Thursday, July 02, 2009Last Update: 10:20 PM PT

     (CN) - In a decision consistent with a new era of increased public oversight of large financial institutions, the U.S. Supreme Court ruled Monday that national banks are subject to some state laws under the National Bank Act.
     The 5-4 ruling could broaden the powers of state attorneys general to regulate banks with branches in multiple states, allowing states to enforce their own consumer and fair-lending laws so long as they go to court to do so.
     A state attorney general cannot issue executive subpoenas against a national bank -- as former New York Attorney General Eliot Spitzer threatened to do in 2005 in an effort to discover if some banks had issued an inordinate number of subprime mortgages to minorities -- but that does not preclude a state from "bringing judicial enforcement actions" against national banks, the court ruled.
     Spitzer sent letters to several national banks operating in New York, requesting non-public information regarding their lending practices, saying that the request came "in lieu of a subpoena." The U.S. Treasury Department's Office of the Comptroller of the Currency and a banking trade group tried to block the request, claiming that the 1864 National Bank Act bars states from enforcing their own laws against national banks.
     The district court sided with the OCC, effectively prohibiting states from enforcing their own fair-lending laws through records requests or lawsuits. The 2nd Circuit affirmed that decision, and the high court agreed to hear the case.
     The issue came down to whether or not the OCC's "regulation purporting to pre-empt state law enforcement can be upheld as a reasonable interpretation of the National Bank Act," Justice Scalia wrote in the majority opinion. While the OCC certainly has "visitorial powers" -- the right to examine the affairs of a corporation -- that does not mean that it has the exclusive right to enforcement, the court ruled.
     "A sovereign's 'visitorial powers' and its power to enforce the law are two different things," Scalia wrote. "Contrary to what the (OCC's) regulation says, the National Bank Act pre-empts only the former."
     Scalia added that states "have always enforced their general laws against national banks -- and have enforced their banking-related laws against national banks for at least 85 years."
     Writing in dissent, Justice Thomas, joined by Justices Kennedy and Alito and Chief Justice Roberts, argued that the scope of visitorial powers is ambiguous and that "it was reasonable for the OCC to interpret the term to encompass state efforts ... to enforce fair-lending laws against national banks."

     (CN) - The U.S. Supreme Court moved toward ending a 17-year legal battle over Arizona's programs for students learning to speak English, voting 5-4 that the lower courts failed to recognize the state's efforts to improve its language programs.
     The underlying class action, filed in 1992 by a group of parents and students of Nogales Unified School District, has taken a few turns in U.S. courts.
     The group claimed that the English language-learner program in the Nogales system violated the Equal Educational Opportunities Act, which requires states to take "appropriate action to overcome language barriers" in schools.
They accused the state of repeatedly underfunding court-ordered efforts to improve the language programs.
     In 2000, a federal judge agreed that the program violated federal law. Although the ruling applied to the Nogales school system, the judge eventually extended his ruling statewide, opening up the state's programs to federal court oversight.
     Over the next eight years, state officials, including Superintendent of Public Instruction Tom Horne, pressed the courts to return control and oversight to state officials, claiming the 2000 order was "no longer equitable."
     The plaintiffs continued to accuse the state of underfunding court-ordered efforts to improve the language programming. When the state failed to do so, the district court in 2005 gave the state 90 days to find a solution. The state failed to meet that deadline, and the federal judge held it in contempt, causing Arizona to rack up more than $20 million in fines.
     In March 2006, state legislators responded with a bill designed to establish a permanent funding solution. The bill would increase incremental funding for language-learner programs and create two new funds to cover the additional costs.
     But the bill failed to garner the district court approval necessary for its funding provisions to take effect. Lawmakers and Horne urged the district court to purge the contempt order.
     The district court, however, found the bill fatally flawed, partially because it the increase in funding was not "rationally related" to the costs of effective English language-learner programming.
     The 9th Circuit vacated that decision in an unpublished opinion and remanded.
     After another look, the district found the bill still lacking and gave legislators until the end of their session to fix it. Their inaction landed the state another contempt finding.
     The federal appeals court affirmed, but acknowledged that Nogales had "made significant strides since 2000."
     The Supreme Court reversed, saying the lower courts focused too narrowly on the funding issue while ignoring other significant improvements Arizona has since made to its English-language programs.
     The court agreed with Kenneth Starr, Arizona's attorney and dean of the Pepperdine School of Law, who argued that improvements should not be measured solely on funding.
     "The Equal Educational Opportunities Act is not a funding statute," Starr had said during oral arguments.
     Writing for the majority, Justice Samuel Alito agreed.
     "The court of appeals purported to engage in a 'changed circumstances' inquiry, but it asked only whether changed circumstances affected (English language-learner) funding and, more specifically ... incremental funding," Alito wrote.
     He said the lower court needed to determine if the ongoing enforcement of the contempt order was justified by an ongoing violation of federal law. "It failed to do so," Alito wrote.
     Horne, the state's superintendent of public instruction, hailed the ruling as a "major victory for the principle of self-government."
     The dissenting justices, in an opinion written by Justice Breyer, disagreed with the majority's conclusion that the lower courts had failed to "fairly consider" the changed circumstances.
     "The lower courts did 'fairly consider' every change in circumstances that the parties called to their attention," Breyer wrote, emphasizing his point with italics. "The record more than adequately supports this conclusion."
     His opinion was joined by Justices Stevens and Souter, and by Chief Justice Roberts.