For 11 years, the conservative wing of the US Supreme Court did
something decidedly unconservative. It sought to tip the balance of
power between the national government and the states.
This so-called federalism revolution was aimed at bolstering the
status of the states as dual sovereigns in the face of an ever-
expanding sphere of federal power. The justices wrote of state
sovereignty and the dignity of the states in terms reminiscent of
Colonial distrust of the kind of draconian central authority wielded
by the British crown.
But by the time Chief Justice William Rehnquist died in 2005, the
"revolution" resembled little more than a constitutional skirmish.
Now with two new members of the Supreme Court, it is unclear
whether the justices might again take up the mantle of states'
rights. Will a majority seek to boldly build on the string of
federalism precedents handed down by the Rehnquist court, or will
the judicial minimalism of Chief Justice John Roberts leave it to
federal regulatory agencies and Congress to police the
constitutional contours of federal-state power?
The high court's first significant opportunity to address those
questions arrives in a case set for oral argument Wednesday.
At issue in Watters v. Wachovia Bank is whether a federal agency
has the power to preempt state regulations governing national
mortgage companies doing business within a state's borders. Put
another way, the issue is who regulates mortgage companies
affiliated with national banks, state regulators or federal
Traditionally, mortgage companies had to comply with state
registration and other requirements. But in 2001, the federal Office
of the Comptroller of the Currency (OCC), which regulates national
banks, issued a new rule that subsidiary companies of national banks
are governed by federal, not state, regulations.
That action preempted state laws and rules governing mortgage
companies and other national bank subsidiaries operating in a
The current case arose in Michigan. Wachovia Mortgage Corp., a
subsidiary of Wachovia Bank, had long done business there. The
mortgage company was set up as a Michigan corporation. But because
it is a subsidiary of a national bank, company officials said after
the OCC rule change that they did not have to comply with Michigan
regulations, only federal ones enforced by the OCC.
Linda Watters, who heads Michigan's Office of Insurance and
Financial Services, insisted that the company would have to comply
with state laws if it wanted to continue to conduct business there.
The dispute went to court. A federal judge and a federal appeals
court panel ruled for the company. Two other federal appeals courts
have also ruled against state governments in similar litigation.
Michigan is now asking the Supreme Court to reverse the lower
court decision, in part, according to state lawyers, because the
OCC's preemptive actions encroach on an area of traditional state
power enforced by principles of federalism guaranteed in the 10th
"In the absence of Congressional authorization, the OCC has no
independent power to preempt the validly enacted legislation of a
sovereign state," writes Michigan Solicitor General Thomas Casey in
his brief to the court. …