New York State Court Enforces Subpoenas Issued by New York Agency Regarding Marketing of RALs

On March 23, the First Appellate Division of the New York Supreme Court affirmed an order requiring certain H&R Block entities (Respondents) to comply with a subpoena served by the New York State Division of Human Rights (DHR) in connection with the DHR’s investigation of the marketing of refund anticipation loans (RALs). New York State Div. of Human Rights v. H&R Block Tax Servs., Inc., No. 4237N, 1726/07, 2010 NY Slip Op 2413, 2010 WL 1031854 (N.Y. App. Div. Mar. 23, 2010). In this case, DHR subpoenaed the Respondents to obtain information related to the alleged targeting of minorities and military families for RALs. The Respondents moved to quash the subpoenas and DHR moved to compel responses. The motions court granted DHR’s motion and denied the Respondents’ motion. The Respondents appealed, arguing that DHR lacked subpoena power because the Respondents are not “creditors” within the meaning of the statute that DHR was seeking to enforce. The Appellate Division rejected this argument, holding that there was sufficient evidence that the Respondents were agents of a national bank with respect to the RAL products, and therefore covered by the statute. Alternatively, the court noted, even if the Respondents were not agents of a national bank, DHR’s subpoena power is not limited to “creditors” or agents of a creditor, but, rather, extends to any recipient that DHR has a factual basis to believe possesses information relevant to its investigation. The Appellate Division found that independent reports regarding the targeting of RALs to minorities or military families were such a requisite factual basis. The Respondents also argued that, assuming that they were agents of a national bank, DHR’s investigation into the marketing of RALs was preempted by the National Bank Act. Applying the preemption analyses set forth in Watters v. Wachovia Bank, N.A., 550 U.S. 1 (2007), the Appellate Division held that the DHR subpoenas did not interfere with a national bank’s powers. According to the court, the subpoenas sought information about whether Respondents’ marketing of RALs violates New York’s Human Rights Law, not into the conduct of the national bank or its ability to originate RALs. Thus, the court affirmed the decision of the lower court and ordered the Respondents to comply with the subpoenas.