Zink v. First Niagara Bank, N.A.

• Decision Date: 09 May 2014
• Docket Number: No. 13–CV–1076–A.,13–CV–1076–A.
• Citation: 18 F.Supp.3d 363
• Parties: Jeffrey ZINK, on behalf of himself and all others similarly situated, Plaintiffs, v. FIRST NIAGARA BANK, N.A., Defendant.
• Court: U.S. District Court — Western District of New York

18 F.Supp.3d 363

Jeffrey ZINK, on behalf of himself and all others similarly situated, Plaintiffs,

v.FIRST NIAGARA BANK, N.A., Defendant.

No. 13–CV–1076–A.

United States District Court, W.D. New York.

Signed May 9, 2014

Motion denied. D. Gregory Blankinship, Jeremiah Frei–Pearson, Todd S. Garber, Shin Young Hahn, Meiselman Packman Nealon Scialabba & Baker P.C., White Plains, NY, for Plaintiffs.

Jeffrey Thomas Fiut, Cynthia Giganti Ludwig, Jodyann Galvin, Hodgson Russ LLP, Buffalo, NY, for Defendant.

ORDER

RICHARD J. ARCARA, District Judge.

This case was referred to Magistrate Jeremiah J. McCarthy for pretrial proceedings pursuant to 28 U.S.C. § 636(b)(1). On January 27, 2014, Magistrate Judge McCarthy filed an Amended Report and Recommendation (Dkt. No. 51) recommending that defendant First Niagara Bank, N.A.'s, motion to dismiss (Dkt. No. 37) plaintiff Jeffrey Zink's Amended Complaint pursuant to Fed.R.Civ.P. 12(b)(6) be denied. Defendant First Niagara filed objections to the Amended Report and Recommendation primarily on the ground that federal law preempts plaintiff Zink's state law civil penalty claim for late presentment of a satisfaction of mortgage. (Dkt. No. 52).

The Court carefully reviewed the Amended Report and Recommendation, the pleadings submitted by the parties, and, after oral argument April 11, 2014, it is hereby

ORDERED, upon de novo review of defendant First Niagara's objections pursuant to 28 U.S.C. § 636(b)(1) to the Amended Report and Recommendation, and for all the reasons stated in the Amended Report and Recommendation, defendant's motion to dismiss (Dkt. No. 37) is denied.

The case is recommitted to Magistrate Judge McCarthy pursuant to the terms of the Court's prior referral order for further proceedings.

IT IS SO ORDERED.

AMENDED REPORT AND RECOMMENDATION

JEREMIAH J. McCARTHY, United States Magistrate Judge.

Defendant First Niagara Bank, N.A. (“First Niagara”) has moved to dismiss plaintiff's Amended Complaint pursuant to Fed.R.Civ.P. (“Rule”) 12(b)(6) [37].¹ That motion, being dispositive, has been referred to me by Hon. Richard J. Arcara for a Report and Recommendation [38]. Oral argument was held on January 13, 2014 [46], after which the parties made supplemental submissions [48, 49]. For the following reasons, I recommend that the motion be denied.

However, I need not decide whether the statutes “concern the processing and servicing of mortgages” unless I first find that First Niagara “made” Zink's real estate loan, for—unlike 12 U.S.C. § 371(a) and 12 C.F.R. § 34.3(a) (both expressly referred to in § 34.4(a)) which use the more expansive phrase “make, arrange, purchase, or sell loans”— § 34.4(a) applies only to banks which “make” loans. This difference in language cannot be ignored. “[W]hen the regulator uses certain language in one part of the regulation and different language in another, the court assumes different meanings were intended”. DaCosta v. Prudential Insurance Co. of America, 2010 WL 4722393 *5 (E.D.N.Y.2010).

Zink alleges that First Niagara did not make his loan, but instead acquired his mortgage by assignment from HSBC Mortgage Corporation (USA). Amended Complaint [21], ¶ 12. Therefore, I conclude that § 34.4(a) does not apply to this transaction. See Cannon v. Wells Fargo Bank N.A., 917 F.Supp.2d 1025, 1049 (N.D.Cal.2013) (“It is difficult to see how there can be preemption pursuant to § 34.4. Section 34.4(a) expressly provides that a national bank has powers with respect to ‘mak[ing] real estate loans' without regard to state law limitations.... But here, Wells Fargo did not extend a real estate loan to Plaintiffs”).³

However, even if First Niagara had made Zink's loan, I am not persuaded by the preemption analysis in Cassese and McAnaney. At issue in Cassese was 12 C.F.R. § 560.2(a), a regulation promulgated by the Office of Thrift Supervision (“OTS”) pursuant to the Home Owners' Loan Act (“HOLA”), 12 U.S.C. §§ 1461 et seq. In pertinent part, that regulation states: “OTS hereby occupies the entire field of lending regulation for federal savings associations. OTS intends to give federal savings associations maximum flexibility to exercise their lending powers in accordance with a uniform federal scheme of regulation. Accordingly, federal savings associations may extend credit as authorized under federal law, including this part, without regard to state laws purporting to regulate or otherwise affect their credit activities”.⁴ The court in Cassese reasoned that “because [ RPAPL § 1921] purport[s] to regulate or otherwise affect credit activities of federal savings associations, [it is] preempted under 12 C.F.R. § 560.2(a)”. 255 F.R.D. at 94.

McAnaney involved the application of another OTS regulation, 12 C.F.R. § 560.2(b)(10), which provides: “Illustrative examples .... the types of state laws preempted by paragraph (a) of this section include, without limitation, state laws purporting to impose requirements regarding ... (10) Processing, origination, servicing, sale or purchase of, or investment or participation in, mortgages”. The court held that RPAPL § 1921 “imposes a substantive, affirmative requirement on lenders to complete the satisfaction of a mortgage within a specific time frame, a requirement that, when applied to federal savings associations, directly impacts their lending activities, particularly with respect to the processing and servicing of mortgages, thereby making preemption warranted pursuant to 12 C.F.R. 560.2(b)(10)”. 665 F.Supp.2d at 163.

First Niagara suggests “[t]hat McAnaney and Cassese were decided under HOLA and not § 34.4(a) is a distinction without a difference. The HOLA regulation at issue in those cases is virtually identical to § 34.4(a)(10)”. First Niagara's Memorandum of Law [37–1], p. 7. However, “there are subtle differences between the regulation of savings and loan institutions and national bank associations.... Most importantly, the OCC has explicitly avoided full field preemption in its rulemaking and has not been granted full field preemption by Congress”. Gerber v. Wells Fargo Bank, N.A., 2012 WL 413997, *4 (D.Ariz.2012). Unlike the HOLA regulation [12 C.F.R. § 560.2], “the NBA rule [12 C.F.R. § 34.4(a) ] only preempts the types and features of state laws pertaining to making loans and taking deposits that are specifically listed in the regulation”. Id. (emphasis in original, citing OCC Interpretive Letter No. 1005, 2004 WL 3465750).

Therefore, the preemption analysis under the NBA (unlike HOLA) requires careful consideration of whether the requirements of RPL § 275(1) and RPAPL § 1921(1) can be considered “processing” or “servicing” of mortgages within the meaning of 12 C.F.R. § 34.4(a)(10). While Cassese holds that RPAPL § 1921 “purport[s] to regulate or otherwise affect credit activities of federal savings associations” (255 F.R.D. at 94), and McAnaney states that it relates to “the processing and servicing of mortgages” (665 F.Supp.2d at 163), neither opinion offers any textual analysis. Therefore, I “deem them to be unpersuasive because they offer no explanation” for their conclusions. United States v. Kelly, 535 F.3d 1229, 1235 n. 2 (10th Cir.2008), cert. denied, 555 U.S. 1203, 129 S.Ct. 1392, 173 L.Ed.2d 642 (2009).

“Legal authority as to what constitutes ... processing and servicing of mortgages is limited.” Munoz v. Financial Freedom Senior Funding Corp., 573 F.Supp.2d 1275, 1280 (C.D.Cal.2008). Nevertheless, a review of that authority strongly suggests that the filing of a mortgage discharge is neither “processing” nor “servicing” of the mortgage. For example, Santana v. CitiMortgage, Inc., 2006 WL 1530083 (Conn.Super.2006) (unreported decision), involved the application of Connecticut General Statutes § 49–8, which imposes a penalty upon mortgagees for untimely delivery of a mortgage release. ⁵ In concluding that § 49–8 was not preempted by HOLA, the court reasoned that “[e]xecuting a release does not occur during the lifetime of a loan, therefore it does not constitute servicing of the loan under 12 C.F.R. § [560.2](b)(10), because there is no longer a loan to service.” Id., *3. ⁶ “The executing of a release ... has no bearing on the lending requirements of a thrift, because it is not financial in nature.... Because § 49–8 does not affect lending, it is not preempted by federal law.” Id., **5–6.

In Pinchot v. Charter One Bank, F.S.B., 99 Ohio St.3d 390, 792 N.E.2d 1105 (2003), involving the application of Ohio Revised Code § 5301.36 (containing requirements virtually identical to those of RPL § 275(1) and RPAPL § 1921(1)),⁷ the court likewise held that the state statute was not preempted. The court reasoned that “in order to fall within the preemptive scope of [ 12 C.F.R.] Section 560.2, the state law in question must at least bear a concrete, logical, or substantial relation to some aspect or function of lending” ( id. at 1115), and concluded that the statute's “recording requirement cannot be realistically connected to lending practices or to the operations of savings associations because it has no concrete significance to whether and how loans are made”. Id. at 1113.⁸

Federal agencies such as the OCC “have a unique understanding of the statutes they administer and an attendant ability to make informed determinations about how state requirements may pose an obstacle to the accomplishment and execution of the full purposes and objectives of Congress”. Wyeth v. Levine, 555 U.S. 555, 577, 129 S.Ct. 1187, 173 L.Ed.2d 51 (2009). Therefore, I believe that had the OCC intended 12 C.F.R. § 34.4(a)(10) to preempt state laws relating to the filing of mortgage discharges, it would have specifically listed that activity in the regulation.⁹

Having concluded that RPL § 275 and RPAPL § 1921 are not preempted by 12 C.F.R. § 34.4(a)(10), I must next consider the possible effect of 12 C.F.R. § 34.4(b). That regulation lists categories of state laws which “are not inconsistent with the real...