Background - Three borrowers (Campidoglio LLC, Carmen LLC, San Marco LLC) executed adjustable-rate notes tied to a defined "Index" (Golden West COSI) and a fixed margin; notes allowed lender to substitute an alternative index, including one "approved by the Lender’s primary regulator," with borrower notice. - Golden West/World Savings was acquired by Wachovia, which notified the OTS in Dec. 2006 of its plan to replace Golden West COSI with Wachovia COSI; OTS responded in Jan. 2007 that it "takes no objection" to use of the proposed alternative index. - Wells Fargo later acquired Wachovia and notified its regulators (OCC and OTS) about switching to a Wells Fargo COSI; OCC and OTS indicated no objection and Wells Fargo began using the Wells Fargo COSI on borrowers’ loans. - Borrowers sued in Washington state court alleging multiple breach-of-contract theories ("Interest Rate Calculation," "Use of Unapproved Indexes," "Transparency," etc.), WCPA violations, unjust enrichment, and breach of implied covenant; Wells Fargo removed and moved to dismiss on HOLA preemption grounds. - District court dismissed several claims as preempted by HOLA, granted summary judgment to Wells Fargo on the "Use of Unapproved Indexes" claim (finding regulators had notice/no objection), denied borrowers’ Rule 37 sanctions motion, and denied Wells Fargo attorneys’ fees; both parties appealed. ### Issues | Issue | Plaintiff's Argument | Defendant's Argument | Held | |---|---:|---:|---| | Whether HOLA preempts borrowers’ "Interest Rate Calculation" breach-of-contract claim | Borrowers: Washington contract law governs and HOLA does not preempt a common-law contract claim that alleges lender failed to apply the contractually specified index | Wells Fargo: HOLA/OTS regulations preempt state-law claims affecting lending terms, so the contract theory is preempted | Court: Vacated dismissal — Washington common-law contract claim falls within §560.2(c) (contract/commercial law) and is not preempted by HOLA; remanded | | Whether Wachovia/Wells Fargo obtained required regulator approval before substituting indexes ("Use of Unapproved Indexes") | Borrowers: Substitution required explicit regulator approval; factual dispute exists whether OTS/OCC approval was obtained for existing loans | Wells Fargo: Provided notice to regulators per 12 C.F.R. §§560.35/34.22; regulators did not object within 30 days, so substitution was permitted | Court: Affirmed summary judgment for Wells Fargo — undisputed communications constitute notice and regulators raised no supervisory concerns, so substitution was authorized | | Whether district court abused discretion denying Rule 37 discovery sanctions for withheld privileged documents | Borrowers: Wells Fargo overbroadly asserted attorney-client / bank examination privileges over thousands of documents, causing prejudice and meriting sanctions | Wells Fargo: Privilege assertions were proper (and court reviewed samples); no prejudice shown | Held: Affirmed denial of sanctions — even if some privilege designations were incorrect, borrowers failed to show prejudice affecting outcome | | Whether Wells Fargo entitled to attorneys’ fees under the Note provision for enforcement/collection costs | Wells Fargo: Prevailing party and Note authorizes recovery of enforcement/collection costs including attorneys’ fees | Borrowers: Defense of this litigation is not "enforcement or collection" of the Note | Held: Fee denial vacated without prejudice due to remand on preemption issue — court did not decide fee merits now and left reconsideration for district court post-judgment | ### Key Cases Cited Skilstaf, Inc. v. CVS Caremark Corp., 669 F.3d 1005 (9th Cir.) (standard for Rule 12(b)(6) review) In re Mercury Interactive Corp. Sec. Litig., 618 F.3d 988 (9th Cir.) (scope of issues presented below and waiver principles) Whittaker Corp. v. Execuair Corp., 953 F.2d 510 (9th Cir.) (development of issues for judicial review) Cipollone v. Liggett Group, Inc., 505 U.S. 504 (1992) (distinguishing contractual obligations from state-imposed requirements) Silvas v. ETrade Mortgage Corp., 514 F.3d 1001 (9th Cir.) (HOLA/OTS preemption framework and §560.2 analysis) Fidelity Fed. Sav. & Loan Ass’n v. de la Cuesta, 458 U.S. 141 (1982) (history and scope of HOLA preemption) Pullman-Standard v. Swint, 456 U.S. 273 (1982) (definition of mixed questions of law and fact)