Clark v. Bank of Am., N.A.

CYNTHIA CLARK, Plaintiffs, v. BANK OF AMERICA, N.A., Defendant.

Civil Case No.: SAG-18-3672

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

February 24, 2020

MEMORANDUM OPINION

Cynthia Clark ("Plaintiff") filed a Complaint on behalf of herself and a putative class of borrowers who entered into mortgage agreements with Bank of America ("BofA"). BofA filed a Motion to Dismiss, ECF 32, along with a supporting memorandum of law, ECF 32-1. BofA primarily contends that the Maryland law substantiating Plaintiff's claims is preempted by the National Bank Act ("NBA") and by regulations from the Office of the Comptroller of the Currency ("OCC"). Plaintiff filed a response, ECF 34, to which BofA filed a reply, ECF 35. I have considered all of the filings, and find that no hearing is necessary. See Loc. R. 105.6 (D. Md. 2018). For the reasons set forth below, BofA's Motion to Dismiss is granted in part and denied in part.

I. FACTUAL BACKGROUND

The facts are derived from Plaintiff's Complaint, ECF 1, and are largely undisputed. BofA is a federally-chartered bank and one of the largest mortgage lenders in the United States. ECF 1 ¶ 14. As part of its mortgage lending practice, BofA lends money to borrowers for the purchase of residential property. Id. ¶ 15. These borrowers enter into a mortgage agreement with BofA, which states that borrowers must maintain an escrow account for the payment of property-related expenses, such as property taxes and insurance premiums. Id. ¶ 18. To facilitate payment of these expenses, borrowers transfer funds to BofA, for placement into the escrow account. Id. ¶ 18.

Plaintiff purchased a house in Westminster, Maryland in or about August, 1995. Id. ¶ 27. Although Plaintiff originally financed the purchase with a loan from a different company, she entered into a new mortgage agreement, via a Deed of Trust, with BofA on or about February 13, 2013. See id. ¶ 28. The Deed of Trust provided that BofA would pay interest on escrowed funds if "Applicable Law requires interest to be paid on the Funds." Id. ¶ 29. Plaintiff has continuously made monthly mortgage payments to BofA, which has included a portion to be placed in the escrow account. Id. ¶ 31. However, BofA has not paid interest to the Plaintiff on the escrow account and, instead, has generated "float" income for itself. Id. ¶ 19, 33.

II. LEGAL STANDARD

Under Rule 12(b)(6), a defendant may test the legal sufficiency of a complaint by way of a motion to dismiss. See In re Birmingham, 846 F.3d 88, 92 (4th Cir. 2017); Goines v. Valley Cmty. Servs. Bd., 822 F.3d 159, 165-66 (4th Cir. 2016); McBurney v. Cuccinelli, 616 F.3d 393, 408 (4th Cir. 2010), aff'd sub nom., McBurney v. Young, 569 U.S. 221 (2013); Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999). A Rule 12(b)(6) motion constitutes an assertion by a defendant that, even if the facts alleged by a plaintiff are true, the complaint fails as a matter of law "to state a claim upon which relief can be granted."

Whether a complaint states a claim for relief is assessed by reference to the pleading requirements of Fed. R. Civ. P. 8(a)(2). That rule provides that a complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." The purpose of therule is to provide the defendants with "fair notice" of the claims and the "grounds" for entitlement to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007).

To survive a motion under Fed. R. Civ. P. 12(b)(6), a complaint must contain facts sufficient to "state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570; see Ashcroft v. Iqbal, 556 U.S. 662, 684 (2009) (citation omitted) ("Our decision in Twombly expounded the pleading standard for 'all civil actions' . . ."); see also Willner v. Dimon, 849 F.3d 93, 112 (4th Cir. 2017). However, a plaintiff need not include "detailed factual allegations" in order to satisfy Rule 8(a)(2). Twombly, 550 U.S. at 555. Further, federal pleading rules "do not countenance dismissal of a complaint for imperfect statement of the legal theory supporting the claim asserted." Johnson v. City of Shelby, Miss., 574 U.S. 10, 135 S. Ct. 346, 346 (2014) (per curiam).

Nevertheless, the rule demands more than bald accusations or mere speculation. Twombly, 550 U.S. at 555; see Painter's Mill Grille, LLC v. Brown, 716 F.3d 342, 350 (4th Cir. 2013). If a complaint provides no more than "labels and conclusions" or "a formulaic recitation of the elements of a cause of action," it is insufficient. Twombly, 550 U.S. at 555. Rather, to satisfy the minimal requirements of Rule 8(a)(2), the complaint must set forth "enough factual matter (taken as true) to suggest" a cognizable cause of action, "even if . . . [the] actual proof of those facts is improbable and . . . recovery is very remote and unlikely." Twombly, 550 U.S. at 556.

In reviewing a Rule 12(b)(6) motion, a court "must accept as true all of the factual allegations contained in the complaint" and must "draw all reasonable inferences [from those facts] in favor of the plaintiff." E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 440 (4th Cir. 2011) (citations omitted); see Semenova v. MTA, 845 F.3d 564, 567 (4th Cir. 2017); Houck v. Substitute Tr. Servs., Inc., 791 F.3d 473, 484 (4th Cir. 2015); Kendall v. Balcerzak, 650F.3d 515, 522 (4th Cir. 2011), cert. denied, 565 U.S. 943 (2011). However, a court is not required to accept legal conclusions drawn from the facts. See Papasan v. Allain, 478 U.S. 265, 286 (1986). "A court decides whether [the pleading] standard is met by separating the legal conclusions from the factual allegations, assuming the truth of only the factual allegations, and then determining whether those allegations allow the court to reasonably infer" that the plaintiff is entitled to the legal remedy sought. A Soc'y Without a Name v. Virginia, 655 F.3d 342, 346 (4th. Cir. 2011), cert. denied, 566 U.S. 937 (2012).

III. ANALYSIS

Maryland law requires lenders to pay interest on funds maintained in escrow on behalf of borrowers. Md. Code Ann., Com. Law § 12-109. The law provides:

A lending institution which lends money secured by a first mortgage or first deed of trust on any interest in residential real property and creates or is the assignee... shall pay interest to the borrower on the funds in the escrow account at an annual rate not less than the weekly average yield on United States Treasury securities adjusted to a constant maturity of 1 year, as published by the Federal Reserve.

Md. Code Ann., Com. Law § 12-109(b)(1).

BofA concedes that it has not paid interest on Plaintiff's escrow account, as required by the Maryland statute. See generally ECF 32-1. Instead, BofA has moved to dismiss Plaintiff's claims on the basis that federal law, via the NBA and the OCC regulations, preempt the applicability of § 12-109. BofA has also raised specific arguments about each Count in the Complaint. But since preemption, the first basis for dismissal, would apply to all of Plaintiff's claims, the Court begins the analysis here.

A. Preemption of Section 12-109

When the federal government acts within its scope of authority, federal law preempts inconsistent state law. See generally McCulloch v. Maryland, 17 U.S. 316 (1819). In the contextof banking in particular, the "grants of both enumerated and incidental 'powers' to national banks... ordinarily pre-empt[] contrary state law." Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 32 (1996). The presumption against preemption does not apply to the NBA because, historically, banking is an area with "significant federal presence." Nat'l City Bank of Indiana v. Turnbaugh, 463 F.3d 325, 330-31 (4th Cir. 2006).

Courts in this jurisdiction recognize three types of federal preemption: (1) express preemption, in which Congress directly declares its intent to preempt state law; (2) field preemption, in which Congress occupies a certain field such that no room is left for states to supplement federal law; and (3) conflict preemption, in which state law is preempted to the extent it conflicts with federal law. Decohen v. Capital One, N.A., 703 F.3d 216, 223 (4th Cir. 2012). Neither express preemption nor field preemption is applicable here. See Epps v. JP Morgan Chase Bank, N.A., 675 F.3d 315, 323 (4th Cir. 2012) ("Neither do we find field preemption applicable, as the NBA and OCC regulations do not 'occupy the field.'"). Rather, this case involves conflict preemption, which asks whether the state law at issue "stan[ds] as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Barnett Bank, 517 U.S. at 31. BofA carries the burden of establishing its preemption defense. See Peete-Bey v. Educ. Credit Mgmt. Corp., 131 F. Supp. 3d 422, 429 (D. Md. 2015) (citing Pinney v. Nokia, Inc., 402 F.3d 430, 446 (4th Cir. 2005)).

Background on the National Bank Act

Congress enacted the NBA in 1864, which established the system of national banking that is still in place today. Watters v. Wachovia Bank, N.A., 550 U.S. 1, 10-11 (2007). The NBA vests nationally-chartered banks with the power to "make, arrange, purchase or sell loans or extensions of credit secured by liens on interests in real estate." 12 U.S.C. § 371(a). Additionally, nationalbanks have authority to exercise "all such incidental powers as shall be necessary to carry on the business of banking." 12 U.S.C. § 24, Seventh. BofA contends that the NBA preempts § 12-109.

The Supreme Court set forth the appropriate inquiry for assessing the preemptive effect of federal statutes, in the banking context, in Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996). In Barnett Bank, a conflict between federal and state statutes arose in the area of insurance sales. While Congress had enacted a statute authorizing certain national banks to sell insurance in small towns, a Florida statute simultaneously prohibited banks from conducting...