wrongly decided." He faults both judges for "overlook[ing] the impact of FIRREA on the field-preemption analysis." This of course assumes that FIRREA altered HOLA preemption with respect to the real estate appraisal activities that are the subject of this lawsuit, a proposition for which — as already explained — there is simply no support. He also notes that the lawsuit in Cedeno was brought against the FSA, although the defendant in Spears was concededly the appraisal management company — indeed, it was First American eAppraiseIT. The fact is, if the Attorney General's preemption analysis is correct, it should make no difference whether the appraisal practices addressed in this lawsuit were carried out by the thrift's in-house appraisers (called "staff appraisers" in the regulations; see 12 CFR 545.6 [a]) or outside appraisal firms to which the thrift outsourced its real estate appraisal work (called "fee appraisers" in the regulations; see id. 545.6 [b]). OTS's regulations governing real estate appraisals apply equally to the staff and fee appraisers. As First American eAppraiseIT notes, the Attorney General is merely seeking by this lawsuit to regulate a thrift's lending [*20]activities indirectly by suing the appraisal management company to which the thrift lawfully assigned its authorized banking activities.

In sum, I believe that Cedeno and Spears were correctly decided. In any event, we should, in my view, adopt the federal courts' interpretation of a federal statute unless that interpretation appears to be plainly wrong. Even if one disagrees with the decisions in Cedeno and Spears, they are certainly reasonable applications of HOLA preemption in the context of real estate appraisal practices applicable to the underwriting of home loans made by thrifts. Applying the analysis of those cases to the nearly identical facts here, I conclude that this lawsuit is preempted by HOLA. 
* * * * * * * * * * * * * * * * * 
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

Footnotes

Footnote 1: Contrary to defendants' assertion, for purposes of FIRREA, we see no distinction between an individual appraiser and an appraisal management company. FIRREA reaches both. Footnote 2: As relevant here, a "federally related transaction" means any real estate related transaction which . . . requires the services of an appraiser" (12 USC § 3350 [4] [B]). Footnote 3: OTS's interpretation of FIRREA remains unchanged. In its 1994 Interagency and Evaluation Guidelines, rescinded after the release of the 2010 addition, OTS likewise called upon financial institutions "to make referrals directly to state appraiser regulatory authorities when a State licensed or certified appraiser violates USPAP . . . . Examiners finding evidence of unethical or unprofessional conduct by appraisers will forward their findings and recommendations to their supervisory officers for appropriate disposition and referral to the state, as necessary" (OTS, Thrift Bulletin, Interagency and Evaluation Guidelines, at 10 [November 4, 1994]; see also First Am. Corp., 76 AD3d at 75-76). Footnote 4: We observe that the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (see Pub L No 111-203, 124 US Stat 1376), enacted by Congress after the commencement of this lawsuit, confirms this understanding. For example, 12 USC § 3353 requires appraisal management companies to comply with USPAP and "register with and be subject to supervision by a State appraiser certifying and licensing agency in each State in which such company operates. Significantly, that statute states that "[n]othing in this section shall be construed to prevent States from establishing requirements in addition to any rules promulgated" herein (12 USC § 3353 [b]; see also 12 USC § 1465 [b] [observing that HOLA "does not occupy the entire field in any area of State law" unless such state law conflicts with federal law]). Footnote 5: In concluding that HOLA preempts this lawsuit, our dissenting colleague principally relies on the analysis of two federal district court cases, Cedeno v Indymac Bancorp, Inc., (2008 US Dist LEXIS 65337, 2008 WL 3992304 [SD NY 2008]) and Spears v Washington Mut., Inc. (2009 US Dist LEXIS 21646, 2009 WL 605835 [ND Cal 2009]). According to the dissent, this Court should "adopt the federal courts' interpretation of a federal statute unless that interpretation appears to be plainly wrong" (dissenting op at 20-21). We observe, however, that other federal district courts, consistent with our analysis, have concluded that HOLA does not preempt claims related to real estate appraisals (see e.g. Bolden v KB Home, 618 F Supp 2d 1196, 1205 [CD Cal 2008] [finding that OTS regulations under HOLA do not preempt plaintiffs claims since those "claims relate to real estate appraisals standards, whereas [] HOLA was concerned with the credit activities of federal savings associations"];Fidelity Nat. Info. Solutions, Inc. v Sinclair, 2004 US Dist LEXIS 6687, 2004 WL 764834 [ED PA 2004] [concluding that state laws regulating real estate appraisals do not target federal savings associations or national bank operations]). Footnote 6:The Dodd-Frank Act brought about a sea change in HOLA preemption: the Act provides that HOLA does not occupy the field in any area of law, and conforms the preemption standard applicable to FSAs to the conflict preemption standard for national banks delineated by the United States Supreme Court in Barnett Bank of Marion County, N.A. v Nelson (517 US 25, 31 [1995] [state laws may be preempted where they are in "irreconcilable conflict" with federal statutes, which may occur where compliance with both laws is impossible, or where the state law is "an obstacle to the accomplishment and execution of the full purposes and objectives of Congress" (citations omitted)]; see 12 USC § 1465 [a], [b]). Defendants First American Corporation and First American eAppraiseIT readily acknowledge that the Attorney General's lawsuit would not be preempted under the Dodd-Frank Act's conflict preemption standard. The new standard for FSAs is not retroactive, however, and only became effective on July 21, 2011, the date when the OTS was transferred to the Office of the Comptroller of the Currency (OCC) (see 124 Stat 2017, §§ 1046, 1047 [b], 1048). On October 19, 2011, 90 days after this transfer, OTS ceased to exist (see12 USC § 5413). Footnote 7:The court also determined that the plaintiff failed to state a claim under either of the federal laws asserted, and so dismissed the complaint. Footnote 8:In addition to dismissing the four state statutory claims on the basis of HOLA preemption, the court also granted LSI's motion to dismiss on the basis of lack of standing; denied First American eAppraiseIT's motion to dismiss one of the two claims asserted under federal law, and granted its motion to dismiss the other one; granted its motion to dismiss the breach of contract claim; and granted the plaintiffs 20 days' leave to amend. Although the judge concluded that the plaintiffs failed to plead an action for breach of contract, he advised them that in the event they chose to amend their breach of contract claim, he would revisit the issue of preemption with respect to it. He also decided that the unjust enrichment claim was subject to dismissal under California law because it had the same basis as the single federal law claim remaining in the action, which furnished an adequate alternative form of relief. Finally, the judge agreed with First American eAppraiseIT that, even if the state law claims had not been preempted, the plaintiffs failed to state a claim because there was no showing of actual damages, as required by the statutes; i.e., "[b]ecause plaintiffs would have had to pay for the appraisal in order to take out the loan, they would have paid an appraisal fee whether the appraisal provided was defective or not. That is, had the appraisal been performed lawfully and in good faith, plaintiffs provide[d] no basis on which to conclude that they would have been better off" (id. at *19). Footnote 9: The majority asserts that two federal district courts' opinions are "consistent with [its] analysis" (majority op at 14 n 5). Unlike Cedeno and Spears, the facts and legal issues in those cases do not correspond with the facts and legal issues here. For example, in Bolden v KB Home (618 F Supp 2d 1196, 1201 [CD Cal 2008], the issue was whether FIRREA or the OTS regulation created "complete preemption," a concept distinct from field preemption — and not an issue in this case — which pertains to whether a federal statute so displaces a state cause of action that, even if pleaded under state law, it actually arises under federal law and creates removal jurisdiction (see e.g. Beneficial Nat. Bank v Anderson, 539 US 1, 6-8 [2003]).Fidelity Nat. Info. Solution, Inc. v Sinclair (2004 US Dist LEXIS 6687 at *1-8 [ED Pa 2004]) directly concerned a state's authority to require those performing appraisals to be licensed, not whether appraisals affected FSAs' lending operations. Footnote 10:Even there, OTS cautioned that it might "from time to time, impose additional qualification criteria for certified appraisers performing appraisals in connection with federally related transactions within its jurisdiction" (see 12 CFR 564.2 [j]).