Wieck v. CIT Group, Inc.

MEMORANDUM in Support re MOTION to Dismiss Plaintiff's First Amended Complaint, pursuant to Fed.R.Civ.P. 12

D. Haw.September 26, 2017

ALSTON HUNT FLOYD & ING Attorneys at Law A Law Corporation JUDY A. TANAKA 5369 MICHELLE COMEAU 9550 1001 Bishop Street, Suite 1800 Honolulu, Hawai`i 96813 Tel: (808) 524-1800 Fax: (808) 524-4591 E-mail: judy.tanaka@ahfi.com mcomeau@ahfi.com GREENBERG TRAURIG, LLP LOUIS SMITH (admitted pro hac vice) 500 Campus Drive, Suite 400 Florham Park, New Jersey 07932 Tel: (973) 360-7900 Fax: (973) 301-8410 E-mail: SmithLo@gtlaw.com Attorneys for Defendants CIT Group Inc., CIT Bank, N.A. and Financial Freedom IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF HAWAI`I JULIA WIECK, on behalf of herself and all others similarly situated, Plaintiff, vs. CIT GROUP, INC., CIT BANK, N.A., FINANCIAL FREEDOM, SEATTLE SPECIALTY INSURANCE SERVICES, INC. and CERTAIN UNDERWRITERS OF LLOYD’S, CASE NO. 16-cv-00596-JMS-RLP (Consumer Credit Class Action) DEFENDANTS CIT GROUP INC., CIT BANK, N.A., AND FINANCIAL FREEDOM’S SUPPLEMENTAL BRIEF REGARDING HOLA PREEMPTION IN FURTHER SUPPORT OF THEIR MOTION TO DISMISS PLAINTIFF’S FIRST (Caption continued on next page) Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 1 of 22 PageID #: 1311 LONDON, and GREAT LAKES REINSURANCE (UK), PLC, Defendants. AMENDED COMPLAINT [55], PURSUANT TO FED. R. CIV. P. 12(b)(1) AND 12(b)(6); CERTIFICATE OF SERVICE DEFENDANTS CIT GROUP INC., CIT BANK, N.A., AND FINANCIAL FREEDOM’S SUPPLEMENTAL BRIEF REGARDING HOLA PREEMPTION IN FURTHER SUPPORT OF THEIR MOTION TO DISMISS PLAINTIFF’S FIRST AMENDED COMPLAINT [55], PURSUANT TO FED. R. CIV. P. 12(b)(1) AND 12(b)(6) Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 2 of 22 PageID #: 1312 i TABLE OF CONTENTS ARGUMENT ............................................................................................................. 1 I. The Standard Applicable to HOLA Preemption ........................................ 1 II. Plaintiff’s Breach of Contract and UDAP Claims are Preempted ............. 3 A. The Campidoglio Decision ................................................................. 3 B. Plaintiff’s Breach of Contract Claim is Preempted ............................ 7 C. Plaintiff’s UDAP Claim is Preempted .............................................. 12 CONCLUSION ........................................................................................................ 16 Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 3 of 22 PageID #: 1313 ii TABLE OF AUTHORITIES Page(s) Cases Baner v. Wells Fargo, 2012 WL 12921074 (N.D. Cal. July 23, 2012) .................................................. 11 Boggs v. Wells Fargo Bank, NA, 2011 WL 5038432 (N.D. Cal. Oct. 24, 2011) .................................................... 11 Campidoglio LLC v. Wells Fargo & Co., __ F.3d __, 2017 WL 3996793 (9th Cir. Sept. 12, 2017) ............................passim Campidoglio LLC v. Wells Fargo & Co., 2012 WL 4514333 (W.D. Wash. Oct. 2, 2012) ............................................ 3, 4, 5 Campos v. Wells Fargo Bank, N.A., 2015 WL 5415520 (C.D. Cal. Aug. 31, 2015) ................................................... 13 Copeland-Turner v. Wells Fargo Bank, 800 F. Supp. 2d 1132 (D. Or. 2011) ..................................................................... 6 Ellis v. J.P. Morgan Chase & Co., 2016 WL 5815733 (N.D. Cal. Oct. 5, 2016) ...................................................... 14 Jones-Boyle v. Wash. Mutual Bank, FA, 2010 WL 2724287 (N.D. Cal. July 8, 2010) ...................................................... 11 Lopez v. Wachovia Mortgage, 2009 WL 4505919 (E.D. Cal. Nov. 20, 2009) .................................................... 11 Lopez v. Wells Fargo Bank, N.A., 2016 WL 283507 (N.D. Cal. Jan. 25, 2016) ....................................................... 14 McAnaney v. Astoria Fin. Corp., 665 F. Supp. 2d 132 (E.D.N.Y. 2009) .................................................................. 6 Meyer v. One West Bank, F.S.B., 91 F. Supp. 3d 1177 (C.D. Cal. 2015) ...................................................... 2, 10, 13 Naulty v. GreenPoint Mortg. Funding, Inc., 2009 WL 2870620 (N.D. Cal. Sept. 3, 2009) ..................................................... 11 Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 4 of 22 PageID #: 1314 iii Parks v. Wells Fargo Bank, N.A., 2016 WL 411674 (S.D. Cal. Feb. 3, 2016) ......................................................... 14 Ramirez v. Wells Fargo Bank, N.A., 2016 WL 7448136 (C.D. Cal. Feb. 1, 2016) ...................................................... 14 Reyes v. Downey Savings & Loan Ass’n, F.A., 541 F. Supp. 2d 1108 (C.D. Cal. 2008) .............................................................. 14 Rodenhurst v. Bank of Am., 773 F. Supp. 886 (D. Haw. 2011) ......................................................................... 7 Romero v. Wells Fargo Bank, N.A., 2015 WL 12781210 (C.D. Cal. Dec. 22, 2015) .................................................. 14 Schilke v. Wachovia Mortg., FSB, 758 F. Supp. 2d 549 (N.D. Ill. 2010), aff’d on other grounds sub. nom. Cohen v. Am. Sec. Ins. Co., 735 F.3d 601 (7th Cir. 2013) .................passim Schilke v. Wachovia Mortg., FSB, 820 F. Supp. 2d 825 (N.D. Ill. 2011) .................................................................. 10 Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001 (9th Cir. 2008) .....................................................................passim Tinsley v. OneWest Bank, FSB, 2014 WL 3700456 (S.D. W.Va. July 24, 2014) ................................................. 10 Tuck v. Wells Fargo Home Mortg., 2012 WL 2906738 (N.D. Cal. July 13, 2012) .................................................... 11 Other Authorities 12 C.F.R. § 560.2 ..............................................................................................passim Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 5 of 22 PageID #: 1315 Pursuant to the Court’s September 12, 2017 Order (Dkt. No. 82), the CIT Defendants1 respectfully submit this supplemental brief regarding HOLA preemption in further support of their motion to dismiss the state law claims asserted against them in the FAC. See Moving Br. at 10-13; Dkt. No. 71 (“Reply Br.”) at 2-8. ARGUMENT I. The Standard Applicable to HOLA Preemption HOLA, which “is undoubtedly expansive,” “occupies the entire field of lending regulation for federal savings associations.” See Campidoglio LLC v. Wells Fargo & Co., __ F.3d __, 2017 WL 3996793, at *4 (9th Cir. Sept. 12, 2017) (citing Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1004-05 (9th Cir. 2008)); 12 C.F.R. § 560.2(a). Indeed, the OTS’s implementing regulations are “‘so pervasive as to leave no room for state regulatory control.’” Campidoglio, 2017 WL 3396793, at *4 (quoting Silvas, 514 F.3d at 1004-05). Accordingly, if a state law “purport[s] to impose requirements regarding,” among other things, “[t]he ability of a creditor to require or obtain … insurance,” “terms of credit,” “[l]oan-related fees,” “disclosure and advertising,” and “[p]rocessing, origination, servicing, sale or purchase of, or investment or participation in, mortgages,” it is automatically preempted under § 560.2(b) 1 Unless otherwise defined herein, capitalized terms are as defined in the CIT Defendants’ Moving Brief (Dkt. No. 55-1) (“Moving Br.”). Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 6 of 22 PageID #: 1316 2 (“paragraph (b)”) and “the analysis will end there.” Campidoglio, 2017 WL 3396793, at *5 (quoting Silvas, 514 F.3d at 1005); 12 C.F.R. § 560.2(b)(2), (4), (5), (9), (10). Importantly, when analyzing whether a state law falls within the scope of paragraph (b), “we are not limited to assessing whether the state law on its face comes within paragraph (b) of the regulation. Instead, we ask whether the state law ‘as applied, is a type of state law contemplated in the list under paragraph (b).’” Campidoglio, 2017 WL 3396793, at *6 (quoting Silvas, 514 F.3d at 1006) (emphasis added).2 If, however, a state law “is not covered by paragraph (b), the next question is whether it affects lending. If it does, then … the presumption arises that the law is preempted,” and “[t]his presumption can be reversed only if the law can clearly be shown to fit within the confines of” § 560.2(c) (“paragraph (c)”). Campidoglio, 2017 WL 3396793, at *5 (quoting Silvas, 514 F.3d at 1005). Paragraph (c) provides that certain state laws, including, among other things, “contract and commercial law,” are not preempted “to the extent that they only incidentally affect” lending. 12 C.F.R. § 560.2(c). As the Ninth Circuit has stated, “paragraph (c) is intended to be interpreted narrowly,” and “[a]ny doubt should be resolved in 2 “[T]he Ninth Circuit [has drawn] no distinction between a law of general applicability and one specifically designed to regulate savings associations.” Meyer v. One West Bank, F.S.B., 91 F. Supp. 3d 1177, 1182 (C.D. Cal. 2015) (internal quotation marks omitted). Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 7 of 22 PageID #: 1317 3 favor of preemption.” Campidoglio, 2017 WL 3396793, at *5 (quoting Silvas, 514 F.3d at 1005).3 II. Plaintiff’s Breach of Contract and UDAP Claims are Preempted As set forth in the CIT Defendants’ Moving and Reply Briefs, Plaintiff’s breach of contract and UDAP claims are preempted by HOLA, as they purport to impose requirements on operations listed in paragraph (b). See Moving Br. at 12- 13; Reply Br. at 6-8. The Ninth Circuit’s recent decision in Campidoglio (which does not address claims based on LPI) does not change this result. A. The Campidoglio Decision In Campidoglio, plaintiffs, who had executed adjustable-rate mortgage promissory notes in favor of World Savings Bank (“Notes”), brought claims relating to the indices of interest rates that had been used to calculate the rates applicable to their Notes. Campidoglio LLC v. Wells Fargo & Co., 2012 WL 4514333, at *1 (W.D. Wash. Oct. 2, 2012). The Notes identified the index of interest rates that would initially be used, and provided that, if the original index was for some reason “no longer available,” the lender would have the ability to use an “alternative index” Id. The Notes required this “alternative index” to be “approved by the Lender’s regulator.” Id. at *2. Plaintiffs alleged that Wachovia 3 The general presumption against preemption “does not apply to regulations in the field of national banking.” Campidoglio, 2017 WL 3396793, at *4 (citing Silvas, 514 F.3d at 1004-05). Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 8 of 22 PageID #: 1318 4 and Wells Fargo, which acquired their Notes, replaced “the original interest index with new and higher interest indices in violation of the terms of the Notes and state law.” Id. at *1. Among other claims, plaintiffs alleged four breach of contract claims based on this conduct, and Wells Fargo moved to dismiss them all based on HOLA preemption. Id. at *2. The district court analyzed each breach of contract claim separately to determine whether HOLA preemption applied. Id. at **6-9. Of the four breach of contract claims, the district court held that three were preempted by HOLA. Id. The district court found plaintiffs’ fourth breach of contract claim (which alleged that the indices Wachovia and Wells Fargo claimed to have used were not approved by the regulator), was not preempted by HOLA, because it merely sought “to enforce the parties’ agreement” and did “not create additional requirements under HOLA,” as the other three claims did. Id. at *9. Plaintiffs appealed, but challenged only the district court’s decision with respect to one of the three breach of contract claims it found to be preempted by HOLA. Campidoglio, 2017 WL 3996793, at *2. The breach of contract claim that was the subject of the appeal alleged that, even if the indices Wells Fargo and Wachovia claimed to have used had been approved by the regulator, they did not actually use those approved indices to calculate the interest rates applicable to plaintiffs’ Notes. Id. Thus, this claim, like the claim the district court found was Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 9 of 22 PageID #: 1319 5 not preempted, simply sought to enforce the explicit language in the Note that required the lender to use an index approved by its regulator. Accordingly, applying the Silvas test outlined above, the Ninth Circuit found that, although plaintiffs’ breach of contract claim “relate[d] to ‘terms of credit,’” see 12 C.F.R. 560.2(b)(4), it was “the parties’ own agreement, rather than Washington state law, that impose[d] requirements on Wells Fargo regarding these terms.” Campidoglio, 2017 WL 3996793, at *6. Because, the court explained, plaintiffs’ claim sought to “impose only the state law requirement that Wells Fargo honor a contractual promise,” the claim did not fit within the scope of paragraph (b). Id. The court then proceeded to the next step of the test, and determined that plaintiffs’ breach of contract claim “fit within the confines of paragraph (c)” and only “incidentally affect[ed]” lending. Id. at *7. Accordingly, the court concluded that plaintiffs’ claim was not preempted. Id. The Ninth Circuit’s Campidoglio decision is nothing novel. Indeed, as reflected by the Campidoglio district court’s decision, district courts in the Ninth Circuit have long found no HOLA preemption where a breach of contract claim simply seeks to enforce the express terms of the underlying loan agreement. 2012 WL 4514333, at *9. Campidoglio thus has no bearing on whether a breach of contract claim that seeks to do more than simply enforce the express terms of the Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 10 of 22 PageID #: 1320 6 parties’ contract (like the one at issue here) is preempted by HOLA.4 Indeed, Campidoglio does not stand for the blanket proposition that a common law breach of contract claim can never be preempted; such a holding would be contrary to the plain meaning of paragraph (c), which provides that state contract law is not preempted only “to the extent that [the law] only incidentally affect[s] lending operations ….” 12 C.F.R. § 560.2(c)(1). To the contrary, the claim-by-claim analysis that was conducted by the Campidoglio district court, and plaintiffs’ limited appeal from just one of the district court’s three holdings that plaintiffs’ breach of contract claims were preempted, demonstrate that such claims must be carefully analyzed on an individual basis, and that there is no blanket rule that can be applied to breach of contract claims across the board. 4 See, e.g., Copeland-Turner v. Wells Fargo Bank, 800 F. Supp. 2d 1132, 1142 (D. Or. 2011) (breach of contract claim preempted where it did not allege breach of a specific contract term); Schilke v. Wachovia Mortg., FSB, 758 F. Supp. 2d 549, 556-57 (N.D. Ill. 2010) (breach of contract claim preempted where it did “not allege an utter failure to honor the terms of the contract” or “point to any specific term of the contract that [was] allegedly breached,” but instead sought to “impose requirements” on defendant’s ability to engage in conduct covered by paragraph (b)), aff’d on other grounds sub. nom. Cohen v. Am. Sec. Ins. Co., 735 F.3d 601 (7th Cir. 2013); McAnaney v. Astoria Fin. Corp., 665 F. Supp. 2d 132, 165-66 (E.D.N.Y. 2009) (acknowledging difference in preemption analysis between breach of contract claims that “allege breach of specific contractual provisions” and those that do not) (citing Cedeno v. IndyMac Bancorp, Inc., 2008 WL 3992304, at *9 (S.D.N.Y. Aug. 26, 2008) (where plaintiff’s breach of contract claim did not point to any explicit provision of the contract that was allegedly violated but instead alleged that the implied covenant of good faith and fair dealing required defendant to take certain action beyond what was required by the contract, the claim was preempted by HOLA because it attempted to impose a substantive requirement on the processing and origination of plaintiff’s mortgage)). Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 11 of 22 PageID #: 1321 7 B. Plaintiff’s Breach of Contract Claim is Preempted Here, Plaintiff’s breach of contract claim does not seek to merely enforce an express term of the Mortgage. Instead, Plaintiff’s breach of contract claim seeks to impose requirements beyond what the express language of the Mortgage requires. In the FAC, Plaintiff alleges that Financial Freedom and CIT Bank breached the Mortgage by charging inflated LPI premiums to borrowers that include commissions; back-dating LPI coverage; commencing foreclosure proceedings based on the failure to pay LPI premiums; and charging borrowers property inspection fees. See FAC ¶¶ 125-133. However, no term of the Mortgage expressly prohibits the Lender from including any alleged commissions in an LPI premium, from backdating LPI policies, or from charging Plaintiff a property inspection fee. Nor does the Mortgage address (let alone restrict) the Lender’s ability to enter into agreements with or otherwise maintain relationships with insurance agents in connection with LPI. This is undisputed. Rather than identifying any specific terms of the Mortgage that were allegedly breached and seeking to enforce those terms (which she cannot do),5 5 Plaintiff’s failure to “cite the contractual provision allegedly violated” is fatal to her breach of contract claim under Hawaii law. See Rodenhurst v. Bank of Am., 773 F. Supp. 886, 898 (D. Haw. 2011); see also Moving Br. at 19 (citing, among other cases, Niutupuivaha v. Wells Fargo Bank, N.A., 2013 WL 3819600, at **14- 15 (D. Haw. July 22, 2013) (dismissing contract claim where plaintiffs “failed to Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 12 of 22 PageID #: 1322 8 Plaintiff has relied on the language in the Mortgage that permits “Lender [to] do and pay whatever is necessary to protect the value of the Property and Lender’s rights in the Property, including payment of … hazard insurance,” FAC, Ex. A. at ¶ 5, to argue that any amounts above the actual cost of the LPI and the backdating of LPI were not “necessary” and thus not permitted by the Mortgage. See Opp. Br. at 15-21. Essentially, Plaintiff’s argument is that, by placing high-priced LPI on the Property that allegedly included commissions and by backdating LPI policies, Financial Freedom and CIT Bank somehow abused the broad discretion they had under the Mortgage to do so. Id. This theory is much too tenuous for Plaintiff’s breach of contract claim to be considered a straightforward attempt to enforce the express terms of the Mortgage, like the contract claim at issue in the Campidoglio appeal. In Schilke, the court considered, and rejected, a very similar theory. 758 F. Supp. 2d 549. In that case, plaintiff sought to amend her complaint to assert a breach of contract claim based on Wachovia’s placement of high-priced LPI on her property. Id. at 556. Relying on a provision in the parties’ mortgage agreement, which “provided that if Plaintiff failed to maintain hazard insurance, Wachovia identify the particular provision of the contract … allegedly violated”); Billete v. Deutsche Bank Nat’l Trust Co., 2013 WL 2367834, at *10 (D. Haw. May 29, 2013) (same)). However, the merits of Plaintiff’s breach of contract claim have no bearing on the question of whether the claim, as applied, would impose requirements on conduct covered by § 560.2(b) and therefore be preempted. Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 13 of 22 PageID #: 1323 9 could ‘do and pay whatever it deems reasonable or appropriate to protect [its] rights in the Property,’ including ‘purchasing [the] insurance required,’” plaintiff argued that the mortgage “vested Wachovia with discretion in the purchase of the required insurance, and that Wachovia failed to exercise its discretion in good faith when it purchased high-priced insurance that was unfavorable to Plaintiff.” Id. The court rejected plaintiff’s argument. Id. at 556-57. Because plaintiff’s proposed breach of contract claim did “not allege an utter failure to honor the terms of the contract” or “point to any specific term of the contract that Wachovia allegedly breached,” but instead “would, in effect, impose requirements on Wachovia’s ‘ability … to require or obtain private mortgage insurance,’ 12 C.F.R. § 5602.(b)(2), its imposition of loan-related fees, id. § 560.2(b)(5), or its disclosure of loan terms, id. § 560.2(b)(9)” (all of which “activities are exclusively the subject of OTS regulations”), the court found that plaintiff’s proposed breach of contract claim would be preempted by HOLA and thus that it would be futile to permit plaintiff to amend her complaint to add the claim. Id. at 557. As in Schilke, Plaintiff here is not simply seeking to enforce the express terms of the Mortgage and require adherence to those terms; instead, she is attempting, under the pretext of state contract law, to impose extra-contractual restrictions addressing the ability to “require or obtain … insurance,” assess “[l]oan-related fees,” and “servic[e] mortgages”—all conduct that is covered by Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 14 of 22 PageID #: 1324 10 paragraph (b). Indeed, Plaintiff’s breach of contract claim would restrict the ability to develop and maintain relationships and enter into agreements with insurance agents and companies; to procure and place insurance to protect the interest in properties that secure the loans; and to assess fees on borrowers in connection with the servicing of mortgages—all of which is directly covered by § 560.2(b). Several other courts, including Schilke, have found similar claims preempted under HOLA. See, e.g., Meyer, 91 F. Supp. 3d at 1182 (breach of contract claim based on placement and backdating of high-cost LPI was preempted under paragraph (b)); Tinsley v. OneWest Bank, FSB, 2014 WL 3700456, at **9-10 (S.D. W.Va. July 24, 2014) (claim alleging that defendant “force-placed insurance on Plaintiff’s home in an excessively high amount in order to obtain kickbacks from the insurance company through which the insurance was issued [and] that Defendant withheld its relationship with the insurance company from Plaintiff” would be preempted by HOLA under § 560.2(b)(9), because it “purported to impose requirements regarding disclosure”); Schilke v. Wachovia Mortg., FSB, 820 F. Supp. 2d 825, 831-34 (N.D. Ill. 2011) (breach of contract claim based on backdating and “kickbacks” allegedly paid in connection with LPI was preempted under paragraph (b), as plaintiff did not “claim that Wachovia [did] anything other than what it was entitled to do under the contract: ensure that its interest in the Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 15 of 22 PageID #: 1325 11 property was protected with continuous, adequate insurance coverage”).6 Accordingly, Plaintiff’s breach of contract claim is preempted by HOLA under paragraph (b) and “the analysis … end[s] there.” Campidoglio, 2017 WL 2017 WL 3396793, at *5 (quoting Silvas, 514 F.3d at 1005). In any event, even if the Court were to find that Plaintiff’s breach of contract claim does not fit within the scope of paragraph (b), the claim would nonetheless be preempted. Plaintiff’s breach of contract claim more than incidentally affects lending operations, as it seeks to regulate the manner in which insurance is placed on properties and mortgages are serviced. Specifically, the claim would place requirements on the practice of obtaining and placing insurance on properties where borrowers fail to satisfy their obligations under the mortgage to maintain the required insurance (which is not only permitted but necessary to protect the interest in the properties), and on the ability to enter into agreements with insurance agents and companies in connection with same, which impacts mortgage servicing. The claim would likewise place restrictions on the ability to assess fees relating to the Mortgage that are otherwise permitted. Accordingly, as Plaintiff’s breach of 6 See also Baner v. Wells Fargo, 2012 WL 12921074, at **7-8 (N.D. Cal. July 23, 2012) (breach of contract claim preempted under paragraph (b)); Tuck v. Wells Fargo Home Mortg., 2012 WL 2906738, at *5 (N.D. Cal. July 13, 2012) (same); Boggs v. Wells Fargo Bank, NA, 2011 WL 5038432, at *3 (N.D. Cal. Oct. 24, 2011) (same); Jones-Boyle v. Wash. Mutual Bank, FA, 2010 WL 2724287, at **6-7 (N.D. Cal. July 8, 2010) (same); Lopez v. Wachovia Mortgage, 2009 WL 4505919, at *4 (E.D. Cal. Nov. 20, 2009) (same); Naulty v. GreenPoint Mortg. Funding, Inc., 2009 WL 2870620, at *4 (N.D. Cal. Sept. 3, 2009) (same). Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 16 of 22 PageID #: 1326 12 contract claim more than incidentally affects lending operations, the claim should be dismissed with prejudice. C. Plaintiff’s UDAP Claim is Preempted Plaintiff’s UDAP claim is also preempted by HOLA. Plaintiff alleges that Financial Freedom engaged in unfair and deceptive acts or practices in violation of UDAP by placing “duplicative and unnecessary” insurance on the Property that cost “twenty times” more “than comparable coverage in the open market” in order to “receive improper compensation”; making misrepresentations and deceptive statements in correspondence with Plaintiff regarding the Mortgage’s requirements and the LPI; and misleading Plaintiff to believe the property inspection fee was authorized and reasonable. See FAC ¶¶ 141-158. As with Plaintiff’s breach of contract claim, Plaintiff’s UDAP claim, as applied, would impose requirements on operations that are covered by (b)—that is, Financial Freedom’s ability to “require or obtain … insurance,” “service[e] mortgages,” and assess “[l]oan-related fees.” 12 C.F.R. § 560.2(b)(2), (5), (10). In addition, Plaintiff’s UDAP claim, which is largely based on alleged misrepresentations made in communications regarding LPI, seeks to impose disclosure requirements on Financial Freedom, including that the high-cost of LPI was due to the alleged inclusion of commissions. This is likewise covered by paragraph (b). See 12 C.F.R. § 560.2(b)(9). Plaintiff’s UDAP claim, as applied, Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 17 of 22 PageID #: 1327 13 would require Financial Freedom to change the manner in which it procures and places insurance on properties and thereby services mortgages; would place restrictions on its ability to enter into agreements with insurance agents; would impose new and different disclosure requirements on Financial Freedom in connection with its servicing of mortgages; and would affect its ability to charge loan-related fees to its borrowers. “These heightened requirements … amount to additional requirements regarding” activities covered by paragraph (b), and are thus preempted. See, e.g., Campos v. Wells Fargo Bank, N.A., 2015 WL 5415520, at *7 (C.D. Cal. Aug. 31, 2015) (claim under California’s Unfair Competition Law (“UCL”) was preempted where it sought to impose heightened requirements on the activities listed in paragraph (b)). Several courts have found similar claims for violation of state consumer protection laws based on LPI (like the one at issue here) preempted by HOLA. See, e.g., Meyer, 91 F. Supp. 3d at 1182 (UCL claim based on OneWest’s placement of “high-cost and backdated insurance” and receipt of “unearned compensation” in connection with same was preempted by HOLA under paragraph (b)); Schilke, 758 F. Supp. 2d at 555-56 (claim that Wachovia violated Illinois’s consumer fraud statute by purchasing insurance “that included ‘kickback’ payments” and passing along those costs to borrowers was preempted, because the claim “would affect Wachovia’s ‘ability … to require or obtain private mortgage Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 18 of 22 PageID #: 1328 14 insurance (§ 560.2(b)(2)); its imposition of loan-related fees (§ 560.2(b)(5)); and its disclosure of loan terms (§ 560.2(b)(9))”); see also Silvas, 514 F.3d at 1006 (UCL claims preempted under paragraph (b) where they were based on disclosure, advertising, and loan-related fee activities); Ellis v. J.P. Morgan Chase & Co., 2016 WL 5815733, at **9-10 (N.D. Cal. Oct. 5, 2016) (UCL claim based on lack of disclosure was preempted under paragraph (b) because “the functional effect of [the claim] would be to place a new disclosure requirement on Chase, which HOLA indisputably preempts,” see 12 C.F.R. § 560.2(b)(9); loan-related fee was also preempted under paragraph (b)); Parks v. Wells Fargo Bank, N.A., 2016 WL 411674, at *3 (S.D. Cal. Feb. 3, 2016) (same); Ramirez v. Wells Fargo Bank, N.A., 2016 WL 7448136, at *8 (C.D. Cal. Feb. 1, 2016) (same); Lopez v. Wells Fargo Bank, N.A., 2016 WL 283507, at *4 (N.D. Cal. Jan. 25, 2016) (same); Romero v. Wells Fargo Bank, N.A., 2015 WL 12781210, at *7 (C.D. Cal. Dec. 22, 2015) (same); see also Reyes v. Downey Savings & Loan Ass’n, F.A., 541 F. Supp. 2d 1108, 1115 (C.D. Cal. 2008) (if plaintiffs had sought to apply state law “to require certain disclosures in loan-related advertising, federal law would preempt” the claim). The Ninth Circuit’s recent Campidoglio decision does not affect the analysis with respect to Plaintiff’s UDAP claim because, as discussed at length above, Campidoglio merely affirmed the existing principle that a breach of contract claim Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 19 of 22 PageID #: 1329 15 is not preempted where the claim simply seeks to enforce the express terms of the parties’ contract. Indisputably, Plaintiff’s UDAP claim seeks to do no such thing; rather, it purports to use state consumer protection law to impose additional restrictions on certain practices that are directly addressed by § 560.2(b). Accordingly, Plaintiff’s UDAP claim is preempted under paragraph (b) and it is thus unnecessary to analyze the claim under paragraph (c). Indeed, in Silvas, plaintiffs alleged that defendant violated the UCL by including false information on its website and in advertisements to the public; making misrepresentations in advertisements and other documents; and charging an unlawful “lock-in fee” to lock-in interest rates for mortgages. 514 F.3d at 1006. The Ninth Circuit Court of Appeals held that plaintiffs’ claims were preempted under paragraph (b), “because the alleged misrepresentation[s were] contained in advertising and disclosure documents,” which are covered by § 560.2(b)(9) (“disclosures and advertising”), and because the “lock-in fee” is a “loan-related fee,” and thus covered by § 560.2(b)(5). Silvas, 514 F.3d at 1006. The court rejected plaintiffs’ argument that the claims should be analyzed under paragraph (c) because their state law claims were based on “laws of general applicability,” including “contract, commercial, and tort law ....” Id. As plaintiffs’ claims were “based on types of laws listed in paragraph (b) of § 560.2, specifically (b)(9) and (b)(5),” the court Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 20 of 22 PageID #: 1330 16 found it unnecessary to “reach the question of whether the law fit[] within the confines of paragraph (c) ….” Id. In any event, if the Court were to analyze Plaintiff’s UDAP claim under paragraph (c), it would nonetheless be preempted. Indeed, the effect of the UDAP claim would be to restrict Financial Freedom’s ability to enter into agreements with insurance agents and companies, and thereby regulate the manner in which it procures and places insurance and services mortgages; place additional disclosure requirements on Financial Freedom; and restrict its ability to impose loan-related fees on borrowers in connection with its servicing of mortgages. Accordingly, Plaintiff’s UDAP claim would more than incidentally affect lending operations and would thus be subject to preemption under paragraph (c). Plaintiff’s UDAP claim should therefore be dismissed with prejudice. CONCLUSION For all of the foregoing reasons and the reasons set forth in prior briefing and argument, the Court should hold that Plaintiff’s breach of contract and UDAP claims are preempted by HOLA and dismiss these claims with prejudice. Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 21 of 22 PageID #: 1331 17 Dated: September 26, 2017 Respectfully submitted, /s/ Judy A. Tanaka ALSTON HUNT FLOYD & ING JUDY A. TANAKA MICHELLE COMEAU GREENBERG TRAURIG, LLP LOUIS SMITH (admitted pro hac vice) Attorneys for Defendants CIT Group Inc., CIT Bank, N.A., and Financial Freedom Case 1:16-cv-00596-JMS-RLP Document 86 Filed 09/26/17 Page 22 of 22 PageID #: 1332