Washington Mutual Bank, Fa v. Superior Court

• Decision Date: 24 January 2002
• Docket Number: No. B151669.,B151669.
• Citation: 115 Cal.Rptr.2d 765,95 Cal.App.4th 606
• Parties: (WASHINGTON MUTUAL BANK, FA, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent; Steven Guilford et al., Real Parties in Interest.
• Court: California Court of Appeals Court of Appeals

115 Cal.Rptr.2d 765

95 Cal.App.4th 606

(WASHINGTON MUTUAL BANK, FA, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent; Steven Guilford et al., Real Parties in Interest.

No. B151669.

Court of Appeal, Second District, Division 2.

January 24, 2002.

As Modified February 15, 2002.

Stroock & Stroock & Lavan, Julia B. Strickland, Lisa M. Simonetti, Los Angeles, and JiAe Kim, for Petitioner.

No appearance for Respondent.

Lieff, Cabraser, Heiraann & Bernstein, William B. Hirsch, Barry R. Himmelstein, David L. Fiol, Girard & Green, Robert S. Green, San Francisco, Gordon M. Fauth, Jr. and Rosemary M. Rivas, Newark, for Real Parties in Interest.

BOREN, P.J.

Petitioner, Washington Mutual Bank, FA (Washington Mutual) is a federally chartered savings and loan association organized and operating under the Home Owners' Loan Act (HOLA).¹ (12 U.S.C. § 1461 et seq.) Washington Mutual seeks a writ of mandate directing the trial court to vacate an order overruling Washington Mutual's demurrers to those causes of action contained within real parties' classaction complaints alleging violations of Civil Code section 2948.5 (Section 2948.5),² the Consumers Legal Remedies Act (Civ.Code, § 1750 et seq.) and California's Unfair Practices Act (UPA). (Bus. & Prof.Code, § 17200 et seq.) Each of these counts is premised on the theory that Washington Mutual's practice of charging pre-closing interest on home loans is unlawful. We hold that such state law claims are preempted by the HOLA and the act's implementing regulations. We also hold that Section 2948.5 does not prohibit a lender from charging interest on a home loan prior to close of escrow in those instances where the lender deposits the loan proceeds into escrow by wire or electronic transfer. We will therefore issue a writ directing the superior court to set aside its order overruling Washington Mutual's demurrers.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. The complaints

Real parties Steven Guilford and Robert W. Guilford, Trustee of the Guilford Revocable Family Trust, filed a class action lawsuit against Washington Mutual on behalf of themselves and similarly situated borrowers in California and the general public. Shortly thereafter, real party Stuart C. Talley filed a similar lawsuit.³

The Guilford complaint alleged that Washington Mutual and its predecessor in interest, Home Savings of America, FSB, originated thousands of residential mortgage loans in California and, in connection with those loans, required borrowers to pay, prior to close of escrow, one day's pre-closing interest. It was asserted that this practice violated Section 2948.5 and the UPA, constituted conversion, and unjustly enriched Washington Mutual and Home Savings.

The Talley complaint alleged that Washington Mutual's practice of charging preclosing interest was in breach of the implied covenant of good faith and fair dealing, unjustly enriched Washington Mutual and Home Savings, and violated the UPA and the Consumers Legal Remedies Act.

B. Washington Mutual's demurrer

Washington Mutual demurred to those causes of action that alleged violations of the UPA, the Consumers Legal Remedies Act and Section 2948.5. Washington Mutual argued that each of these counts should be dismissed based on the doctrine of federal preemption, and that Section 2948.5 does not apply because wire and electronic transfers represent cash.

C. The trial court's ruling

The trial court overruled Washington Mutual's demurrers to those causes of action alleging violations of the UP A, the Consumers Legal Remedies Act and Section 2948.5.⁴ This petition followed.

II. ISSUES

This case presents two issues. The first is whether the HOLA, together with its implementing regulations, preempts state law claims alleging that Washington Mutual, a federal savings and loan association, violated Section 2948.5, the UPA, and the Consumers Legal Remedies Act by charging pre-closing interest on home loans. The second is whether Section 2948.5 prohibits a lender from charging interest on loan proceeds made immediately available to the borrower through escrow by wire or electronic transfer.

III. DISCUSSION

A. Standard of review

A pure legal issue of preemption is properly handled by demurrer, and its denial is properly reviewed by petition for writ of mandate. (See American Internal Group, Inc. v. Superior Court (1991) 234 Cal.App.3d 749, 755, 285 Cal.Rptr. 765.) Where, as here, the issues are tendered on undisputed facts and are purely legal in nature, it calls for the court's independent appellate review. (Ibid.)

B. General principles of preemption

Congress has the authority to preempt state law by virtue of the supremacy clause of the United States Constitution, which provides that "Laws of the United States ... shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding." (U.S. Const., art. VI, cl.2.) "Such preemption is found in `three circumstances.' [Citation.] 'First Congress can define explicitly the extent to which its enactments preempt state law.' [Citations.] `Second, in the absence of explicit statutory language, state law is pre-empted when it regulates conduct in a field that Congress intended the Federal Government to occupy exclusively.' [Citations.] `Finally, state law is pre-empted to the extent that it actually conflicts with federal law.' [Citations.]" (Smiley v. Citibank (1995) 11 Cal.4th 138, 147-148, 44 Cal.Rptr.2d 441, 900 P.2d 690.) "The critical question in any pre-emption analysis is always whether Congress intended that federal regulation supersede state law." (Louisiana Public Service Comm'n v. FCC (1986) 476 U.S. 355, 369, 106 S.Ct. 1890, 90 L.Ed.2d 369.)

C. Preemptive effect of federal regulations

Federal regulations may preempt state law just as fully as federal statutes. (Glendale Federal Sav. & Loan Ass'n v. Fox (C.D.Cal.1978) 459 F.Supp 903.) An agency may preempt state law through regulations that are within the scope of its statutory authority and that are not arbitrary. (See Louisiana Public Service Comm'n v. FCC, supra, 476 U.S. 355, 369, 106 S.Ct. 1890, 90 L.Ed.2d 369 ["Pre-emption may result not only from action taken by Congress itself; a federal agency acting within the scope of its congressionally delegated authority may preempt state regulation"].)

D. The presumption of non-preemption

In an area of law traditionally occupied by the states, such as the exercise of a state's police powers, we begin with the presumption that these laws are not superseded by a federal act unless Congress's intent to preempt is clear and manifest. (California v. ARC America Corp. (1989) 490 U.S. 93, 101, 109 S.Ct. 1661, 104 L.Ed.2d 86.) Laws concerning consumer protection, such as the UPA and the Consumers Legal Remedies Act, are included within the states' police power and thus subject to this heightened presumption against preemption. (See Ibid., Smiley v. Citibank, supra, 11 Cal.4th 138, 44 Cal.Rptr.2d 441, 900 P.2d 690, Spielholz v. Superior Court (2001) 86 Cal.App.4th 1366, 1371-1372, 104 Cal.Rptr.2d 197.) The party claiming federal preemption bears the burden of establishing it. (See Wells Fargo Bank v. Superior Court (1991) 53 Cal.3d 1082, 1109, 282 Cal.Rptr. 841, 811 P.2d 1025 (cone. opn. of Kennard, J.).)

E. Real parties' state law claims

Washington Mutual, a federally chartered savings association, transfers funds into escrow by wire or electronic transfer and begins charging interest one business day prior to the close of escrow. Real parties claim that this practice violates three state statutes. The first, Section 2948.5, provides that when the purchaser of a one- to four-unit residential dwelling takes out a mortgage and the lender deposits the loan proceeds into escrow, the lender may not begin charging interest on the loan before the close of escrow unless the lender deposits the funds in cash or by other specified methods. The second, the UPA (Bus. & Prof.Code, § 17200), prohibits unlawful, unfair and fraudulent business practices. The third, the Consumers Legal Remedies Act (Civ.Code, § 1750 et seq.), prohibits deceptive practices in consumer transactions.

F. The HOLA and regulations thereunder

The federal law claimed by Washington Mutual to expressly preempt Section 2948.5, the UPA, and the Consumers Legal Remedies Act is the HOLA, together with regulations promulgated by the Office of Thrift Supervision (OTS), the agency charged with administering the act.

The Home Owner's Loan Act of 1933 was a product of the Great Depression of the 1930's. The act was "intended `to provide emergency relief with respect to home mortgage indebtedness' at a time when as many as half of all home loans in the country were in default. [Citations.] Local institutions that had previously supplied funds to finance homes had ceased doing business or had discontinued such long-term loans, so that more than half the counties in the country, containing almost one-fifth of the total population, were without home-financing institutions. [Citations.] [¶] In order to ameliorate these conditions, Congress enacted the HOLA, `a radical and comprehensive response to the inadequacies of the existing state systems.' [Citation.] The Act provided for the creation of a system of federal savings and loan associations, which would be regulated by the [Federal Home Loan Bank Board] so as to ensure their vitality as `permanent associations to promote the thrift of the people in a cooperative manner to finance their homes and the homes of their neighbors.' [Citations.]" (Fidelity Federal Sav. & Loan Assn. v. de la Cuesta (1982) 458 U.S. 141, 159-160, 102 S.Ct. 3014, 73 L.Ed.2d 664 (Fidelity Federal).)

Congress gave the Federal Home Loan Bank Board (FHLBB) the following plenary authority to issue regulations governing federal savings and loans: "`In order to provide local mutual thrift...