Brown v. Wells Fargo Bank, N.A.

869 F.Supp.2d 51

Latawnya BROWN, Plaintiff,

v.WELLS FARGO BANK, N.A., Defendant.

Civil Action No. 11–1156 (BJR).

United States District Court, District of Columbia.

June 22, 2012.

Ian Stumpf, Jimmy R. Howell, Jr., JR Howell & Associates, Washington, DC, for Plaintiff.

Paul A. Kaplan, Womble Carlyle Sandridge & Rice, PLLC, Washington, DC, for Defendant.

MEMORANDUM OPINION

Granting in Part and Denying in Part Defendant's Motion to Dismiss

BARBARA JACOBS ROTHSTEIN, District Judge.

Latawnya Brown (“Brown”) brings suit against Wells Fargo Bank, N.A. (“Wells Fargo” or “the Bank”), alleging that World Savings Bank (“World”) committed fraud and violated the District of Columbia Consumer Protection Procedures Act (“CPPA”) during the process of refinancing a loan she obtained from World. Wells Fargo, the successor to World as a result of a series of corporate mergers, moves to dismiss Brown's complaint under Federal Rule of Civil Procedure 12(b)(6), arguing that the claims are preempted by the Home Owners' Loan Act of 1933, 12 U.S.C. §§ 1461 et seq. (“HOLA” or “the Act”), and that two of her counts are precluded by a class-action settlement agreement with certain defendants, including World. Upon consideration of the motion, the opposition thereto, and the record of the case, the Court concludes that Wells Fargo's motion should be granted in part and denied in part.¹

I. BACKGROUND

In late 2006, Brown sought a mortgage from World Savings Bank to refinance a property in Washington, D.C. Compl. ¶ 13; Ex. B at 1, 3. On January 3, 2007, Brown entered into an Option Adjustable Rate Mortgage (“ARM”) loan agreement, which is also known as a “Pick–A–Pay” loan because the borrower can choose from several payment options.²Id. ¶¶ 31–32. The original balance of the loan was $750,000. Id. ¶ 12. Brown avers that Wells Fargo falsified the loan documents by overstating her income and assets. She also claims that Wells Fargo put her in a coercive situation by not allowing her time to review the documents at closing. Id. ¶¶ 109–10. Brown further alleges that Wells Fargo failed to disclose the actual payment amounts and interest rate which she would owe, as well as the fact that the actual amount and rates would cause negative amortization. Id. ¶¶ 97–98. She goes on to claim that the entire Pick–A–Pay product is illegal. In addition to common law claims, she asserts violations of the CPPA.

Wells Fargo moves to dismiss all of Brown's claims, arguing that they are preempted by the Home Owners' Loan Act of 1933, 12 U.S.C. §§ 1461 and that the class action settlement in In re Wachovia Corp. “Pick–A–Payment” Mortg. Mktg. and Sales Practices Litig., 2011 WL 1877630 (N.D.Cal. May 17, 2011) precludes Brown's assertion of Counts I and III of the complaint, which allege fraud and CPPA violations.³ In response, Brown contends that her claims are not subject to preemption or claim preclusion.⁴ The Court concludes that, while defendant is correct as to most of Brown's complaint, certain claims should survive its motion to dismiss.

II. LEGAL STANDARD

Under Federal Rule of Civil Procedure Rule 12(b)(6), a defendant may move to dismiss a complaint for failure to state a claim upon which relief may be granted. Fed.R.Civ.P. 12(b)(6). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Here, Wells Fargo does not argue that Brown has failed to state a claim for fraud or violations of the CPPA. Instead, it advances the alternatively plead defenses of preemption and claim preclusion. Defendants bear the burden of proving their elements. See Taylor v. Sturgell, 553 U.S. 880, 907, 128 S.Ct. 2161, 171 L.Ed.2d 155 (2008) (concluding that defendants bear the burden of proving claim preclusion); see also5 Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1277 (3d ed. 2004); Cf. Adair v. Sherman, 230 F.3d 890, 894 (7th Cir.2000). With these standards in mind, the Court assesses the merits of defendant's defenses against Brown's allegations.

III. ANALYSIS

A. HOLA Preempts Portions of Brown's Complaint

Wells Fargo first argues that it is entitled to dismissal of Brown's claims because they are preempted by HOLA. Brown disagrees, contending that HOLA's preemptive reach does not encompass her claims. The Court agrees in part with both parties. Before parsing though each of Brown's poorly-articulated claims, the Court first establishes the preemptive reach of HOLA.

1. Preemption Under HOLA

A product of the Great Depression, HOLA was passed in 1933 and “provided for the creation of a system of federal savings and loan associations ... 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.” Fidelity Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 159–60, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982) (internal quotation marks omitted). It also sought “to provide emergency relief with respect to home mortgage indebtedness” as a “radical and comprehensive response to the inadequacies of the existing state systems.” Id. Under HOLA, the Treasury Department's Office of Thrift Supervision (“OTS”) had “plenary authority to issue regulations governing federal savings and loans.” Id. at 160, 102 S.Ct. 3014;see also Sec. Sav. & Loan Ass'n v. Director, Office of Thrift Supervision, 960 F.2d 1318, 1321 n. 8 (5th Cir.1992).⁵ Pursuant to the Act, the Director of OTS has broad authority to promulgate regulations regarding federal savings associations. See12 U.S.C. §§ 1463(a), 1464(a). These regulations preempt state law. Fidelity, 458 U.S. at 161–62, 102 S.Ct. 3014 (“Congress expressly contemplated, and approved, [OTS'] promulgation of regulations superseding state law.”). One such regulation, 12 C.F.R. § 560.2(a), provided that OTS “occupied the field” of lending regulation.⁶

Section 560.2(b) provides “[i]llustrative examples” of the types of laws HOLA preempts. 12 C.F.R. § 560.2(b). In parts relevant to the case before the Court, it lists “the types of state laws preempted by paragraph (a) of this section.” Id. These include, “without limitation, state laws purporting to impose requirements regarding:

(4) The terms of credit, including amortization of loans and the deferral and capitalization of interest and adjustments to the interest rate, balance, payments due, or term to maturity of the loan, including the circumstances under which a loan may be called due and payable upon the passage of time or a specified event external to the loan;

(5) Loan-related fees, including without limitation, initial charges, late charges, prepayment penalties, servicing fees, and overlimit fees; ...

(9) Disclosure and advertising, including laws requiring specific statements, information, or other content to be included in credit application forms, credit solicitations, billing statements, credit contracts, or other credit-related documents and laws requiring creditors to supply copies of credit reports to borrowers or applicants; ...

(10) Processing, origination, servicing, sale or purchase of, or investment or participation in, mortgages;

(11) Disbursements and repayments[.]

Id.

In the next section of the governing regulation, § 560.2(c) lists the types of state laws that are not preempted “to the extent that they only incidentally affect the lending operations of federal savings associations or are otherwise consistent with the purposes of paragraph (a) of [§ 560.2].” 12 C.F.R. § 560.2(c). Those relevant to this case include contract, commercial, and tort law as well any other state law that OTS finds “(i) Furthers a vital state interest; and (ii) Either has only an incidental effect on lending operations or is not otherwise contrary to the purposes expressed in [12 C.F.R. 560.2(a) ].” Id.⁷

To aid navigation of this three-tiered test, OTS provided guidance on how a challenged law should be analyzed for preemption. The agency instructs:

When analyzing the status of state laws under § 560.2, the first step will be to determine whether the type of law in question is listed in paragraph (b). If so, the analysis will end there; the law is preempted. If the law is not covered by paragraph (b), the next question is whether the law affects lending. If it does, then, in accordance with paragraph (a), the presumption arises that the law is preempted. This presumption can be reversed only if the law can clearly be shown to fit within the confines of paragraph (c). For these purposes, paragraph (c) is intended to be interpreted narrowly. Any doubt should be resolved in favor of preemption.61 Fed.Reg. 50951–01, 50966–67 (Sept. 30, 1996).

In other words, if the law at issue in plaintiff's claim falls into one of the categories enumerated in § 560.2(a), then it is preempted. If it does not fall into one of the enumerated categories but affects lending, a presumption of preemption arises that is reversed only if the law fits within the confines of § 560.2(c). In turn, § 560.2(c) excepts from preemption listed state laws that only incidentally affect the lending operations of federal savings associations or are otherwise consistent with the purposes of paragraph (a).

2. Brown's Claims and HOLA

Within this framework, Wells Fargo argues that Brown's common-law fraud claims fall under several of the enumerated examples in § 560.2(b), specifically (4), (5), (9), (10), and (11), and outside the narrow exceptions in § 560.2(c). As well, the Bank contends that Brown's CPPA claims are also preempted under § 560.2(b). In response, Brown argues that HOLA does not preempt her claims because they are based on laws of general applicability that only incidentally affect regulated lending activities.⁸ After...