Van Der Molen v. Washington Mut. Finance

• Decision Date: 04 October 2005
• Docket Number: No. 1-04-0400.,1-04-0400.
• Citation: 835 N.E.2d 61
• Parties: Paul VAN DER MOLEN, Plaintiff-Appellant, v. WASHINGTON MUTUAL FINANCE, INC., Washington Mutual Mortgage Securities Corporation., and Washington Mutual, F.A., Defendants-Appellees.
• Court: Illinois Supreme Court

Page 61

835 N.E.2d 61

Paul VAN DER MOLEN, Plaintiff-Appellant, v. WASHINGTON MUTUAL FINANCE, INC., Washington Mutual Mortgage Securities Corporation., and Washington Mutual, F.A., Defendants-Appellees.

No. 1-04-0400.

Appellate Court of Illinois, First District, Fourth Division.

May 12, 2005.

Rehearing Denied October 4, 2005.

Law Offices of David G. Harding, Chicago (David G. Harding, of counsel), for Appellant.

Jenner & Block LLP, Chicago (Matthew M. Neumeier and John P. Wolfsmith, of counsel), for Appellees.

Presiding Justice REID delivered the opinion of the court:

Paul Van Der Molen brought this action to recover damages for violation of sections 4(2) and 6 of the Illinois Interest Act (815 ILCS 205/4(2) 6 (West 2002)). He also sought damages for alleged violations of sections 2 and 10a(a) of the Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/2, 10a(a) (West 2002)). Van Der Molen claims Washington Mutual Finance, Inc. (WMFI), Washington Mutual Mortgage Securities Corp. (WMMS), and Washington Mutual, FA (WMFA) (known collectively as Washington Mutual), charged illegal, concealed and misrepresented interest in his residential mortgage loan transaction. He also claims Washington Mutual breached the contract between the parties for failure to complete a compromise of those claims as agreed between the parties prior to the filing of this action. Counts I and II of the second amended complaint were dismissed based on defendants' motion pursuant to section 2-619 of the Illinois Code of Civil Procedure (735 ILCS 5/2-619 (West 2002)). Count III was dismissed pursuant to section 2-615 of the Illinois Code of Civil Procedure (735 ILCS 5/2-615 (West 2002)). For the reasons that follow, we affirm.

BACKGROUND

In October 1999, Van Der Molen applied for a $750,000 loan to be secured by a mortgage on his personal residence. That loan closed on December 23, 1999. At the time of the application for the loan, Van Der Molen received and signed a receipt for a disclosure prepared by Washington Mutual. According to Van Der Molen, the disclosure was prepared in blank. He claims he received no further disclosure until the time of the closing. Van Der Molen also claims that the loan application was made to an organization identified as Washington Mutual. At the time of the loan, WMFI and WMMS each used the name "Washington Mutual." Both WMFI and WMMS were operating under the authority conferred upon them by the Illinois Secretary of State. WMFI and WMMS have, since the filing of the original complaint, identified WMFA as an entity not subject to registry with the Illinois Secretary of State that was the entity ultimately disbursing the funds pursuant to the loan. Van Der Molen claims he was not made aware that WMFA would disburse the funds until the closing date.

Washington Mutual disputes Van Der Molen's explanation of the facts chronicled thus far. According to Washington Mutual, Van Der Molen received full disclosure of the fees that could be assessed against him in connection with this mortgage loan. According to Washington Mutual, the fact that WMFA would be the lender for the loan was clearly evidenced on the mortgage.

Van Der Molen refinanced his 1999 loan in February 2001. He was charged and subsequently paid a prepayment penalty of $15,000 as part of the amount required to pay off that loan. Van Der Molen filed the original complaint on November 27, 2002. That complaint was amended on March 19, 2003, to add WMFA as a defendant. On August 13, 2003, the trial court struck the amended complaint with leave to plead over. On September 10, 2003, Van Der Molen filed the instant second amended complaint, which added a third count for "account stated/accord." In count I, Van Der Molen alleged that the imposition of the prepayment fee and the inclusion, after the second monthly payment, of a variable interest rate violated the regulations of the Illinois Interest Act. In count II, Van Der Molen alleged that the prepayment fee and variable interest rate constituted a violation of the Consumer Fraud Act. Finally in count III, Van Der Molen alleges that the defendants agreed to repay the prepayment fee but failed to adhere to that agreement.

The trial court subsequently entertained the defendants' motion to dismiss. Based on section 2-619, Washington Mutual moved to dismiss, claiming state law regulating the imposition and disclosure of loan-related fees is expressly preempted by the Home Owners' Loan Act (12 U.S.C. § 1461 et seq. (2000)) and its implementing regulations (12 C.F.R. § 560.1 et seq. (2000)). Washington Mutual also moved to dismiss count III pursuant to section 2-615. Washington Mutual argues that the second amended complaint fails to state a claim upon which relief might be granted and, in the alternative, that the claims were barred by the voluntary payment doctrine and waiver. The trial court, in dismissing the second amended complaint, found that WMFA was the lender and that there was no claim stated as against WMMS and WMFI. The trial court did not reach the question of whether Van Der Molen's claims are precluded by Illinois' voluntary payment doctrine or were waived. The trial court originally intended to merely grant the section 2-615 motion without prejudice, but Van Der Molen inexplicably declined the opportunity to plead over. The trial court changed the dismissal to one with prejudice, ostensibly at the request of the plaintiff.

ANALYSIS

Preemption

Van Der Molen argues that the trial court erred in concluding that the State law had been preempted by federal law. He argues that he received and signed a truth-in-lending statement in blank. As a result, he argues no disclosure was made to him at all. Van Der Molen argues that Washington Mutual stepped outside its shield in making a loan without the required substantial disclosures. He argues they should not now be allowed to cloak itself in the protections of the regulations by which it previously failed to abide. Van Der Molen argues that his case should stand on its own merits, even without examination of the implicit preservation of remedies. He maintains the regulatory agency applicable to this case is the Office of Thrift Supervision (OTS). That agency's regulations expressly preserve state law remedies, including those for usury, where those remedies are equally applicable to all state-chartered entities. He argues that the Illinois Interest Act makes illegal certain charges in connection with loans of money. As these are uniformly applicable to lenders in Illinois and no lender is exempted by law from the Illinois Interest Act, the Act makes those charges illegal, even under preemptive OTS regulation.

Washington Mutual responds that the trial court appropriately recognized that only WMFA is a proper defendant in this action. Washington Mutual argues that it is immaterial that Van Der Molen asserts he was unsure of the identity of the entity with which he dealt, because the substance of his allegations arises from the issuance of the mortgage. As a result, the allegations in the complaint can only be maintained against the lender on the actual mortgage. Only the lender made or failed to make the requisite disclosures, changed the variable interest rate and imposed the prepayment fee. Because it has been conclusively established by the trial court that WMFA is the lender, any allegation pointing at an entity other than WMFA must be disregarded.

Washington Mutual also responds that federal law absolutely preempts counts I and II of the second amended complaint. Washington Mutual argues that Van Der Molen is attempting to fashion an exception to established precedent that mandates preemption. Contrary to Van Der Molen's assertions, nothing in the federal law or regulations prohibits the imposition of a prepayment fee where the interest rate exceeds 8% or the charging of an adjustable interest rate. Washington Mutual points to the OTS regulations that provided that "[s]ubject to the terms of the loan contract, a Federal savings association may impose a fee for any prepayment of a loan." 12 C.F.R. § 560.34 (2004). Stripped of state regulations, Van Der Molen has no claim for the return of the interest or the prepayment fee. Congress has expressly delegated to the OTS the authority to preempt state laws as they apply to the lending operations of federal savings associations. Washington Mutual argues the broad preemption by the OTS applies here. This preemption is not affected by the purported magnitude of the alleged violations claimed. Washington Mutual argues it is similarly not affected by the mention of a purported violation of federal law. Even if there were a violation of the Truth In Lending Act (15 U.S.C. § 1601 (2000) (TILA)). Washington Mutual argues it would only be remediable under federal law. This flies in the face of Van Der Molen's alternative contention that federal law does not preclude his seeking a remedy under state law for the violation of TILA. Washington Mutual responds that this is an inaccurate characterization of Van Der Molen's claim and overlooks the fact that there is a federal remedy that is in the purview of the OTS. Washington Mutual claims that Van Der Molen has failed to avail himself of the federal remedies and no longer can because the statute of limitations has elapsed.

As to claims of usury, Washington Mutual argues Van Der Molen has failed to raise them below, leading to waiver of the issue. However, Washington Mutual also responds to the usury claim, arguing it is not applicable to these facts. As with national banks, Congress and the OTS have created an exclusive federal remedy. In so doing, the terms "usury" and "interest rate ceilings" have been generally preempted. Washington Mutual believes Van Der Molen is attempting to preserve claims concerning a prepayment penalty and the timing of the first change in the adjustable interest rate, but he is actually...