The Ninth Circuit Strikes Down Federal Preemption Of State Law Discrimination Claims, Creating Conflict With The Sixth Circuit.

The Ninth Circuit Strikes Down Federal Preemption Of State Law Discrimination Claims, Creating Conflict With The Sixth Circuit.

by Onyinyechi Muilenburg

12 USC 24, or the National Bank Act, states that among other enumerated powers, a national bank has the power to dismiss any president, vice president, cashier, and other officer at its pleasure, and appoint others to fill their places. This provision is similar to “at-will” employment, under which an employer may lawfully terminate any employee for any lawful reason.

In response to contractual and tort claims for wrongful termination, national banks have defended on the basis that the National Bank Act preempts contract or tort claims brought by former officers and directors because the National Bank Act permits a national bank to dismiss any officer at its pleasure and any attempt to circumvent such right is void as against public policy. See, e.g. Mackey v. Pioneer Nat. Bank, 867 F.2d 520, 524 (9th Cir. 1989).

The question remained, however, whether the National Bank Act preempts federal and state law discrimination, retaliation or other such wrongful termination claims.

Recently, the Ninth Circuit has decided this issue in Kroske v. US Bank Corp, 432 F.3d 976 (9th Cir. 2005).

In Kroske, a former bank branch manager brought a state court suit against a national bank alleging that her dismissal constituted age discrimination in violation of Washington Law Against Discrimination. The bank, a national bank, successfully removed the action to federal court on the basis of diversity jurisdiction and moved for summary judgment on the basis that the National Bank Act preempted the state law discrimination claim. After finding the former employee was an “officer” within the meaning of the National Bank Act, the Federal Court granted summary judgment in the bank’s favor on the basis of preemption.

Reversing the lower court’s granting of summary judgment, the Ninth Circuit held that the “at pleasure” provision does not preempt the entire field of law regarding a national bank’s employment practices or a former employee’s state-law age discrimination claims.

Noting the original congressional intent behind the “at pleasure” provision was to “ensure stability of the banking institutions by affording the means to discharge employees who were felt to compromise a bank’s integrity” the Court determined that Congress intended national banks to be subject to the federal anti-discrimination statute. After determining further that the federal anti-discrimination statute conflicts with the National Bank Act’s “at-pleasure” provision, the Ninth Circuit held that national banks are subject to the federal anti-discrimination statute. The Court reasoned further that because federal law preempts only conflicting state law, the National Bank Act’s “at-pleasure” provision did not preempt the state anti-discrimination statute because the state anti-discrimination statute was part of the same remedial scheme as the federal anti-discrimination statute. Thus, because the National Bank Act did not preempt any of the former employee’s federal discrimination claims, the Ninth Circuit saw no conflict in allowing the former employee to sue a national bank under state anti-discrimination laws.

Per Kroske, national banks within the Ninth Circuit’s jurisdiction (Arizona, California, Idaho, Nevada, Oregon, Montana and Washington) are now subject to many state-law discrimination claims filed by former officers. The question remains in the Ninth Circuit whether the National Bank Act preempts state law claims not in accord with federal law; for example, termination on the basis of sexual orientation.

Of note, the recent Kroske decision has created conflict between the Ninth and the Sixth Circuits; the Sixth Circuit being Kentucky, Michigan, Ohio and Tennessee. In Leon v. Federal Reserve Bank, 823 F. 2d 928 (6th Cir. 1987), the Sixth Circuit court held, because the Federal Reserve Act, 12 U.S.C. § 341, permits employees of a Federal Reserve Bank to be dismissed “at pleasure”, the Federal Reserve Act preempts any state-created employment right to the contrary and thus precludes any state law discrimination claims. However, like the Ninth Circuit, the Sixth Circuit exempted from preemption the former bank employee’s federal discrimination claims, remanding same to the lower court for further proceedings.

Although the Kroske Court was quick to distinguish itself from what it referred to as the Sixth Circuit’s “summary conclusion”; the United States Supreme Court declined the opportunity to settle the dispute between the Sixth and Ninth Circuits when it declined to accept certiorari. US Bank Corp. v. Kroske, — S.Ct. —-, 2006 WL 1683451, 74 USLW 3722, 75 USLW 3023, 75 USLW 3133, 75 USLW 3164, 98 Fair Empl. Prac. Cas. (BNA) 1696 (U.S. Oct 02, 2006) (NO. 05-1607). As such, although Kroske appears to be settled law in the Ninth Circuit, its holding does not appear to reach the other circuits, including, without limitation, the Sixth Circuit.

No information in this article is intended to constitute legal advice.  For specific legal advice, please contact an attorney.

Melissa N. Sternfels is a litigator and specializes in complex business litigation.