President Obama recently issued a memorandum dated May 20, 2009, to the heads of federal executive departments and agencies asking them to refrain prospectively from including statements in regulatory preambles (the “Supplementary Information” preceding a final regulation published in the Federal Register) that “the department or agency intends to preempt State law through the regulation except where preemption provisions are also included in the codified regulation.” In addition, he has asked the heads of federal executive departments and agencies to review regulatory preambles and codified provisions issued within the last 10 years that include state law preemption statements or provisions, to “decide whether such statements or provisions are justified under applicable legal principles governing preemption” (See 74 Fed. Reg. 24693 (May 22, 2009)). Apparently, there is no deadline for completing this review.
Recent press reports indicate that some consumer advocacy groups are now asking various federal bank regulatory agencies to reconsider their federal preemption of state lending laws. The Center for Responsible Lending issued a statement on May 21, 2009 asking “federal banking regulators to withdraw their misguided and harmful preemption policy so that state regulators can once again protect their residents from unfair and deceptive financial products.”
To get a better perspective on the President’s May 20, 2009, memorandum, and what it is intended to accomplish, it is useful to look at some of the historical background to the memorandum.
Several law review articles have discussed the use of regulatory preambles by federal agencies to assert preemption over state laws. (See, e.g., C. Sharkey, “Preemption by Preamble: Federal Agencies and the Federalization of Tort Law,” 56 DePaul Law Review 227 (2007), discussing “preemption preambles” used by the Food and Drug Administration, the Consumer Product Safety Commission, and the National Highway Traffic Safety Administration in final and proposed rulemaking.) This issue became a focus of consumer advocacy groups seeking to protect injured consumers’ right to sue under state tort laws for personal injuries.
Consumer advocacy groups have also been filing amicus curiae or “friend of the court” briefs in various appellate court cases, arguing against federal preemption of state law where the federal preemption claim arises because a federal agency has claimed preemption in a regulatory preamble. (See, e.g., friend of the court brief filed by Public Citizen, Trial Lawyers for Public Justice, and Association of Trial Lawyers of America in 2006 with the U.S. Court of Appeals for the Third Circuit in the case of Colacicco v. Apotex, a wrongful death case arising from the suicides of two individuals who had been taking prescription antidepressant medications. The Third Circuit ruled in favor of federal preemption in 2008.)
In December 2008, a coalition of consumer advocacy organizations wrote then-President-Elect Obama asking his administration to, among other things, “directs agencies to refrain from making statements in their rulemaking claiming that rules, regulations, or standards preempt state-law liability of regulated entities.” (See letter dated December 23, 2008, to Ms. Sally Katzen, Executive Office of the President-Elect, signed by 12 consumer advocacy organizations, including Consumer Federation of America, Consumers Union, Center for Responsible Lending, National Association of Consumer Advocates, National Consumer Law Center, Public Citizen, US PIRG and others. A copy is available at http://www.consumerlaw.org/issues/preemption/content/preemption_letter_obama.pdf). This letter notes that since 2005, various federal agencies have used their regulatory preambles to “claim […] that rules, regulations, or standards preempt state-law liability of regulated entities,” and that this practice should stop. The letter names several federal agencies as having used regulatory preambles to assert federal preemption, including the Food and Drug Administration, National Highway Traffic Safety Administration, Consumer Product Safety Commission, and the Federal Railroad Administration. The letter also notes that before 2005, “the agency practice of addressing state tort law in rulemaking documents was rare.” The focus of this letter appears to be on consumer health and safety issues.
Then, in March of this year, the U.S. Supreme Court ruled that Food and Drug Administration (FDA) regulations concerning prescription drug labeling requirements did not preempt state laws imposing stricter drug labeling requirements, and that an injured patient could maintain an action under state tort law against a drug manufacturer for inadequate disclosure of certain drug-related risks on the drug label, even though the FDA had approved the wording on the drug label. (See Wyeth v. Levine, decided March 4, 2009.) In the Wyeth case, the U.S. Supreme Court included a detailed discussion of the history of the federal Food, Drug, and Cosmetic Act (FDCA), and found no indication that Congress intended the FDCA to preempt stricter state drug labeling requirements. “If Congress thought state-law suits posed an obstacle to its objectives, it surely would have enacted an express pre-emption provision at some point during the FDCA’s 70-year history. But despite its 1976 enactment of an express pre-emption provision for medical devices, […] Congress has not enacted such a provision for prescription drugs.” The Court also noted that the FDA had stated in 1998 that “the evolution of state tort law [would not] cause the development of standards that would be at odds with the agency’s [drug labeling] regulations” and that the FDA did not intend to “preclude the states from imposing additional labeling requirements.” Additionally, in December 2000, when the FDA issued proposed revisions to its prescription drug labeling regulations for public comment, the FDA stated in supplementary information preceding the proposed revisions that the revised regulations would “not contain policies that have federalism implications or that preempt State law.” However, in 2006, when the final revisions to the regulations were published, the FDA included a federal preemption statement in its regulatory preamble. To quote the U.S. Supreme Court decision in Wyeth: “In 2006, the agency finalized the rule and, without offering States or other interested parties notice or opportunity for comment, articulated a sweeping position on the FDCA’s pre-emptive effect in the regulatory preamble.” In view of this history, the Court refused to give the FDA’s 2006 preemption position, as evidenced only by a recent regulatory preamble, any deference.
In view of the Supreme Court’s Wyeth decision, existing federal preemption language in regulatory preambles clearly needs to be reconsidered. The President’s memorandum of May 20, 2009, does not, however, affect preexisting federal statutes, implementing federal regulations issued after an opportunity for public comment, or federal court decisions interpreting federal statutes and regulations, to the extent that such statutes or implementing regulations (as interpreted by federal courts) expressly preempt some or all state laws. For example, the President’s memorandum does not change the pre-existing federal preemption of state law enjoyed by national banks, federally chartered thrifts and their operating subsidiaries, pursuant to express provisions in the National Bank Act and Home Owners’ Loan Act, respectively. The ability of both a national bank and its operating subsidiary to preempt most state laws was recently confirmed by the U.S. Supreme Court in Watters v. Wachovia Bank, N.A. (2007). A federally chartered thrift’s ability to preempt certain state laws was confirmed by the U.S. Supreme Court in (for example) Fidelity Federal Savings & Loan Assoc. v. De La Cuesta (1982) (cited with approval by the Supreme Court in its 2007 Watters decision). See also (by way of example) WFS Financial v. Dean, 79 F. Supp. 2d 1024 (W.D. Wis. 1999) (applying De La Cuesta to the operating subsidiary of a federally chartered thrift). President Obama’s May 20 memorandum does not undo the National Bank Act, Home Owners’ Loan Act, or the federal regulations and body of federal court decisions interpreting these Acts.
President Obama’s recent preemption memorandum should be read as focusing on federal preemption claims made by federal agencies and departments that are not supported by federal statute or other “legal principles governing preemption.” It is also interesting to note that President Clinton’s Executive Order 13132, dated August 4, 1999, which outlines principles to be followed by federal agencies before preempting state law through regulation and is expressly cross-referenced in President Obama’s recent memorandum as one source of legal preemption principles, does not apply to any “independent regulatory agency” as that term is used in 44 U.S.C. Section 3502(5), including (by way of example only) the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Federal Trade Commission, and the Securities and Exchange Commission” (although all such independent regulatory agencies were “encouraged to comply” with Executive Order 13132).
Elizabeth C. Yen is a partner in the Connecticut office of Hudson Cook, LLP. Basis Points readers can reach Elizabeth at 203-776-1911 or by email at eyen@hudco.com.