Henning v. Wachovia Mortgage, FSB
2013 U.S. Dist. LEXIS 133394
D. Mass.2013Background
- Henning obtained a 2006 "stated income" Payment-Option ARM (Pick-A-Payment) from World Savings (successor now Wells Fargo); he defaulted in 2008 and faces foreclosure.
- Complaint (Third Am. Compl.) asserted seven counts: unjust enrichment; equitable relief; breach of implied covenant; M.G.L. c.93A violation; negligence (state statutory); negligence (federal statutory duties); breach of contract.
- Wells Fargo moved to dismiss under Fed. R. Civ. P. 12(b)(6) and on the ground that the Home Owners’ Loan Act (HOLA) and OTS regulations preempt Henning’s state-law claims.
- Central factual allegations: lender approved loan without verifying income, misclassified income to understate DTI, marketed low initial payments while obscuring negative amortization and adjustable-rate risks, and later failed to apply payments to principal as plaintiff expected.
- Court applied pre-Dodd-Frank HOLA/OTS field-preemption framework because the loan originated in 2006; preemption analysis followed 12 C.F.R. § 560.2 (field preemption, illustrative preempted categories, and §560.2(c) exceptions).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether state-law claims are preempted by HOLA/OTS regs | Henning: Dodd-Frank limits HOLA preemption and many claims complement, not supplant, federal law | Wells Fargo: HOLA/OTS occupied the lending field pre-Dodd-Frank; state claims are preempted | Court: Apply pre-Dodd-Frank HOLA; most state claims preempted under §560.2(a)/(b)/(c) framework |
| Breach of contract (Count VII) | Henning: lender breached by not applying biweekly payments to principal | Wells Fargo: Note/mortgage terms govern allocation; no promise to apply initial payments to principal | Held: Contract claim not preempted but dismissed on the merits — mortgage/note terms contradict plaintiff’s allegation |
| Breach of implied covenant (Count III) | Henning: lender’s piggy-back line consumed equity and increased default risk | Wells Fargo: Claim would regulate lending products and origination practices | Held: Preempted — would have more-than-incidental effect on lending and intrude on federally occupied field |
| Chapter 93A, unjust enrichment, and negligence claims (Counts I, IV, V, VI) | Henning: consumer-protection, disclosure and negligence claims enforceable under state law; some claims premised on TILA/RESPA violations | Wells Fargo: These challenge origination, disclosures, terms and servicing — areas expressly or functionally preempted by HOLA/OTS; plaintiff is attempting an end-run around federal remedies/limitations | Held: Unjust enrichment, Chapter 93A, negligence (state and federal statutory duties) and negligence-based-on-TILA/RESPA are preempted and dismissed; equitable relief count dismissed as not an independent cause of action |
Key Cases Cited
- Brown v. United Airlines, Inc., 720 F.3d 60 (1st Cir. 2013) (discussing preemption caution and unjust enrichment context)
- Fidelity Fed. Sav. & Loan Ass’n v. de la Cuesta, 458 U.S. 141 (U.S. 1982) (describing HOLA’s broad federal regulation of federal savings associations)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading standard for plausibility under Rule 12(b)(6))
- Davis v. World Sav. Bank, F.S.B., 806 F. Supp. 2d 159 (D.D.C. 2011) (dismissing breach claim where note expressly disclaimed promise to apply payments to principal)
- Dixon v. Wells Fargo Bank, N.A., 798 F. Supp. 2d 336 (D. Mass. 2011) (functional preemption analysis distinguishing claims that merely hold lenders to their word from those that impose lending requirements)
- Sovereign Bank v. Sturgis, 863 F. Supp. 2d 75 (D. Mass. 2012) (analysis of §560.2 and narrow reading of §560.2(c) exceptions)
- Yeomalakis v. FDIC, 562 F.3d 56 (1st Cir. 2009) (treating contract-based consumer-law claims in the preemption context)