On June 10, 2024, the Supreme Court granted the petition for a writ of certiorari and issued a summary disposition in Flagstar Bank, N.A. v. Kivett. The Supreme Court vacated the judgment and remanded the case to the Ninth Circuit for further consideration in light of the court’s recent decision in Cantero v. Bank of America, N.A. Similar to Cantero, the Kivett case involved a California law that requires lenders to pay interest on mortgage escrow accounts. In 2018, in Lusnak v. Bank of America, N.A, the Ninth Circuit ruled the NBA does not preempt California’s law requiring interest to be paid on mortgage escrow accounts. The Supreme Court declined to review the Ninth Circuit’s decision in Lusnak. In Kivett, the Ninth Circuit concluded its prior ruling in Lusnak required a finding that the National Bank Act (NBA) does not preempt California’s interest on mortgage escrow account law. The later-decided Second Circuit case in Cantero reached an opposite conclusion and created a circuit split.

On May 30, 2024, in a unanimous decision, the Supreme Court reversed Cantero v. Bank of America, N.A., and remanded it back to the Second Circuit and instructed the appellate court to analyze whether New York’s law requiring lenders to pay interest on mortgage escrow accounts is preempted under the Dodd-Frank Act by applying the Barnett Bank standard. No bright line test for preemption was articulated by the Court; instead, the Court relied on Barnett Bank and its earlier precedents dealing with National Bank Act (NBA) preemption. On remand, the Ninth Circuit and Second Circuit must conduct a “nuanced comparative analysis” under Barnett Bank and “[i]f the state law prevents or significantly interferes with the national bank’s exercise of its powers, the law is preempted.”

The First Circuit also has an interest-on-escrow case pending before it, which was stayed awaiting the outcome of Cantero and Kivett. With the Court’s decision in Cantero, the parties in Conti v. Citizens Bank, N.A. have proposed a new briefing schedule.

With no bright line test, the Barnett Bank analysis as to whether a state law like California and New York’s interest on escrow accounts “prevents or significantly interferes” with a national bank’s powers could vary based on fact intensive analysis. We will monitor the First, Second and Ninth Circuit’s decisions in these three cases.

Ballard Spahr is hosting a webinar on July 11, 2024 from 12:00-1:00 ET titled, “By Passing Buck to Second Circuit, Supreme Court Leaves National Bank Preemption in Limbo.” In this webinar roundtable, we have brought together four distinguished lawyers—who filed amicus briefs in the Cantero case—to share their insights on the Supreme Court’s opinion, the opinion’s impact on NBA preemption analyses, the expected outcomes from the remanded and stayed cases, how national banks should make NBA preemption determinations, and whether we can expect further review by the Supreme Court. Register here.