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Dreher Tomkies LLP
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Columbus, Ohio 43215
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DISTRICT COURT UPHOLDS OCC OPERATING SUBSIDIARY RULE

The United States District Court for the Western District of Michigan held that is was within the Office of the Comptroller of the Currency's authority to promulgate Rule 7.4006 relating to operating subsidiaries. Wachovia Bank, N.A. v. Watters, No. 5:03-CV-105 (WD. Mich. August 30, 2004).

The case was brought by Wachovia Bank, N.A., a national bank, and Wachovia Mortgage Company, a wholly owned operating subsidiary of Wachovia Bank. Plaintiffs sought declaratory and injunctive relief against the Commissioner of the Michigan Office of Insurance and Financial Services from preventing Wachovia Mortgage Company from conducting mortgage lending activities in Michigan. The Commissioner argued that the OCC exceeded its authority by promulgating 12 C.F.R. § 7.4006, the regulation limiting the application of state laws to national bank operating subsidiaries to the same extent as they apply to national banks. The Commissioner contended that the regulation impermissibly expands the definition of "national bank." The Commissioner took the position that a national bank's wholly owned operating subsidiary is subject to state law, including licensing requirements.

The court found that the OCC holds broad and pervasive authority to regulate national banking associations, including the authority to conduct surveillance of national banks' compliance with any "law, rule, or regulation, or any condition imposed in writing by the agency," and to prevent any "unsafe or unsound practice" on the part of the bank. The court found that the OCC maintains exclusive visitorial authority over national banks and that the OCC's authority extends to the regulation of national banks' powers that are incidental to the business of banking. The court concluded that the requirements of Michigan law sought to be imposed on Wachovia Mortgage, including registering and filing financial statements annually, clearly interfere with its national bank powers to conduct the business of banking. Thus, the court held that the Michigan law is preempted because it created impermissible conditions upon the authority of a national bank to do business.

The Commissioner's office indicated that the Commissioner may appeal the decision to the United States Court of Appeals for the Sixth Circuit. A similar case (see our Alert of May 28, 2004) is on appeal in the Second Circuit. See Wachovia Bank, N.A. v. Burke, 319 F.Supp.2d 275 (D.Ct. 2004).
Mike Tomkies and Elizabeth Anstaett