National Bank Act preemption
Kivett v. Flagstar Bank
Date: Nov. 26, 2025
Issue: Whether the Ninth Circuit should grant Flagstar’s petition to review its prior ruling that the National Bank Act (NBA) does not preempt California’s interest-on-escrow (IOE) law.
Case Summary: In a 2–1 decision, a Ninth Circuit panel denied Flagstar’s petition to review its prior decision that held the NBA does not preempt California’s IOE law.
Section 1044 of the Dodd-Frank Act codified the NBA preemption standard from the Supreme Court’s decision in Barnett Bank of Marion County N.A. v. Nelson, 517 U.S. 25 (1996), ruling the NBA preempts state law if it “prevents or significantly interferes with the exercise of a national bank’s power.”
Flagstar loaned $400,610 to William Kivett to finance a 2012 real estate purchase in California. Kivett filed a class action alleging that Flagstar failed to pay interest on his mortgage escrow account. Flagstar contended, however, that the NBA preempts state laws requiring national banks to pay interest on mortgage escrow accounts. A California federal district court ruled the NBA did not preempt California’s IOE law, and on May 17, 2022, a Ninth Circuit panel affirmed, citing its prior Lusnak decision that rejected the preemption challenge to California’s IOE law.
On May 30, 2024, the U.S. Supreme Court decided Cantero v. Bank of America, directing courts to practically assess how much a state regulation interferes with a national bank’s powers under Barnett Bank. Afterward, the Court granted Flagstar’s certiorari petition, vacated the Ninth Circuit’s ruling, and remanded the case. On remand, a unanimous Ninth Circuit panel initially reaffirmed the district court, ruling the NBA does not preempt California’s IOE law, citing Lusnak and concluding Cantero supported that analysis. On Dec. 24, 2024, the Ninth Circuit granted Flagstar’s petition for a rehearing and vacated its previous decision. ABA filed a coalition amicus brief supporting Flagstar, urging the panel to reverse the district court’s decision and rule that the NBA does preempt California’s IOE law.
On Oct. 2, 2025, a Ninth Circuit panel again concluded the NBA does not preempt California’s IOE law, relying on its prior Lusnak decision. Jay Bybee, writing for the majority, concluded Cantero is not “clearly irreconcilable” with Lusnak and thus does not preempt California’s IOE law. On November 17, 2025, Flagstar filed an en banc petition (full panel review), arguing a rehearing is warranted to bring the Ninth Circuit’s precedents in line with Cantero and clarify the Ninth Circuit’s clear irreconcilability standard.
On Nov. 26, 2025, ABA filed a coalition amicus brief urging the Ninth Circuit to grant Flagstar Bank’s en banc petition. In its brief, ABA argued a rehearing is warranted because the issue of whether the NBA preempts California’s IOE law is exceptionally important, and Lusnak, which the Ninth Circuit panel previously relied on, cannot be squared with the U.S. Supreme Court’s decision in Cantero.
However, Judges Jay Bybee and Susan Bolton voted to deny Flagstar’s petition for panel rehearing, while Judge Ryan Nelson voted to grant it. Judges Bybee and Bolton also recommended denying rehearing en banc, but Judge Nelson disagreed. In its order, the panel stated that it notified the full court of the en banc petition and that no judge requested a vote to rehear the case en banc. The panel did not provide further explanation for its denial.
Bottom Line: The split panel voted to deny rehearing, but no judge has requested a vote on whether to rehear the matter en banc.
