FRANK T. DIXON; DEANA M. DIXON, Plaintiffs,
WELLS FARGO BANK, N.A. formerly known as WACHOVIA MORTGAGE, FSB formerly known as WORLD SAVINGS BANK, FSB, Defendant.
Civil Action No. 11-10368-WGY.
United States District Court, D. Massachusetts.
July 22, 2011.
MEMORANDUM AND ORDER
WILLIAM G. YOUNG, District Judge.
Frank and Deana Dixon (collectively “the Dixons”) bring this cause of action against Wells Fargo Bank, N.A. (“Wells Fargo“), seeking (1) an injunction prohibiting Wells Fargo from foreclosing on their home; (2) specific performance of an oral agreement to enter into a loan modification; and (3) damages. Wells Fargo, having removed the action from state court, now moves for dismissal of the Dixons’ complaint under Fed. R. Civ. P. 12(b)(6), arguing that the allegations are insufficient to invoke the doctrine of promissory estoppel and that, to the extent the Dixons have stated a state-law claim, it is preempted by the Home Owners’ Loan Act (“HOLA”), 12 U.S.C. §§ 1461-1700, and its implementing regulations, 12 C.F.R. §§ 500-99.
Undoubtedly, the claim that Wells Fargo failed to uphold a promise to consider the Dixons for a loan modification relates to Wells Fargo’s “servicing” of the mortgage. See 12 C.F.R. § 560.2(b)(10). But the standard for express preemption is more than “relates to.” See Coffman, 2010 WL 3069905, at *6 (citing In re Ocwen Loan Servicing, 491 F.3d at 643-44). The claim must “purport to impose requirements” regarding loan servicing for express preemption to apply. 12 C.F.R. § 560.2(b). Here, the Dixons do not aim to impose any substantive requirement on the loan modification process used by Wells Fargo, in particular, or federal savings banks, in general. Coffman, 2010 WL 3069905, at *9. The promissory estoppel claim seeks not to attack Wells Fargo’s underlying loan servicing policies and practices, but rather to hold the lender to its word, on which the Dixons relied to their detriment. Enforcement of Wells Fargo’s promise merely requires the lender to deal fairly and honestly, which no more burdens those lending operations listed in paragraph (b) than it does everyday business transactions. Bishop, 2010 WL 4115463, at *5 (“[R]equiring a bank to perform the obligations of its contract in good faith implicates none of the concerns embodied in HOLA.”); see Morse v. Mutual Fed. Sav. & Loan Ass’n of Whitman, 536 F. Supp. 1271, 1281 (D. Mass. 1982) (Aldrich, J.) (“An award of Chapter 93A exemplary damages against defendant would no more threaten the ability of federal savings and loan associations to perform their functions in the Commonwealth than it would state-chartered savings and loan associations, or other corporations subject to the statute.”). “Only claims that are specific to a defendant’s lending activities, as distinguished from legal duties applicable to all businesses, are preempted by HOLA.” Cuevas v. Atlas Realty/Fin. Servs., Inc., No. C 07-02814 JF, 2008 WL 268981, at *3 (N.D. Cal. Jan. 30, 2008).
Turning to paragraph (c) of section 560.2, the Dixons’ promissory estoppel claim “affect[s] lending businesses, just as [it would] affect any other business that enters into contracts or makes representations during the course of its operations.” Gibson, 128 Cal. Rptr. 2d at 28. Because it has some effect on lending, a presumption of preemption arises. 61 Fed. Reg. at 50966. This presumption is rebutted here, however, because promissory estoppel, as a state common-law doctrine of general applicability, is “not designed to regulate lending and do[es] not have a disproportionate or otherwise substantial effect on lending.” Gibson, 128 Cal. Rptr. 2d at 28-29. All businesses, not just federal savings associations, are subject to the predicate duty that the Dixons seek to enforce — a duty to honor promises made. Compliance with that duty would not require Wells Fargo to alter its loan modification program, or any substantive aspect of its approach to servicing loans, but it would ensure that consumers like the Dixons reasonably could rely on their lenders’ statements without suffering harm as a result.
With the national housing market once again rattled by an overwhelming number of foreclosures, other federal courts have been grappling recently with the preemption issue in cases factually indistinguishable from the present one. Yet, no consensus has emerged with respect to HOLA’s reach. In DeLeon v. Wells Fargo Bank, N.A., No. 10-CV-01390-LHK, 2011 WL 311376 (N.D. Cal. Jan. 28, 2011), for example, the plaintiffs had complied with the steps required by Wells Fargo for a loan modification, which they had been assured would be successful, when abruptly and without warning they lost their home to foreclosure. Id. at *1-2. The court held that the plaintiffs’ intentional misrepresentation claim against Wells Fargo was not preempted by HOLA because it “d[id] not attempt to impose substantive requirements regarding loan terms, disclosures, or servicing or processing procedures.” Id. at *7. Similarly, in Becker v. Wells Fargo Bank, N.A., No. 2:10-cv-02799 LKK KJN PS, 2011 WL 1103439 (E.D. Cal. Mar. 22, 2011), where the plaintiff “allege[d] that he was promised a modification even though [the lender] never intended to modify his loan or seriously consider his application,” the court concluded that the “plaintiff’s fraud claim appears to arise from a more `general duty not to misrepresent material facts,’ and therefore it does not necessarily regulate lending activity.” Id. at *8-9. In contrast, however, the court in Zarif v. Wells Fargo Bank, N.A., No. 10cv2688-WQH-WVG, 2011 WL 1085660 (S.D. Cal. Mar. 23, 2011), held that the plaintiffs’ state-law claims, including intentional misrepresentation, negligent misrepresentation, and promissory estoppel, were preempted by HOLA because they “specifically challenge the processing of Plaintiffs’ loan modification application and servicing of Plaintiffs’ mortgage.” Id. at *3. There, like here, the plaintiffs faced foreclosure after following Wells Fargo’s instruction to stop making their payments while waiting for their loan modification application to be processed.
It is said that talk is cheap. The Dixons’ allegations are easy to make, yet until their veracity is put to the test, foreclosure is inappropriate. But just as the homeowner ought not suffer a wrongful foreclosure, so too the bank has an equal and proper interest in realizing on its mortgage security by putting the home on the market at a foreclosure sale, selling it to a viable buyer, and lending the funds derived to other potential home buyers. This case is but a microcosm of much larger economic issues; to a significant extent, our national economy may depend upon promptly sorting out the issues raised here. Clogging the operation of the mortgage foreclosure system with court delay simply will not work. Either individual rights will be submerged, and people will lose their homes unlawfully, or home mortgage liquidity will atrophy, the larger economy will suffer, and potential home buyers will be denied homeownership, although financially able to support mortgage payments.
A prompt trial of this case is thus absolutely crucial. Here in Massachusetts, this federal district court — one of the most productive in the country, United States v. Massachusetts, Civil Action No. 09-11623-WGY, slip op. at chart, ECF. No. 134-1 (D. Mass. May 4, 2011) (Massachusetts is one of “America’s Most Productive federal district courts”) — can provide such a trial.
Accordingly, this case is ordered placed on the September running trial list, and the parties shall be ready for trial on Tuesday, September 6, 2011.
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