Konynenbelt v. Flagstar Bank

• Decision Date: 03 October 2000
• Docket Number: Docket No. 214784.
• Citation: 242 Mich. App. 21,617 N.W.2d 706
• Parties: Mark KONYNENBELT, Paul C. Coolsen, Judy L. Coolsen, and Thomas F. Lampane, Plaintiffs-Appellees, v. FLAGSTAR BANK, FSB, f/k/a First Security Savings Bank, Defendant-Appellant, and Ameribank Federal Savings, Sparta State Bank, and Fleet Finance, Inc., Defendants.
• Court: Court of Appeal of Michigan — District of US

617 N.W.2d 706

242 Mich. App. 21

Mark KONYNENBELT, Paul C. Coolsen, Judy L. Coolsen, and Thomas F. Lampane, Plaintiffs-Appellees, v. FLAGSTAR BANK, FSB, f/k/a First Security Savings Bank, Defendant-Appellant, and Ameribank Federal Savings, Sparta State Bank, and Fleet Finance, Inc., Defendants.

Docket No. 214784.

Court of Appeals of Michigan.

Submitted January 12, 2000, at Grand Rapids.

Decided July 25, 2000, at 9:00 a.m.

Released for Publication October 3, 2000.

Bowerman, Bowden, Haring & Moothart, P.C. (by Jonathan R. Moothart), Traverse City, and Twohey Maggini (by David Schoolenberg), Grand Rapids, for the plaintiffs.

Honigman Miller Schwartz and Cohn (by Ronald S. Longhofer, Detroit, and Sandra L. Jasinski, Lansing), for the defendant.

Before MARKEY, P.J., and MURPHY and R.B. BURNS¹, JJ.

PER CURIAM.

Defendant Flagstar Bank, FSB, formerly known as First Security Savings Bank (Flagstar) appeals by leave granted from the trial court's order denying its motion for summary disposition to dismiss plaintiffs' consumer protection lawsuit, which has been certified as a class action. In this case, we are asked to decide whether the trial court erred in denying Flagstar's motion for summary disposition for a lack of subject-matter jurisdiction because the Home Owners' Loan Act (HOLA), 12 U.S.C. 1461 et seq., and the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA), 12 U.S.C. 1735f-7a, preempt plaintiffs' claims, which are based on state law. We affirm.

I. FACTS

This appeal arises out of Flagstar's practice of charging its customers who have prepaid a mortgage a $9 fee to reimburse Flagstar for the $9 fee charged by the register of deeds to record a discharge of a mortgage. Plaintiffs in this case signed residential real estate mortgages in favor of Flagstar to secure loans to purchase real property in Michigan. The mortgage signed by each plaintiff stated, in part, that "[u]pon payment of all sums secured by this Security Instrument, Lender shall prepare and file a discharge of this Security Instrument without charge to Borrower." After signing the mortgages, plaintiffs decided to prepay their respective mortgages and requested prepayment statements from Flagstar. In each of the respective prepayment statements, Flagstar itemized the costs and fees due for each plaintiff to prepay the mortgage. One of the fees identified on the prepayment statements was a $9 "recording fee," which Flagstar admittedly charges its borrowers to reimburse Flagstar for the $9 fee charged by the register of deeds to record a discharge of a mortgage.

Subsequently, plaintiffs filed this lawsuit against Flagstar, objecting to Flagstar's practice of charging the $9 recording fee. In their complaint, plaintiffs raised several state law claims, alleging primarily that Flagstar had breached its covenant in the mortgages because Flagstar had promised to "file a discharge of this Security Instrument without charge to Borrower," and that Flagstar had violated M.C.L. § 565.41; MSA 26.558(1), which provides:

A mortgagee or his personal representative, successor or assign, within 90 days after a mortgage has been paid or otherwise satisfied and discharged, shall prepare and file a discharge thereof with the register of deeds for the county where the mortgaged property is located and pay the fee for recording the discharge.

Plaintiffs assert that by state law and by the terms of the mortgage itself, Flagstar is obligated to incur this recording fee expense and not pass it on to its customers as part of the "net amount due" in a prepayment statement. Overall, Flagstar collected over $269,000 in recording fees.

Subsequently, Flagstar moved for summary disposition pursuant to MCR 2.116(C)(4), arguing that Michigan courts lack subject-matter jurisdiction because Flagstar is a federal savings bank that is regulated by federal law, and the federal law preempts the state law that is the basis of plaintiffs' claims. Specifically, Flagstar argued that the HOLA, 12 U.S.C. 1461 et seq., gives plenary and exclusive authority to the Office of Thrift Supervision (OTS) to regulate all aspects of a federal savings bank, including real estate lending operations, and that this broad delegation of authority amounted to a preemption of state law. Flagstar also asserted that the DIDMCA, 12 U.S.C. 1735f-7a, preempts any state law that limits charges that may be assessed or taken in connection with federally related mortgage loans, including M.C.L. § 565.41; MSA 26.558(1).

The trial court denied Flagstar's motion for summary disposition, stating that plaintiffs' claims were not federally preempted. Following the trial court's ruling, Flagstar sought leave to appeal the order to this Court, which was denied. Flagstar then appealed this Court's denial to our Supreme Court. Our Supreme Court granted Flagstar's application for leave and remanded this case to our Court for review as if on leave granted. 459 Mich. 866, 585 N.W.2d 300 (1998).

II. FEDERAL PREEMPTION

Under the Supremacy Clause of the United States Constitution, U.S. Const., art. VI, cl. 2, federal law preempts state law where Congress so intends. Fidelity Federal Savings & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 152, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982); Ryan v. Brunswick Corp., 454 Mich. 20, 27, 557 N.W.2d 541 (1997). State courts are deprived of subject-matter jurisdiction where the principles of federal preemption apply. Ryan, supra.

"However, there is a strong presumption against preemption of state law, and preemption will be found only where it is the clear and unequivocal intent of Congress." Martinez v. Ford Motor Co., 224 Mich.App. 247, 252, 568 N.W.2d 396 (1997).

Congressional intent to preempt state law may be express or implied. Fidelity Federal, supra at 152-153, 102 S.Ct. 3014; Ryan, supra at 28, 557 N.W.2d 541.

If express, the intent of Congress to preempt state law must be clearly stated in the statute's language or impliedly contained in the statute's structure and purpose. In the absence of express preemption, implied preemption may exist in the form of conflict or field preemption. Conflict preemption acts to preempt state law to the extent that it is in direct conflict with federal law or with the purposes and objectives of Congress. Field preemption acts to preempt state law where federal law so thoroughly occupies a legislative field that it is reasonable to infer that Congress did not intend for states to supplement it. [Ryan, supra at 28, 557 N.W.2d 541 (citations omitted).]

In the present case, Flagstar is a federal savings bank as defined by the HOLA. 12 U.S.C. 1462(5) and 1464. Accordingly, Flagstar's business practices, including those concerning residential real estate mortgages are subject to a comprehensive statutory and regulatory scheme enforced by the OTS, an office within the United States Department of Treasury. There is no dispute in this case that both the HOLA and the DIDMCA govern Flagstar. As previously stated, we must now decide whether plaintiffs' state law claims are preempted by the HOLA and the DIDCA.

III. PREEMPTION UNDER THE HOLA

Flagstar argues that the trial court erred in denying its motion for summary disposition because plaintiffs' state law claims are preempted by the HOLA. We disagree. This Court reviews the grant or denial of a motion for summary disposition de novo. Groncki v. Detroit Edison Co., 453 Mich. 644, 649, 557 N.W.2d 289 (1996). Further, the existence of subject-matter jurisdiction and a determination of preemption, which involves statutory interpretation, are likewise reviewed de novo. Thomas v. United Parcel Service, 241 Mich.App. 171, 614 N.W.2d 707 (2000); Cherry Growers, Inc. v. Agricultural Marketing & Bargaining Bd., 240 Mich.App. 153, 160, 610 N.W.2d 613 (2000).

The HOLA was enacted by Congress to create a system of federal savings and loan associations. Fenning v. Glenfed, Inc., 40 Cal.App.4th 1285, 1291, 47 Cal.Rptr.2d 715 (1995). The Federal Home Loan Bank Board² was formed as an independent regulatory agency in 1932 and thereafter was vested with plenary authority to administer the HOLA. Fidelity Federal, supra at 144, 102 S.Ct. 3014.

Section 5(a) of the HOLA, 12 U.S.C. § 1464(a) ..., empowers the ... [Bank] Board, "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.'" Pursuant to this authorization, the Board has promulgated regulations governing "the powers and operations of every Federal savings and loan association from its cradle to its corporate grave." [Fidelity Federal, supra at 145, 102 S.Ct. 3014, quoting People v. Coast Federal Savings & Loan Ass'n, 98 F.Supp. 311, 316 (S.D.Cal., 1951).]

In 1983, the bank board promulgated 12 C.F.R. 545.2 to codify the preemptive effect of the bank board's regulations. Fenning, supra. 12 C.F.R. 545.2 provides:

The regulations in this Part 545 are promulgated pursuant to the plenary and exclusive authority of the Office to regulate all aspects of the operations of Federal savings associations, as set forth in section 5(a) of the [Home Owners' Loan] Act. This exercise of the Office's authority is preemptive of any state law purporting to address the subject of the operations of a Federal savings association. [12 C.F.R. 545.2 (emphasis added).]

Thus, any state law "purporting to address the subject of the operations" of a federal savings association is preempted. Accordingly, the question with which this Court is faced is whether plaintiffs' claims, which are based on M.C.L. § 565.41; MSA 26.558(1) and other state law, in effect, "purport[ ] to address the subject of the operations" of Flagstar.

A. Express Preemption

Flagstar asserts that the HOLA and the regulations promulgated pursuant to the act expressly preempt plaintiffs' claims because the claims purport to govern what...