Urging Rejection of “Emergency” Regulations of the Massachusetts Treasurer Effectively Negating the Business-To-Business Exemption under the Massachusetts Abandoned Property Statute

NELF attempted without success to file a memorandum of law on behalf of itself and the Associated Industries of Massachusetts supporting Biogen’s position in this appeal of an administrative decision. Judge van Gestel, sitting in the Suffolk County Business Litigation Session, declined to accept amici’s memorandum, citing the limited nature of judicial review of administrative decisions and the rarity of amicus participation at the trial-court level. The court, in a February 27 Memorandum and Order, nonetheless allowed Biogen’s motion for judgment on the pleadings.  

At issue was the so-called “business-to-business” exemption under the Massachusetts Abandoned Property Act, G.L. c.200A, § 5, excluding from the Act’s purview “any outstanding credit balances” between businesses arising in the ordinary course of business, including outstanding accounts payable remaining on old books.  The exemption was enacted as an amendment to the Act in 2000 in the wake of attempts by a number of state treasurers to treat such credit balances as abandoned property that must be transferred to the state.  AIM and others had argued successfully for the statutory exemption on the dual grounds that these outstanding accounts payable remaining on old books are often in error and, to the extent they are accurate, businesses have the means and incentive to recover any monies owed  without state intervention.  In 2001 then State Treasurer O’Brien promulgated regulations appropriately applying the exemption to “credits either current or past that are or were owing to a vendor or commercial customer . . . .”  In 2004, however, Treasurer Cahill, during an ongoing audit of Biogen, issued “emergency” regulations redefining the exemption as applying only to “[o]utstanding balances that are recorded as current accounts receivable or accounts payable . . . .”  

NELF and AIM argued in their amicus memorandum, inter alia, that Treasurer Cahill’s new regulatory definition rendered the statutory exemption meaningless. Since property is not deemed abandoned under the Act until the passage of three years, “current” accounts payable are by definition not abandoned property and require no exemption.  While Judge van Gestel did not address this point, he declined to apply Treasurer Cahill’s regulation retroactively to Biogen.  He also noted that Treasurer O’Brien’s 2001 regulations “best comport” with the apparent intent and purpose of the statutory exemption and rejected Treasurer Cahill’s contrary interpretation on the ground that it would “hobble the statute’s effectiveness.”  Should the Treasurer appeal Judge van Gestel’s decision, NELF and AIM will have an opportunity to present their arguments in an amicus brief.

Seeking Grant of Certiorari Regarding Valuation of Just Compensation for Takings by Eminent Domain

On March 19 the Supreme Court denied certiorari in this case, which NELF had argued presented the Court with an opportunity to resolve two essential questions about valuation under the Just Compensation Clause in eminent domain cases.  NELF had filed a joint amicus brief with Pacific Legal Foundation and the National Taxpayers Union in support of the grant of certiorari.  Amici noted that the Sixth Circuit’s decision below conflicted with holdings of the First, Fifth, and Ninth Circuits as to whether the Declaration of Taking Act, 40 U.S.C. §§ 3114 et seq., imposes a mandatory interest rate or just a floor.  NELF relied on Supreme Court precedents to argue that, under the Constitution, just compensation is a matter for judicial, as opposed to legislative, determination and, therefore, the statutory interest rate should be deemed a floor and not a ceiling. Amici further urged the Court to review the trial court’s determination, affirmed by the Sixth Circuit, that a decrease in property value resulting from the government’s announcement of an intention to take the property by eminent domain is a basis for decreasing the compensation award. 

 

Opposing Duplicative State Regulation of a National Bank Subsidiary

Agreeing with Wachovia and NELF, the Supreme Court held in a decision rendered on April 17 in the Watters case that Wachovia’s mortgage business, whether conducted by the bank itself or through its wholly owned operating subsidiary, is subject to federal superintendence under the National Bank Act, 12 U.S.C. § 1 et seq. (“NBA”), and not to the regulations of the several states in which the subsidiary operates.  It has long been established that the NBA preempts duplicative or conflicting state regulation of national banks themselves.  Wachovia argued for extension of federal preemption to its wholly owned subsidiary based in part on 12 C.F.R. § 7.4006, a regulation of the Office of the Comptroller of the Currency (“OCC”) which provides that “[u]nless otherwise provided by Federal law or OCC regulation, State laws apply to national bank operating subsidiaries to the same extent that those laws apply to the parent national bank.”  

NELF filed a merits amicus brief in support of Wachovia concentrating on the reasonableness prong of the federal preemption analysis of Chevron, USA, Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), in order to counteract Michigan’s argument that state regulation of national banks’ mortgage subsidiaries is required to prevent abuses like “predatory lending.”  NELF argued that (1) duplicative state and federal regulation is economically inefficient and (2) constitutional history demonstrates the importance of the Supremacy Clause as part of the system of checks and balances in our federal system.  

Justice Ginsburg wrote the majority opinion (joined by Justices Alito, Breyer, Kennedy, and Souter) holding that, while state law may govern issues related to incorporation of a national bank’s subsidiaries, it does not govern the “business of banking” conducted by those entities.  Justice Stevens filed a dissenting opinion joined by Chief Justice Roberts and Justice Scalia (Justice Thomas taking no part in the case), arguing that the majority opinion improperly found preemption based, in the dissenters’ view, on an OCC regulation rather than an explicit federal statute.  On April 27 the Court denied the Connecticut Banking Commissioner’s petition for certiorari in the case of Wachovia Bank, N.A. v. Burke, which raised this same preemption issue and in which NELF had filed a similar amicus brief with the Court of Appeals for the Second Circuit.