Atwood, Haiman & Westerberg

Legal Topics February, 2000

Peatros Update: National Banks Not Subject to California Fair Employment and Housing Remedies for Dismissal of Officers
By Eric S. Haiman
In April 1999, I posted an article on our site, explaining the holding in Peatros v. Bank of America NT&SA (1998) 68 Cal.App.4th 1284, in which a California Court of Appeal held that a provision of federal law that provides that officers of national banks serve at the pleasure of the Board of Directors bars claims by such officers for employment discrimination under California's Fair Employment and Housing Act ("FEHA"). That decision created a conflict in the California Courts of Appeal, as other such Courts had held that these claims were not so pre-empted.
Earlier this year, in Peatros v. Bank of America NT&SA (2000) 22 Cal.4th 147, the California Supreme Court, resolved this conflict by holding that employment discrimination claims by officers of national may be brought under FEHA, but that to the extent the provisions of FEHA conflict with relevant federal law they will not apply. In so ruling, the California Supreme Court adopted an important part of the ruling and reasoning of the earlier Court of Appeal decision, but its practical effect is uncertain.
All of the California appellate decisions on this issue agree that the question before the Courts is to what extent the doctrine of "conflict preemption" precludes national bank officers from bringing FEHA claims against their employers. Under the doctrine of "conflict preemption," if enforcement of state law would undermine federal law, it is preempted under the doctrine of conflict preemption. The Court of Appeal in Peatros reasoned that allowing national bank officers to bring FEHA claims would undermine federal law. The Court of Appeal found that there are significant differences between FEHA and federal discrimination statutes, including different statutes of limitations and different rules regarding damages, including punitive damages. For example, in federal age discrimination claims under the Age Discrimination in Employment Act ("ADEA"), no punitive damages are available. Because of these differences, the Court reasoned, subjecting national banks to suit under FEHA would frustrate the full effectiveness of federal law and, therefore, held that such claims are completely preempted.
The California Supreme Court agreed with the lower court's finding of significant differences, but disagreed with its broad conclusion that FEHA claims were entirely barred. Under the law as it now stands, a national bank officer can bring a FEHA claim against the bank, but will not be able to obtain relief that is not available under federal discrimination statute. The clearest application of this is that provisions of FEHA allowing for emotional distress damages, punitive damages and unlimited compensatory damages will not be allowed unless analogous damages provisions are found in federal law. Beyond this, it will remain to the trial and lower appellate courts to determine whether a particular provision of FEHA is preempted because it conflicts with federal law. For example, if an applicable federal anti-discrimination statute requires a plaintiff to bring suit more quickly than FEHA, the plaintiff's claim might be barred for having missed this shorter statute in reliance on the FEHA statute. The California Supreme Court's opinion does not decisively resolve how this and other procedural rules are to be examined. Presumably, not all rules that are merely "different" are in "conflict." For example, assuming no diversity jurisdiction in federal court, if a plaintiff sues a national bank in state court under FEHA alone, the bank would have no basis that I am aware of for removing, i.e. having the case transferred, from state to federal court. Thus, the Bank's rights in this instance would be different than if the plaintiff were forced to file suit under a federal statute in which case the defendant would have the right to remove the case to federal court. This particular question is of some significance because, without the ability to bring and keep a FEHA case in state court, the Supreme Court's opinion holding that FEHA is only partially pre-empted, is arguably of virtually no practical difference from complete pre-emption.
Counsel working in the areas of employment and banking law will need to follow the developments of post-Peatros law on this subject with careful attention to detail.