Donald Lusnak v. Bank of America
883 F.3d 1185
9th Cir.2018Background
- California Civil Code § 2954.8(a) (enacted 1976) requires financial institutions to pay at least 2% annual interest on mortgage escrow/impound account balances.
- Plaintiff Donald Lusnak sued Bank of America (which does not pay escrow interest) on behalf of a putative class, alleging violations of California law, TILA (15 U.S.C. § 1639d(g)(3)), California’s Unfair Competition Law (UCL), and breach of contract.
- Bank of America moved to dismiss, arguing the National Bank Act (NBA) preempts California’s escrow interest law because it prevents or significantly interferes with national banks’ exercise of their powers; the district court granted dismissal.
- Dodd-Frank amended the preemption framework, codifying the Barnett Bank “prevents or significantly interferes” standard and requiring only Skidmore deference to OCC preemption views; it also added 15 U.S.C. § 1639d(g)(3) (creditors must pay interest on escrow funds if prescribed by applicable state or federal law).
- The Ninth Circuit reversed: it held Barnett Bank remains the preemption standard, Dodd-Frank did not eliminate state escrow interest laws as a category, and California § 2954.8(a) does not prevent or significantly interfere with Bank of America’s national bank powers.
- Court allowed Lusnak to proceed on his UCL claim (based on state law § 2954.8(a)) and on his breach of contract claim; it held Lusnak could not rely on § 1639d(g)(3) prospectively for accounts created before the statute’s effective date but Bank of America’s obligation to pay under state law attached once it assumed control of the escrow account.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the NBA preempts Cal. Civ. Code § 2954.8(a) | § 1639d(g)(3) shows Congress expected state escrow-interest laws to apply; § 2954.8(a) is therefore not preempted | State law prevents or significantly interferes with national-bank powers and is preempted under the NBA | NBA does not preempt § 2954.8(a); state law may require payment of escrow interest when not preempted |
| Proper preemption standard post‑Dodd‑Frank | Dodd‑Frank confirms state escrow laws can be “applicable” and not preempted | Dodd‑Frank leaves banks subject to preemption where state laws impair banking powers | Barnett Bank “prevents or significantly interferes” standard governs; OCC rules get at most Skidmore deference |
| Role of 15 U.S.C. § 1639d(g)(3) (TILA) for existing escrow accounts | § 1639d(g)(3)’s reference to “applicable” state law supports non-preemption and obligates banks to pay interest | § 1639d(g)(3) does not save state laws if preempted or does not apply retroactively | § 1639d(g)(3) reflects Congress’s view that applicable state escrow laws need not be preempted, but it applies prospectively to accounts subject to § 1639d |
| Viability of UCL and breach of contract claims | Lusnak may enforce § 2954.8(a) via UCL and contract because the statute is not preempted | Bank contends federal law or preemption bars these claims, and § 1639d(g)(3) doesn’t apply to pre-existing accounts | UCL claim may proceed based on state law violation; breach claim may proceed under mortgage terms referencing “Applicable Law” |
Key Cases Cited
- Barnett Bank of Marion Cnty., N.A. v. Nelson, 517 U.S. 25 (1996) (state law is preempted only if it prevents or significantly interferes with a national bank’s exercise of its powers)
- Watters v. Wachovia Bank, N.A., 550 U.S. 1 (2007) (discusses NBA powers and limits on state regulation in dual banking system)
- Wyeth v. Levine, 555 U.S. 555 (2009) (courts should not defer to agency conclusions about preemption absent clear congressional authorization; agency explanations get Skidmore-type respect)
- Skidmore v. Swift & Co., 323 U.S. 134 (1944) (weight of agency interpretations depends on persuasiveness)
- Ransom v. FIA Card Servs., N.A., 562 U.S. 61 (2011) (definition of “applicable” as appropriate or fit to be applied)