Puentes v. Wells Fargo Home Mortg., Inc.

72 Cal.Rptr.3d 903

160 Cal.App.4th 638

Julie PUENTES et al., Plaintiffs and Appellants, v. WELLS FARGO HOME MORTGAGE, INC., Defendant and Respondent.

No. D049800.

Court of Appeal, Fourth District, Division 1.

February 28, 2008.

Blumenthal & Nordrehaug, Norman B. Blumenthal and Kyle R. Nordrehaug, La Jolla, for Plaintiffs and Appellants.

Sheppard, Mullin, Richter & Hampton, Edward D. Vogel, Karin Dougan Vogel, Erik S. Bliss and Vincent J. Brown, San Diego, for Defendant and Respondent.

Phyllis K. Slesinger, for Mortgage Bankers Association as Amicus Curiae on behalf of Defendant and Respondent.

Leland Chan, San Francisco, for California Bankers Association as Amicus Curiae on behalf of Defendant and Respondent.

McCONNELL, P.J.

Plaintiffs Julie and Kenneth Puentes¹ appeal a summary judgment for defendant Wells Fargo Home Mortgage, Inc. (Wells Fargo), entered after the trial court determined that as a matter of law they cannot maintain their claim under California's unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.).² As the predicate act for their UCL claim, the Puenteses contend Wells Fargo's calculation of interest due under their home mortgage on prepayment during a partial year breached the terms of the promissory note. They also contend the court erred by finding the matter is preempted by federal regulations. We affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Wells Fargo is a nationwide mortgage lender. In mid-August 2002 Kenneth took out a conventional 30-year fixed-rate mortgage with Wells Fargo to secure a $274,000 loan. The promissory note was on a multi-state uniform instrument approved by the Federal National Mortgage Association (known as Fannie Mae) and the Federal Home Loan Mortgage Company (known as Freddie Mac). The note provided, "Interest will be charged on unpaid principal until the full amount of Principal has been paid. I will pay interest at a yearly rate of 6.500 [percent]." The note called for equal monthly payments of $1,731.87 to commence on October 1, 2002. It allowed the prepayment of principal without penalty, but prepayment was contingent on all monthly payments being current.

Kenneth also signed a Truth in Lending Act (TILA) (15 U.S.C. § 1601 et seq.) disclosure statement, which provided the annual percentage rate of interest (APR) on the loan was 6.512 percent.³ The TILA disclosure statement also disclosed the loan was to be repaid in equal monthly payments, and "[i]f you pay off your loan early you will not receive a refund of the part of the finance charge that you have already paid."

Wells Fargo subsequently sold Kenneth's mortgage to Freddie Mac on the secondary market, but it continued to service the loan.

On March 14, 2003, just seven months into the loan period, the Puenteses prepaid the note's principal balance. In determining the amount of interest owed to retire the obligation, Wells Fargo treated February, as it did for each of the previous full months of the loan, as one-twelfth of a year, or approximately 30.4 days. For the partial month of March, it charged interest on a per diem basis.

In January 2004 the Puenteses filed a proposed class action against Wells Fargo for unfair business practices (§ 17200 et seq.). The following May they filed a first amended complaint (hereafter complaint), which sought redress for the Puenteses and a class of similarly situated consumers who within the previous four years paid Wells Fargo "interest for non-existent days ... in the year of early pay off of their residential mortgage loan." The complaint alleged Wells Fargo concealed that it charged mortgage "interest on the basis of a 30.4-day month rather than actual days in each month." The complaint prayed for restitution and injunctive relief. In May 2006 the court granted the Puenteses' motion for class certification.

In July 2006 Wells Fargo moved for summary judgment. It argued its interest calculation was consistent with the terms of the note, federal regulations and the uniform nationwide practice of the mortgage industry, and thus as a matter of law cannot constitute an unfair business practice under the UCL.

The Puenteses recalculated the monthly interest payments to show Wells Fargo's method resulted in charges for 182.5 days during the five full months of the loan instead of the actual 181 days. They argued that by using a fictitious 30.4-day month during the year of loan payoff, Wells Fargo overcharged them $71.98 in interest for days not actually in the loan period, thereby breaching the promissory note by imposing a yearly interest rate of approximately 6.549 percent, or alternatively, the $71.98 was a prepayment penalty.

After a September 2006 hearing, the court granted Wells Fargo's motion on the grounds the action is preempted by federal regulations, and Wells Fargo's interest calculation was based on a reasonable interpretation of the term "yearly rate" in the note, comported with industry standards and was not an unfair business practice. The Puenteses unsuccessfully moved for reconsideration, and judgment was entered for Wells Fargo on November 8, 2006. On the same date, the class was decertified pursuant to stipulation.

DISCUSSION

I Standard of Review

"Where, as here, the material facts are not in dispute and the parties simply dispute the legal significance of the facts, the matter may be resolved on summary judgment as a matter of law." (Teachers' Retirement Bd. v. Genest (2007) 154 Cal. App.4th 1012, 1028, 65 Cal.Rptr.3d 326.) "The purpose of the law of summary judgment is to provide courts with a mechanism to cut through the parties' pleadings ... to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843, 107 Cal.Rptr.2d 841, 24 P.3d 493.)

We review the trial court's ruling on a summary judgment motion independently, considering all the evidence set forth in the moving and opposing papers except that to which objections have been sustained. (Smith v. Wells Fargo Bank, N.A. (2005) 135 Cal.App.4th 1463, 1472, 38 Cal.Rptr.3d 653.) "Generally, if all the papers submitted by the parties show there is no triable issue of material fact and the `moving party is entitled to a judgment as a matter of law' (Code Civ. Proc, § 437c, subd. (c)), the court must grant the motion for summary judgment." (Ibid.) "A defendant . .. has met his or her burden of showing that a cause of action has no merit if that party has shown that one or more elements of the cause of action . .. cannot be established, or that there is a complete defense to that cause of action. Once the defendant ... has met that burden, the burden shifts to the plaintiff ... to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto." (Code Civ. Proc, § 437c, subd. (p)(2).)

II

Wells Fargo's Interest Calculations Did Not Violate the UCL as a Matter of Law

A

The Puenteses contend that in calculating interest due on payoff, Wells Fargo breached the terms of the promissory note, and concomitantly violated the UCL. They assert that consistent with California law, the term "yearly rate" means interest will be charged on a per diem basis for 365 days, and thus Wells Fargo may not charge interest based on the fictional 30.4-day month. The Puenteses cite Government Code section 6803, which provides in part: "`Year' means a period of 365 days." They also cite Chern v. Bank of America (1976) 15 Cal.3d 866, 876, 127 Cal.Rptr. 110, 544 P.2d 1310, in which our Supreme Court held that as "commonly understood, a year has either 365 or 366 days." (See also Fletcher v. Security Pacific National Bank (1979) 23 Cal.3d 442, 448, 153 Cal. Rptr. 28, 591 P.2d 51.)

The UCL does not proscribe specific activities, but broadly prohibits "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising." (§ 17200.) The UCL "governs `anti-competitive business practices' as well as injuries to consumers, and has as a major purpose `the preservation of fair business competition.' [Citations.] By proscribing 'any unlawful' business practice, `section 17200 "borrows" violations of other laws and treats them as. unlawful practices' that the unfair competition law makes independently actionable." (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180, 83 Cal.Rptr.2d 548, 973 P.2d 527 (Cel-Tech).) "`Because ... section 17200 is written in the disjunctive, it establishes three varieties of unfair competition—acts or practices which are unlawful, or unfair, or fraudulent. "In other words, a practice is prohibited as `unfair' or `deceptive' even if not 'unlawful' and vice versa."'" (Ibid.)

In drafting the promissory note and amortization schedule, and in calculating interest, Wells Fargo followed "Regulation Z," which implements TILA (15 U.S.C. § 1601 et seq.). (12 C.F.R. § 226 et seq. (2007).)⁴ Regulation Z's Appendix J requires that lenders use certain formulas for computing interest at a yearly rate, based on the common period, or "unit-period," that occurs most frequently in the transaction. (12 C.F.R. §§ 226 (2007), Appen. J(b)(3)(ii), (4)(i), 226.22(a).) Here, the unit-period was a month as the promissory note and TILA disclosure statement called for monthly payments. When the unitperiod is a month, "there are 12 unit-periods per year" (12 C.F.R. § 226, .Appen. J(b)(5)(ii)), and despite the irregularity of the actual number of days in a month, "[a]ll months shall be considered equal." (Id., Appen. J(b)(3)(iv).)

Wells Fargo contends that since its interest calculations are pursuant to federal regulations, its practice is not actionable. When "the Legislature has permitted certain conduct, `courts may not override that determination' by declaring such conduct to be actionable under ... section 17200." (California Medical Assn. v. Aetna U.S....