Northern California Judges Rule in Lending Cases

Drawing courtesy of www.lumaxart.com.

Several judges have recently released opinions on lending laws.

In Nickerson v. Wells Fargo, the plaintiff filed a class action suit against Wells Fargo stating that the bank obtained money from the Troubled Asset Relief Program (TARP) but failed to renegotiate mortgages in good faith.  However, this claim previously failed because there is no private right of action under TARP. See Pantoja v. Countrywide Home Loans, Inc. (N.D. Cal. 2009) (Ware, J.) ("there is no express private right of action against TARP fund recipients [and] there is no implied private right to sue fund recipients under TARP.")  Now, Mr. Nickerson would like to dismiss his federal claims and pursue state claims of fraud and legal malpractice against the Lucas Law Firm for wrongdoing not specified in the order.  Magistrate Elizabeth D. Laporte stated that one can't simply dismiss certain claims under Fed. R. Civ. P. 41(a)(1), rather the plaintiff needs to do this by amending the complaint under Rule 15. After Mr. Nickerson did so, she remanded the action to Superior Court for lack of federal jurisdiction.

Perez v. Midland Funding is another putative class action.  Mrs. Perez complains that she purchased a vehicle in an installment contract covered by California's Automobile Sales Finance Act (or the Rees-Levering Act). Act some point in 2006, she defaulted on the loan, Wells Fargo repossessed the vehicle, sent her a notice of intent (NOI) to sell the vehicle and obtain a deficiency judgment from Mrs. Perez.  It did so and sold rights in the deficiency action to Midland Funding who sued Mrs. Perez in Santa Clara County Superior Court.  Mrs. Perez answered stating that the NOI failed to comply with the statutory requirements and that no deficiency was owed.  Midland Funding voluntarily dismissed the complaint.  Now Mrs. Perez is suing Midland Financial for violations of the Fair Debt Collection Practice Act (FDCPA) and California's Unfair Competition Law (UCL).

Midland defends the suit by stating that federal regulations promulgated through the National Banking Act preempt the NOI requirements of the Rees-Levering Act in their entirety.  Judge Lucy Koh explained the controversy.

Defendant argues that the ASFA post-repossession notice requirements are expressly preempted by § 7.4008(d) as state laws requiring “[d]isclosure . . . , including laws requiring specific statements, information, or other content to be included in . . . credit-related documents,” 12 C.F.R. § 7.4008(d)(2)(viii); concerning security property, § 7.4008(d)(2)(vi); or regulating terms of credit, including the schedule for repayment of principal and interest . . . [and] the circumstances under which a loan may be called due and payable upon the passage of time or a specified event external to the loan,” § 7.4008(d)(2)(vi)[.]

According to Plaintiff, ASFA’s post-repossession notice requirements should be considered state laws relating to “[r]ights to collect debts” that are not preempted to the extent that they only incidentally affect the exercise of national banks’ lending powers. See 12 C.F.R. § 7.4008(e) (listing rights to collect debts as a subject of state law that is not inconsistent with national banks’ lending powers and that applies to national banks to the extent it only incidentally affects those powers). Plaintiff draws a line between the “credit-related documents described in § 7.4008(d)(2)(viii), which pertain to “mak[ing] non-real estate loans,” § 7.4008(d)(2), and the ASFA notice requirements, which pertain to debt collection and do not come into play until after a loan has been made.

Judge Koh sided with the Southern District of California's opinion in Aguayo v. U.S. Bank (S.D. Cal 2009) ("the Rees-Levering Act is preempted by regulation, and the savings clause provides no sanctuary for laws already preempted by the express language of the OCC."). However, she noted that this decision is on appeal to the Ninth Circuit, although she dismissed the case with prejudice, reversal of Aguayo could have an affect on the case.

In Mira v. GMAC Mortgage, Alfonso and Carla Mira complain that GMAC foreclosed their property in violation of six California state laws.  GMAC claims it was never served and only discovered the lawsuit upon learning that the Miras filed a lis pendens.  A lis pendens is an procedure to cease foreclosure proceedings while a case pends in court.  GMAC removed the action from Superior Court on diversity grounds and then moved to dismiss it for failure to state a claim upon which relief can be granted.  Since filing the complaint the Miras have not participated in the lawsuit.  Judge Richard Seeborg dismissed the case with leave to amend stating that factual allegations were incomplete, but that they could be remedied upon amendment.