392 F.Supp.2d 24 (2005) | Cited 1 time | D. Massachusetts | January 10, 2005


In May 2000, the Massachusetts Bankers Association, Inc.("MBA") requested the opinion of the Office of the Comptroller ofthe Currency of the United States ("OCC"), the primary regulatorof federally chartered banks, whether the Gramm-Leach-Bliley Actof 1999, 15 U.S.C. § 6701, preempted certain provisions of theMassachusetts Consumer Protection Act Relative to the Sale ofInsurance by Banks, Mass. Gen. Laws ch. 167F, § 2A. On March 18,2002, the OCC opined that the provisions were preempted byfederal law. Thereafter, pursuant to15 U.S.C. § 6714(a),1 the Massachusetts Commissioners of Insuranceand Banks and the Commonwealth of Massachusetts sought review in the First CircuitCourt of Appeals of the "regulatory conflict" resulting from theOCC opinion. The First Circuit dismissed the case for lack ofjurisdiction because there was no "regulatory conflict." Bowlerv. Hawke, 320 F.3d 59, 64 (1st Cir. 2003).

Thereafter, MBA and some of its members, Banknorth, N.A.("Banknorth"), Cape Cod Bank and Trust Company, N.A. ("CCBT"),Citizens-Union Savings Bank, Eastern Bank, First Federal SavingsBank of America ("FFS"), The Savings Bank, Stoneham Savings Bank,and Woronoco Savings Bank, filed a Complaint in this Courtagainst Julianne Bowler, Massachusetts Commissioner of Insurance,and Thomas Curry, Massachusetts Commissioner of Banks,challenging certain Massachusetts laws that prohibit them fromselling, soliciting, and marketing insurance products. Plaintiffslater amended their Complaint and replaced defendant Thomas Currywith Steven Antonakes, the successor Commissioner of Banks.

Plaintiffs challenge four provisions of Massachusetts law,which they have labeled as the Referral Prohibition, the ReferralFee Prohibition, the Waiting Period Restriction, and theSeparation Restriction. The Referral Provision, Mass. Gen. Lawsch. 167F, § 2A(b)(2), allows officers, tellers, and other bankemployees who are not licensed insurance agents to refer a bankcustomer to a licensed insurance agent only when the customerinquires about insurance. The same statute includes the ReferralFee Prohibition, which forbids banks from paying their employeesfor making the referrals to their insurance agents. The WaitingPeriod Restriction, Section 2A(b)(4), allows banks to solicit insurance sales to loan applicants onlyafter the application for the extension of credit is approved,and such approval and required disclosures have been communicatedto and acknowledged by the applicant in writing. The banks arerequired to retain the solicitation, approval, and acknowledgmentas a permanent record. Mass. Gen. Laws ch. 167F, § 2A(b)(4)(ii).Finally, the Separation Restriction, Section 2A(b)(3), requiresinsurance solicitation to be conducted in a physically separatearea of the bank, with a few exceptions.

Count One of the Amended Complaint, brought by Banknorth, CCBT,FFS, and other members of the MBA, who are national banks orfederal savings associations, asserts that the challengedMassachusetts provisions are federally preempted. Count Two,brought by CUSB, Eastern, TSB, Stoneham, Woronoco, and MBA asrepresentative of its Massachusetts chartered depositoryinstitutions, places defendants between the proverbial rock and ahard place, in that it claims that any enforcement of the stateprovisions against them constitutes arbitrary, discriminatoryaction since they do not apply to national banks and federalsavings associations.

Plaintiffs and defendants now move for summary judgment as toCount One. Four amici side with plaintiffs. In addition,defendants seek to dismiss Count Two on the ground that it isbarred by the Eleventh Amendment. However, the Court allowed theparties' subsequent Joint Motion to Stay the Consideration ofDefendants' Motion to Dismiss Count Two until after a decision onCount One.

Plaintiffs argue that the four challenged Massachusettsprovisions are preempted by the Gramm-Leach-Bliley Act ("GLBA"),which provides that: In accordance with the legal standards for preemption set forth in the decision of the Supreme Court of the United States in Barnett Bank of Marion 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 insurance sales, solicitation, or cross marketing activity.

15 U.S.C. § 6701(d)(2)(A). When the law at issue "specificallyrelates to the business of insurance[,]" as here, theMcCarran-Ferguson Act anti-preemption rule does not apply.Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 38(1996), citing 15 U.S.C. § 1012(b). The text of the GLBAcontains explicit language indicating its intent to preemptcertain state laws. See 15 U.S.C. § 6711("The insuranceactivities of any person (including a national bank exercisingits power to act as agent under section 92 of Title 12) shall befunctionally regulated by the States, subject to section 6701 ofthis title.") (emphasis added). The Barnett court stated thatthe legal standard "[i]n defining the pre-emptive scope ofstatutes and regulations granting a power to national banks [is]that normally Congress would not want States to forbid, or toimpair significantly, the exercise of a power that Congressexplicitly granted." Barnett Bank, 517 U.S. at 33 (emphasisadded).2 Thus, the issue is whether the challengedprovisions "prevent or significantly interfere" with the abilityof banks to sell, solicit, or cross market insurance. As theFirst Circuit observed, the outcome requires courts to "makejudgment calls about the extent to which the laws hinder theability of depository institutions to engage in sales,solicitation, and cross-marketing activities, as a factual matter." Bowler v. Hawke, 320 F.3d 59, 64 (1st Cir.2003).3

The parties agree that many of plaintiffs' customers arepotential buyers of their insurance products. Agreed To LocalRule 56.1 Statement of Undisputed Facts at ¶ 34. However, theundisputed data shows that plaintiffs referred very few, if any,of their customers to their insurance affiliates. For example,Banknorth has 360 branches in six northeastern states, including121 Massachusetts branches serving approximately 380,000 retailhouseholds. Id. at ¶ 24. During the first six months of 2003,Banknorth did not refer a single Massachusetts customer to itsinsurance affiliates, even though Massachusetts is its largestcustomer base. Id. at ¶ 24 and ¶ 26. The Maine, New Hampshire,and Vermont branches referred 4,200 customers, 2,016 customers,and 1,522 customers, respectively, to their insurance affiliates.Id. at ¶ 25. CCBT and FFS, located in Massachusetts only, alsohad a minimal number of employee referrals for insuranceproducts. Id. at ¶ 27 and ¶ 33.

The dismal number of referrals is clearly a result of thestatutory structural impediments to cross marketing insuranceproducts, which include the requirement that any solicitationattempt must capriciously rely on the customer initiating aninquiry. Defendants' argument that the Massachusetts laws "merelyrestrict the time, place, or manner in which the bank might offerthe insurance product," Def.'s Mem. at 18, belies the undisputeddata that these restrictions substantially prohibit the banksfrom selling insurance. Defendants' reliance on the insurancesales figures in dollar amounts of the banks' insurance entities and affiliates is misplaced as they donot reflect the banks' ability to sell, solicit, or cross marketinsurance products. Therefore, because the Referral Prohibitionand the Referral Fee Prohibition significantly curtail the banks'ability to cross market, solicit, and thereby sell insuranceproducts, they are preempted.

The Waiting Period Restriction, plaintiffs' next objection,does more than merely affect the timing of plaintiffs' ability tosolicit insurance sales. Because most retail loans require someform of insurance before the funds are advanced, loan applicantswill likely secure their insurance before their loan applicationsare approved, thereby foreclosing plaintiffs' ability to sell theinsurance. Furthermore, this restriction increases the banks'administrative costs since they must track the status of the loanapplications to insure that no applicant is solicitedprematurely. Defendants focus on the exception to therestriction, which says that the restriction "shall not apply insituations where a bank contacts a customer in the course ofdirect or mass marketing of insurance products to a group ofpersons in a manner that bears no relation to any such person'sloan application or credit decision." Mass. Gen. Laws ch.167F, § 2A(b)(4)(ii). However, before engaging in mass marketing,plaintiffs must expend more resources to identify and delete thenames of the mortgage loan applicants in order to comply withMass. Gen. Laws ch. 167F, § 2A(b)(4)(iii), which allows the bankto approach a mortgage loan applicant concerning an insurancepurchase only after the applicant accepts the commitment. Mass.Gen. Laws ch. 167F, § 2A(b)(4)(iii). More important, theexception which allows plaintiffs to engage in blind massmarketing does not alter the fact that the Waiting PeriodRestriction prevents them from soliciting and cross marketing to the very customers who are likely to buy theproduct. Thus, the Waiting Period Restriction significantlyinterferes with the banks' ability to solicit, cross market andsell their insurance products, and is, therefore,preempted.4

Finally, the Separation Restriction requires plaintiffs toincur more costs since they need more physical space to comply.Defendants' response that the Commissioner may waive thisrequirement undercuts its necessity. As one amicus brief pointsout, requiring a customer to see two separate employees at twoseparate times at two separate locations within the bank defeatsthe bank's ability to effectively cross market its banking andinsurance product. Brief of American Bankers Association at 18.Because Mass. Gen. Laws ch. 167F, § 2A(b)(2), § 2A(b)(3), and §2A(b)(4) seriously impedes plaintiffs' ability to solicit, crossmarket and sell insurance products, these provisions arepreempted by the GBLA, 15 U.S.C. § 6701(d)(2)(A). Deference tothe GBLA (not the OCC opinion) dictates this conclusion, even ifMassachusetts enacted these laws to protect its citizens andconsumers. Assoc. of Banks in Insur., Inc. v. Duryee,270 F.3d 397, 404 (6th Cir. 2001). This ruling does prohibit the statefrom hindering the banks' attempts to sell, solicit, and crossmarket insurance; it does not interfere with the state's abilityto regulate insurance.

Accordingly, plaintiffs' motion for partial summary judgment isALLOWED as to Count One, and defendants' motion for summaryjudgment as to Count One is DENIED.

1. Section 6714(a) states: In the case of a regulatory conflict between a State insurance regulator and a Federal regulator regarding insurance issues, including whether a State law, rule, regulation, order, or interpretation regarding any insurance sales or solicitation activity is properly treated as preempted under Federal law, the Federal or State regulator may seek expedited judicial review of such determination by the United States Court of Appeals for the circuit in which the State is located or in the United States Court of Appeals for the District of Columbia Circuit by filing a petition for review in such court.

2. Defendants' contention that the state laws at issue mustprohibit insurance sales in order to be preempted misinterpretsBarnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 38(1996), and asks the Court to ignore the plain language of theGLBA in contravention to the rules of statutory construction.

3. Because the resolution of this issue does not requirestatutory interpretation, the question of whether the OCC letteris entitled to deference need not be addressed.

4. Preemption of the Waiting Period Restriction will in no wayundermine the requirement that depository institutions not lead acustomer to believe an extension of credit is contingent upon thepurchase of an insurance product from the institution or itsaffiliates, or an agreement by the customer not to get theinsurance from an unaffiliated entity. 12 U.S.C. § 1831x(b).

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