Silvas v. E*Trade Mortg. Corp.

Decision Date30 January 2008
Docket NumberNo. 06-55556.,06-55556.
Citation514 F.3d 1001
PartiesEdna SILVAS; Rodolfo Silvas, Plaintiffs-Appellants, v. E*TRADE MORTGAGE CORPORATION, Defendant-Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

Norman B. Blumenthal, David R. Markham, Kyle R. Nordrehaug, Blumenthal & Markham, La Jolla, CA, for the plaintiffs-appellants.

Daniel Harris, The Law Offices of Daniel Harris, Chicago, IL, for the plaintiffs-appellants.

Douglas P. Lobel, David A. Vogel, Cooley Godward Kronish, LLP, Reston, VA, for the defendant-appellee.

Lori R.E. Ploeger, Cooley Godward Kronish, LLP, Palo Alto, CA, for the defendant-appellee.

Appeal from the United States District Court for the Southern District of California; Thomas J. Whelan, District Judge, Presiding. D.C. No. CV-05-02348-TJW.

Before: HARRY PRE GERSON, JOHN T. NOONAN, and STEPHEN S. TROTT, Circuit Judges.

TROTT, Circuit Judge:

Based on the doctrine of preemption, the district court dismissed Plaintiffs-Appellants' class action suit against Defendant-Appellee E*TRADE Mortgage. Appellants argue that the district court erred in applying field preemption to bar their claims. We have jurisdiction pursuant 28 U.S.C. § 1291 over this timely appeal, and we affirm.

I

BACKGROUND

In October 2001, Plaintiffs-Appellants Edna and Rodolfo Silvas began the process of refinancing their mortgage with Defendant-Appellee E*TRADE Mortgage Corporation ("E*TRADE"). During the process, Appellants paid E*TRADE a $400.00 fee to lock-in the interest rate. In November 2001, Appellants elected to rescind the mortgage within the three days allotted for cancellation under the Truth in Lending Act ("TILA"). E*TRADE did not refund Appellants' lock-in fee, and, according to Appellants, it was E*TRADE's corporate policy not to refund the fee.

Nearly four years later, in September 2005, Appellants filed suit in the Superior Court of Orange County, California. Their complaint alleged that E*TRADE committed unlawful, unfair, and deceptive conduct in violation of California's Unfair Competition Law ("UCL"), §§ 17200 and, 17500 of the California Business and Professions Code, by misrepresenting rescission rights under TILA and by failing to provide a refund of the deposit as required by TILA. Although both UCL claims were predicated exclusively on a violation of TILA, Appellants did not assert a claim under TILA itself.

The first claim alleged that E*TRADE violated UCL § 17500, the unfair advertising section, by representing to its customers that its lock-in fee is non-refundable when, under law, it is refundable if the consumer decides to exercise his or her rescission rights under TILA. The complaint further averred that the false statement was made in E*TRADE's website and its customer disclosures and thus constituted false advertising.

The second claim alleged that E*TRADE violated UCL § 17200, the general unfair competition section, in two ways. First Appellants alleged the lock-in policy itself violated UCL § 17200 as an unlawful business act. Second, Appellants alleged that E*TRADE's practice of misrepresenting consumers' legal rights in advertisements and other documents is unfair, deceptive, and contrary to the policy of California.

Appellants brought this class action on behalf of all California residents who, any time after October 1, 2001, paid a lock-in deposit to E*TRADE for a mortgage secured by real property within the state of California and did not get the fee back after canceling an application or the mortgage loan transaction. Appellants sought disgorgement of all lock-in fees E*TRADE collected from class members.

E*TRADE removed the action to the United States District Court for the Central District of California under 28 U.S.C. § 1441(a). Soon after, E*TRADE moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6) on the ground that federal law preempted the UCL claims. The district court granted the motion to dismiss.

DISCUSSION
A. Standard of Review.

We review de novo a district court's decision to dismiss for failure to state a claim pursuant to Rule 12(b)(6). Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). All allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party. Id. A complaint must not be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts in support of the claim that would entitle the plaintiff to relief. Homedics, Inc. v. Valley Forge Ins. Co., 315 F.3d 1135, 1138 (9th Cir.2003). "Questions of statutory interpretation are reviewed de novo, as are questions of preemption." Lopez v. Wash. Mut. Bank, 302 F.3d 900, 903 (9th Cir. 2002) (internal citation omitted).

B. Type of Preemption.

We have identified three ways federal law may preempt state law:

First, Congress may preempt state law by so stating in express terms. Second, preemption may be inferred when federal regulation in a particular field is so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it. In such cases of field preemption, the mere volume and complexity of federal regulations demonstrate an implicit congressional intent to displace all state law. Third, preemption may be implied when state law actually conflicts with federal law. Such a conflict arises when compliance with both federal and state regulations is a physical impossibility, or when state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress....

Bank of Am. v. City and County of S.F., 309 F.3d 551, 558 (9th Cir.2002) (internal quotation marks and citations omitted).

Appellants' arguments against preemption are premised on their assertion that conflict preemption analysis applies to the case at bar. We agree, however, with the district court, and hold that field preemption applies because Appellants' state law claims provide state remedies for violations of federal law in a field preempted entirely by federal law. The general presumption against preemption is not applicable here, and the relevant regulation is clear—the field of lending regulation of federal savings associations is preempted. See 12 C.F.R. § 560.2. Appellants were too late to sue under TILA. Their end run will not do.

1. No Presumption Against Preemption.

While there is a strong presumption against federal preemption of state law governing historic police powers, the Supreme Court has held that the presumption does not apply "when [a] State regulates in an area where there has been a history of significant federal presence." United States v. Locke, 529 U.S. 89, 108, 120 S.Ct. 1135, 146 L.Ed.2d 69 (2000).

"Congress has legislated in the field of banking from the days of M'Culloch v. Maryland, [17 U.S.(4 Wheat.) 316, 4 L.Ed. 579 (2000)] creating an extensive federal statutory and regulatory scheme." Bank of Am., 309 F.3d at 558 (citation omitted). Specific to this case, Congress enacted the Home Owners' Loan Act of 1933 ("HOLA") to charter savings associations under federal law, at a time when record numbers of home loans were in default and a staggering number of state-chartered savings associations were insolvent. Id. at 559. HOLA was designed to restore public confidence by creating a nationwide system of federal savings and loan associations to be centrally regulated according to nationwide "best practices." Fid. Fed. Say. & Loan Assn v. de la Cuesta, 458 U.S. 141, 160-61, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982). We have described HULA and its following agency regulations as a "radical and comprehensive response to the inadequacies of the existing state system," and "so pervasive as to leave no room for state regulatory control." Conference of Fed. Say. & Loan Asens v. Stein, 604 F.2d 1256, 1257, 1260 (9th Cir.1979), aff'd, 445 U.S. 921, 100 S.Ct. 1304, 63 L.Ed.2d 754. "[B]ecause there has been a history of significant federal presence in national banking, the presumption against preemption of state law is inapplicable." Bank of Am., 309 F.3d at 559 (internal quotation marks omitted).

2. The OTS Regulation Occupies the Field.

Through HOLA, Congress gave the Office of Thrift Supervision ("OTS") broad authority to issue regulations governing thrifts. 12 U.S.C. § 1464. As the principal regulator for federal savings associations, OTS promulgated a preemption regulation in 12 C.F.R. § 560.2. That the preemption is expressed in OTS's regulation, instead of HOLA, makes no difference because, "[f]ederal regulations have no less preemptive effect than federal statutes." de la Cuesta, 458 U.S. at 153, 102 S.Ct. 3014. The regulation reads inter alia:

OTS hereby occupies the entire field of lending regulation for federal savings associations. OTS intends to give federal savings associations maximum flexibility to exercise their lending powers in accordance with a uniform federal scheme of regulation. Accordingly, federal savings associations may extend credit as authorized under federal law, including this part, without regard to state laws purporting to regulate or otherwise affect their credit activities, except to the extent provided in paragraph (c) of this section....

12 C.F.R. § 560.2(a) (emphasis added). Section 560.2(b) goes on to provide a list of specific types of state laws that are preempted, two of which, § 560.2(b)(5) and § 560.2(b)(9), are specifically applicable to this case. [T]he types of state laws preempted by paragraph (a) of this section, include, without limitation, state laws purporting to impose requirements regarding:

....

(5) Loan-related fees, including without limitation, initial charges, late charges, prepayment penalties, servicing fees, and overlimit fees;

....

(9) Disclosure and advertising, including laws requiring specific statements, information, or other content to be included in credit application forms, credit solicitations, billing statements, credit con tracts,...

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