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People v. First American Corp.

June 8, 2010

THE PEOPLE OF THE STATE OF NEW YORK BY ANDREW CUOMO, ATTORNEY GENERAL OF THE STATE OF NEW YORK, PLAINTIFF-RESPONDENT,
v.
FIRST AMERICAN CORPORATION, ET AL., DEFENDANTS-APPELLANTS.



Defendants appeal from the order of the Supreme Court, New York County (Charles Edward Ramos, J.), entered April 8, 2009, which, insofar as appealed from as limited by the briefs, denied their motion to dismiss the complaint on the ground of federal preemption.

The opinion of the court was delivered by: Gonzalez, P.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.

Luis A. Gonzalez, P.J., David B. Saxe, James M. Catterson, Rolando T. Acosta, JJ.

406796/07

This appeal calls upon us to determine whether the regulations and guidelines implemented by the Office of Thrift Supervision (OTS) pursuant to the Home Owner's Lending Act of 1933 (HOLA) (12 USC § 1461 et seq.) and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) (Pub L 101-73, 103 STAT 183 [codified in scattered sections of 12 USC]), preempt state regulations in the field of real estate appraisal.

The Attorney General claims that defendants engaged in fraudulent, deceptive and illegal business practices by allegedly permitting eAppraiseIT residential real estate appraisers to be influenced by nonparty Washington Mutual, Inc. (WaMu) to increase real estate property values on appraisal reports in order to inflate home prices. We conclude that neither federal statutes, nor the regulations and guidelines implemented by the OTS, preclude the Attorney General of the State of New York from pursuing litigation against defendants First American Corporation and First American eAppraiseIT, LLC. We further conclude that the Attorney General has standing to pursue his claims pursuant to General Business Law § 349.

In a complaint dated November 1, 2007, plaintiff, the People of the State of New York, commenced this action against defendants asserting claims under Executive Law § 63(12) and General Business Law § 349, and for unjust enrichment. The complaint alleges that in Spring 2006, WaMu hired two appraisal management companies, defendant eAppraiseIT and nonparty Lender's Service, Inc., to oversee the appraisal process and provide a structural buffer against potential conflicts of interest between WaMu and the individual appraisers. The gravamen of the Attorney General's complaint asserts that defendants misled their customers and the public by stating that eAppraiseIT's appraisals were independent evaluations of a property's market value and that these appraisals were conducted in compliance with the Uniform Standards and Professional Appraisal Practice (USPAP), when in fact defendants had implemented a system allowing WaMu's loan origination staff to select appraisers who would improperly inflate a property's market value to WaMu's desired target loan amount.*fn1

Defendants moved for dismissal of the complaint pursuant to CPLR 3211, asserting that the Attorney General is prohibited from litigating his claims because HOLA and FIERRA impliedly place the responsibility for oversight of appraisal management companies on the OTS, and asserting a failure to state a cause of action. Supreme Court denied defendants' motion, finding that HOLA and FIRREA do not occupy the entire field with respect to real estate appraisal regulation and that the enforcement of USPAP standards under General Business Law § 349 neither conflicts with federal law, nor does it impair a bank's ability to lend and extend credit. We affirm.

The Supremacy Clause of the United States Constitution 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]), and it "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]). Indeed, "[u]nder the U.S. Constitution's Supremacy Clause (US Const, art VI, cl 2), the purpose of our preemption analysis is . . . to ascertain the intent of Congress" (Matter of People v Applied Card Sys., Inc., 11 NY3d 105, 113 [2008], cert denied _ US _, 129 S Ct 999 [2009]).

Congressional intent to preempt state law may be established "by express provision, by implication, or by a conflict between federal and state law" (Balbuena v IDR Realty LLC, 6 NY3d 338, 356 [2006], quoting New York State Conference of Blue Cross & Blue Shield Plans v Travelers Ins. Co., 514 US 645, 654 [1995]). Express preemption occurs when Congress indicates its "pre-emptive intent through a statute's express language or through its structure and purpose" (Altria Group, Inc. v Good, 555 US __, __, 129 S Ct 538, 543 [2008]). Absent explicit preemptive language, implied preemption occurs when "[t]he scheme of federal regulation [is] so pervasive as to make reasonable the inference that Congress left no room for the 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 El. Corp., 331 US 218, 230 [1947]). Further, when "[a] conflict occurs either because compliance with both federal and state regulations is a physical impossibility, or because the State law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress," the State law is preempted (City of New York v Job-Lot Pushcart, 213 AD2d 210, 210 [1995], affd 88 NY2d 163 [1996], cert denied 519 US 871 [1996] [internal quotation marks and citations omitted]).

Here, defendants do not argue, nor have they directed this Court's attention to any language within HOLA or FIRREA that establishes, that Congress expressly created these statutes to supersede state law governing the causes of actions asserted in the Attorney General's complaint. Defendants also have not argued that there exists a conflict between federal and State laws or regulations. Rather, defendants assert that because Congress has legislated so comprehensively, and that federal law so completely occupies the home lending field, the Attorney General is precluded from bringing claims against them under the theory of field preemption. Thus, the necessary starting point is to determine whether 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.

In 1933, Congress enacted HOLA "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" (Fidelity Fed. Sav. & Loan Assn. v De la Cuesta, 458 US 141, 159 [1982] [internal quotation marks and citations omitted]). HOLA created a general framework to regulate federally chartered savings associations that left the regulatory details to the Federal Home Loan Bank Board (FHLBB). The FHLBB's authority to regulate federal savings and loans is virtually unlimited and "[p]ursuant to this authorization, the [FHLBB] has promulgated regulations governing the powers and operations of every Federal savings and loan association from its cradle to its corporate grave" (id. at 145 [internal citations and quotation marks omitted]).

When Congress passed FIRREA in 1989, it restructured the regulation of the savings association industry by abolishing the FHLBB and vested many of its functions into the newly-created OTS (see FIRREA § 301 [12 USCA § 1461 et seq.] [establishing OTS], § 401 [12 USCA § 1437] [abolishing the FHLBB]). According to FIRREA's legislative history "[t]he primary purposes of the [FIRREA] are to provide affordable housing mortgage finance and housing opportunities for low- and moderate-income individuals through enhanced management of federal housing credit programs and resources; establish organizations and procedures to obtain and administer the necessary funding to resolve failed thrift cases and to dispose of the assets of these institutions . . . and, enhance the regulatory enforcement powers of the depository institution regulatoryagencies to protect against fraud, waste and insider abuse" (HR Rep 101-54 [I], at 307-308, reprinted in 1989 US Code Cong to Admin News, at 103-104). FIRREA was also designed "to thwart real estate appraisal abuses, [by] establish[ing] a system of uniform national real estate appraisal standards. It also requires the use of state certified or licensed appraisers for real estate related transactions ...


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