Glendale Fed. Sav. & Loan Ass'n v. Fox

• Decision Date: 01 November 1978
• Docket Number: No. 77-3274-WMB.,77-3274-WMB.
• Citation: 459 F. Supp. 903
• Court: U.S. District Court — Central District of California
• Parties: GLENDALE FEDERAL SAVINGS AND LOAN ASSOCIATION, a Federally Chartered Association, Plaintiff, v. David H. FOX, etc., et al., Defendants. FEDERAL HOME LOAN BANK BOARD, Cross-Claimant, v. Richard T. SILBERMAN, as Secretary of the Business and Transportation Agency of the State of California, Cross-Claim Defendant.

459 F. Supp. 903

GLENDALE FEDERAL SAVINGS AND LOAN ASSOCIATION, a Federally Chartered Association, Plaintiff, v. David H. FOX, etc., et al., Defendants.

FEDERAL HOME LOAN BANK BOARD, Cross-Claimant, v. Richard T. SILBERMAN, as Secretary of the Business and Transportation Agency of the State of California, Cross-Claim Defendant.

No. 77-3274-WMB.

United States District Court, C. D. California.

November 1, 1978.

G. Howden Fraser/Terry O. Kelly, McKenna & Fitting, Los Angeles, Cal., for plaintiff.

Harold B. Shore, Washington, D. C., for Federal Home Loan Bank Bd.

W. Gary Kurtz, Deputy Atty. Gen., Los Angeles, Cal., for defendants.

ORDER

WM. MATTHEW BYRNE, Jr., District Judge.

The question presented by this motion for partial summary judgment is whether state regulation of the validity and exercisability of "due-on-sale" clauses contained in loan instruments of federal savings and loan associations executed on or after June 8, 1976, is preempted by federal law. A "due-on-sale" clause provides the lender an option to declare immediately due and payable all of the sums owed to the lender if all or any part of the real property securing the loan is sold or otherwise transferred by the borrower without the lender's prior consent.

I BACKGROUND

Glendale Federal, the plaintiff, is a federally chartered savings and loan association organized and operating under the Home Owners' Loan Act of 1933, as amended, 12 U.S.C. Section 1461, et seq. (hereinafter "HOLA"). The Federal Home Loan Bank Board (hereinafter "the Bank Board"), defendant and cross-claimant, is an independent agency of the United States in the Executive Branch, 12 U.S.C. § 1437(b), which, under authority delegated by Congress through Section 5(a) of the HOLA, is responsible for the chartering, examining, supervision, and regulation of federal savings and loan associations. 12 U.S.C. § 1464(a).¹

The Bank Board has promulgated specific regulations regarding provisions which a federal savings and loan association shall and may include in its loan contracts. 12 C.F.R. § 545.6-11. With respect to the use of due-on-sale clauses by federal savings and loan associations the Bank Board, in April, 1976, adopted certain amendments specifically authorizing the use of such clauses and prescribing certain limitations on their exercise. 12 C.F.R. § 545.6-11(f) and (g). These regulations, which became effective June 8, 1976, state in pertinent part:

"A federal association continues to have the power to include, as a matter of contract between it and the borrower, a provision in its loan instruments whereby the association may, at its option, declare immediately due and payable all of the sums secured by the association's security instrument if all or any part of the real property securing the loan is sold or transferred by the borrower without the association's prior written consent. Except as provided in paragraph (g) of this section . . . exercise by an association of such an acceleration option (hereafter called a due-on-sale clause) shall be governed exclusively by the terms of the contract between the association and the borrower . . .." 12 C.F.R. § 545.6-11(f).²

Defendants Fox, DeClercq, and Silberman are, respectively, the Real Estate Commissioner of the State of California, a Deputy Real Estate Commissioner of the State of California, and the Secretary of the Business and Transportation Agency of the State of California. California real estate law requires that the Commissioner of Real Estate examine any proposed "subdivision,"³ and, unless there are grounds for denial, issue to the subdivider a public report authorizing the sale or lease in California of the lots or parcels within the "subdivision."⁴ The sale or lease, or offer for sale or lease, of any lots or parcels contained in a "subdivision" without first obtaining such a public report is prohibited.⁵ In connection with the examination of proposed subdivisions, the Real Estate Department requires that the developer of such subdivision identify any lender that will be providing takeout loans to prospective purchasers and submit to the Department sample copies of the lender's notes, deeds of trust, mortgages or other security instruments to be executed in connection with such take-out loans.⁶

In late June or early July, 1977, Glendale Federal agreed with the developer of a partially constructed forty unit condominium project located in California (the "Casa del Rey Project") to provide take-out loans to prospective purchasers of the units. Shortly thereafter, the developer of the Casa del Rey Project notified defendant DeClercq of the Department of Real Estate that Glendale Federal would be providing take-out loans to purchasers of units in the project and provided to DeClercq sample forms of Glendale Federal's standardized notes and deeds of trust.

In early August, 1977, Glendale Federal was contacted by a representative of the Casa del Rey Project and advised that the Department of Real Estate had determined that the standardized note and deed of trust forms of Glendale Federal were "illegal" and that Glendale Federal could not serve as the take-out lender on the project unless its note and deed of trust were revised. Thereafter, Glendale Federal was provided by the developer with a letter authored by DeClercq stating that "the sample form note and deed of trust do not conform to California Civil Code Section 2924.6," which limits the exercisability of the due-on-sale clause.⁷ Concurrent with Glendale Federal's receipt of DeClercq's letter, the association received written notice from the developer that in light of the position taken by the Department of Real Estate it would be unable to use Glendale Federal as the takeout lender on the Casa del Rey Project or on another project planned by the same developer.

Plaintiff Glendale Federal brought this action for declaratory and injunctive relief on August 30, 1977. Glendale Federal alleges that defendants failed to issue a public report in several instances because the sample notes and deeds of trust provided to the developer by Glendale Federal did not conform to California Civil Code § 2924.6. Plaintiff seeks a judgment declaring that federal law exclusively governs the validity and exercisability of the "due-on-sale" clause utilized by Glendale Federal in its loan instruments, and an injunction restraining defendants from refusing to issue a public report under the Subdivided Lands Act, or refusing to act on an application for such a public report, on the ground that the notes or deeds of trust of Glendale Federal do not conform to California Civil Code § 2924.6.

The crux of plaintiff's and cross-claimant's argument is that regulation of due-on-sale clauses in the loan instruments of federal savings and loan associations is preempted by federal law, and that defendants therefore may not refuse to issue a public report under the Subdivided Lands Act on the ground that the notes and deeds of trust of Glendale Federal do not comply with provisions of California law governing due-on-sale clauses. Defendants contend that the laws of the State of California pertaining to exercise of the due-on-sale clause apply to federal as well as state-chartered savings and loan associations located in California.⁸

Prior to June 8, 1976, the Bank Board had no regulation which specifically mentioned due-on-sale clauses. The Bank Board did have a regulation in effect from 1948 which specifically required that each "loan contract" of a federal savings and loan association "shall provide for full protection to the Federal association." 12 C.F.R. § 545.6-11 (1975). The Bank Board construed that version of 12 C.F.R. § 545.6-11 as authorizing due-on-sale clauses. See Advisory Opinion of Federal Home Loan Bank Board, Resolution No. 75-647, In The Matter of Schott v. Mission Federal Savings and Loan Association. Glendale Federal and the Bank Board contend in this action that this regulation and the scheme of regulation by the Board prior to June 8, 1976, precluded the application of California law to limit the exercisability of due-on-sale clauses in loan instruments of federal associations. This contention is not before the court on this motion, and the court expresses no view as to its merit. This motion seeks only a declaration that the Bank Board's present regulation respecting due-on-sale clauses, 12 C.F.R. § 545.6-11(f) and (g), exclusively governs the validity and exercisability of those clauses contained in loan instruments executed by federal associations on or after June 8, 1976. The court, for the reasons set forth below, concludes that 12 C.F.R. § 545.6-11(f) and (g) have, since June 8, 1976, preempted state regulation of due-on-sale clauses in the loan instruments of federal associations.

II THE DOCTRINE OF PREEMPTION

The doctrine of federal preemption stems from the Supremacy Clause of the Constitution: "This Constitution, and the Laws of the United States which shall be made in Pursuance thereof . . . shall be the supreme Law of the Land . .." U.S.Const. art. VI, cl. 2. Under that clause, "occupation of a legislative `field' by Congress in the exercise of a granted power is a familiar example of its constitutional power to suspend state laws." Parker v. Brown, 317 U.S. 341, 350, 63 S.Ct. 307, 313, 87 L.Ed. 315 (1942). When such preemption occurs, any state law is inapplicable to an issue which arises in that "field." Meyers v. Beverly Hills Federal Savings and Loan Ass'n, 499 F.2d 1145, 1146 (9th Cir. 1974).

The Supreme Court has indicated that when a State's exercise of its police power is challenged under the Supremacy Clause, "we start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress." Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947); Jones v. Rath Packing Co., 430 U.S. 519, 525, 97...