Derenco, Inc. v. Benj. Franklin Federal Sav. and Loan Ass'n
| Decision Date | 21 March 1978 |
| Citation | 281 Or. 533,577 P.2d 477 |
| Parties | DERENCO, INC., a Nevada Corporation, Respondent-Cross-Appellant, v. BENJ. FRANKLIN FEDERAL SAVINGS AND LOAN ASSOCIATION, a corporation, Appellant-Cross-Respondent. |
| Court | Oregon Supreme Court |
[281 Or. 534-C] James H. Clarke, of Dezendorf, Spears, Lubersky & Campbell, Portland, argued the cause for appellant/cross-respondent. With him on the briefs were C. E. Wheelock, of Wheelock, Niehaus, Baines, Murphy & Oglivy; Wayne Hilliard and Vawter Parker, Portland.
James Kirkham Johns, Portland, argued the cause for respondent/cross-appellant. With him on the brief [281 Or. 534-D] were Henry A. Carey, Michael A. Corn, Edward L. Fitzgibbon, and James W. Morrell, Portland.
John R. Faust, Jr., of Hardy, Buttler, McEwen, Weiss & Newman, Portland, filed a brief for amicus curiae Oregon Savings and Loan League.
Before DENECKE, C. J., and HOLMAN, HOWELL, LENT, and LINDE, JJ.
This is an interlocutory appeal accepted by this court under ORS 13.400. Plaintiff, Derenco, Inc., filed suit upon behalf of itself and others for an accounting of profits. The suit was certified by the trial court as a class action. The court found for plaintiff and ordered an accounting. Both sides seek review to secure a final determination of controlling issues before entertaining statements of claim from class members under ORS 13.260(2) and proceeding to judgment under ORS 13.380.
Defendant is a federally chartered savings and loan association engaged in making loans on single family dwellings. This suit, brought upon behalf of borrowers from defendant, claimed entitlement to the income derived from defendant's investment of funds deposited with it by borrowers for the payment of taxes and insurance premiums on their dwellings. With each month's payment of interest and principal on his loan, each borrower also deposited one-twelfth of the amount estimated to be required annually for taxes and insurance premiums. At the end of the period of accumulation, defendant used the deposits to pay the taxes and insurance premiums. During the period of accumulation defendant used the funds as its own, and it is reimbursement for this use which is in question here.
Plaintiff instituted this suit in July of 1974. We are concerned with the period commencing six years prior to that time. Not all of the security instruments used by defendant during the relevant period had the same provisions for prepayment of taxes and insurance premiums. The "conventional" mortgage form, used by defendant until February 1, 1972, contained the following language:
* * *." (Emphasis added.)
On February 1, 1972, there were inserted into the conventional mortgage form set forth above the words emphasized in the following excerpt:
" * * * The monies so deposited by Mortgagors shall be credited to a non-interest bearing reserve account, and Mortgagee is herewith authorized * * *."
The trial judge required an accounting by defendant on the reserve accounts established through both of these forms on the theory that defendant was the borrowers' agent. 1
In addition, a third form was required by the Federal Housing Administration (FHA) on loans which it insured, which form contained the following language:
" * * * such sums to be held by the Beneficiary in trust to pay said ground rents, premiums, taxes and special assessments, before the same become delinquent * * *." (Emphasis added.)
The trial judge required an accounting on reserve accounts established through this form on the theory that the instrument created a trust relationship. 2
On the question of the appropriate remedy, the trial judge held that because the exact amount of earnings enjoyed by defendant for its own purposes as a result of its use of the reserve accounts could not be ascertained, and because defendant had incurred some expense in administering the account and in investing the funds, it was equitable for defendant to pay interest on the reserve account funds at the same rate as that which defendant paid to depositors on ordinary demand savings accounts during the same period of time.
We will first consider an issue of consequence which may obviate all other problems, depending upon how it is decided. Defendant contends that the relevant federal law in this area has a preemptive effect and that the state is therefore precluded from regulating defendant's activities via enforcement of the common law. This contention is based upon the following language from Article VI of the United States Constitution, which language is known as the supremacy clause:
The federal scheme in the present case is designed "to provide local mutual thrift institutions in which people may invest their funds * * * to provide for the financing of homes." 12 U.S.C. § 1464. Federal savings and loan associations are by federal statute subject to regulation by the Federal Home Loan Bank Board (the Board). 3 The primary enabling statute provides that the Board
" * * * is authorized, under such rules and regulations as it may prescribe, to provide for the organization, incorporation, examination, operation, and regulation of associations to be known as 'Federal Savings and Loan Associations', and to issue charters therefor * * *." 12 U.S.C. § 1464(a).
Pursuant to this grant of authority, the Board has promulgated detailed regulations concerning many aspects of a federal association's operations. 4 Since 1938 it has authorized tax and insurance premium reserve accounts. As amended in 1958, the regulation which applied until after the filing of this case, 12 C.F.R. § 545.6-11, provided that each loan contract of a federal association
(Emphasis added.)
The regulations also required that such accounts be maintained for loans of more than 80 per cent of the value of the security. 12 C.F.R. § 545.6-11(a)(4) (iii). The question of the authority of a federal association to use funds deposited in reserve accounts as its own, or of its duty to compensate borrowers for such use, was not addressed under these earlier versions of the regulation. After the commencement of this suit, however, in an amendment to section 545.6-11 (12 C.F.R. § 545.6-11(c)), effective June 16, 1975, the Board required federal associations to pay interest 5 (not earnings) on such accounts if the parties provide for it in their agreement or, in the case of loans made after the regulation's effective date, if a state statute imposes a similar duty on locally authorized associations. 6 The amendment then provides:
"Except as provided by contract, a Federal association shall have no obligation to pay interest on escrow accounts apart from the duties imposed by this paragraph."
The regulations at no time say anything specifically about the right of an association to use the funds deposited.
Defendant's specific contention concerning preemption is stated thus:
If the contention that the regulations preclude payment of interest or earnings is based on that part of the 1975 amendment to the regulation quoted above, we reject it insofar as it relates to the period before the effective date of the amendment. There is no indication of any intention that the regulation be retroactive, and we do not so construe it. 7
Finding no express preclusion of state regulation in this area, we turn to a more detailed analysis of the bases upon which state regulation may be preempted. Unfortunately, the United States Supreme Court has not adopted a uniform approach to preemption issues. Many of the cases are inconsistent with each other, but it is extremely rare that a case is overruled. The result is a variety of methods of dealing with preemption problems and some guesswork as to which analysis will be employed in a given case. One point that may "excuse" the apparent confusion and inconsistency in the cases in that the particular circumstances of each case are of compelling importance in reaching a decision. Since the language and...
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