Wells Fargo Bank, NA v. Baker

12 Cal. Daily Op. Serv. 3789

139 Cal.Rptr.3d 502

2012 Daily Journal D.A.R. 4351

204 Cal.App.4th 1063

WELLS FARGO BANK, NA, as Trustee, etc., Plaintiff and Appellant,

v.Kara L. BAKER et al., Defendants and Respondents.

No. D058987.

Court of Appeal, Fourth District, Division 1, California.

April 4, 2012.

Preempted

I.C.A. § 617.3

Haight Brown & Bonesteel, Los Angeles, Jules S. Zeman and T. Vincent Consolo; Selman Breitman, Los Angeles, and Bradford G. Hughes for Plaintiff and Appellant.

The Schinner Law Group, San Francisco, Kenneth A. Brunetti, Jay T. Jambeck and Candice B. Macario for Defendants and Respondents.McINTYRE, J.

In this case, a national bank sued California residents in Iowa and served them via substitute service with the Iowa Secretary of State as allowed by Iowa's long-arm statute, Iowa Code section 617. 3, subdivision (2) (section 617.3). The national bank obtained a default judgment against the California residents in Iowa and registered that judgment in California pursuant to the Sister State and Foreign Money–Judgments Act (Code Civ. Proc., § 1710.10 et seq.). The superior court vacated the judgment and the national bank appeals, contending the court erroneously interpreted section 617.3 to allow substitute service only when the contracting corporation was a “resident of Iowa” as this term is defined in section 617.3.

As we shall explain, we conclude that section 617.3, as it applies to national banks, is preempted by the National Bank Act because it infringes upon the power of a national bank to sue as fully as natural persons (12 U.S.C.A. § 24 (Fourth)). Accordingly, we reverse the order.

FACTUAL AND PROCEDURAL BACKGROUND

In November 2005, West Mullan Iowa LLC (West Mullan), an Iowa company, borrowed $868,950 from LaSalle Bank National Association (LaSalle) to purchase property in Waterloo, Iowa. Kara L. Baker and Dean W. Baker (the Bakers) were California residents and members of West Mullan. They personally guaranteed repayment of the loan.

In March 2006, LaSalle assigned its interest in the loan to Wells Fargo Bank, NA (Wells Fargo). More than two years later, West Mullan stopped making loan payments. Wells Fargo filed suit in Iowa to foreclose on the property and collect on the personal guaranty. It hired a California process server to personally serve the Bakers. After numerous unsuccessful personal service attempts, Wells Fargo undertook substitute service, pursuant to section 617.3, by mailing copies of its mortgage foreclosure petition and notice to Iowa's Secretary of State and subsequently mailing those documents along with a certificate from the Secretary of State to the Bakers in California. The certified mail receipts indicate that the documents were returned to the sender because they were unclaimed.

In September 2009, the Iowa District Court entered a default judgment against the Bakers in the amount of $991,883.83. In July 2010, Wells Fargo filed an application for entry of judgment on a sister state judgment in the Superior Court of San Diego County. The clerk of the court entered the judgment as requested by Wells Fargo in the amount of $998,111.15.

The Bakers moved to vacate the sister state judgment, arguing that they were never served with the summons and complaint in the Iowa action and therefore the Iowa court did not have personal jurisdiction over them. In opposition, Wells Fargo claimed that the Iowa judgment was valid because the Bakers were served pursuant to section 617.3. The Bakers, however, countered by arguing that section 617.3 was inapplicable because LaSalle was not a “resident of Iowa” at the time the contract was made and thus, Wells Fargo was required to personally serve the Bakers.

The superior court vacated the sister state judgment, finding that Wells Fargo did not establish that the Iowa court acquired personal jurisdiction over the Bakers pursuant to section 617.3. The court interpreted section 617.3 to allow substitute service only when the contracting corporation was a “resident of Iowa.” In order to satisfy this residency requirement, the contracting foreign corporation was required to hold a certificate of authority to transact business in Iowa. The superior court concluded that Wells Fargo did not show that LaSalle had a certificate of authority and thus vacated the sister state judgment. This appeal followed.

DISCUSSION

I. The Sister State and Foreign Money–Judgments Act and Standard of Review

Under the Sister State and Foreign Money–Judgments Act, a sister state judgment may be vacated “on any ground which would be a defense to an action in this state on the sister state judgment....” (Code Civ. Proc., § 1710.40, subd. (a); see Fidelity Creditor Service, Inc. v. Browne (2001) 89 Cal.App.4th 195, 202, 106 Cal.Rptr.2d 854 ( Fidelity ).) While the statute does not identify the available defenses, the Law Revision Commission's comment to Code of Civil Procedure section 1710.40 explains that one common defense to enforcement of the judgment is that the judgment “was rendered in excess of jurisdiction.” (Cal. Law Revision Com. com., 20 West's Ann.Code Civ. Proc. (2007 ed.) foll. § 1710.40, p. 385.) Appellate courts have interpreted this language to include cases where the sister state court lacked fundamental jurisdiction—i.e., in personam or subject matter jurisdiction—as determined by the law of the sister state. ( Fidelity, at p. 202, 106 Cal.Rptr.2d 854; Bank of America v. Jennett (1999) 77 Cal.App.4th 104, 114–116, 119, 91 Cal.Rptr.2d 359 [applying Hawaii's long-arm statute to determine personal jurisdiction over defendant].) The party moving to vacate the sister state judgment has the burden to show by the preponderance of the evidence why it is entitled to relief. ( Tsakos Shipping & Trading, S.A. v. Juniper Garden Town Homes, Ltd. (1993) 12 Cal.App.4th 74, 88, 15 Cal.Rptr.2d 585 ( Tsakos ).)

On appeal of the court's ruling, we apply settled principles of appellate review. (See Tsakos, supra, 12 Cal.App.4th at p. 89, 15 Cal.Rptr.2d 585; Zirbes v. Stratton (1986) 187 Cal.App.3d 1407, 1412, 232 Cal.Rptr. 653.) As this matter involves a review of the trial court's determination of in personam jurisdiction, “we will not disturb the court's factual determinations ‘if supported by substantial evidence.’ [Citation.] ‘When no conflict in the evidence exists, however, the question of jurisdiction is purely one of law and the reviewing court engages in an independent review of the record.’ ” ( Pavlovich v. Superior Court (2002) 29 Cal.4th 262, 273, 127 Cal.Rptr.2d 329, 58 P.3d 2.) Applying these standards here, we determine the question of Iowa jurisdiction as a matter of law, based on the undisputed facts.

II. Analysis

Section 617.3 provides:

“If a nonresident person makes a contract with a resident of Iowa to be performed in whole or in part by either party in Iowa, ... such act[ ] shall be deemed to be doing business in Iowa by such person for the purpose of service of process or original notice on such person under this section, and shall be deemed to constitute the appointment of the secretary of state of the state of Iowa to be the true and lawful attorney of such person upon whom may be served all lawful process or original notice in actions or proceedings arising from or growing out of such contract.... The term ‘resident of Iowa’ shall include any Iowa corporation, any foreign corporation holding a certificate of authority to transact business in Iowa, any individual residing in Iowa, and any partnership or association one or more of whose members is a resident of Iowa.” (Italics added.)

For purposes of this statute, residency is determined at the time the contract is made. ( Mandernach v. Glass (Iowa 1977) 253 N.W.2d 917, 918.) Thus, the question before us is whether LaSalle, a national bank and predecessor in interest to Wells Fargo, was a foreign corporation required to hold a certificate of authority to transact business in Iowa in order to qualify as a “resident of Iowa” and validly serve the Bakers via substitute service with the Iowa Secretary of State. Wells Fargo contends the trial court erred when it found that the Iowa court lacked personal jurisdiction over the Bakers. Among other things, it argues that section 617.3's certificate of authority requirement is preempted by the National Bank Act (12 U.S.C.A. § 1 et seq.). We agree that section 617.3's requirement that foreign corporations hold a certificate of authority to qualify as a “resident of Iowa,” as it pertains to national banks, is preempted by the National Bank Act because it infringes upon the powers provided to national banks. Based on this conclusion, we need not consider Wells Fargo's remaining contentions.

It is undisputed that Wells Fargo and LaSalle are national banks. “Business activities of national banks are controlled by the National Bank Act ..., 12 U.S.C. § 1 et seq., and regulations promulgated thereunder by the Office of the Comptroller of the Currency (OCC).” ( Watters v. Wachovia Bank, N.A. (2007) 550 U.S. 1, 6, 127 S.Ct. 1559, 167 L.Ed.2d 389 ( Watters ).) The purpose of the National Bank Act is to facilitate a national banking system and to protect banks from intrusive regulation by the States. ( Kroske v. U.S. Bank Corp. (9th Cir.2005) 432 F.3d 976, 982 (citing Marquette Nat. Bank v. First of Omaha Service Corp. (1978) 439 U.S. 299, 315, 99 S.Ct. 540, 58 L.Ed.2d 534).)

“The N[ational] B[ank] A[ct] specifically authorizes federally chartered banks to engage in real estate lending. [Citation.] It also provides that banks shall have power ‘[t]o exercise ... all such incidental powers as shall be necessary to carry on the business of banking.’ ” ( Watters, supra, 550 U.S. at p. 7, 127 S.Ct. 1559.) National banks can “do those acts and occupy those relations which are usual or necessary in making collections of commercial paper and other evidences of debt.” ( Miller v. King (1912) 223 U.S. 505, 510, 32 S.Ct. 243, 56 L.Ed. 528 ( Miller )...