Petition For Rehearing To Be Filed In Ninth Circuit In National Bank Act Preemption Case Related To Mortgage Escrow Accounts

On August 27, we blogged about the Ninth Circuit unpublished panel opinion in Kivett v. Flagstar Bank issued upon remand of the case from the Supreme Court with instructions to follow the guidance of the Supreme Court contained in its unanimous opinion in Cantero v. Bank of America. In Cantero, the Supreme Court reversed a Second Circuit opinion which had held that the National Bank Act preempted a New York State law requiring the payment of 2% interest on residential mortgage escrow accounts. The Supreme Court concluded that the Second Circuit used the wrong standard in reaching that conclusion — namely, whether the New York statute had any effect on the powers of a national bank. The Supreme Court instructed that the correct standard is the one codified in the Dodd-Frank Act — namely, whether the New York statute conflicted with or significantly interfered with the powers of a national bank. The Supreme Court further instructed the Second Circuit to do a “nuanced” analysis by comparing the Cantero case to the Barnett Bank Supreme Court opinion and other Supreme Court cases where the Court found preemption and those where the Court found no preemption.

Unfortunately, the Ninth Circuit in Kivett completely ignored the Supreme Court’s guidance and, without asking the parties to submit additional briefs, decided to essentially affirm its earlier opinion based on amendments to the Truth-in-Lending Act requiring the payment of interest on mortgage escrow accounts only for certain high-priced mortgages. Kivett’s mortgage did not qualify as such.

Last week, Kivett signaled that he would be filing a petition for rehearing when it sought and was granted an extension of time until October 7 to file a petition for rehearing. That is good news!

Briefing has begun in the Second Circuit in Cantero and in the First Circuit in the Conti case (which had been stayed pending the outcome of the Supreme Court opinion in Cantero). We will soon be blogging about the two opening briefs of the plaintiffs in both cases who are represented by the same law firm.

We urge the OCC to submit amicus briefs in all three cases.