Monday, July 12, 2010

FYI: UT Fed Ct Says NBA Preempts Corp Registration, F/C Trustee Requirements

A U.S. District Court for the District of Utah recently held that state law claims against a national bank for alleged failure to register as a foreign corporation, and for alleged failure to meet Utah’s statutory requirements to act as a trustee, are preempted by the National Bank Act.  A copy of the opinion is attached.


The Plaintiff's complaint asserted claims under the Real Estate Settlement Procedures Act (“RESPA”) and state law against ReconTrust, a national bank, and a number of other defendants.  Plaintiff also filed for a temporary restraining order and then a preliminary injunction against the Defendants to enjoin the foreclosure sale on her property because:  1) ReconTrust allegedly had not registered to transact business in Utah as required by state law and 2) ReconTrust allegedly was not qualified to act as a trustee under state law.  The state court granted Plaintiff’s requested preliminary injunction.


ReconTrust removed the case to federal court based on Plaintiff’s RESPA claims.  Plaintiff then amended her complaint to remove the RESPA claims and moved to remand the case to state court.  Defendant moved to vacate or modify the state court’s preliminary injunction in federal court on the grounds that the National Bank Act (“NBA”) preempts Plaintiff state law claims.


The District Court denied Plaintiff’s motion to remand and dissolved the state court injunction because Plaintiff’s claims are preempted under the NBA.  First, the District Court found that Utah’s registration requirements are preempted because the statute, “makes clear that Congress intended that the federal statute exclusively control the area of allowing a national bank to transact business nationwide.”  As the state law imposes requirements that compete with the federal statute and impose additional requirements on national banks, the state requirements, “‘significantly impair’ a national bank’s ability to do business in Utah.”


The District Court also found that the NBA preempted an addition Utah law that enumerates the types of entities that may act as trustees in Utah.  Under the NBA, the Comptroller of the Currency has the power to allow national banks to act as trustees “when not in contravention of State or local law.”  The statute goes on to state that “whenever a state law allows a competitor of a national bank to act as a trustee, allowing a national bank to do so as well shall not be deemed to be in contravention of State or local law.”  The Utah statute allows “depository institutions” to act as trustees, which the District Court determined is a clear competitor to national banks. 


The District court then dissolved the state court injunction for a number of reasons, but “most importantly, the court dissolved the injunction because…the Utah statute upon which the injunction was based is preempted by federal law.”

Let me know if you have any questions.  Thanks.


Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874


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