215 Cal. App. 4th 120
Cal. Ct. App.2013Background
- Consolidated appeals from dismissals of class actions challenging late fees on California broker-negotiated home loans.
- Loans were originated by licensed mortgage brokers for lenders exempt under section 10133.1 (and serviced by Wells Fargo or Aurora).
- Plaintiffs allege servicers applied payments to past-due installments, triggering additional late fees and breaching the loan terms and state law §10242.5.
- Demurrers held that exemptions and federal preemption barred the contract and related claims; court dismissed, leading to appeals.
- Court holds §10242.5 applies to broker-negotiated loans despite exempt lender status, and contract claims are preempted under NBA/HOLA; affirming judgments.
- Post-judgment notes clarify that servicing subsidiaries and field/regulatory changes do not defeat preemption findings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does §10242.5 apply to broker-negotiated home loans regardless of exemption? | Akopyan et al. contend the late-fee cap applies to brokered loans. | Wells Fargo/Aurora argue exemptions shield from article 7 and §10242.5. | Yes; §10242.5 applies to broker-negotiated loans. |
| Are plaintiffs' breach-of-contract claims preempted by the NBA and HOLA when brought against servicers of state-originated loans? | Claims survive as implied incorporation of state law into contracts. | Claims are preempted as conflicting with federal banking regulation. | Yes; preempted under NBA (Wells Fargo) and HOLA (Aurora). |
| Is the implied incorporation of a state payment-allocation requirement a state-imposed obligation preempted by HOLA? | Public policy and Swenson v. File support incorporation of §10242.5 into contracts. | OTS preemption regulation precludes implied terms that would constrain servicing. | Preemption applies; implied incorporation is a state-imposed obligation that impairs servicing powers. |
| Does NBA preemption extend to contract claims arising from servicing third-party loans not originated by a national bank? | Assignee liability and state-imposed terms should not bind federal servicers. | Servicing third-party loans falls within real estate lending preemption and/or field preemption. | Yes; NBA preempts the breach-of-contract claim against the national bank Wells Fargo under the facts presented. |
Key Cases Cited
- Ocwen Loan Servicing, LLC, 491 F.3d 638 (7th Cir. 2007) (servicing third-party loans involves preemption by federal regulation)
- Molosky v. Washington Mutual, Inc., 664 F.3d 109 (6th Cir. 2011) (state usury/loan-fee claims preempted where servicer is federal thrift)
- Gibson v. World Savings & Loan Assn., 103 Cal.App.4th 1291 (Cal. App. 2002) (contractual duties voluntarily assumed; preemption considerations under Wolens)
- Wolens, 513 U.S. 219 (U.S. 1995) (public-law preemption limits for voluntarily undertaken obligations)
- Cipollone v. Liggett Group, Inc., 505 U.S. 504 (U.S. 1992) (distinction between state-imposed and self-imposed obligations in preemption)
- Beneficial Nat. Bank v. Anderson, 539 U.S. 1 (U.S. 2003) (NBA usury preemption; federal law preempts state usury claims against banks)
- Parks v. MBNA America Bank, N.A., 54 Cal.4th 376 (Cal. 2012) (state regulation vs. federal banking powers; preemption framework)
- In re Ocwen Loan Servicing, LLC, No. 07-03405 (7th Cir. 2007) (preemption framework for servicers of loans originated by others)