Branick v. Downey Sav. And Loan Ass'n

24 Cal.Rptr.3d 406

126 Cal.App.4th 828

Thomas BRANICK, et al., Plaintiffs and Appellants, v. DOWNEY SAVINGS AND LOAN ASSOCIATION, Defendant and Respondent.

No. B172981.

Court of Appeal, Second District, Division 5.

February 9, 2005.

Review Granted April 27, 2005.

Milberg Weiss Bershad & Schulman, Jeff S. Westerman, Los Angeles, Sabrina S. Kim, Peter Sloane, New York, NY; Kiesel, Boucher & Larson, Raymond D. Boucher, Patrick DeBlase, Anthony M. DeMarco, Beverly Hills; Lerach Coughlin Stoia Geller Rudman & Robbins, and Pamela Parker, San Diego, for Plaintiffs and Appellants.

Hodel Briggs Winter, Matthew A. Hodel, Irvine,and Michael S. Leboff, Costa Mesa, for Defendant and Respondent.

MOSK, J.

INTRODUCTION

In this case we hold that claims against a savings and loan association brought under Business and Professions Code¹ sections 17200 and 17500 and based upon allegations that, in effect, the savings and loan association breached contractual terms and made misrepresentations in conducting its business, are not preempted by federal law. We also hold that Proposition 64, enacted by the California electorate on November 3, 2004, which amended sections 17200 et seq. and 17500 et seq. to eliminate the statutory grant of standing to bring actions to enforce those provisions to persons who did not suffer actual injury, applies to actions that were filed but not finally resolved before November 3, 2004, the effective date of the amendments. Finally, we hold that if a plaintiff filed a representative action under section 17200 or 17500 on behalf of the general public before November 3, 2004 and cannot meet the standing requirements under the statutes as amended by Proposition 64, the plaintiff may, at the trial court's discretion, be entitled to amend the complaint to substitute a plaintiff who meets the standing requirements. Accordingly, we reverse the judgment and remand the matter for further proceedings.

BACKGROUND

Plaintiffs and appellants Thomas Branick and Ardra Campbell (plaintiffs) filed a lawsuit against defendant and respondent Downey Savings and Loan Association (Downey), alleging claims under sections 17200 and 17500² on behalf of the general public concerning certain practices in which Downey engaged with respect to real estate financing transactions. In an amended complaint filed on February 3, 2003, plaintiffs alleged that Downey engaged in unfair competition under section 17200 by (1) "misrepresenting the amount of government recording fees necessary to record documents incident to real estate transactions"; (2) "acquiescing in the title companies' systematic overcharging and double charging of governmental document recording fees"; (3) "charg[ing] ... for recording substitutions of trustees, even though it had no legal or contractual entitlement to do so"; (4) "charg[ing] ... fees for recording reconveyances, including document recording fees, even though no third party was engaged to accomplish the reconveyances, in violation of its trust deeds"; and (5) "collecting the recording fee to record reconveyances twice in conjunction with title companies." Under section 17500, plaintiffs alleged that Downey engaged in unfair competition by (1) "Overstating ... the amounts of governmental recording fees necessary to record all documents needing to be recorded"; (2) "Misrepresenting ... that it must collect governmental document recording fees for the recording of reconveyances though [Downey] knew the title company would also demand such fee from sellers and refinancers"; (3) "Misrepresenting ... that it could collect fees for recording substitutions of trustee even though [Downey] knew it had no legal or contractual authorization to do so"; (4) "Misrepresenting ... that it could collect fees for recording reconveyances, including document recording fees, even when no third party was engaged to accomplish the reconveyances, though this violated its trust deeds which did not authorize defendant to charge for any fees associated with a reconveyance unless the defendant engaged a third party to prepare and/or record the reconveyance." Plaintiffs do not allege that they personally engaged in any real estate financing transaction with Downey, nor do they allege that they personally suffered any injury as a result of Downey's alleged unfair competition. Instead, they allege that they bring their claims as a representative action on behalf of the general public.

Downey moved for judgment on the pleadings on the ground that plaintiffs' claims are preempted by federal law, specifically by the Home Owners' Loan Act³ (the HOLA) and by regulations promulgated under the HOLA by the Office of Thrift Supervision (the OTS). The trial court granted Downey's motion and entered judgment against plaintiffs. Plaintiffs appeal from that judgment, arguing that the trial court erred in finding their claims preempted.

DISCUSSION

A. Standard of Review

"`Because a motion for judgment on the pleadings is similar to a general demurrer, the standard of review is the same. [Citation.] We treat the pleadings as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.'" (DiPirro v. American Isuzu Motors, Inc. (2004) 119 Cal.App.4th 966, 972, 14 Cal.Rptr.3d 787.) We review the complaint de novo, giving the complaint's factual allegations a liberal construction, to determine whether it states a cause of action under any legal theory. (Ibid.; see also Burnett v. Chimney Sweep (2004) 123 Cal.App.4th 1057, 1065, 20 Cal.Rptr.3d 562.) And "[b]ecause a motion for judgment on the pleadings, like a demurrer, raises only questions of law, we may consider new theories on appeal to challenge or justify the trial court's ruling. [Citations.] `[W]e review the trial court's disposition of the matter, not its reasons for the disposition.'" (Burnett, at p. 1065, 20 Cal.Rptr.3d 562.)

B. Federal Preemption

Under the supremacy clause of the federal Constitution, Congress has the authority to preempt state law. (U.S. Const., art. VI, cl. 2.) However, "`"[i]t will not be presumed that a federal statute was intended to supersede the exercise the power of the state unless there is a clear manifestation of intention to do so."' [Citations.] Accordingly, `[w]hether federal law preempts state law is fundamentally a question whether Congress has intended such a result.' [Citation.] Congressional intent to preempt may be either express or implied, i.e., either "`explicitly stated in the statute's language or implicitly contained in its structure and purpose.'" [Citation.] However, courts are `generally reluctant to infer preemption....' [Citation.]" (Gibson v. World Savings and Loan Assn. (2002) 103 Cal.App.4th 1291, 1296-1297, 128 Cal.Rptr.2d 19 (Gibson).)

Federal regulations may preempt state law just as fully as federal statutes. (Washington Mutual Bank v. Superior Court (2002) 95 Cal.App.4th 606, 612, 115 Cal.Rptr.2d 765.) "A regulation's preemptive effect `does not depend on express congressional authorization to displace state law. [Citation.] Instead, the determinative issues are whether (1) the agency intended its regulation to have a preemptive effect and (2) the agency acted within the scope of its congressionally delegated authority by issuing the preemptive regulation." (Gibson, supra, 103 Cal.App.4th at p. 1297, 128 Cal.Rptr.2d 19.) Because the interpretation of statutes and administrative regulations are questions of law, "we determine the preemptive effect of either statutes or regulations independently [citation], without deferring to the trial court's conclusion or limiting ourselves to the evidence of intent considered by the trial court. [Citation.]" (Ibid.)

In the present case, the trial court determined that plaintiffs' claims were preempted by federal law, finding that the HOLA "occupies the field of lending regulation for federal savings associations and pre-empts the allegations of this case." On appeal, Downey argues that the trial court's determination was correct because 12 Code of Federal Regulations section 560.2⁴ (Regulation 560.2), a regulation promulgated by the OTS under the authority of the HOLA (specifically, under section 1464 of title 12 of the United States Code), expressly preempts "all state laws affecting the lending operations of federal savings and loan associations," including California's unfair competition law to the extent it is applied to those lending operations. Plaintiffs, on the other hand, argue that their claims sound in contract and tort law, and are the kinds of claims that are not preempted by Regulation 560.2. Plaintiffs are correct.

In Gibson, supra, 103 Cal.App.4th 1291, 128 Cal.Rptr.2d 19, the Fourth District Court of Appeal was presented with the same issue presented in this case, i.e., whether Regulation 560.2 preempted claims alleged under California's unfair competition law based upon allegations that the savings and loan association (1) charged borrowers for certain amounts in violation of the terms of the borrowers' deeds of trust and (2) failed to disclose that it was charging more for certain items than the association paid for those items. After a thorough analysis under United States Supreme Court precedent and under the formula suggested by the OTS, the Gibson court held there was no preemption.

The court in Gibson explained that under the relevant precedents, "[w]e `"must fairly but — in light of the strong presumption against pre-emption — narrowly construe the precise language of [the preemptive statute or regulation] and we must look to each of [the plaintiffs' state] law claims to determine whether it is in fact pre-empted."' [Citations.] As to each state law claim, the central inquiry is whether the legal duty that is the predicate of the claims constitutes a requirement or prohibition of the sort that federal law expressly preempts." (Gibson, supra, 103 Cal.App.4th at p. 1301, 128 Cal.Rptr.2d 19.) Applying this...