PARKS v. MBNA AMERICA BANK

Respondent’s Supplemental Reply Brief

Cal.May 25, 2012

SUPREME COURT COPY ARNOLD & PORTER LLP Laurence J. Hutt State Bar No. 06629 Laurence.Hutt@aporter.com +41 213.243.4100 +4 213.243.4199 Fax 777 South Figueroa Street Forty-Fourth Floor Los Angeles, CA 90017-5844 SUPREME COURT FILED May 25, 2012 The Honorable Chief Justice Tani Cantil-Sakauye MAY 2 2012 and Associate Justices of the California Supreme Court a ich Clark 350 McAllister Street Frederick K. Ohirich Clerk San Francisco, CA 94102 Deputy Re: Allan Parks v. MBNA America Bank N.A., Case No. 8183703 Honorable Chief Justice Cantil-Sakauye and Associate Justices: Respondent MBNA America Bank, N.A. (“MBNA”) herebyrepliesto the letter briefs filed by Appellant Allan Parks (“Parks”) and California Attorney General Kamala D. Harris, respectively, regarding the Dodd-Frank Wall Street Reform and Consumer Protection Act (“DFA”) (Pub. L. No. 111-203 (July 21, 2010) 124 Stat. 1376) and the regulatory response of the Office of the Comptroller of the Currency (“OCC”). As MBNAexplained in its supplementalletter brief filed on May 16, 2012 (“MBNA’s Letter Brief”), the DFA provisions relating to preemption of state law by the National Bank Act (“NBA”) (12 U.S.C. § 21 et seq.) and the implementing regulations of the OCC becameeffective prospectively on July 21, 2011, more than seven yearsafter Parksfiled his claim against MBNA. The DFAtherefore does not apply to this case. (See MBNALetter Br. at 1-4.) Nevertheless, both Parks and the Attorney General attempt to use the DFA to argue that, underits provisions, Parks’ claim is not preempted by the NBAorthe applicable OCC preemption regulation, 12 C.F.R. § 7.4008 (“Section 7.4008”), promulgated in 2004. According to Parks and the Attorney General, the DFA is significant becauseit creates new standards and rules, which they contend somehow govern actions taken before the DFA existed. Specifically, they argue that the DFA both (i) established a substantive standardfor NBA preemption that insulates Parks’ claim from preemption, and (ii) mandated special steps for the OCC to follow in making NBA preemption determinations that render the OCC’s preexisting preemption regulation invalid. These arguments lack both textual support and analytic coherence. Service on the Attorney General and the District Attomey Required by Cal. Bus. & Prof. Code § 17209 and Cal. Rules of Court, Rule 8.29 First, with respect to the DFA’s substantive standard for NBA preemption, as MBNAexplainedin its supplemental letter brief, the DFA codified the standard of the decision of the United States Supreme Court in Barnett Bank ofMarion County, N.A. v. Nelson (1996) 517 U.S. 25.. (See MBNALetter Br. at 2-4.) Barnett Bank has always been the applicable NBA preemption standard here, and under that standard, Parks’ claim is preempted,as the trial court held. (See Rose v. Chase Bank USA, N.A. (9th Cir. 2008) 513 F.3d 1032.) Second, with respect to the new rules the DFAestablished for the OCCto follow in making preemption determinations, those rules obviously have no application here because they concern preemption determinations the OCChas yet to make — not the preemption regulation governing Parks’ claim, Section 7.4008, which predates the effective date of the DFA preemption provisions by seven years. The suggestions of Parks and the Attorney General that the new DFArules governingfuture OCC preemption determinations somehowaffect this Court’s application of a regulation promulgated in 2004 are nothing but a distraction. To the extent the DFA and the OCC’s regulatory response do have any significancein this case, it is because they confirm that: 1. The OCC had authority to issue the 2004 preemption regulations; 2. The OCC’s 2004 preemption regulations were and remain valid; and 3. Congress views the OCC asan essential source of law governing NBA preemption. I. Barnett Bank Provides the Applicable Standard for Preemption A. Parks Acknowledges That Congress Codified the Barnett Bank Standard as Understood by the OCC Parks explicitly acknowledges that the DFA did not change the standard for preemption relied on by MBNA,i.e., the standard articulated by the U.S. Supreme Court in Barnett Bank ofMarion County, N.A. v. Nelson (1996) 517 U.S. 25. (Parks’ Letter Br. at 3, 7-8.) As he specifically notes, DFA Section 1044 (124 Stat. at 2014-17), now 12 U.S.C. § 25b (‘Section 25b”), codifies the decision of Barnett Bank as the standard for NBApreemption of State consumerfinancial laws. (Parks’ Letter Br. at 3, 7-8; 12 U.S.C. § 25b(b)(1)(B) [prescribing NBA preemption of such laws “in accordance with the legal standard for preemption in the decision of Barnett Bank ofMarion County, N.A. v. Nelson’’}.) Parksalso cites to the legislative history of the DFA, noting that both the House and Senate versionsof the legislation, as well as the report of the House-Senate Conference Committee,“leave no doubt that Congress intended to codify the Barnett Bank standard for preemption.” (Parks’ Letter Br. at 7.) In addition, Parks notes the colloquy between Senator Thomas Carper, one of the legislation’s key sponsors, and Senator Chris Dodd, the Chairman of the Senate Banking Committee and leader of the negotiations for the Senate in the House-Senate Conference Committee, which he acknowledges “confirms that the Dodd-Frank Actis a codification of the Barnett Bank preemption standard.” (id. at 7-8, quoting 156 Cong. Rec. $5902 (daily ed. July 15, 2010) [2010 WL 2788025].) B. The Attorney General’s Contention Regarding the Barnett Bank Preemption Standard Are Refuted by the DFA and Its Legislative History The Attorney Generalignoresthis legislative history. She contendsthat the DFA’s “significance in this case is that it reaffirms that the preemptive scope of the National Bank Act is narrow, and that a state law is preempted only whenit prevents or significantly interferes with a national bank’s exercise of its banking powers.” (Attorney General (“AG”) Letter Br. at 1; see also id. at 4 [“[C]onflict preemption exists only when the state consumerlaw statute either forbids or impairs significantly the national bank’s exercise of its lending powers.”].) The Attorney General thus reduces Justice Breyer’s eight-page explanation of the history and context ofNBA preemption in Barnett Bank to a mere four words. If that was Congress’ intent in the DFA, then the DFA’s preemption standard materially alters preexisting law and the DFA’s preemption standard can only be applied prospectively to conduct occurring afterits effective date. The Attorney General fails to explain why, if Congress intended that the only basis for determining the NBA preemptsstate law is a “prevents or significantly interferes” finding, the DFA expressly provides that the NBA preemptsstate law “in accordance with the legal standard for preemption in the decision of the Supreme Court of the United States in Barnett Bank.” (12 U.S.C. § 25b(b)(1)(B); see also id. § 25b(c) {referring solely to “preemption [of state law] in accordance with the legal standard of the decision of the Supreme Court of the United States in Barnett Bank’].) If Congress had intendedthat the only test for NBA preemption of a State consumerfinancial law was whether the law “prevents or significantly interferes” with a national bank’s exercise of its banking powers, it would have simply prescribed that test by referenceto it alone. But that is not what Congress did. Instead, it deliberately included in the DFA the prescription for NBA preemption “in accordance with the legal standardfor preemption in the decision ofthe Supreme Court ofthe United States in Barnett Bank.” (12 U.S.C. § 25b(b)(1)(B), emphasis added.) The Attorney General’s suggestion that the “Barnett Bank” prescription is mere surplusage cannot be squared with well-established principles of statutory construction, under which every word in statute is to be accorded significance. (Reiter v. Sonotone Corp. (1979) 442 U.S. 330, 339 [“In construing a statute we are obliged to give effect, if possible, to every word Congress used.”].) Her construction of the statute is erroneous. Moreover, the DFA’s legislative history (see, e.g., Parks’ Letter Br. at 7-8) refutes the Attorney General’s argument. As confirmed by the key Senate sponsors of the DFA amendmentcontaining the text of Section 25b, Senators Thomas Carper and Mark Warner, Congress deliberately referred to Barnett Bank to meanall of the NBA preemptiontests it articulates, not just the “prevents or significantly interferes” test. As those Senators explained: The House-passed version ofth[e] legislation did not clearly incorporate the preemption principles enunciated by the Supreme Court in the Barnett Bank v. Nelson case. This would have created an uncertain legal environmentin which it would not be clear what laws appliedto national banks. In order to address this problem andto assure legal certainty for all parties, we insisted that a direct reference to the Barnett Bank case be includedin the bill to ensure that the preemption principles in the Barnett Bank case were preserved. This point wasclarified further during the Senate floor debate on the Conference report. During that debate, we noted that the Conference report maintained the Barnett Bank standard as the basic legal standard for preemption. Senator Dodd, the Chairman ofthe Senate Banking, Housing and Urban Affairs Committee, agreed with our view, and confirmed that the legislation codifies the preemption standard of the Barnett Bank case. As you know that standard is not simply the short-handphrase “prevent or significantly interfere”, but rather the traditional conflict preemption standard as explained by the Courtinits holding in the Barnett Bank case. (Letter from Senator ThomasR. Carper and Senator Mark Warner to Acting Comptroller John Walsh (April 4, 2011), at 1-2 [hereinafter “Carper-Warner Letter of April 4, 2011”], Ex. 1 to MBNA’s Request for Judicial Notice in Support of Answer to the Amicus Curiae Brief of the Consumer Attorneys of California, footnote omitted.)! These explicit statements by the key legislators involved plainly confirm that Section 25b incorporates Barnett Bank’s preemption frameworkin its entirety, and that the statute’s reference to Barnett Bank’s “prevents or significantly interferes” languageis not intended to single out that particular indicitum of preemption as determinative onits own or to the exclusion of Barnett Bank’s other preemptioncriteria. Moreover,this understanding is implicit in the context of the DFA’s enactment. In enacting Section 25b, Congress was aware ofits own prior reference to Barnett Bank in another federal banking statute, the Gramm-Leach-Bliley Act of 1999 (““GLBA”) (Pub. L. No. 106-102, 113 Stat. 1338). The GLBA, which generally preempts any state law that interferes with bank sales of insurance, refers to Barnett Bank as follows: ' The Carper-Wamer amendment was adopted by the Senate by a vote of 80 to 18 and enacted as Dodd-Frank Act Title X, Subtitle D (DFA Sections 1042 through 1047). (See 156 Cong. Rec. 55888-85889 (daily ed. July 15, 2010) [2010 WL 2788025] [statement of Sen. Johnson]; 156 Cong. Rec. $3916-S3918 (daily ed. May 18, 2010) [2010 WL 1978134] [text of amendment].) In accordance with the legal standards for preemption set forth in the decision of the Supreme Court of the United States in Barnett Bank ofMarion County N.A. v. Nelson, 517 U.S. 25 (1996), no State may, by statute, regulation, order, interpretation, or other action, prevent or significantly interfere with the ability of a depository institution, or an affiliate thereof, to engage, directly or indirectly, either by itself or in conjunction with an affiliate or any other person, in any insurancesales,solicitation, or crossmarketing activity. (15 U.S.C. § 6701(d)(2)(A).) The courts and the OCC have understood this GLBA preemption standard, which, like Section 25b, expressly mentionsthe “prevent or significantly interfere with” indicia of preemption, as incorporating the full reasoning and principles underlying Barnett Bank — not as simply dictating a shorthand “prevent or significantly interfere with” test for preemption. (See, e.g., Ass’n ofBanks in Ins., Inc. v. Duryee (6th Cir. 2001) 270 F.3d 397, 405, 409 [applying the GLBA preemption provision by, inter alia, considering Barnett Bank’s reference to preemption of state laws that “‘ ‘impair the efficiency of national banks,’ ” or “ ‘destro[y]’ ” or “ ‘hampefr]’ national bank[] functions,” or “ ‘interfere with or impair [national banks’] efficiency in performing the functions by which they are designed to serve [the Federal] government’ ”); OCC Preemption Opinion, 66 Fed. Reg. 51,502, 51,504 (Oct. 9, 2001) [same].) These pre-DFA interpretations of the GLBA preemption standard are further confirmation that Congress intended Section 25b to prescribe preemption in accordance with Barnett Bankin its entirety, not merely under a “prevents or significantly interferes with” test. As the Supreme Court has “often observed... , when ‘judicial interpretations have settled the meaning of an existing statutory provision, repetition of the same language in a newstatute indicates, as a general matter, the intent to incorporate its .. . judicial interpretations as well.’ ” (Jerman y. Carlisle, McNellie, Rini, Kramer & Ulrich LPA (2010) 130 S. Ct. 1605, 1616, quoting Bragdon v. Abbott (1998) 524 U.S. 624, 645.) Because Congress enacted Section 25b against the backdrop ofjudicial — as well as OCC — interpretations of the similar references to Barnett Bank in the GLBA,that reference cannotbeartificially cabined into a reading that would limit NBA preemption analysesto a focus merely on whetherstate law “prevents or significantly interferes with” the exercise of national bank powers. Post-DFAcase law,including that cited by Parks, further confirmsthis point. In Cline v. Bank ofAmerica, N.A. (S.D. W. Va. 2011) 823 F. Supp. 2d 387 (cited in Parks’ Letter Br. at 8), the court analyzed preemption under Section 25b, and applied the principles articulated in Barnett Bank — not simply a “prevents or significantly interferes” test. After discussing Section 25b and Section 7.4008, as amended by the OCC in 2011, the Cline court stated: Inasmuchassection 25b and section 7.4008 are deemed applicable to this case, both must be scrutinized in order to resolve the preemption controversy. At the outset, it is noted that both provisions explicitly reference the Supreme Court’s decision in Barnett Bank. An understandingofthat case is thus essential in assessing the present scope ofNBA preemption. (Id. at 396-97.) The court went on to quote the following passage from Barnett Bank: “Tn this case we must ask whetheror not the Federal and State Statutes are in ‘irreconcilable conflict.’ The two statutes do not imposedirectly conflicting duties on national banks .... Nonetheless, .. . [the State Statutes] .. . would seem to ‘stan[d] as an obstacle to the accomplishment’ of one of the Federal Statute’s purposes....” (Ud. at 397, quoting Barnett Bank, 517 U.S. at 31.) The Cline court did not focus on the “prevent or significantly interfere” phrase in Barnett Bank. Instead, the court cited Barnett Bank’s references to the various linguistic formulations that the Barnett Bank Court found independently and alternatively indicative of a preempted impactof a state law on a national bank’s exerciseofits banking powers, including but not limited to the “prevent or significantly interfere” phrase. (See id. [quoting Barnett Bank’s reference to preemption of state laws that “unlawful[ly] encroac[h] on the rights and privileges of national banks”; or “destro[y] or hampe[r]” national banks’ functions; or “interfere with, or impair [national banks’] efficiency in performing the functions by which they are designed to serve [the Federal] Government” (517 U.S. at 33-34), emphases added,internal citations and quotation marks omitted].) Recognizingthat all of these indicators of preemption are part of a proper NBA preemption analysis under Section 25b, the Cline court stated that: “the inquiry under Barnett Bankdistills to whether the state measure either (1) imposes an obligation on a national bank thatis in direct conflict with federal law, or (2) stands as an obstacle to the accomplishment and execution ofthe full purposes and objectives of Congress.” (/d. at 397-98; see also Baptista v. JPMorgan Chase Bank, N.A. (11th Cir. 2011) 640 F.3d 1194, 1197 [analyzing an NBA preemption question post-DFA andciting Barnett Bank’s statementthat the NBA preempts state law that “impairs” the exercise of national bank powers].) Before and after Section 25b’s effective date, state law is preempted by the NBA in accordance with the principles articulated in the entirety of the Barnett Bank decision. * ‘The Attorney General is simply wrongin stating that the Eleventh Circuit in Baptista “recognized that conflict preemption exists on/y when the state consumerlaw statute either forbids or impairs significantly the national bank’s exercise of its lending powers.” (AG Letter Br. at 4.) The Eleventh Circuit did not make any statementto that effect; nor did it suggest any such conclusion. (See Baptista, 640 F.3d at 1197.) As MBNAhasshown,a properapplication of those principles requires consideration of the Barnett Bank decisioninits entirety. (See, e.g., MBNA’s Letter Br. at 4-5.) Thus, in this case, the NBA requires an evaluation of whether, under anyorall of the various linguistic formulations for preemption referred to in Barnett Bank, the application of Cal. Civ. Code § 1748.9 to MBNA would “stan[d] as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” (Barnett Bank, 517 U.S.at 31, citation and internal quotation marks omitted.) As the trial court correctly determined, consistent with the Ninth Circuit’s ruling in Rose, such an evaluation compels the conclusion that Parks’ claim is preempted. (See Rose, 513 F.3d at 1038; MBNA’s Opening Br. at 12-23; Reply Br. at 3-12.) II. The Arguments Advanced by Parks and the Attorney General Regarding the Significance of the OCC’s Regulatory Response Ignore the Text and Evident Purpose of the DFA A. The OCC Appropriately Modified Its Preemption Regulations to Take Accountof the DFA As MBNAexplainedin its supplemental letter brief, in response to the DFA,the OCCreviewedandslightly modified its 2004 preemption regulations, including Section 7.4008. (See Office of Thrift Supervision Integration; Dodd-Frank Act Implementation, 76 Fed. Reg. 43,549 (July 21, 2011) [final rule].) Those modifications expressly and explicitly were designed to eliminate any doubt that 2004 regulations, including Section 7.4008, implement the preemptionprinciples articulated in Barnett Bank — consistent with Section 25b. Pursuant to its 2011 DFA rulemaking, the OCC (i) addedto the preemption regulations an express reference to “the decision of the Supreme Court in Barnett Bank,” and (ii) removed the regulations’ reference to preemption of state laws that “obstruct, impair, or condition” a national bank’s ability to exercise fully its federally granted powers. (See id. at 43,555-56.) Particularly because of apparent confusion about the latter reference, the OCC determined that these modifications would “remove any ambiguity that the conflict preemption principles of the Supreme Court’s Barnett decision are the governing standard for national bank preemption.” (/d.) Parks and the Attorney General incongruously argue that by confirming that the Barnett Bank preemption principles are the governing NBA preemption standard, the OCCignored the DFA’s codification of those very principles. These arguments are nonsensical and ask this Court to ignore (1) the text of the DFA; (2) the DFA’s legislative history that Parks himself quotes; and (3) the OCC’s detailed explanations of both the 2004 preemption regulations and the modifications to those regulations in 2011. As those explanations clearly confirm, the OCC groundedits 2004 rules on the preemption principles articulated in Barnett Bank. (See Bank Activities and Operations; Real Estate Lending and Appraisals, 69 Fed. Reg. 1904, 1910-11 (Jan. 13, 2004); 76 Fed. Reg.at 43,556-57.) In the 2011 modifications to those rules, the OCC properly responded both to the DFA’s express codification of the Barnett Bank principles and commentsit had received reflecting confusion caused by the “obstruct, impair, or condition” terminology in the 2004 rules. (See 76 Fed. Reg. at 43,556.) The OCC’s 2011 DFA rulemaking relating to Section 25b was plainly appropriate. The OCC’s 2011 DFA rulemakingalso has no impact on this case. The resolution of the preemption questions here does not turn on, and never has turned on, the reference to “obstruct, impair, or condition” in Section 7.4008. Cal: Civ. Code § 1748.9 is preemptedin this case becauseit has an impermissible effect on MBNA underthe various formulations for preemption articulated in Barnett Bank, including but notlimited to the decision’s reference to preemption of state law that would “impair”or “condition” a national bank’s ability to exercise fully its federally granted banking powers. (Barnett Bank, 517 U.S.at 33-34.) Those multiple and various Barnett Bank formulationsare the fundamental underpinnings of Section 7.4008, both as originally promulgated in 2004 and as amendedin 2011. (69 Fed. Reg: at 1910-11; 76 Fed. Reg. at 43,556-57.) B. Section 25b’s Requirements for the OCC In Making Preemption Determinations Have No Significance for This Case Parks and the Attorney General further advance the separate and wholly untenable argumentthat Section 25b’s new mandates for the OCC to follow in making preemption determinations have significance for this case. Those mandates prescribe steps to be taken by the OCC in makingfuture determinations that State consumerfinancial lawsare preempted. Because these requirementsare plainly only prospective in application and could notretroactively nullify Section 7.4008 or otherwise affect this case, MBNAdid not address them in its supplementalletter brief in response to the Court’s request for briefing on‘the “significance” of the DFA and the OCC’s regulatory response. (Order of April 25, 2012.) Both Parks and the Attorney General, however, latch on to the new requirements for OCC preemption determinations under Section 25b to suggest that, in undertaking its 2011 DFA rulemaking, the OCC was somehowobligated to repeal its 2004 preemption regulations, including Section 7.4008. To advance this argument, Parks and the Attorney General attempt to characterize the OCC’s 2011 DFA rulemaking as involving new “preemption determinations” with respect to “State consumerfinancial laws.” Parks himself anticipates that this argument is doomed: “a refusal to repeal a regulation is not a ‘preemption determination’ under 12. U.S.C. § 25b(b)(1).” (Parks’ Letter Br. at 13.) In the 2011 DFA rulemaking, the OCC did not purport to, and did not, make any preemption determinations: it reviewed its prior preemption determinations made in 2004, confirmed their consistency with the principles of Barnett Bank, added the express reference to Barnett Bank, and removed onephrase that apparently had caused confusion with respect to the regulations’ relationship to Barnett Bank. Andeven if the OCC had made new preemption determinations pursuant to the DFAthat entailed a repeal of Section 7.4008,that still would not have affectedthis case, because it would have effected a change,not a clarification, in the law applicable to Parks’ claim, and impermissibly attached a new and adverse consequenceto past conduct. A new statute may apply to cases pendingat the time the statute takes effect only that is the legislature’s clear intent or if the statute merely clarifies, and does not materially alter, the law governing the conduct at issue. (Landgrafv. USI Film Prods. (1994) 511 U.S. 244, 280 [“If the statute would operate retroactively, our traditional presumptionteachesthat it does not govern absent clear congressional intentfavoring such a result.” (emphasis added)].); W. Sec. Bank, N.A. v. Superior Court (1997) 15 Cal. 4th 232, 243 [holdingthat only a “mere[] clarif[ication], as opposed to a “change[],” can be applied retroactively absent clear congressional intent].) Congress’ clear intent was that the DFA, and in particular Section 25b, apply prospectively only, as its text and legislative history confirm. 1. The DFA’s Requirements for OCC Preemption Determinations Plainly Are Prospective Only There are two principal new requirements the DFA establishes for the OCC to follow in making determinations that State consumerfinancial laws are preempted. First, the DFA providesthat “any preemption determination [with respect to such state laws] may be madeby . . regulation or order of the Comptroller of the Currency on a case-by- case basis.” (12 U.S.C. § 25b(b)(1)(B).) A determination on a “case-by-case”basis meansa determination with respect to a particular State consumerfinancial law — or, following certain consultations, a determination with respect to multiple substantially equivalent State consumerfinancial laws. (/d. § 25b(b)(3).) Second, OCC determinations that State consumer financial laws are preempted under Section 25b must be based on “substantial evidence.” (/d. § 25b(c).) Contrary to the suggestions of Parks and the Attorney General, these prescriptions for OCC action have no relevance to Section 7.4008, which was promulgated seven years before the new rules took effect. On their face, the new rules could only apply prospectively, and nothing in the DFA indicates any intent to repeal preexisting preemption regulations as applied to past conduct. Section 25b expressly states that the “case-by-case” requirementis for a “preemption determination under this subparagraph”— i.e., under subparagraph (B) of paragraph (1) of subsection (b) of Section 25b. (7d. § 25(b)(1)(B).) The DFA created Section 25b. It could not possibly dictate the requirements for adopting a previously promulgated regulation. The prospective nature of the “case-by-case” requirementis further confirmed by several other Section 25b provisions. For example, Section 25b(b)(3), which defines the term “case-by-case basis,” providesthat: Asused in this section the term “case-by-case basis” refers to a determination pursuantto this section made by the Comptroller concerning the impactof a particular State consumerfinancial law on any national bank that is subject to that law, or the law of any other State with substantially equivalent terms. Ud. § 25b(b)(3)(A), emphasis added.) Again, “this section” —i.e., Section 25b — did not exist when Section 7.4008 was promulgated. By its very definition, the “case-by-case basis” requirement is for OCC preemption determinations made pursuantto a statutory section not in existence when Section 7.4008 was promulgated. The following subparagraph underscoresthe point: When making a determination on a case-by-casebasis that a State consumerfinancial law of another State has substantively equivalent terms as one that the Comptroller is preempting, the Comptroller shall first consult with the Bureau of ConsumerFinancial Protection and shall take the views of the Bureau into account when making the determination. (Id. § 25b(b)(3)(B).) Like Section 25bitself, the Consumer Financial Protection Bureau is a creation of the DFA. The OCC could hardly have consulted with a non-existent body when promulgating Section 7.4008. Likewise, the new requirement that OCC preemption determinations regarding State consumerfinancial laws be based on “substantial evidence,” also is expressly limited to OCC regulations or orders “prescribed under subsection (b)(1)(B)” of Section 25b. Ud. § 25b(c); see also id. § 25b(b)(6).) Quite obviously, these are changesto rather than clarifications of law. (W. Sec. Bank, 15 Cal. 4th at 243.) Thus, they have no application here. (See Landgraf, 511 U.S. at 270-73.) 2. Congress Intended the DFA to Preserve Section 7.4008 Not only did Congress in the DFA plainly create, rather than clarify, rules for future OCC preemption determinations regarding State consumerfinancial laws, butit also confirmed that the OCC’s 2004 preemption regulations are valid law — contrary to Parks’ and the Attorney General’s unsupported assertions. As MBNAnotedinits supplementalletter brief, if Congress had wantedto invalidate the OCC’s 2004 preemption regulations through the DFA,it would have said so expressly. Instead, Congressleft those rules intact. (See MBNALetter Br. at 3-4.) Indeed, this was confirmed by Senators Carper and Warnerin their explanation of the relationship of Section 25b to the OCC’s 2004 preemption regulations. In discussing the legislation’s “case-by-case” requirement for future OCC preemption determinations, the Senators specifically observed: [A]ny form of retroactive legislative repeal of [the 2004 preemption regulations] would disrupt settled expectations and create considerable uncertainty asto the legal status of prior preemption determinations, including case law. Instead, the case-by-case provisionis to be applied to any new OCCpreemption determinations made after the effective date ofthe amendment. Throwing the 2004 10 regulation and other prior administrative and judicial determinations into doubt would not bring certainty to the marketplace, but instead would be disruptive and create untold potential liability by effectively retroactively changing the law for regulated institutions. (Carper-WarnerLetter of April 4, 2011, at 2, emphasis added.) This express confirmation by the authors of Section 25b defeats any suggestion that the OCC’s 2004 preemption regulations are no longer valid. (See, e.g., Cnty. of Wash. v. Gunther (1981) 452 U.S. 161, 187 fn.2 [treating statements made by the sponsorsoflegislation as a guide to interpreting the statute], quoting Fed. Energy Admin. v. Algonquin SNG,Inc. (1976) 426 U.S. 548, 564; Ste. Marie v. Riverside Cnty. Reg’l Park & Open-Space Dist. (2009) 46 Cal. 4th 282, 292 [finding that legislative documents expressing the viewsof a bill’s sponsor made clear what “must have been the Legislature’s understanding”; Quarterman v. Kefauver (1997) 55 Cal. App. 4th 1366, 1373 [finding statements by the sponsor of legislation instructive as to legislative intent].) Moreover, even if the intent of Congress were notso clear, fundamental principles regarding the retroactive application of statutes would preclude any interpretation of Section 25b that would invalidate or undermine the OCC’s 2004 preemption regulations. Absentclear congressional intent, statutes cannot be construed in a way that “increase{s] a party’s liability for past conduct.” (Landgraf, 511 U.S. at 280; accord Bowenv. Georgetown Univ. Hosp. (1988) 488 U.S. 204, 208 [“[C]ongressional enactments and administrative rules will not be construed to have retroactive effect unless their language requires this result.” (emphasis added)]; Nat'l Mining Ass’n v. Dep't ofLabor (D.C.Cir. 2002) 292 F.3d 849, 859 [same]; see also 76 Fed. Reg. at 43,557 [“Actions and regulations in effect prior to the effective date [of Section 25b] are not subject to the case- by-case requirement, .... [Only] [f]uture preemption determinations would be subject to the new Dodd-Frank Act procedural provisions.”].) Not only did Congress notclearly or explicitly provide that the DFA would haveretroactive application, but it specifically madethe effective date of Section 25b one year after enactment. 3. Recent Case Law Confirms the Continuing Validity of the OCC’s 2004 Preemption Regulations Consistent with the DFA’s text and legislative history, courts that have considered the implications of Section 25b for the OCC’s 2004 rules, including as amendedin 2011, have treated them asstill valid on an ongoing basis. For example, in the Cline case cited by Parks and discussed above, the court analyzed both preemption under Section 25b itself and Section 7.4008, as amended in 2011. The court observedthat “section 25b and the amendedversion of Section 7.4008 found in the Dodd-Frank Final Rule became effective after the institution of this civil action, . . . [and] both must be scrutinized in order to resolve the preemption controversy.” (Cline, 823 F. Supp. 2d at 395-96.) There was no suggestion that Section 7.4008 was improperly amended in 2011 or somehowlost legal force at that time. 11 Likewise,in its recent decision in Epps v. JP Morgan Chase Bank, N.A. (4th Cir. 2012) 675 F.3d 315, the Court of Appeals for the Fourth Circuit applied Section 7.4008 after explicitly noting its amendment in 2011. (See id. at 321 [focusing on the pre- amendmentversion of Section 7.4008].) Numerous other courts since the effective date of Section 25b have continued to apply Section 7.4008 and its companion preemption regulations without questioning their ongoing validity. (See, e.g., Williams v. Wells Fargo Bank N.A. (S.D. Fla. Oct. 14, 2011, No. 11-21233-CIV) 2011 WL 4901346, at *6- 7; Bohnhoffv. Wells Fargo Bank, N.A. (D. Minn. Apr. 3, 2012, Civil No. 11-3408) __ F. Supp. 2d [2012 WL 1110585, at *6]; Denton v. Dep’t Stores Nat’l Bank (W.D. Wash. Aug. 1, 2011, No. C10-5830) 2011 WL 3298890, at *3-5; Decohen v. Abbasi, LLC (D. Md.July 26, 2011, Civil No. 10-3157) 2011 WL 3438625,at *5-6.) In sum,as the courts have recognized, nothing in the DFA disturbsthe validity of the OCC’s 2004 preemption regulations. Indeed, the DFA underscores and confirms the validity of Section 7.4008 as applied in this case. Ill. The Extraneous Arguments Parks and the Attorney General Tack on to Their Letter Briefs Are Devoid of Merit Nearthe end of their respective briefs, both Parks and the Attorney General tack on argumentsthat are not only wholly extraneous to the Court’s request for supplemental briefing, but also plainly misguided. Those arguments merit no consideration by the Court. A. Parks’ Argumenton the “Subject to Law” Phrase in the NBA Is Baseless With only a passing attempt at a connection to the DFA, Parksrepeatsin his supplementalletter brief an argument he has madeat variouspoints in thislitigation regarding the “subject to law” reference in 12 U.S.C. § 24(Seventh). (See Parks’ Letter Br. at 14-15.) According to Parks, that reference to “law” means state law and, therefore, “[b]ecause Congress created national banks to exercise their powers subject to the laws of the States in which they do business, complying with State laws is not an ‘interference’ with federally granted powers.” (/d. at 15.) This argument has no foundation, and Parks suggests none. To the extenthe is implying that MBNA’s (or the OCC’s)position is that national.bank compliance with any state law is an interference with federally granted powers, he is simply fabricating. MBNAhasneverargued, and the OCC’s preemption rules do not provide,that ail state law is preempted as applied to national banks. The legislative history of 12 U.S.C. § 24(Seventh) merits clarification, asit refutes Parks’ assertion that “subject to law” in the statute must mean state law. Asoriginally enacted in 1863, the NBA provided that national banks’ powers were “for the purposes authorized by this act” and “‘not inconsistent with the laws of the United States or the provisionsof this act.” (§ 11, 12 Stat. 665, 668.) As reenacted in 1864, those references became “exercise underthis act all such incidental powers” and 12 “not inconsistent with the provisionsofthis act.” (§ 8, 13 Stat. 99, 101.) In 1874, Congress enacted the current language through the original Revised Statutes, with “under this act all such incidental powers”restated as “subject to law, all such incidental powers” and “not inconsistent with the provisions ofthis act” restated as “not inconsistent with Jaw.” (§ 5136, 1 Rev. Stat. 998, 999 (1875), emphasis added.) Congress intended the Revised Statutes “to revise, simplify, arrange, and consolidate all statutes of the United States” — not to effect substantive changesto those statutes. (Act of June 27, 1866, 14 Stat. 74, 74 [stating the goals of the Revised Statutes].) Congress used “subject to law”as a “revise[d], simplif[ied]” form of “underthis act,” meaningfederal, not state, law. There is, therefore, no basis for Parks’ contention that Congress sought to subject to state law the exercise by national banks oftheir federally-granted banking powers, a position that would effectively nullify all NBA “conflict” preemption, including that found in Barnett Bank. B. The Attorney General’s Contention About the DFA’s Implications for Federal Savings Associations Is Hlogical The Attorney General also tacks on an equally unsupportable argumentto her letter brief. In the penultimate paragraph ofherletter brief, the Attorney General argues that the DFA,by establishing a single set of rules for the OCC to follow in making preemption determinations under the Home Owners’ Loan Act (“SHOLA”) (12 U.S.C, § 1461 ef seg.) and under the NBA, somehownullified the analytic force of the U.S. Supreme Court’s case law regarding the preemption authority of the former Office of Thrift Supervision (“OTS”) (which the DFA eliminated and whose HOLA implementation responsibilities the DFA transferred to the OCC). (See AG Letter Br. at 7-8.) This argumentis simply illogical. The DFA has absolutely no implications for the U.S.Supreme Court’s rulings regarding the preemptive powers granted to the OTS (formerly the Federal Home Loan Bank Board) in the HOLA. Thoserulingsare relevant to this Court’s decision because they found the HOLAimplicitly granted the OTS broad powerto preemptstate law by regulation, just as the NBA implicitly grants such powerto the OCC. (See MBNA OpeningBr.at 31-39; MBNAReply Br. at 14-19.) The DFA’s transfer of OTS responsibilities to the OCC,including the responsibility to make preemption determinations under the HOLA, cannot possibly have any implications for the Court’s consideration of when a statute may be construed as implicitly granting an agency the power to preemptstate law. (The DFA,ofcourse,like 12 U.S.C. § 43(a), expressly confirms the OCC’s authority to determine whenstate law is preempted under the NBA.) IV. Conclusion This Court need not consider the DFA in deciding the preemption questions presented in this case. Parks’ and the Attorney General’s suggestions to the contrary are baseless. To the extent the DFA and the OCC’s regulatory response have any 13 significance here, it is because they underscore that, consistent with Rose, Parks’ claim is preempted under Barnett Bank. ARNOLD & PORTER LLP Ne B Ay: LAWRENCEJ. HUTT Counselfor Respondeat MBNA America Bank, NA>-now-krown as FIA Card Services, N.A. 14 PROOF OF SERVICE Allan Parks v. MBNA America Bank, N.A. I am employedin the State of California. I am over the age of 18 andnot a party to the above-entitled action. My business address is Three Embarcadero Center, San Francisco, CA, 94111. On May25, 2012, I served the foregoing document described as RESPONDENT’S LETTER REPLYBRIEF,by delivery of a true copy thereof in sealed envelopes addressed as follows: Michael R. Vachon Law Office of Michael Vachon, Esq. 17150 Via del Campo, Suite 204 San Diego, CA 92127 Counselfor PlaintiffandAppellant District Attorney for the County of Orange 401 Civic Center Drive Santa Ana, CA 92701 Sheldon H.Jaffe Clerk of the Court Deputy Attorney General California Superior Court, California Departmentof Justice County of Orange 455 Golden Gate Ave., Suite 11000 San Francisco, CA 94102-7004 Civil Complex Center 751 West Santa Ana Blvd. Santa Ana, CA 92701 Clerk of the Court Office of the Comptroller of the Currency | California Court of Appeal Litigation Department Fourth Appellate District Attn: Douglas Jordan, Senior Counsel Division Three 250 E Street SW 601 West Santa Ana Blvd Santa Ana, CA 92701 Washington, D.C. 20219-4515 Appellate Coordinator Office of the Attorney General Consumer Law Section 300 S. Spring Street Los Angeles, CA 90013-1230 David M. Arbogast Arbogast Bowen LLP 11400 W. Olympic Boulevard, 2nd Floor Los Angeles, CA 90064 J. Mark Moore James R. McGuire Spiro Moss LLP Rita F. Lin 11377 W. Olympic Boulevard, Fifth Floor Aaron D. Jones Los Angeles, CA 90064-1683 Morrison & Foerster LLP 425 Market Street San Francisco, CA 94105 Bruce E. Clark Achyut J. PhadkeSullivan & Cromwell LLP Sullivan & Cromwell LLP125 Broad Street 1870 Embarcadero RoadNew York, NY 10004 Palo Alto, CA 94303 By U.S. mail. I enclosed the documentin an envelope or package addressed to the personsat the addresses above andsealed for delivery M placed the envelopefor collection and mailing, following our ordinary business practices. I am readily familiar with this business’ practice for collecting and processing correspondence for mailing. On the same day the correspondenceis placed for collection and mailing, it is deposited in the ordinary course of business with the United States Postal Service, in a sealed envelope with postage fully prepaid. I am employed in the State of California where the mailing occurred. The envelope or package was placed in the mail at San Francisco, CA. M STATE:I, Bonnie Hastings, declare under penalty of perjury under the laws of the State of California that the foregoingis true and correct. Executed on May 25, 2012, at San Francisco, CA. Bone Nastia