IL Assoc Mortgage B v. Office of Banks & Re ( 2002 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 02-1018
ILLINOIS ASSOCIATION OF MORTGAGE BROKERS,
Plaintiff-Appellant,
v.
OFFICE OF BANKS AND REAL ESTATE
and WILLIAM A. DARR,
Defendants-Appellees.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 01 C 5151—Charles R. Norgle, Sr., Judge.
____________
ARGUED SEPTEMBER 17, 2002—DECIDED OCTOBER 21, 2002
____________
Before FLAUM, Chief Judge, and EASTERBROOK and
RIPPLE, Circuit Judges.
EASTERBROOK, Circuit Judge. The Alternative Mortgage
Transaction Parity Act of 1982, 12 U.S.C. §§ 3801-06,
provides that state-chartered lenders may make variable-
interest home mortgage loans (called “alternative mortgage
transactions”) on the same terms as federally-chartered
lenders, “notwithstanding any State constitution, law, or
regulation.” 12 U.S.C. §3803(c). The Home Ownership and
Equity Protection Act of 1994, codified at 15 U.S.C.
§§ 1602(aa), 1610, 1639, and 1640, forbids lenders from
2 No. 02-1018
using particular terms in home mortgage transactions. The
question presented by this appeal is whether the 1994 Act’s
regulation of all home mortgage lenders repeals the 1982
Act’s rule of parity between state and federal institutions in
alternative mortgage transactions. The district court an-
swered yes and held that, as a result, regulations imposing
extra restrictions on state-chartered lenders in Illinois are
valid. Illinois Ass’n of Mortgage Brokers v. Office of Banks
& Real Estate, 174 F. Supp. 2d 815 (N.D. Ill. 2001). We
answer no. The 1994 Act does not repeal the 1982 Act in so
many words, and implied repeal occurs only when the
statutes are irreconcilable. See J.E.M. Ag Supply, Inc. v.
Pioneer Hi-Bred International, Inc., 534 U.S. 124, 141-44
(2001) (collecting authority). All the district court con-
cluded, however, is that the 1982 and 1994 Acts concern the
same subject matter. That is not, and never has been,
enough to show that the most recent statute repeals its
predecessors. Substantive rules in one law are not logically
incompatible with an equal-treatment rule in another, so
both remain effective.
What Illinois has done is to issue regulations that aug-
ment—for state-chartered lenders only—restrictions of the
kind imposed by the 1994 Act. The handling of balloon
payments provides an example. Under the 1994 Act, if a
home equity loan carries an interest rate more than 10%
over the rate for Treasury securities of comparable matu-
rity, then the loan may not include a balloon payment
(which effectively compels refinancing) unless the loan’s
duration exceeds five years. 15 U.S.C. §§ 1602(aa), 1639(e).
Under the state regulations, if a home equity loan carries
an interest rate more than 6% over the Treasury rate (8%
for junior mortgages), then no balloon payment may be
scheduled before the loan’s 15th year. 38 Ill. Admin. Code
§§ 1050.155, 1050.1270. Thus a federal lender lawfully may
extend mortgage credit at 9% over the Treasury rate with
a balloon payment in Year 3, or at 12% over the Treasury
No. 02-1018 3
rate with a balloon payment in Year 6, but a lender char-
tered in Illinois is forbidden to make either of these loans.
The state regulations create other differences concerning
prepayment penalties and amortization schedules, but it is
unnecessary to detail them.
Plaintiff, an association of mortgage lenders, filed this
suit seeking a declaratory judgment that the state regula-
tions are preempted by virtue of §3803(c) as applied to
lenders that comply with all applicable federal laws and
regulations. The district judge concluded that the Associa-
tion has standing as a representative of its members. 174 F.
Supp. 2d at 818-20. The point is uncontested on appeal, but
because it is jurisdictional we have given it independent
consideration and agree with the judge’s conclusion.
Another jurisdictional issue escaped the district judge’s
eye, however: the state agency contends that under the
eleventh amendment a federal court lacks jurisdiction to
entertain the suit. The Office of Banks and Real Estate, an
agency of state government and thus part of the State of
Illinois, is entitled to the State’s immunity from suit. The
Association contends that as long as it seeks prospective
relief the eleventh amendment melts away. This is wrong,
see Cory v. White, 457 U.S. 85, 90-91 (1982); Alabama v.
Pugh, 438 U.S. 781 (1978), but there is no need to consider
whether the Constitution gives Illinois an immunity unless
some federal statute gives the Association a claim for relief.
See Lapides v. University of Georgia, 122 S. Ct. 1640, 1643
(2002). Section 3803(c) does not authorize lawsuits (though
it may provide a defense to them). To come into court as the
plaintiff, the Association relies on 42 U.S.C. §1983. Yet a
state is not a “person” for purposes of §1983 and therefore
may not be named as a defendant in a suit under that law.
See Arizonans for Official English v. Arizona, 520 U.S. 43,
69 (1997); Will v. Michigan Department of State Police, 491
U.S. 58 (1989). Plaintiff has not called to our attention any
4 No. 02-1018
other relevant federal statute that authorizes a suit directly
against a state or one of its agencies.
Nonetheless the agency’s director, William Darr, a second
defendant, is subject to suit even though relief would run
against him in his official capacity. See Will, 491 U.S. at 71
n.10. For such a person, Ex parte Young, 209 U.S. 123
(1908), eliminates any constitutional impediment to suit.
See also Verizon Maryland Inc. v. Public Service Commis-
sion of Maryland, 122 S. Ct. 1753 (2002). Although the
Supremacy Clause does not of its own force create rights
enforceable under §1983, some statutes with preemptive
force may do so. See Golden State Transit Corp. v. Los
Angeles, 493 U.S. 103, 107-08 (1989). It is not necessary for
us to determine whether the 1982 Act is such a statute, cf.
Gonzaga University v. Doe, 122 S. Ct. 2268 (2002), because
federal jurisdiction is supplied by 28 U.S.C. §1331 in any
event. For the reasons given in Illinois v. General Electric
Co., 683 F.2d 206, 211 (7th Cir. 1982), that statute supplies
jurisdiction when the plaintiff seeks declaratory relief
against regulation by a state agency and contends that the
agency has violated federal law by adopting particular
regulations. See also Northeast Illinois Regional Commuter
R.R. v. Hoey Farina & Downes, 212 F.3d 1010, 1015-16 (7th
Cir. 2000). So the agency must be dismissed as a defendant,
but the suit may proceed against Darr.
This opinion’s opening paragraph says all that is neces-
sary to resolve the principal issue on appeal: the 1994 Act
neither repeals the 1982 Act in terms nor is logically in-
consistent with it, so the two may coexist. Accord, National
Home Equity Mortgage Ass’n v. Face, 239 F.3d 633 (4th Cir.
2001). The Office of Thrift Supervision, which issues the
federal regulations in this field, agrees; the explanation
accompanying its latest set of rules, 67 Fed. Reg. 60542
(Sept. 26, 2002), demonstrates that the OTS views the 1982
Act as fully effective today. Illinois tries to make headway
with 15 U.S.C. §1610(b), which provides:
No. 02-1018 5
Except as provided in section 1639 of this title, this
subchapter does not otherwise annul, alter or affect
in any manner the meaning, scope or applicability
of the laws of any State, including, but not limited
to, laws relating to the types, amounts or rates of
charges, or any element or elements of charges,
permissible under such laws in connection with the
extension or use of credit, nor does this subchapter
extend the applicability of those laws to any class
of persons or transactions to which they would not
otherwise apply. The provisions of section 1639 of
this title do not annul, alter, or affect the applica-
bility of the laws of any State or exempt any person
subject to the provisions of section 1639 of this title
from complying with the laws of any State, with
respect to the requirements for mortgages referred
to in section 1602(aa) of this title, except to the ex-
tent that those State laws are inconsistent with any
provisions of section 1639 of this title, and then
only to the extent of the inconsistency.
This tells us that the 1994 Act does not itself preempt any
state law—except that state laws about the mortgage
transactions defined in §1602(aa) may not be more tolerant
than the federal floor adopted in §1639. This does not alter
the preemptive effect of other statutes, however; §1610(b)
deals with “this subchapter” of Title 15, while the 1982 Act
is codified in Title 12. Nor, contrary to Illinois’ view, does
§1610(b) say that if a given loan meets the criteria of
§1602(aa) then states may add restrictions to the list in
§1639. Although §1610(b) provides that nothing in the 1994
Act forbids states from regulating, it does not foreclose the
possibility that some other federal law contains such a
prohibition.
The City of Chicago, appearing as amicus curiae, adopts
a different tack. It contends that §3803(c) does not provide
6 No. 02-1018
the clear statement required for preemption. What §3803(c)
says is this:
An alternative mortgage transaction may be made
by a housing creditor in accordance with this sec-
tion, notwithstanding any State constitution, law,
or regulation.
Nothing could be clearer, provided that we know what an
“alternative mortgage transaction . . . in accordance with
this section” is. Section 3802(1) defines it this way:
the term “alternative mortgage transaction” means
a loan or credit sale secured by an interest in resi-
dential real property, a dwelling, all stock allocated
to a dwelling unit in a residential cooperative hous-
ing corporation, or a residential manufactured
home (as that term is defined in section 5402(6) of
Title 42)—
(A) in which the interest rate or finance
charge may be adjusted or renegotiated;
(B) involving a fixed-rate, but which im-
plicitly permits rate adjustments by having
the debt mature at the end of an interval
shorter than the term of the amortization
schedule; or
(C) involving any similar type of rate,
method of determining return, term, repay-
ment, or other variation not common to tra-
ditional fixed-rate, fixed-term transactions,
including without limitation, transactions
that involve the sharing of equity or appre-
ciation;
described and defined by applicable regulation[.]
This points in turn to “applicable” regulations issued by the
OTS. Given the way §3802(1) works, a loan is not an “alter-
No. 02-1018 7
native mortgage transaction . . . in accordance with this
section” unless it meets the descriptions and definitions of
the OTS’s regulations. That’s the point of the statute’s title:
the Alternative Mortgage Transaction Parity Act of 1982.
State lenders get to do what federal lenders are allowed to
do by federal statutes and OTS regulations. Yet, Chicago
points out, these regulations may be opaque—and our read-
ing confirms that nonspecialists may struggle to grasp their
meaning. Because the federal regulations may be unclear,
and the statute makes preemption turn on the content of
these regulations, the preemption clause itself does not
meet the Supreme Court’s clarity requirement, Chicago in-
sists.
Some opinions say that Congress must be clear when it
sets out to oust states from exercising normal regulatory
powers. How far this principle extends beyond the norm
identifying states and municipalities as targets of federal
regulation, see Gregory v. Ashcroft, 501 U.S. 452 (1991), is
not a subject we need plumb. For §3803(c) is as express as
a preemption clause gets. The Supreme Court has never
insisted that clarity extend to all of the operative rules. The
holding in Gregory was that the ADEA did not apply to state
judges because Congress had not made the statute’s do-
main clear—and thus had not necessarily precipitated the
constitutional conflict resolved in Kimel v. Board of Re-
gents, 528 U.S. 62 (2000). The Court did not hold or even
hint that if the statute unambiguously covered senior state
officials, it nonetheless would be deemed inapplicable be-
cause some of the ADEA’s substantive rules may be hard to
interpret. Once Congress has made the decision to displace
state rules with federal rules, debate about the content of
those federal rules does not rescind the displacement.
Otherwise pension law and labor law would remain the
domain of state rules—for though both pension and labor
statutes clearly preempt state law, there are many ambigu-
ities in the federal rules. Just last Term, for example, the
8 No. 02-1018
Supreme Court divided five to four on the question whether
ERISA permits Illinois to review coverage decisions made by
welfare-benefit plans. See Rush Prudential HMO v. Moran,
122 S. Ct. 2151 (2002). It answered “to an extent” (see 122
S. Ct. at 2167 n.10, 2169-70 & nn.15, 16 for the reserva-
tions), and four Justices would have answered with a flat
“no.” Chicago apparently believes that because there was
doubt, the answer should have been a ringing “yes,” but
that is not how any of the nine Justices approached the
matter.
Chicago’s further argument that §3803(c) is unclear
because it applies only to “housing creditors”—which means
to lenders licensed by state law to make home mortgage
loans, see 12 U.S.C. §3802(2)—does not put a dent in the
statute’s scope. What Chicago is getting at is that states
might make compliance with substantive rules (such as “no
balloon payments before 15 years”) a condition of obtaining
a license; and an unlicensed lender can’t take advantage of
the preemption clause. Suffice it to say that Illinois has not
itself argued that it can pull a fast one on Congress in this
fashion. The point of the 1982 Act was to produce parity in
the terms on which lenders may extend credit. Smuggling
the regulation of terms into the criteria for issuing licenses,
and then arguing that state-chartered lenders lose all
benefits of the 1982 Act, would be a stunt unworthy of the
State of Illinois—and ineffective as a matter of federal law.
Nonetheless, Illinois does offer a back-door argument of
its own. It contends that §3803(c) preempts regulation of
“alternative mortgage transactions” but not particular
terms of those transactions. Let us return to the balloon-
payment example. Illinois contends that a balloon payment
is not itself an “alternative mortgage transaction,” so that
it may regulate lenders’ use of balloon payments in alterna-
tive mortgage transactions even if §3803(c) survives the
1994 Act (as we have held that it does). The premise of this
argument is doubtful; §3802(1) defines an alternative mort-
No. 02-1018 9
gage transaction as a variable-interest (or equity-sharing)
home equity loan, and §3802(1)(B) specifies that a balloon
payment makes an interest rate variable (by precipitating
refinancing at the latest market rate) even if the rate
nominally is fixed. So a balloon payment in a home mort-
gage loan is one feature that by definition identifies the
loan as an “alternative mortgage transaction.” Let this
pass. The deeper point is that §3803(c) does not depend on
the means a state chooses. The statutory question is
whether a loan is an alternative mortgage transaction, not
whether a particular term in the loan documents is itself an
alternative mortgage transaction. If a given transaction is
an “alternative mortgage transaction”—that is, if it is a
variable-rate home equity loan that a federal lender could
make under OTS regulations—then all state rules regulat-
ing that loan are preempted to the extent required for
parity. If a state could say “we’re regulating the terms but
not the transaction” then the 1982 Act would have been a
dead letter from the moment the President signed the
legislation, for its only objective is to permit state lenders
to offer terms from the palette of federal lenders.
Thus we hold that the new state regulations are pre-
empted under §3803(c) to the extent that they block state
lenders from extending credit on terms open under federal
regulations, when the lenders actually comply with the
federal regulations. (As the fourth circuit observed in Face,
239 F.3d at 635-36, 640, states retain full regulatory
authority with respect to lenders that do not comply with
federal rules.) It remains to be determined which, if any, of
the state regulations has a prohibited effect. The answer
depends not only on the provisions of the federal regula-
tions but also on the way in which these regulations work.
At one time the OTS believed that state lenders always
could use whatever terms were lawful for federal lenders.
More recently, however, the OTS has taken the position that
only federal regulations accompanied by a declaration of
10 No. 02-1018
preemptive force affect state law. See 67 Fed. Reg. at 60548
n.36. On this view states may put off limits to state-char-
tered lenders some of the terms that are lawful for federal
lenders. The district court must determine which of these
views is legally correct and then ascertain which provisions
of the state regulations are incompatible with the federal
regulations now in force. It would be premature for us to
address these subjects, on which we have not had the ben-
efit of adversarial presentation. Accordingly, the judgment
of the district court is vacated, and the case is remanded
with instructions to dismiss the Office of Banks and Real
Estate as a party and to issue a declaratory judgment re-
solving which state regulations are preempted by the
combination of §3803(c) and the OTS regulations governing
federal lenders.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—10-21-02