Gibson v. World Savings & Loan Assn.
| Decision Date | 27 November 2002 |
| Docket Number | No. E029823.,E029823. |
| Court | California Court of Appeals Court of Appeals |
| Parties | Harry GIBSON et al., Plaintiffs and Appellants, v. WORLD SAVINGS AND LOAN ASSOCIATION, Defendant and Respondent. |
Stroock & Stroock & Lavan, Julia B. Strickland, Lisa M. Simonetti, Los Angeles, and Andrew W. Moritz, for Western League of Savings Institutions as Amicus Curiae on behalf of Defendant and Respondent.
Carolyn J. Buck, Chief Counsel, Thomas J. Segal, Deputy Chief Counsel and Paul K. Hutson, Senior Attorney, for The Office of Thrift Supervision as Amicus Curiae on behalf of Defendant and Respondent.
In a class action accusing a federally chartered savings association of committing unfair business practices, the trial court found that federal law preempts the plaintiffs' claim and entered judgment in favor of the defendant. The plaintiffs appeal. Finding that the trial court's belief that the action was preempted was mistaken and that the defendant has not demonstrated any other ground on which to affirm the judgment, we reverse.
In April of 1996, Harry Gibson and Joyce A. Gibson, on behalf of themselves and all other persons similarly situated, sued World Savings and Loan Association. In substance, the complaint alleges: that the potential class members are borrowers under secured loans made or serviced by World; that those borrowers failed to maintain hazard insurance on the real property securing the loans; that although it was entitled to simply reinstate the borrowers' insurance policies, World purchased replacement hazard insurance ("forced order insurance" or "FOI") from an insurer of its own choice; that those FOI policies were much more expensive than the borrowers' policies; that World benefited financially from purchasing the more expensive policies; and that by charging the borrowers for the full price of the FOI policies, World violated the terms of the borrowers' deeds of trust, which authorized World to advance funds on behalf of the borrowers only to the extent necessary to protect World's rights. On the basis of those allegations, the complaint prays for relief on the theories of breach of contract, breach of the implied covenant of good faith and fair dealing, unfair business practices, conversion, unjust enrichment, and declaratory relief.
In August of 1999, the plaintiffs dismissed all claims except that for injunctive relief and restitution under the unfair competition law (Business and Professions Code section 17200, et seq.; "UCL") for World's allegedly unfair business practices. Thereafter, the plaintiffs abandoned their claim for injunctive relief. Accordingly, the issues presented by plaintiffs at trial were whether World's FOI charges violated the UCL and, if so, the amount of the restitution to be ordered. By that time, the plaintiffs had abandoned any challenge to World's decision to buy FOI policies rather than to reinstate the plaintiffs' less expensive policies. Instead, they argued that the amounts World charged to the plaintiffs for FOI were too high because they included the cost both of replacement hazard insurance and of administrative services provided to World by the FOI insurer. They also argued that World had falsely represented that the FOI premiums charged to the plaintiffs were equal to the real cost of that insurance to World. In response, World contended that the plaintiffs' contentions are preempted by federal law, that the plaintiffs' challenge to FOI premiums can only be resolved by the California Department of Insurance ("CDI"), that its practices are not unfair or deceptive, and that restitution is not a proper remedy.
The trial court found that World is a federally chartered savings association and that it purchases FOI from Balboa Insurance Company. The premium charged to World by Balboa includes, not only the cost of the replacement hazard insurance, but also the administrative costs associated with tracking hazard insurance coverage. Moreover, the defaulting borrowers were not charged merely for those tracking services relating to their particular loans. Instead, the premiums compensated Balboa for tracking World's entire loan portfolio, including loans to which the FOI program could not apply.
The trial court concluded, however, that the plaintiffs' challenge to World's practice of charging its defaulting borrowers for the entire bundle of services provided to it by Balboa is preempted by federal law. Were it not preempted from doing so, the court said, it would have found that, by charging its defaulting borrowers an insurance premium that includes unrelated tracking costs that benefit only World, World had violated the terms of the plaintiffs' deeds of trust and had engaged in unfair business practices under Business and Professions Code section 17200.
In accordance with its finding of preemption, the trial court entered judgment in favor of World. The plaintiffs appeal.
The plaintiffs and an amicus curiae on their behalf, the California Attorney General, contend that the trial court erred in concluding that the plaintiffs' challenge to World's FOI practices is preempted by federal law. World and an amicus curiae in support of its position, the federal Office of Thrift Supervision, dispute that contention. In addition, World and a second amicus curiae on its behalf, the Western League of Savings Institutions ("League"), contend that, not only is the action preempted, but even if it were not, judgment in its favor would still be required. In particular, they argue that the judgment should be affirmed because: the plaintiffs' claim is within the primary jurisdiction of the California Department of Insurance ("CDI"); the matter is within the exclusive jurisdiction of the Insurance Commissioner; the claim is barred by the "filed rate" doctrine; the plaintiffs are improperly seeking damages rather than restitution; World's FOI practices are not unfair; and the enforcement of the claim would constitute improper microeconomic regulation of business.
The federal Constitution directs that "the Laws of the United States ... shall be the supreme Law of the Land ...; any Thing in the Constitution or Laws of any State to the Contrary notwithstanding." (U.S. Const., art. VI, cl. 2.) State laws can be contrary to, and thus preempted by, federal law (Silkwood v. Kerr-McGee Corp. (1984) 464 U.S. 238, 248, 104 S.Ct. 615, 78 L.Ed.2d 443.)
"`It will not be presumed that a federal statute was intended to supersede the exercise of the power of the state unless there is a clear manifestation of intention to do so.'" (New York Dept. of Social Services v. Dublino (1973) 413 U.S. 405, 413, 93 S.Ct. 2507, 37 L.Ed.2d 688, quoting Schwartz v. Texas (1952) 344 U.S. 199, 202-203, 73 S.Ct. 232, 235, 97 L.Ed. 231.) Accordingly, "[w]hether federal law preempts state law is fundamentally a question whether Congress has intended such a result." (Peatros v. Bank of America (2000) 22 Cal.4th 147, 157, 91 Cal. Rptr.2d 659, 990 P.2d 539.) Congressional intent to preempt may be either express or implied, i.e., either "`explicitly stated in the statute's language or implicitly contained in its structure and purpose.'" (Fidelity Federal Sav. & Loan Assn. v. de la Cuesta (1982) 458 U.S. 141, 152-153, 102 S.Ct. 3014, 3022, 73 L.Ed.2d 664.) However, courts are "generally reluctant to infer preemption...." (Exxon Corp. v. Governor of Maryland (1978) 437 U.S. 117, 132, 98 S.Ct. 2207, 2217, 57 L.Ed.2d 91.)
Preemption may result, not only from action taken by Congress itself, but also from action by a federal agency. (Louisiana Public Service Com'n v. F.C.C. (1986) 476 U.S. 355, 369, 106 S.Ct. 1890, 1898-1899, 90 L.Ed.2d 369.) A regulation's preemptive effect "does not depend on express congressional authorization to displace state law." (Fidelity Federal Sav. & Loan Assn. v. de la Cuesta, supra, 458 U.S. at p. 154, 102 S.Ct. 3014.) Instead, the determinative issues are whether (1) the agency intended its regulation to have a preemptive effect and (2) the agency acted within the scope of its congressionally delegated authority by issuing the preemptive regulation. (Ibid.) So long as those conditions are met, "[f]ederal regulations have no less pre-emptive effect than federal statutes." (Id, p. 153, 102 S.Ct. 3014.)
"`[T]he construction of statutes and the ascertainment of legislative intent are purely questions of law.'" (...
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