Martinez v. Mortgage

• Decision Date: 09 March 2010
• Docket Number: No. 07-17277.,07-17277.
• Citation: 598 F.3d 549
• Parties: Armando MARTINEZ; Alinda Martinez, on behalf of themselves and a class of others similarly situated,Plaintiffs-Appellants, V. WELLS FARGO HOME MORTGAGE, INC.; WFC Holdings Corporation; Wells Fargo & Company; Wells Fargo Financial Services, Inc., Defen-dants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

598 F.3d 549

Armando MARTINEZ; Alinda Martinez, on behalf of themselves and a class of others similarly situated, Plaintiffs-Appellants, V. WELLS FARGO HOME MORTGAGE, INC.; WFC Holdings Corporation; Wells Fargo & Company; Wells Fargo Financial Services, Inc., Defen-dants-Appellees.

No. 07-17277.

United States Court of Appeals

Ninth Circuit.

Argued and Submitted Dec. 9, 2009.

Filed March 9, 2010.

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Timothy G. Blood, Joseph D. Daley Leslie E. Hurst, and Thomas J. O'Reardon II, Coughlin Stoia Geller Rudman & Robbins LLP, on behalf of plaintiffs-appellants Armando and Alinda Martinez.

Robert B. Bader, Thomas M. Hefferon and William F. Sheehan, Goodwin Procter LLP, on behalf of defendants-appellees Wells Fargo Bank, N.A., Wells Fargo Home Mortgage, Inc., Wells Fargo Financial Services, Inc., and Wells Fargo Real Estate Tax Services, LLC.

Appeal from the United States District Court for the Northern District of California, Ronald M. Whyte, District Judge, Presiding. D.C. No. CV-06-03327-RMW/RS.

Before: MARY M. SCHROEDER and CONSUELO M. CALLAHAN, Circuit Judges, and BARBARA M.G. LYNN, ^* District Judge.

LYNN, District Judge:

I. Introduction

Plaintiffs Alinda and Armando Martinez (the "Martinezes") seek review of the dismissal of their claims under Section 8(b) of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2607(b), and California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof.Code §§ 17200 et seq. The Martinezes contend that RESPA Section 8(b)'s prohibition against "unearned fees" reaches the "overcharging" allegedly committed by Wells Fargo in this case. They also argue that Wells Fargo's conduct was "unfair, " "fraudulent" and "illegal, " all in violation of the UCL.

We affirm the dismissal of the RESPA claim because the clear and unambiguous language of RESPA Section 8(b) does not reach the practice of "overcharging." We affirm the dismissal of the three UCL state law claims because the claims alleging "unfair" and "fraudulent" conduct are preempted by the National Bank Act, and because the allegations of "illegal" conduct fail to state a claim.

II. Facts and Procedural Background

According to the complaint, the Martinezes refinanced their California home mortgage loan through Wells Fargo. Wells Fargo charged the Martinezes an underwriting fee of $800 for the refinancing.¹ The Martinezes allege that this fee was excessive because it was not reasonably related to Wells Fargo's actual costs of performing the underwriting, and thus violated RESPA Section 8(b) and Califor nia's UCL. This allegation of excessive fees is also referred to as an "overcharge."²

The Martinezes first sought to intervene in an earlier lawsuit filed in New York, in which identical claims were being alleged against Wells Fargo. The New York district court dismissed the case. See Kruse v. Wells Fargo Home Mortgage, Inc., 383 F.3d 49, 54 (2d Cir.2004) (discussing the district court's decision, which was delivered orally from the bench). On appeal the Second Circuit affirmed in part and remanded, holding that RESPA Section 8(b) clearly and unambiguously does not apply to excessive fees charged by a lender. See id. at 56, 62. On remand, the Martinezes attempted to intervene. The district court denied intervention. See Kruse v. Wells Fargo Home Mortgage Inc., No. 02-3089, 2006 WL 1212512, **37, 2006 U.S. Dist. LEXIS 26092, at *12-21 (E.D.N.Y. May 3, 2006).

The Martinezes then brought this action on behalf of a nationwide class of similarly situated home mortgage borrowers, ³ alleging that Wells Fargo marked up certain charges and overcharged for services in connection with mortgage loans, in violation of federal and state law.

The district court granted Wells Fargo's motion to dismiss the claims for RESPA overcharge and UCL violations. It held, as to the RESPA claim, that even if Wells Fargo had overcharged the Martinezes for its services, it did not violate RESPA Section 8(b) in doing so because Wells Fargo provided a service in exchange for the fee.

It also held that the Martinezes' claims of "unfair" and "fraudulent" conduct under the UCL were preempted by the National Bank Act and related federal regulations, and dismissed the third UCL claim of "unlawful" conduct because the Martinezes failed to identify an underlying illegal predicate act.

The Martinezes appeal the district court's dismissal of the RESPA "overcharge" claim and the three UCL-related claims.

III. Analysis

This Court reviews issues of statutory interpretation and preemption de novo. Silvan v. E*Trade Mortgage Corp., 514 F.3d 1001, 1004 (9th Cir.2008). A district court's decision to grant a motion to dismiss for failure to state a claim is also reviewed de. novo. Decker v. Advantage Fund Ltd., 362 F.3d 593, 595-96 (9th Cir. 2004) (citation omitted).

A. The “Overcharge" Claim under RESPA

The Martinezes allege that the $800 underwriting fee charged by Wells Fargo violates Section 8(b) of RESPA, which provides:

(b) Splitting charges. No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.

12 U.S.C. § 2607(b).

The Department of Housing and Urban Development ("HUD"), which Congress authorized to administer RESPA, ⁴ inter prets this section as prohibiting overcharges. See RESPA Statement of Policy 2001-1, 66 Fed.Reg. 53, 052, 53, 057-58 (Oct. 18, 2001) (citing 24 C.F.R. § 3500.14(g)(2) ("If the payment of a thing of value bears no reasonable relationship to the market value of the goods or services provided, then the excess is not for services or goods actually performed or provided.")).

Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), established a two-step test for judicial review of an agency's construction of a statute it administers. First, the court must consider "whether Congress has directly spoken to the precise question at issue." Id. at 842, 104 S.Ct. 2778. If the intent of Congress is clear, the inquiry ends, because the court "must give effect to the unambiguously expressed intent of Congress." Id. at 842-43, 104 S.Ct. 2778. But if a court concludes that the statute is "silent or ambiguous with respect to the specific issue, " the court must consider whether the agency's interpretation of the ambiguous provision is "based on a permissible construction of the statute." Id. at 843, 104 S.Ct. 2778. At the second step, the court must accord "considerable weight" to the agency's interpretation of a statutory scheme it is entrusted to administer. Id, at 844, 104 S.Ct. 2778.

The language of Section 8(b) prohibits only the practice of giving or accepting money where no service whatsoever is performed in exchange for that money: "No person shall give and no person shall accept... any charge made or received... other than for services actually performed." 12 U.S.C. § 2607(b) (emphasis added). By negative implication, Section 8(b) cannot be read to prohibit chargingfees, excessive or otherwise, when those fees are for services that were actually performed.⁵

Although this is an issue of first impression in this circuit, ⁶ three other circuits have considered whether a mortgage lender or other settlement service provider violates RESPA Section 8(b) by charging "excessive" fees for a settlement service it provided, and all have held that it does not. See Friedman v. Mkt, St. Mortgage, 520 F.3d 1289, 1291 (11th Cir.2008) (holding that "subsection 8(b) does not apply to settlement fees that are alleged to be excessive"); Santiago v. GMAC Mortgage Group, Inc., 417 F.3d 384, 385 (3d Cir. 2005) (finding that "RESPA does not provide a cause of action for overcharges"); Kruse, 383 F.3d at 56 ("We conclude that section 8(b) clearly and unambiguously does not extend to overcharges.").

The reasoning of the Kruse court is particularly instructive here because it involved claims against Wells Fargo that are identical to those alleged by the Martinezes.⁷ The Second Circuit ruled in Kruse that, whatever its size, the alleged overcharge by Wells Fargo was "for" the services actually rendered by Wells Fargo and received by the borrowers, and therefore was not prohibited by Section 8(b). 383 F.3d at 56.

We join our sister circuits in holding that the text of Section 8(b) is unambigu ous and does not extend to overcharges, and therefore we do not reach the second step of a Chevron analysis by determining if HUD's interpretation warrants deference.

B. The Unfair Competition Law Claims

California's Unfair Competition Law Cal. Bus. & Prof.Code §§ 17200 et seq., prohibits business acts or practices that are "unlawful, " "unfair, " or "fraudulent." Id, § 17200. Each of these three prongs constitutes a separate and independent cause of action. See Cel-Tech Commc'ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal.4th 163, 83 Cal.Rptr.2d 548, 973 P.2d 527, 539-40 (1999) (citations omitted).

The Martinezes allege that Wells Fargo: (1) committed "unfair" competition by overcharging underwriting fees and marking up tax service fees; (2) engaged in "fraudulent" practices by failing to disclose actual costs of its underwriting and tax services; and (3) that these actions violated multiple state and federal laws, which predicate violations are independently actionable under the UCL as "unlawful" conduct.

1. Preemption by the National Bank Act

The National Bank Act (the "Act") vests national banks such as Wells Fargo withauthority to exercise "all such incidental powers as shall be necessary to carry on the business of banking." 12 U.S.C. § 24 (Seventh). Real estate lending is expressly designated as part of the business of banking. 12 U.S.C. § 371(a).

As the agency charged with administering the Act, the Office of the Comptroller of the Currency ("OCC") has the...