Davis v. World Savings Bank, Fsb
2011 U.S. Dist. LEXIS 96256
D.D.C.2011Background
- Davis borrowed $280,000 in December 2007 under a Pick-a-Payment mortgage with a fixed rate and a minimum payment of $1,273.01, with later payment changes allowed by the note.
- The note permits a shift to multiple amortization options and includes a Deferred Interest mechanism adding unpaid interest to principal.
- Davis alleges the loan was effectively adjustable with negative amortization and that disclosures were insufficient about such features and risks.
- Davis asserts state-law claims for breach of contract/breach of implied covenant, promissory estoppel, fraud, and negligent misrepresentation against the lenders.
- Defendants remove the case to federal court, asserting diversity jurisdiction and HOLA preemption of state-law claims; the court dismisses the complaint on those grounds and for failure to state a claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| HOLA preemption of all state-law claims | Davis argues state-law claims fall outside HOLA preemption and remain viable. | World Savings, Wachovia, and Wells Fargo contend HOLA §560.2 preempts these claims as inextricably tied to lending. | Preemption applies; claims dismissed |
| Whether claims are inextricably linked to the loan transaction | Davis contends claims arise from disclosures and loan terms, not the loan contract itself. | Defendants contend the claims are grounded in the loan documents and terms, thus preempted. | Yes, claims are inextricably linked; preempted |
| Survival of claims if not preempted | If not preempted, claims should be viable under DC law. | Even non-preempted claims fail to state a claim under DC law given the Note's unambiguous terms. | Would fail; dismissed for failure to state a claim |
| Breach of contract claim viability given contract language | Note allegedly misrepresented terms and Davis should not be bound by an interpretation that defeats his expectations. | Note unambiguously permits minimum payments that may not cover interest and allows increases; Davis cannot allege breach of a single sentence taken out of context. | Breach claim dismissed as contradicted by unambiguous Note |
Key Cases Cited
- Silvas v. E*Trade Mortgage Corp., 514 F.3d 1001 (9th Cir. 2008) (preempts claims under §560.2(b)(9) and (b)(5) for disclosure/fees)
- Casey v. FDIC, 583 F.3d 586 (8th Cir. 2009) (broad vs. narrow readings of preemption; as-applied vs face preemption)
- In re Ocwen Loan Servicing, LLC, Mortg. Servicing Litig., 491 F.3d 638 (7th Cir. 2007) (HOLA preemption not always apply to common-law claims; careful claim-by-claim analysis required)
- Bopp v. Wells Fargo Bank, N.A., 740 F. Supp. 2d 12 (D.D.C. 2010) (fraud and breach of contract preempted where claims are tied to loan transaction)