On February 27, 2024, the U.S. Supreme Court heard oral argument in Cantero v. Bank of America, N.A., a case involving the effect of the Dodd-Frank Act on the scope of preemption under the National Bank Act (NBA). The question before the Court is whether, post-Dodd-Frank Act, the NBA preempts a New York statute requiring banks to pay interest on mortgage escrow accounts. The Second Circuit, in the decision under review, ruled that the New York statute is preempted by the NBA. The Second Circuit concluded that in determining the NBA’s preemptive scope, the relevant “question is not how much a state law impacts a national bank, but rather whether it purports to ‘control’ the exercise of its powers.”
Jonathan Taylor argued on behalf of the petitioners and Lisa Blatt argued on behalf of Bank of America. Both are attorneys in private practice. In addition, Malcolm Stewart, Deputy Solicitor General, argued as amicus curiae supporting vacatur of the Second Circuit’s judgment and remand. In its amicus brief, the Department of Justice agreed with the petitioners that the Second Circuit’s preemption analysis was incorrect. The Solicitor General thereafter filed an unopposed motion to participate in the oral argument which the Supreme Court granted. The recording of the oral argument and transcript are available, respectively, here and here.
Rather than providing a clear indication of how a majority of the Justices are likely to rule, the oral argument strongly suggested that a majority of the Justices were still forming their views on how the Dodd-Frank Act’s preemption standard should be applied. Dodd-Frank Section 1044 (12 U.S.C. Sec. 25b) provides that a state consumer financial law is preempted if “in accordance with the legal standard for preemption in the decision of the Supreme Court of the United States in Barnett Bank…, the State consumer financial law prevents or significantly interferes with the exercise by a national bank of its powers.” According to the petitioners and Justice Department, this language requires a court to make a practical, case-by-case assessment of the degree to which a state law will impede the exercise of those powers. According to Bank of America, this language is a shorthand for the traditional legal standard under which a state law is preempted if it attempts to control or hinder the exercise of a national bank’s powers and does not require statute-by-statute or case-by-case fact finding regarding a state law’s practical impact.
Many of the Justices’ questions and comments to Mr. Taylor probed how prior Supreme Court decisions could be reconciled with the petitioners’ position. In particular, the Justices focused on the Court’s 1954 decision in Franklin Nat’l Bank of Franklin Square v. New York which held that a New York law prohibiting banks from using the word “savings” in advertisements was preempted because such a restriction on advertising would impair national banks’ ability to attract deposits. Mr. Taylor rejected Justice Kavanaugh’s suggestion that a law that interferes with the pricing of a product such as the New York law “almost by definition” interferes more with a bank’s operations than a law that affects advertising. Justice Kavanaugh challenged Mr. Taylor’s rejection, asking “Why not? That sounds like significant interference when it’s–when it’s affecting how much– it’s almost putting a tax on the bank to sell the product, which strikes me as a much more significant interference than simply saying you can’t use the word “savings” in your advertising, which was the issue in Franklin.” Similarly, Justice Alito stated that “if any interference that’s greater than the interference [in Franklin] is enough…I don’t see how you can win under that.”
Both Justice Kavanaugh and Justice Jackson probed what evidence would be needed to satisfy a “significant interference” standard, with Justice Kavanugh asking “would a 10 percent state law [] be significant interference” and Justice Jackson stating that she was “trying to understand whether this really is sort of an unworkable or unusable assignment for the courts.” Justice Barrett focused her questions to Mr. Taylor on whether the preemption analysis is impacted by whether the national bank power to which the state law in question relates is an express or implied power.
In their questioning of Mr. Stewart, the Justices probed some of the same issues that they raised with Mr. Taylor. Justice Thomas questioned Mr. Stewart as to whether express and implied powers should be treated differently and Justices Alito and Sotomayor questioned Mr. Stewart about how significant interference would be quantified or measured. Justices Alito and Kagan also questioned Mr. Taylor about the possibility of conflicting results from different courts when making findings about whether a particular state law “significantly interferes” with a national bank’s powers, with Justice Kagan commenting that “I guess you’re not giving me a whole lot of comfort in this about how peculiar this would be that we could have different rules in different states, we could have different rules depending on the time that the challenge is brought.” Chief Justice Roberts asked only one question during the oral argument, which was a question to Mr. Stewart. The Chief Justice asked whether Mr. Stewart agreed with Mr. Taylor that there could be circumstances in which a significant interference determination could be made without trial evidence. Chief Justice Roberts did not make any comments in response to Mr. Stewart’s answer.
In questioning Ms. Blatt, Justice Thomas continued to probe the relevance of the distinction between express and implied national bank powers for purposes of a preemption analysis. Justices Kagan, Sotomayor, and Jackson focused their questions on the scope of the state laws that would be preempted under a “control” standard and the Bank’s rationale for a preemption standard that did not require a factual showing as to the burden imposed on a national bank by a non-discriminatory state law (i.e. a state law that state banks must also comply with). Justice Gorsuch commented to Ms. Blatt that “we can’t take that argument very seriously, that it’s just too much of an impairment on national banks that they have to deal with the reality that we live in a federal system with 50 states.”
In response to questioning from Justice Sotomayor, Ms. Blatt provided the following basis for determining which state laws are preempted as to national banks and which are not preempted: state laws that dictate the attribute of the product or service are preempted and state laws that dictate the interaction with the consumer are not preempted (such as laws prohibiting discrimination for fraud or setting a legal age to enter into contracts). Both Justices Kagan and Gorsuch questioned Ms. Blatt about how this distinction (which they both noted had not been briefed) would be applied in different scenarios, with Justice Kagan stating that the distinction “works for this case, but you’re asking us to do something that applies to every kind of case.” Justice Alito commented that “I share the difficulty that’s been expressed in understanding the difference between a state law that affects a national bank’s power and a state law that regulates the way in which the bank exercises that power in dealing with its customers.” He also stated that he would have to think about “why [Ms. Blatt’s interpretation doesn’t preempt everything. But there’s the problem on the other side that Mr. Taylor’s argument seems to preempt nothing.” Judge Alito also asked Ms. Blatt to explain how her interpretation was consistent with Dodd-Frank’s text.
While none of the Justices displayed a clear predisposition to vote one way or the other, based on their questions and comments, Justices Sotomayor, Kagan, Jackson, and Gorsuch would seem to be the Justices who are more likely to vote in favor of the petitioners and Justices Alito and Kavanaugh would seem to be the Justices who are more likely to vote in favor of Bank of America. However, the questions and comments of Chief Justice Roberts and Justices Barrett and Thomas provide no obvious clues for how they are likely to vote.
The Supreme Court’s decision could have ramifications well beyond the specific New York law at issue. Those ramifications will depend not only on whether the Court rules in favor of Bank of America, but also on how the Court articulates its basis for concluding the New York law is or is not preempted.
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