The controversial decision in Madden v. Midland Funding, LLC, was “incorrect” and “reflects an unduly crabbed conception of [National Bank Act] preemption,” said the Solicitor General and the Office of the Comptroller of the Currency (“OCC”) in the amicus brief filed with the United States Supreme Court on Tuesday.  Still, the Solicitor General and the OCC advised the Court not to review the decision of the Second Circuit in Madden.  They concluded that this just isn’t the right case for the Court to resolve the important questions of whether and under what circumstances the National Bank Act preempts state usury laws for assignees of loans made by national banks.

A recent Mayer Brown Legal Update summarizes the Madden decision.  As the Legal Update explains, the Court had invited the Solicitor General to file an amicus brief addressing whether the Court should review the case.  The OCC (which is the primary regulator of national banks) joined the Solicitor General’s brief.

In that brief, the Solicitor General and the OCC argued that, “[p]roperly understood, a national bank’s . . . authority to charge interest up to the maximum permitted by its home State encompasses the power to convey to an assignee the right to enforce the interest-rate term of the agreement.” This results from the coupling of 12 U.S.C. § 85—which allows a national bank to charge interest at the rate allowed by the state where it is located—and provisions of the National Bank Act that empower a national bank to sell the loans that it makes.

Despite this uncompromising critique of the Madden decision, the Solicitor General and the OCC argued that the Court should not grant certiorari for three reasons.

First, the Solicitor General and the OCC agreed with Madden’s argument (described in more detail in our Legal Update) that there is no split among the circuits. Midland had argued that the Second Circuit’s decision conflicted with decisions by the Fifth and Eighth Circuits.  However, the Solicitor General and the OCC argued that the questions presented in those other cases were “significantly different” than the question presented in Madden.  In the Eighth Circuit decision, the court had held that the state law was preempted because the real party in interest was the bank.  In contrast, there was no dispute in Madden that Midland (not the originating bank) was the real party in interest.  In the Fifth Circuit decision, the Solicitor General and OCC said, the question was whether certain fees charged by a national bank were collectable by the bank’s assignee.  In contrast, the Solicitor General and OCC said, the issue in Madden was whether the bank’s assignee had the right to continue to accrue interest on the loans after the loans were assigned.

Second, the Solicitor General and the OCC said that the “deficiencies in the court of appeals’ preemption analysis may be attributable in part to the parties’ failure to present the full range of preemption arguments below.” Echoing arguments made by Madden in her opposition to Midland’s cert petition, the Solicitor General and the OCC argued that Midland’s counsel had not specified how the preemption analysis should work and had not even cited 12 U.S.C. § 85 (the principal preemptive provision of the National Bank Act applicable in this case).  Midland’s counsel had also told the Second Circuit that the valid-when-made rule (a central pillar of Midland’s preemption argument in its cert petition) was “not central” to the district court’s decision and irrelevant to the analysis.

Finally, the Solicitor General and the OCC pointed out that the decision below was interlocutory, and that Midland might prevail even if the Second Circuit decision stands. In particular, the Solicitor General and the OCC said that Midland might still prevail for either two reasons: (1) the district court might hold that the choice of law provision in the credit agreement made Delaware law apply under general conflict of laws principles, without regard to federal preemption; and (2) the district court might conclude that the valid-when-made rule is embedded in New York’s usury law, providing Midland with a state law defense.

What Happens Next?

The Supreme Court frequently seeks the Solicitor General’s views on whether to grant certiorari, but it does not necessarily follow the Solicitor General’s advice.  The government in recent years has almost always recommended that certiorari should be denied, and the Court nonetheless has granted review in a fair number of cases.

The parties in Madden will have an opportunity to file supplemental briefs responding to the Solicitor General’s views, and the Court will then consider the case—likely at its June 23 conference.  That means a decision on certiorari could appear on the June 27 order list.

Even if certiorari is denied in Madden, the Solicitor General’s and OCC’s full-throated defense of the authority of a national bank assignee to fully enforce validly-originated loan terms is promising.  It suggests that the Solicitor General and the OCC might support certiorari in a future case in which a lower court followed Madden.

More importantly, these authoritative views of the government agency charged with enforcing the relevant statutes can be cited in lower courts—and should be persuasive in arguing that Madden should not be followed, at least outside the Second Circuit.  (Even within the Second Circuit, the Solicitor General’s discussion of the key arguments not presented to the Madden panel could persuade a subsequent panel, or the en banc court, to adopt a different view.)

Mayer Brown will host a webinar on Madden shortly after the Court announces its decision on the certiorari petition.

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