Bank One, UT, Natl. v. Michael K. Guttau , 190 F.3d 844 ( 1999 )


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  •                     United States Court of Appeals
    FOR THE EIGHTH CIRCUIT
    ___________
    No. 98-3166
    ___________
    Bank One, Utah, National Association, *
    *
    Plaintiff/Appellant,        *
    *
    v.                                 *
    *
    Michael K. Guttau, in his official       *
    capacity as Superintendent of Banking *
    and Administrator of Electronic Transfer *
    of Funds, Iowa Division of Banking,      *
    Iowa Department of Commerce,             *
    *
    Defendant/Appellee.         *
    Appeal from the United States
    _______________________                District Court for the
    Southern District of Iowa.
    Comptroller of the Currency,            *
    *
    Intervenor Plaintiff/       *
    Amici on behalf of          *
    Appellant,                  *
    *
    Consumer Bankers Association; Cash      *
    Station, Inc.; NationsBank, N.A.;       *
    First National Bank of McCook,          *
    Nebraska; Norwest Bank Iowa, N.A.;      *
    U.S. Bancorp; Firstar Corporation,      *
    *
    Amici on behalf of          *
    Appellant,                  *
    *
    Iowa Bankers Association; Iowa          *
    Independent Bankers Association;        *
    Iowa Credit Union League,               *
    *
    Amici on behalf of         *
    Appellee.                  *
    ___________
    Submitted: January 12, 1999
    Filed: September 2, 1999
    ___________
    Before RICHARD S. ARNOLD, BRIGHT, and WOLLMAN,1 Circuit Judges.
    ___________
    WOLLMAN, Chief Judge.
    Bank One, Utah, N.A. (Bank One) appeals from the district court’s denial of a
    preliminary injunction that would prevent the state of Iowa (the State) from enforcing
    Iowa statutes restricting Bank One’s operation of automated teller machines (ATMs).
    Because we find that certain provisions of the Iowa Electronic Funds Transfer Act
    (EFTA), 
    Iowa Code § 527
    , are preempted by section 36 of the National Bank Act
    (NBA), 
    12 U.S.C. §§ 21
    -216d, we reverse the district court’s order and remand for the
    entry of a permanent injunction prohibiting enforcement of the relevant sections.
    I.
    Bank One is a national bank organized under the NBA. Its main office is located
    in Salt Lake City, Utah, and it has no branch offices in Iowa. In 1997, Bank One
    1
    Roger L. Wollman became Chief Judge of the United States Court of Appeals
    for the Eighth Circuit on April 24, 1999.
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    installed ATMs at twenty-four retail store locations in Iowa, including eleven at Sears,
    Roebuck & Co. (Sears) stores throughout the state.
    In October of 1997, the Iowa Superintendent of Banking ordered Sears to cease
    operation of the ATMs, citing multiple violations of the Iowa EFTA. On December 26,
    1997, the State filed an action in state court against Sears to prevent the operation of
    the ATMs and to assess a fine. As a result, Sears instructed Bank One to remove all
    of its ATMs from Sears stores in Iowa. Bank One complied with Sears’s request and
    placed the ATMs in storage pending the outcome of this litigation.
    Bank One filed suit in district court, seeking a declaration that provisions of the
    Iowa EFTA restricting out-of-state banks from operating ATMs within Iowa are
    preempted by the NBA and praying for the issuance of a preliminary and permanent
    injunction. Bank One’s complaint also alleged that the restrictions violate several
    provisions of the United States Constitution. The district court denied Bank One’s
    motion for a preliminary injunction, finding that the challenged provisions of Iowa law
    were not preempted and concluding that Bank One was unlikely to succeed on any of
    its constitutional claims.
    II.
    Although Bank One’s motion asked for a preliminary injunction, we may
    consider it as a motion for a permanent injunction. See generally Minnesota Dep’t of
    Econ. v. Riley, 
    107 F.3d 648
    , 649 (8th Cir. 1997) (reviewing a district court grant of
    a preliminary injunction and granting a permanent injunction because all issues were
    questions of law). Because Bank One and the State disagree only on questions of law,
    nothing remains for the district court to resolve regarding the underlying facts.
    Accordingly, we must determine whether a permanent injunction is appropriate.
    -3-
    In determining whether a preliminary injunction should be issued, a district court
    must take into account the threat of irreparable harm to the movant, the balance
    between this harm and the harm to the other party if the injunction is granted, the
    probability of movant’s success on the merits, and the public interest. See Dataphase
    Systems, Inc. v. C. L. Systems, Inc., 
    640 F.2d 109
    , 113 (8th Cir. 1981) (en banc). The
    standard for granting a permanent injunction is essentially the same as for a preliminary
    injunction, except that to obtain a permanent injunction the movant must attain success
    on the merits. See Amoco Prod. Co. v. Village of Gambell, Alaska, 
    480 U.S. 531
    , 546
    n.12 (1987).
    Although we have said that the four Dataphase factors are applicable in cases
    involving permanent injunctions, see, e.g., Randolph v. Rodgers, 
    170 F.3d 850
    , 857
    (8th Cir. 1999); Layton v. Elder, 
    143 F.3d 469
    , 472 (8th Cir. 1998); Fogie v. Thorn
    Americas, Inc., 
    95 F.3d 645
    , 654 (8th Cir. 1996), we conclude that the balance-of-harm
    and public-interest factors need not be taken into account in a situation such as that
    which exists in the present case. If Bank One proves that the relevant provisions of the
    Iowa EFT are preempted by the NBA and that it will suffer irreparable harm if the State
    is not enjoined from enforcing those provisions, then the question of harm to the State
    and the matter of the public interest drop from the case, for Bank One will be entitled
    to injunctive relief no matter what the harm to the State, and the public interest will
    perforce be served by enjoining the enforcement of the invalid provisions of state law.
    A.
    The Iowa EFTA contains several provisions relevant to the placement and
    operation of ATMs within the state. Among other things, it contains an in-state office
    requirement for the establishment of ATMs:
    A satellite terminal shall not be established within this state except by a
    financial institution whose principal place of business is located in this
    -4-
    state, one which has a business location licensed in this state under
    chapter 536A, or one which has an office located in this state and which
    meets the requirements of subsection 4.
    
    Iowa Code § 527.4
    (1) (citing 
    id.
     § 527.4(4), which sets various restrictions on the
    operation of ATMs). All banks, including national banks, must file an informational
    statement with the Iowa Superintendent of Banking (the administrator) stating the name
    of the business, the location of the terminal, a schedule of required charges, and an
    agreement that the bank will maintain the terminal in compliance with the Iowa EFTA.
    See id. § 527.5(3). If the administrator does not respond to the informational statement
    within thirty days of its filing, the informational statement is deemed to have been
    expressly approved. See id. § 527.5(7).
    In addition to the in-state office and approval requirements, the Iowa EFTA
    limits the advertising that may be placed on an ATM. It provides:
    A satellite terminal in this state shall bear a sign or label identifying each
    type of financial institution utilizing the terminal. A satellite terminal
    location in this state shall not be used to advertise individual financial
    institutions or a group of financial institutions. However, a satellite
    terminal shall bear a sign or label no larger than three inches by two
    inches identifying the name, address, and telephone number of the owner
    of the satellite terminal. The administrator may authorize methods of
    identification the administrator deems necessary to enable the general
    public to determine the accessibility of a satellite terminal.
    Id. § 527.5(5).
    The NBA grants national banks the authority to exercise “all such incidental
    powers as shall be necessary to carry on the business of banking.” First Nat’l Bank of
    E. Ark. v. Taylor, 
    907 F.2d 775
    , 777 (8th Cir. 1990) (quoting 
    12 U.S.C. § 24
    (Seventh)). Bank One argues that the NBA implicitly authorizes the placement of
    -5-
    ATMs without restriction by the states. The provisions of the Iowa EFTA, it argues,
    impair the ability of a national bank to place its ATMs and to advertise thereon.
    “[G]rants of both enumerated and incidental ‘powers’ to national banks [are]
    grants of authority not normally limited by, but rather ordinarily pre-empting, contrary
    state law.” Barnett Bank v. Nelson, 
    116 S. Ct. 1103
    , 1108 (1996). Where state law
    stands “as an obstacle to the accomplishment and execution of the full purposes and
    objectives of Congress,” it may be found to be preempted. 
    Id. at 1108
     (quoting Hines
    v. Davidowitz, 
    312 U.S. 52
    , 67 (1941)). State regulations are not preempted, however,
    when Congress “accompan[ies] a grant of an explicit power with an explicit statement
    that the exercise of that power is subject to state law.” Id. at 1109. Congress
    predicated the establishment of national bank branches upon compliance with state
    regulations. See 
    12 U.S.C. § 36
    (c). Therefore, in order to determine whether the NBA
    preempts the Iowa regulations, we must determine whether an ATM is a “branch” as
    defined in section 36.
    In 1996, Congress amended section 36 to read, “[t]he term ‘branch’, as used in
    this section, does not include an automated teller machine or a remote service unit.”
    See 
    12 U.S.C. § 36
    (j). Thus, whatever regulatory authority the states may retain with
    respect to national bank branches, the 1996 amendment clearly expresses Congress’s
    intent that that authority no longer extends to national bank ATMs.
    That intent is made even clearer in light of the assumption that Congress enacts
    legislation with knowledge of relevant judicial decisions. See Cannon v. University of
    Chicago, 
    441 U.S. 677
    , 696-99 (1979). Prior to the 1996 amendment, courts had held
    that because ATMs were branches they were subject to state restrictions. See
    Colorado ex rel. State Banking Bd. v. First Nat’l Bank of Ft. Collins, 
    540 F.2d 497
    ,
    499 (10th Cir. 1976) (finding state regulation applied because ATM was a branch);
    Independent Bankers Ass’n of America v. Smith, 
    534 F.2d 921
    , 948 (D.C. Cir. 1976)
    (same); cf. Independent Bankers Ass’n v. Marine Midland Bank, 
    757 F.2d 453
    , 463
    -6-
    (2d Cir. 1985) (finding that an ATM was not a branch within the meaning of the section
    36 because it was owned by a grocery store and merely used by a national bank). By
    excluding ATMs from the definition of “branch,” Congress eliminated the contingency
    that formed the basis of those decisions and thus signaled its intention to foreclose the
    states from imposing location and approval restrictions on a national bank’s ATMs.
    Likewise, the legislative history of the 1996 amendment makes clear Congress’s
    intent in adopting the amendment, which was enacted as part of the Economic Growth
    and Regulatory Paperwork Reduction Act of 1996. The purpose of this act was to
    “strengthen our nation’s financial institutions and to increase their competitiveness.”
    S. Rep. No. 104-185, at 1 (1996). The legislation was intended to “allow financial
    institutions to devote additional resources to productive activities, such as making
    loans, rather than to compliance with unnecessary regulations.” 
    Id.
     “Section [36(j)]
    clarifies that an ‘ATM’ or ‘remote service unit’ is not considered a ‘branch’ for
    purposes of federal bank branching law and is therefore not subject to prior approval
    requirements or geographic restrictions.” Id. at 24.
    Finally, the interpretation given the 1996 amendment by the Office of the
    Comptroller of the Currency (OCC), which appears in this action as an amicus
    supporting Bank One, supports a finding that the relevant Iowa regulations are
    preempted. As we stated in Taylor, the Supreme Court has made it clear that the
    Comptroller’s interpretation of the NBA is entitled to great weight. 907 F.2d at 777
    (citing Clarke v. Securities Indus. Ass’n, 
    479 U.S. 388
     (1987)). See also Smiley v.
    Citibank (South Dakota), N.A., 
    116 S. Ct. 1730
    , 1733 (1996); Independent Bankers
    Ass’n of America v. Clarke, 
    917 F.2d 1126
    , 1128 (8th Cir. 1990). The OCC has ruled
    that “[a] national bank may perform, provide, or deliver through electronic means and
    facilities any activity, function, product, or service that it is otherwise authorized to
    perform, provide, or deliver.” See 
    12 C.F.R. § 7.1019
     (1998); see also OCC
    Interpretative Letter No. 821, 
    1998 LEXIS 15
     at *10 (Feb. 17, 1998) (stating that
    section 36 preempts state geographic restrictions of ATMs). We conclude that the
    -7-
    OCC’s interpretation is a reasonable one. See Clarke, 917 F.2d at 1129 (finding that
    practical realities supported an OCC conclusion that the term “State Banks” be given
    a functional definition).
    Given the clear language of the 1996 amendment, its legislative history and the
    judicial decisions that formed the backdrop against which it was adopted, and the
    interpretation of the regulatory body charged with the responsibility of administering
    the national banking laws, we conclude that Bank One’s ATMs are not subject to the
    restrictions contained in 
    Iowa Code § 527.4
    (1).
    Bank One also challenges that provision of Iowa law which states that ATMs
    “shall not be used to advertise individual financial institutions or a group of financial
    institutions.” 
    Iowa Code § 527.5
    (5). Assuming that this section has any validity as
    against a national bank ATM in light of our holding with respect to section 527.4(1),
    we conclude that it is preempted by the NBA. In Franklin National Bank v. New York,
    
    347 U.S. 373
     (1954), the Supreme Court held that a state law prohibiting national
    banks from using the word “saving” or “savings” was preempted by the NBA. In so
    holding, the Court noted that “[m]odern competition for business finds advertising one
    of the most usual and useful of weapons. We cannot believe that the incidental powers
    granted to national banks should be construed so narrowly as to preclude the use of
    advertising in any branch of their authorized business.” 
    Id. at 377
     (referring to the
    incidental powers granted in 
    12 U.S.C. § 24
     (Seventh)). In light of Franklin, we
    conclude that the State’s attempt to regulate the advertisements on Bank One’s ATMs
    is preempted. See Barnett Bank, 
    116 S. Ct. at 1108
     (stating that grants of incidental
    powers to national banks normally preempt contrary state law).
    Moreover, the OCC considered a similar Colorado EFTA provision requiring
    banks to remove their names from ATMs or to place the names of all other banks
    whose customers may use the machines. It declared in an interpretative letter that these
    regulations created a “significant burden on a national bank’s right to engage in the
    -8-
    business of banking by means of an ATM, as authorized by the [NBA].” OCC
    Interpretative Letter No. 789 [1997 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶
    81-216 at 90,244 (June 27, 1997) (citing 
    12 U.S.C. § 24
     (Seventh)). Once again giving
    deference to the OCC’s interpretation of the national banking laws, we conclude that
    this provision of Iowa law must be held invalid as against national bank ATMs.
    The State argues that the federal Electronic Funds Transfer Act, 
    15 U.S.C. §§ 1693
    -1693r permits the states to regulate the electronic transfer of funds. The federal
    EFTA was enacted in 1978 “to provide a basic framework establishing the rights,
    liabilities, and responsibilities of participants in electronic fund transfer systems.” 
    15 U.S.C. § 1693
    (b). The primary objective of the federal EFTA “is the provision of
    individual consumer rights.” 
    Id.
     To achieve that goal, the act allows the states to retain
    control over electronic transfers:
    This subchapter does not annul, alter, or affect the laws of any State
    relating to electronic funds transfers, except to the extent that those laws
    are inconsistent with the provisions of this subchapter, and then only to
    the extent of the inconsistency. A State law is not inconsistent with this
    subchapter if the protection such law affords any consumer is greater than
    the protection afforded by this subchapter.
    15 U.S.C. § 1693q. Despite the State’s claims, this anti-preemption provision is
    specifically limited to the provisions of the federal EFTA, and nothing therein grants
    the states any additional authority to regulate national banks. State regulation of
    national banks is proper where “doing so does not prevent or significantly interfere with
    the national bank’s exercise of its powers.” Barnett Bank, 
    116 S. Ct. at 1109
    .
    Congress has made clear in the NBA its intent that ATMs are not to be subject to state
    regulation, and thus the provisions of the Iowa EFTA that would prevent or
    significantly interfere with Bank One’s placement and operation of its ATMs must be
    held to be preempted.
    -9-
    B.
    To be entitled to the grant of an injunction, Bank One must establish the
    existence of irreparable harm. We conclude that it has done so, for in the absence of
    an injunction the continued enforcement of the relevant provisions of the Iowa EFT
    would result in irreparable economic loss to Bank One. Accordingly, Bank One is
    entitled to the entry of a permanent injunction enjoining the enforcement of those
    provisions.
    In view of our holding on the preemption issue, we need not reach Bank One’s
    remaining challenges to the Iowa statutes.
    The district court’s order is reversed, and the case is remanded for the entry of
    a permanent injunction.
    BRIGHT, Circuit Judge, dissenting.
    The court today reverses the district court and orders it to enjoin the State from
    enforcing Iowa Code Chapter 527, in its entirety, against Bank One -- or against any
    other national bank for that matter. The court does so because it concludes that,
    following Congress's 1996 changes to the statutory definition of "branch," as found in
    
    12 U.S.C. § 36
    (j), Automated Teller Machines ("ATMs") are exempt from
    geographical branching requirements based in state law. While it is true that such
    requirements no longer pertain to ATMs,2 I cannot agree that this exemption controls
    the disposition of the case before us. Even if a national bank's ATMs need not comply
    with state law geographic restrictions, that does not mean other relevant and
    2
    State law geographic restrictions are still incumbent upon national bank entities
    which meet the statutory definition of a "branch" because these state law restrictions,
    enforced by the Comptroller, are incorporated by reference in 
    12 U.S.C. § 36
    (c).
    -10-
    permissible state law restrictions are preempted thereby. Many of the sections of Iowa
    law at issue here are simply not geographical restrictions and ought not be analyzed as
    though they were.
    In my view, those statutory restrictions imposed under Chapter 527 which are
    valid, evenhanded consumer protections are not preempted by federal law. Thus, I
    believe that the Superintendent is entitled to enforce them against banks, both state and
    national alike. I therefore respectfully dissent.
    Iowa Code, Chapter 527, titled Electronic Transfer of Funds, has a number of
    subsections. Many of these subsections are simply not geographical branching
    restrictions. For example, § 527(5) indicates that, "[An ATM] terminal shall bear a
    sign or label no larger than three inches by two inches identifying the name, address,
    and telephone number of the owner." Thus, by its terms, this sub-section is a
    straightforward consumer protection measure. The need for such measures should be
    obvious. As any contemporary user of ATMs is bound to attest, this technology,
    convenient though it is, is fraught with danger, and anecdotal evidence suggests that
    errors are not an infrequent occurrence. Among other possible malfunctions, bank
    notes may be dispensed improperly, deposits may be incorrectly recorded, and
    terminals may simply "eat" a customer's ATM card, refusing to return it for reasons
    unknown. When such problems occur, customers deserve the information necessary
    to correct them. But if ATMs are unmarked, consumers are seriously hindered in any
    attempt to rectify even glaring errors. Section 527(5) is nothing more than a rational
    attempt to address this problem and guarantee that aggrieved ATM users have recourse
    to the machine's owners.
    Protection of the consumer is well within the power of States to render and is not
    preempted by federal law. In the recent case of Barnett Bank of Marion County, N.A.
    v. Nelson, 
    517 U.S. 25
     (1996), the Supreme Court had reason to consider the contours
    of preemption in the context of federal banking law. There the Court noted that, "[i]n
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    defining the pre-emptive scope of statutes and regulations granting a power to national
    banks . . . normally Congress would not want States to forbid, or to impair significantly,
    the exercise of a power that Congress explicitly granted." Id. at 33. The Court went
    on to add, however, that "[t]o say this is not to deprive States of the power to regulate
    national banks, where (unlike here) doing so does not prevent or significantly interfere
    with the national bank's exercise of its powers." Id. (parenthetical in original)
    (emphasis added). Thus, when a State attempts to regulate the activities of a national
    bank within its jurisdiction, the State's laws are not preempted if they create no
    significant interference with the national bank's exercise of its due powers.
    A subsection of Chapter 527, such as § 527(5), which does no more than protect
    innocent Iowans through the imposition of a de minimus labeling requirement creates
    no significant interference with any legitimate power vested in national banks, explicit
    or otherwise. Thus, in my view, these subsections are simply not preempted.
    Moreover, it is important to note that the statute before us applies with equal
    force against both state and national banks. Every bank is required to comply and no
    advantage is gained by state chartered institutions in the process. This latter point is
    critically important because the questions raised by consumerism might warrant a
    different analysis if Iowa's statute were constructed so as to favor state banks, giving
    them an advantage over their national bank counterparts in the ongoing competition for
    borrowers, deposits, and fees. After all, the National Bank Act ("NBA") has been
    repeatedly interpreted to prevent such competitive imbalances and to insure that
    national banks are allowed to compete on an even footing with state banks. See First
    Nat'l Bank of Logan, Utah v. Walker Bank & Trust Co., 
    385 U.S. 252
    , 261 (1966)
    ("Congress intended to place national and state banks on a basis of 'competitive
    equality' . . . ."); First Nat'l Bank in Plant City, Florida v. Dickinson, 
    396 U.S. 122
    , 131
    (1969) (The NBA "respond[s] to the competitive tensions inherent in a dual banking
    structure . . . [and] reflects the congressional concern that neither system have
    advantages over the other . . . .").
    -12-
    Ironically, the court's conclusion in this case is at odds with this important
    principle of competitive equality. State chartered banks remain bound by Iowa's
    consumer protection laws. To the extent that the court's decision today means that
    national banks are given a free pass, national banks thereby achieve a distinct and
    favored position under the law. Competitive equality this is not.
    The laws of Iowa relating to ATM banking, and granting protection to Iowa
    residents and others using such services, should be enforced. I do not here attempt to
    delineate whether some other restriction in the Iowa Code are not applicable to national
    banks. Those issues may be revisited on further litigation in this case. Unfortunately,
    the majority has given the defendant, Iowa's Superintendent of Banking, no opportunity
    to focus on the consumer protection aspects of Iowa law. The majority not only
    reverses the denial of a preliminary injunction but, sua sponte, remands for the entry
    of a permanent injunction. Such action was not requested by the plaintiff, Bank One,
    and is unwarranted, at least until the issues raised by this case are fully litigated. I
    would uphold the district court's order retaining the status quo by denying the
    preliminary injunction and remanding the case to the district court for further
    proceedings.
    A true copy.
    Attest:
    CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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