Some observations from Watters vs. Wachovia Bank, N.A.
The United States Supreme Court, in a 5-3 decision, held today that Wachovia Mortgage Company – a wholly-owned subsidiary of Wachovia National Bank – is considered, in essence, part of the Bank governed solely by the National Bank Act. The State of Michigan’s efforts to deem the subsidiary “not a National Bank” and to regulate it under state law were rebuffed by the doctrine of federal preemption.
Watters is a dry business case on the surface, but just underneath the skin are several items of interest. Primarily, it is a victory for federal sovereignty in the perpetual clash for supremacy against the States. The legal terrain seemed favorable to a federal win, but remarkably, the split among the Justices shows the outcome was not a foregone conclusion.
Justice Ginsburg delivered opinion of the Court, joined by usual swing-voter Kennedy, Souter, Breyer and – notably – Alito, defecting from his more senior conservative cohorts. Just as strange, Justice Stevens – normally a member of the Court’s liberal bloc – sided with Alito’s erstwhile masters Roberts and Scalia (Thomas did not participate) and delivered a pointed dissent joined by the conservatives. Peculiar?
Ginsburg wrote that the subsidiary company fell properly under the statutory authority of the National Bank Act, all properly flowing from the Constitution’s direction that the Congress govern federally chartered banks. The regulations issued under the Act by the Office of the Comptroller of the Currency (OCC) were necessary and proper. One wonders how the case made it so high, if the resolution was so simple.
Stevens enlightened us. He wrote that Wachovia was trying to take advantage of the system, and should not be allowed to do so. The subsidiary was not a federally chartered National Bank, but rather an entity created and existing under state law. It was unfair to require non-federal mortgage loan companies to comply with state regulation, but give the Wachovia-affiliated company a free pass. This arguably anti-competitive arrangement threatened the very existence of the state-only entities. Stevens stated his case of how this should pan all out under the law. Essentially, the OCC’s regulations were not clearly authorized by the Act, and therefore a standard presumption against “preemption” should prevail. Despite his efforts, Stevens was only able to convince the typically states-rights oriented conservatives, sans Alito.
Even the Tenth Amendment, constituting Michigan’s fall-back position, was hauled out into the daylight for a few brief comments by both sides. Ginsburg dismissed the argument on very ordinary grounds:
As we have previously explained, “[i]f a power is delegated to Congress in the Constitution, the Tenth Amendment expressly disclaims any reservation of that power to the States.” New York v. United States, 505 U. S. 144, 156 (1992). Regulation of national bank operations is a prerogative of Congress under the Commerce and Necessary and Proper Clauses. See Citizens Bank v. Alafabco, Inc., 539 U. S. 52, 58 (2003) (per curiam). The Tenth Amendment, therefore, is not implicated here.
But Stevens, while agreeing with Ginsburg’s result, had an interesting take on the Tenth Amendment claim:
I agree with the Court that the Tenth Amendment does not preclude the exercise of that power. But the fact that that Amendment was included in the Bill of Rights should nevertheless remind the Court that its ruling affects the allocation of powers among sovereigns. Indeed, the reasons for adopting that Amendment are precisely those that undergird the well-established presumption against preemption.
So why did Stevens and Alito flip? How does their flip interface with their previous decisions? Doubtless there is a pattern here. If I spot an article explaining this, I’ll post an update. If any veteran Court-watcher can explain, please comment.