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Take Two: State AGs Target the FDIC’s Final Rule Reaffirming Valid-When-Made Doctrine

By Nancy Thomas & Sarah Nicole Davis on August 26, 2020
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Last week, the state attorneys general of seven states and the District of Columbia filed suit against the Federal Deposit Insurance Corporation (FDIC) challenging the FDIC’s final rule reaffirming the valid-when-made doctrine for loans originated by state-chartered federally insured banks.  The lawsuit was expected after three state attorneys general filed suit against the OCC challenging its final valid-when-made rule.  (For analysis of the OCC challenge, see our Client Alert.)

The complaint challenging the FDIC’s final rule repeats almost verbatim most of the allegations in the complaint challenging the OCC’s final rule.  As with the OCC’s final rule, the state AGs seek to set aside the FDIC’s final rule on both substantive and procedural grounds, including that:

  • the FDIC impermissibly attempts to expand preemption under the FDIA to non-banks;
  • the FDIC lacks authority to overturn Madden;
  • the Madden decision did not significantly interfere with lending; and
  • the final rule conflicts with long-standing federal agency interpretation of federal law.

The challenge to the FDIC’s final rule does not include the argument regarding the alleged failure to comply with Dodd-Frank’s preemption standard that was in the challenge to the OCC’s final rule because that standard applies only to the OCC.  As in the OCC complaint, though, the state AGs do allege that the FDIC’s final rule is procedurally improper because the FDIC’s explanation for its decision is contrary to the evidence.

As was the case with the OCC, the FDIC addressed these arguments in the Supplementary Information accompanying its final rule.

The state AGs filed the complaint in the Northern District of California and specifically sought an assignment to the Oakland division as they did with the challenge to the OCC final rule.  The case originally was assigned for all purposes to a magistrate judge.  As they did in the challenge to the OCC’s final rule, the state AGs filed a declination to the assignment, and the case was re‑assigned to Senior Judge Charles Breyer, who was nominated by President Clinton and confirmed by the Senate in 1997.

The Northern District of California requires the parties to file a related-case motion with the judge presiding over the first-filed action when the actions “concern substantially the same parties, property, transaction or event” and “[i]t appears likely that there will be an unduly burdensome duplication of labor and expense or conflicting results if the cases are conducted before different Judges.”  (N.D. Cal. Local Rule 3-12(a).)  Although the two actions challenge different rules promulgated by different agencies, the overlap in allegations and legal theories may implicate these related case rules.  Neither party has yet filed an Administrative Motion to Consider Whether Cases Should Be Related.  If either party does so, Judge White, who is assigned to hear the challenge to the OCC final rule, will decide whether to hear both cases.

  • Posted in:
    Financial
  • Blog:
    MoFo ReEnforcement: The Enforcement Blog
  • Organization:
    Morrison & Foerster LLP

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