Wfs Financial, Inc. v. Superior Court, C051414.

CourtCalifornia Court of Appeals
Citation44 Cal.Rptr.3d 561,140 Cal.App.4th 637
Decision Date15 June 2006
Docket NumberNo. C051414.,C051414.
PartiesWFS FINANCIAL, INC., Petitioner, v. The SUPERIOR COURT of San Joaquin County, Respondent; Jose F. De La Cruz, Real Party in Interest.
44 Cal.Rptr.3d 561
140 Cal.App.4th 637
WFS FINANCIAL, INC., Petitioner,
The SUPERIOR COURT of San Joaquin County, Respondent;
Jose F. De La Cruz, Real Party in Interest.
No. C051414.
Court of Appeal, Third District.
June 15, 2006.

[44 Cal.Rptr.3d 563]

Morrison & Foerster, Michael J. Agoglia, Jay Thomson, San Francisco, for Petitioner.

No appearance for respondent.

Kemnitzer, Anderson, Barron & Ogilvie, Carol McLean Brewer, Andrew J. Ogilvie, San Francisco; Herum Crabtree Brown, James Belford Brown, for real party in interest.


Petitioner, WFS Financial, Inc., a California corporation, (WFS) is an operating subsidiary of Western Financial Bank, a federal savings association, both of which operate under the Home Owners' Loan Act (HOLA).1 (12 U.S.C. § 1461 et seq.) Real party in interest Jose De La Cruz (De La Cruz) is a purchaser of a motor vehicle, whose automobile loan was assigned to WFS by the automobile dealer. When De La Cruz defaulted on his loan, WFS repossessed the vehicle, gave notice of its intent to dispose of the vehicle by private sale, sold the vehicle, and filed suit against De La Cruz for the deficiency between the sale price and remaining balance due, including various costs and fees. De La Cruz answered the complaint alleging

44 Cal.Rptr.3d 564

he was not liable for any deficiency as the notice of intent to dispose of the motor vehicle sent by WFS did not contain all the disclosures required by the Rees-Levering Automobile Sales Finance Act (Rees-Levering). (Civ.Code, § 2981 et seq.) De La Cruz also filed a class action cross-complaint against WFS alleging WFS's practice of collecting deficiency claims and judgments obtained as the result of giving defective notices was an unfair business practice within the meaning of California's Unfair Competition Law (UCL). (Bus. & Prof.Code, § 17200 et seq.; Code Civ. Proc, § 382.) WFS demurred to the cross-complaint, asserting the particular notice requirements imposed by Rees-Levering (Civ.Code, § 2983.2) do not apply to WFS because it operates exclusively under federal regulations, which preempt Civil Code section 2983.2. The trial court overruled the demurrer.

WFS seeks a writ of mandate directing the trial court to vacate its order overruling the demurrer of WFS to the cross-complaint of De La Cruz and to issue a new order sustaining the demurrer on the grounds of federal preemption. Agreeing with WFS's preemption claim, we shall issue the requested writ.

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. [Citation.] 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. [Citation.]"2 (Washington Mutual Bank v. Superior Court (2002) 95 Cal.App.4th 606, 612, 115 Cal.Rptr.2d 765 (Washington Mutual); accord Smith v. Wells Fargo Bank, N.A. (2005) 135 Cal.App.4th 1463, 1476, 38 Cal.Rptr.3d 653.)

General Principles of Federal Preemption

The preemption doctrine has its roots in the Supremacy Clause of the United States Constitution. (U.S. Const., art. VI, cl. 2; Fidelity Federal S. & L. Assn. v. de la Cuesta (1982) 458 U.S. 141, 152, 102 S.Ct. 3014, 3022, 73 L.Ed.2d 664, 674 (de la Cuesta).) Under such clause, "Congress has the power to preempt state law concerning matters that lie within the authority of Congress." (Bronco Wine Co. v. Jolly (2004) 33 Cal.4th 943, 955, 17 Cal.Rptr.3d 180, 95 P.3d 422 (Bronco).) In determining whether a state statute is preempted by federal law we must determine congressional intent. (de la Cuesta, supra, at p. 152, 102 S.Ct. at p. 3022, 73 L.Ed.2d at p. 675; California Federal Sav. & Loan Assn. v. Guerra (1987) 479 U.S. 272, 280, 107 S.Ct. 683, 689, 93 L.Ed.2d

44 Cal.Rptr.3d 565

613, 623 (Guerra); Bronco, supra, at p. 955, 17 Cal.Rptr.3d 180, 95 P.3d 422.) Congress may express its intent to preempt state law by stating so in express terms. Where Congress has not expressly stated its intent to preempt state law, its intent to preempt may still be inferred "where the scheme of federal regulation is sufficiently comprehensive to make reasonable the inference that Congress `left no room' for supplementary state regulation. [Citation.]" (Guerra, supra, at pp. 280-281, 107 S.Ct. at p. 689, 93 L.Ed.2d at p. 623; see Rice v. Santa Fe Elevator Corp. (1947) 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447, 1459 (Rice).) "As a third alternative, in those areas where Congress has not completely displaced state regulation, federal law may nonetheless pre-empt state law to the extent it actually conflicts with federal law." (Guerra, supra, at p. 281, 107 S.Ct. at p. 689, 93 L.Ed.2d at p. 623; see American Bankers Assn. v. Lockyer (E.D.Cal.2002) 239 F.Supp.2d 1000, 1007-1008 (Lockyer).)

"When Congress legislates in a field traditionally occupied by the States, `we start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.'" (California v. ARC America Corp. (1989) 490 U.S. 93, 101, 109 S.Ct. 1661, 1665, 104 L.Ed.2d 86, 94, quoting Rice, supra, 331 U.S. at p. 230, 67 S.Ct. at p. 1152, 91 L.Ed. at p. 1459, italics added; accord Cipollone v. Liggett Group (1992) 505 U.S. 504, 516, 112 S.Ct. 2608, 2617, 120 L.Ed.2d 407, 422.) The "`"historic police powers of the States"'" include consumer protection and banking. (Smiley v. Citibank (S.D.), N.A. (1995) 11 Cal.4th 138, 148, 44 Cal.Rptr.2d 441, 900 P.2d 690; see Washington Mutual, supra, 95 Cal.App.4th at p. 613, 115 Cal.Rptr.2d 765.)3 It is the party claiming federal preemption who bears the burden of demonstrating preemption. (Bronco, supra, 33 Cal.4th at p. 956, 17 Cal.Rptr.3d 180, 95 P.3d 422.)

Federal regulations may preempt state statutes just as fully as federal statutes. (de la Cuesta, supra, 458 U.S. at p. 153, 102 S.Ct. at p. 3022, 73 L.Ed.2d at p. 675; Louisiana Public Service Comm'n v. FCC (1986) 476 U.S. 355, 369, 106 S.Ct. 1890, 1899, 90 L.Ed.2d 369, 382.)

Preemption Under The HOLA And Agency Regulations

The HOLA was originally enacted after the Great Depression in the 1930's, primarily to provide home financing. (de la Cuesta, supra, 458 U.S. at pp. 159-160, 102 S.Ct. at pp. 3025-3026, 73 L.Ed.2d at p. 679.) The HOLA created a system of federal savings and loan associations, which would be regulated by the Federal Home Loan Bank Board (FHLBB), "`to promote the thrift of the people in a cooperative manner, to finance their homes and the homes of their neighbors.' [Citations.]" (Id. at p. 160, 102 S.Ct. at p. 3026, 73 L.Ed.2d at p. 679.) The HOLA provided the FHLBB with plenary authority to issue rules and regulations for the

44 Cal.Rptr.3d 566

federal savings and loan associations. (Ibid.) Indeed, the language of the HOLA expressed no limits on the FHLBB's authority to regulate the lending practices of federal savings and loan associations. (Id. at p. 161, 102 S.Ct. at p. 3026, 73 L.Ed.2d at p. 680.) "[T]he statutory language suggests that Congress expressly contemplated, and approved, the [FHLBB]'s promulgation of regulations superseding state law." (Id. at p. 162, 102 S.Ct. at p. 3027, 73 L.Ed.2d at p. 680.) It "`would have been difficult for Congress to give the [FHLBB] a broader mandate.'" (Id. at p. 161, 102 S.Ct. at p. 3026, 73 L.Ed.2d at p. 680.)

The FHLBB exercised this congressional mandate, comprehensively regulating the operations of every federal savings association, including its lending practices, "`from its cradle to its corporate grave.'" (de la Cuesta, supra, 458 U.S. at pp. 145, 166-167, 102 S.Ct. at pp. 3018, 3029, 73 L.Ed.2d at pp. 670, 683-684, quoting People v. Coast Federal Sav. & Loan Assn. (S.D.Cal.1951) 98 F.Supp. 311, 316.) According to the Ninth Circuit Court of Appeals, the FHLBB regulations were so pervasive "as to leave no room for state regulatory control." (Conference of Federal Sav. & Loan Ass'ns v. Stein (9th Cir. 1979) 604 F.2d 1256, 1260.)

In 1989 Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, amending the HOLA. (Pub.L. No. 101-73, § 1(a) (Aug. 9, 1989) 103 Stat. 183; 12 U.S.C. § 1462, et seq.) The FHLBB was replaced by the Office of Thrift Supervision (OTS). (12 U.S.C. § 1462a.) The Director of OTS was given the authority to "prescribe such regulations and issue such orders as the Director may determine to be necessary for carrying out [the HOLA]." (12 U.S.C. § 1462a, subd. (b)(2); see § 1463, subd. (a); 12 C.F.R. § 500.1.) Section 1464 of the HOLA now authorizes the Director to provide "for the organization, incorporation, examination, operation, and regulation" of federal savings associations "[i]n order to provide thrift institutions for the deposit of funds and for the extension of credit for homes and other goods and services" "giving primary consideration of the best practices of thrift institutions in the United States." (12 U.S.C. § 1464, subd. (a), italics added; 12 C.F.R. § 500.1, subd. (b).)

As relevant here, the HOLA expressly authorizes federal savings associations to invest "[t]o the extent specified in regulations of the Director" in consumer loans for "personal, family, or household purposes[.]" (12 U.S.C. § 1464, subd. (c)(2)(D); see 12 C.F.R. § 560.30.) In the Thrift Activities Regulatory Handbook Update of 2000, the OTS defines consumer loans "as credit extended to individuals for personal, family, or household purposes[,]" including "the financing or refinancing of: automobiles[.]" (2000 OTS LEXIS 1, 4.) According to the OTS consumer loans "may be secured or unsecured, open-end or closed-end, direct or indirect." (2000 OTS LEXIS 1, 8.) "When an institution originates the loan, it is a direct loan. If a seller of retail goods (dealer) originates the loan and then sells it to the institution, it...

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