McShannock v. JP Morgan Chase Bank NA

976 F.3d 881

Susan MCSHANNOCK, as Executrix of the Estate of Patricia Blaskower, on behalf of the Estate of Patricia Blaskower and all others similarly situated; Monica Chandler, as Trustee of the Chandler Family Trust, and all others similarly situated; Mohamed Meky, and all others similarly situated, Plaintiffs-Appellees,

v.JP MORGAN CHASE BANK NA, doing Business as Chase Bank, Defendant-Appellant.

No. 19-15899

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 13, 2020 San Francisco, California

Filed September 22, 2020

OPINION

R. NELSON, Circuit Judge:

This case requires us to decide whether mortgagors are entitled, under California law, to interest on escrow accounts for mortgages that were issued by a savings association and later assigned to a national bank. We hold that California's law requiring the payment of interest on escrow accounts is preempted by the Home Owners’ Loan Act of 1933 ("HOLA"), 12 U.S.C. § 1461 et seq. , and its implementing regulations, even where the mortgage is assigned from a savings association to a national bank.

I

Between 2005 and 2007, the Chandler Family Trust,¹ Mohamed Meky, and Patricia Blaskower² (collectively, "Appellees") obtained residential home mortgages from Washington Mutual Bank, FA ("WaMu"). Appellees, whose homes were located in California, would normally have been entitled to "at least 2 percent simple interest per annum" on any funds held in escrow under California Civil Code Section 2954.8 (hereinafter, "California's interest-on-escrow law"). But WaMu, a federal savings association organized and regulated under HOLA, was not required to pay Appellees interest because HOLA and its implementing regulations preempted California law.³

Thus, Appellees did not receive interest on their escrow accounts while WaMu held the loans.

WaMu failed during the 2008 financial crisis and was placed in the Federal Deposit Insurance Corporation's ("FDIC") receivership. The FDIC sought buyers for WaMu's assets, eventually coming to terms with Appellant JP Morgan Chase Bank NA ("Chase"). Under the terms of the agreement, Chase assumed "all mortgage servicing rights and obligations" of WaMu. Unlike WaMu, which was organized and regulated under HOLA, Chase is a national bank organized and regulated under the National Bank Act ("NBA"), 12 U.S.C. § 38 et seq .

We recently held in Lusnak v. Bank of America, N.A. , 883 F.3d 1185, 1188 (9th Cir. 2018), cert. denied , ––– U.S. ––––, 139 S. Ct. 567, 202 L.Ed.2d 403 (2018), that the NBA does not preempt California's interest-on-escrow law. Appellees filed a consolidated class action complaint against Chase shortly after our decision in Lusnak was issued, seeking to represent a class of:

[a]ll mortgage loan customers of Chase (or its subsidiaries), whose mortgage loan is for a one-to-four family residence located in California, and who paid Chase money in advance for payment of taxes and assessments on the property, for insurance, or for other purposes relating to the property, and to whom Chase failed to pay interest as required by Cal. Civ. Code § 2954.8(a).

Chase then moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6). Chase argued that because Appellees’ mortgages were initially issued by WaMu—a federal savings association organized and regulated under HOLA—Chase was not required to pay Appellees interest even though Chase is a national bank organized and regulated under the NBA. The district court denied the motion. The district court held that although the mortgages were issued by WaMu, HOLA preemption no longer applied because the Appellee's complaint sought redress only for Chase's nonpayment of escrow interest after it acquired WaMu's assets.

Chase requested interlocutory appeal of the district court's denial of its motion to dismiss. The district court granted the request, and we granted Chase's permission to proceed with the interlocutory appeal. We have jurisdiction under 28 U.S.C. § 1292(b), and we reverse.

II

We review de novo a district court's denial of a motion to dismiss for failure to state a claim under Rule 12(b)(6). See Reese v. BP Exploration (Alaska) Inc. , 643 F.3d 681, 690 (9th Cir. 2011) (citation omitted). All allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party. Id. (citation omitted). A district court may dismiss a complaint only if it fails to state "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "Questions of statutory interpretation are reviewed de novo ... as are questions of preemption." Lopez v. Wash. Mut. Bank , 302 F.3d 900, 903 (9th Cir. 2002) (internal citation omitted).

III

A

Through HOLA, Congress vested the OTS⁴ with "broad authority" to shape the regulatory environment for federal savings associations. Silvas v. E*Trade Mortg. Corp. , 514 F.3d 1001, 1004–05 (9th Cir. 2008). Consistent with congressional intent, the OTS decided in 1996 to "occup[y] the entire field of lending regulation for federal savings associations." 12 C.F.R. § 560.2. In doing so, the OTS:

intend[ed] 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 ... without regard to state laws purporting to regulate or otherwise affect their credit activities.

Id.

The specific question before us is whether HOLA preempts California's interest-on-escrow law for loans issued by WaMu between 2005 and 2007 that were later assigned to Chase.⁵ We have observed that "[w]hether, and to what extent, HOLA applies to claims against a national bank when that bank has acquired a loan executed by a federal savings association is an open question" in our court. Campidoglio LLC v. Wells Fargo & Co. , 870 F.3d 963, 970–71 (9th Cir. 2017). We resolve that question in this appeal.

Federal district courts that have addressed the question have taken three different positions: (1) HOLA preemption applies to all conduct connected to a loan originating with a federal savings association; (2) HOLA preemption necessarily does not apply to national banks; and (3) whether HOLA preemption applies depends on whether the claims arise from the conduct of the federal savings association or of the national bank. See, e.g. , Kenery v. Wells Fargo Bank, N.A. , No. 5:13-CV-02411-EJD, 2014 WL 129262, at *4 (N.D. Cal. Jan. 14, 2014). The district court adopted the third approach, and Chase asks us to adopt the first approach.

To resolve this dispute, we begin with the text of HOLA, its amendments, and the regulations implemented pursuant to HOLA. Appellees point out that OTS's regulations "occup[y] the entire field of lending regulation for federal savings associations." 12 C.F.R. § 560.2(a). Focusing on this language, Appellees assert that HOLA preemption does not apply to the complaint in this case, which exclusively implicates the conduct of Chase, a national bank. We disagree.

The OTS's preemption regulation is not so limited in scope to cover only the conduct of a federal savings association. Section 560.2(a) provides that "OTS is authorized to promulgate regulations that preempt state laws affecting the operations of federal savings associations when deemed appropriate ...." Id. (emphasis added).⁶ Section 560.2(a) also states that the "OTS intends to give federal savings associations maximum flexibility to exercise their lending powers in accordance with a uniform federal scheme of regulation." Id. (emphasis added). Applying the plain meaning of the OTS's preemption regulation, we hold that field preemption principles extend to all state laws affecting a federal savings association, without reference to whether the conduct giving rise to a state law claim is that of a federal savings association or of a national bank.

In addition, in 1982, the FHLBB, the precursor to the OTS, implemented a regulation preempting "any state law purporting to address the subject of a Federal association's ability or right to ... sell" mortgages or "directly or indirectly to restrict such ability or right." 12 C.F.R. § 545.6(a)(2) (emphasis added). When the OTS promulgated its own field preemption regulation, OTS "confirm[ed] and carr[ied] forward its existing preemption position," OTS Final Rule, 61 Fed. Reg. 50,951, 50,965 (Sept. 30, 1996), and "restate[d] long-standing preemption principles applicable to federal savings associations, as reflected in earlier regulations, court cases, and numerous opinions issued by OTS and the [FHLBB]," id. at 50,952.

We defer to the FHBLBB and the OTS's "broad authority to issue regulations governing thrifts." Silvas , 514 F.3d at 1005. Significantly, those regulations have "no less preemptive effect than federal statutes." Id . Thus, the text of HOLA and the OTS regulations support applying field preemption here.

The district court correctly observed that "at the time HOLA was enacted in 1933, nothing in its text or legislative history expressly indicated Congress expected that federal savings associations would sell their residential mortgage loans on a secondary market to entities not governed by HOLA, much less intended for HOLA preemption to attach to any such loans." But although there is nothing in the text or the legislative history of HOLA that references the transfer of loans from a federal savings association in a secondary market, the district court erred by discounting the subsequent amendments to HOLA and the OTS's regulations.⁷ Indeed, the United States Supreme Court has rejected the narrow interpretive approach that the district court adopted. See Fid. Fed. Sav. & Loan Ass'n v. de la Cuesta , 458 U.S. 141, 154, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982) ("A pre-emptive regulation's force does not depend on express congressional authorization to displace...