Glendale Federal Sav. and Loan Ass'n v. Fox

• Decision Date: 17 October 1979
• Docket Number: No. CV 77-3274-WMB.,CV 77-3274-WMB.
• Citation: 481 F. Supp. 616
• 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.

481 F. Supp. 616

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. CV 77-3274-WMB.

United States District Court, C. D. California.

June 20, 1979.

As Amended June 26 and October 17, 1979.

COPYRIGHT MATERIAL OMITTED

Evelle J. Younger, Atty. Gen., Joseph M. O'Heron, W. Gary Kurtz, Deputy Attys. Gen., Los Angeles, Cal., for plaintiff.

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

ORDER

WM. MATTHEW BYRNE, Jr., District Judge.

A "due-on-sale" clause in a loan instrument 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.¹ This action involves the question whether state regulation of the validity and exercisability of due-on-sale clauses contained in the loan instruments of federal savings and loan associations executed after June 8, 1976, is preempted by federal law.

I. BACKGROUND

Plaintiff, Glendale Federal Savings and Loan Association ("Glendale Federal"), 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 ("the Bank Board") defendant and cross-claimant, is an independent agency of the United States in the Executive Branch, 12 U.S.C. Section 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).²

The Bank Board has promulgated regulations specifying the 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) & (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).³

Defendants Fox, DeClercq, and Silberman (hereafter "state defendants") 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,"⁴ 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.⁵ 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.⁶ In connection with the examination of a proposed subdivision, the Real Estate Department requires that the developer of such subdivision identify any lender that will be providing take-out 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.⁷

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 due-on-sale clauses.⁸ 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 take-out lender on the Casa del Rey Project or on another project planned by the same developer.

Glendale Federal alleges in its complaint that defendants failed to issue a public report in this and other instances because the sample notes and deed of trust provided to the developer by Glendale Federal did not conform to California Civil Code Section 2924.6. The complaint 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 Section 2924.6. Glendale Federal has abandoned its claim for injunctive relief in light of state defendants' statement that it is not now their policy to deny public reports on this basis.⁹ See United States v. W. T. Grant, 345 U.S. 629, 73 S.Ct. 894, 897, 97 L.Ed. 1303 (1953).

Defendants' motion to dismiss the action was denied on April 11, 1978. The Bank Board answered and admitted all the allegations of the complaint and filed a crossclaim against the state defendants. The cross-claim sought a declaratory judgment that federal law preempts state regulation of due-on-sale clauses both before and after the promulgation of 12 C.F.R. Sections 545.6-11(f) & (g).¹⁰ On March 6, 1979, the court, with the consent of the Bank Board, dismissed that portion of the cross-claim that sought declaratory relief with regard to the pre-regulation period, pursuant to Rule 41(a)(2) of the Federal Rules of Civil Procedure.

On November 1, 1978, the court granted Glendale Federal's and the Bank Board's motion for partial summary judgment. The court held as follows:

"Federal law, including specifically 12 C.F.R. § 545.6-11(f) & (g), exclusively governs the validity and exercisability of due-on-sale clauses included in Glendale Federal's loan instruments executed on and after June 8, 1976. California law on the validity and exercisability of due-on-sale clauses is inapplicable to Glendale Federal's loan instruments executed on and after June 8, 1976." Glendale Federal Savings and Loan Ass'n v. Fox, 459 F.Supp. 903, 912 (C.D.Cal.1978).

The court reasoned that "the language, history, structure, and purpose of the Home Owners' Loan Act evidence a clear Congressional intent to delegate to the Bank Board complete authority to regulate federal savings and loan associations and to preempt state regulation," and that the Bank Board, in promulgating 12 C.F.R. § 545.6-11(f) & (g), had exercised this preemptive authority. Id. at 910-12.

Glendale Federal and the Bank Board have now moved for summary judgment and entry of final judgment. They urge that the court's ruling on the motion for partial summary judgment and the court's denial of state defendants' motion to dismiss, which raised each of the affirmative defenses contained in state defendants' answer, dispose of all of the issues in the action and render entry of final judgment appropriate. State defendants contend that genuine issues of material fact remain with regard to their affirmative defenses. State defendants are correct in their contention that the court's denial of their motion to dismiss does not, in itself, dispose of any factual issues raised by their defenses. See United States v. Students Challenging Regulatory Agency Procedures (SCRAP), 412 U.S. 669, 690, 93 S.Ct. 2405, 37 L.Ed.2d 254 (1973); Simon v. Eastern Ky. Welfare Rights Organization, 426 U.S. 26, 96 S.Ct. 1917, 48 L.Ed.2d 450 (1976). Such issues may, however, be resolved on a motion for summary judgment. See Simon v. Eastern Ky. Welfare Rights Organization, supra, 96 S.Ct. at 1924, n. 15. State defendants have in fact offered no evidence by way of affidavit, deposition testimony, or exhibits that materially changes the posture of the issues raised by the motion to dismiss. For the reasons set forth below, the court finds that no genuine issue of material fact remains,...