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Schneider v. Citibank, NA

United States District Court, Tenth Circuit

January 21, 2014

RANDALL A. SCHNEIDER and AMY L. SCHNEIDER Plaintiffs,
v.
CITIBANK, NA, CITIGROUP, INC., and PRIMERICA FINANCIAL SERVICES HOME MORTGAGES, INC. Defendants.

MEMORANDUM AND ORDER

Sam A. Crow, U.S. District Senior Judge

This case, removed from state court on the basis of diversity and federal question jurisdiction, comes before the court on Defendants’ motion to dismiss for failure to state a claim pursuant to Fed. R. Civ. Pro. 12(b)(6). In response to the motion, Plaintiffs have “withdrawn” the only two counts that facially provided federal question jurisdiction: Count II, the Equal Credit Opportunity Act; and Count III, the Real Estate Settlement Procedures Act, 12 USC § 2601 et seq. Dk. 13, p. 30. The following state law claims remain: breach of contract, conversion, fraud, and violation of the Kansas Consumer Protection Act, K.S.A. 50-623 et seq. (deceptive and unconscionable acts). Because the complaint asserts over $75, 000 in damages by the in-state party, and the notice of removal states the underlying facts supporting the assertions that the amount in controversy exceeds that jurisdictional amount and that the parties are diverse, the court exercises diversity jurisdiction over these claims. See McPhail v. Deere & Co ., 529 F.3d 947 (10th Cir. 2008).

I. Standard for Motion to Dismiss

To survive a motion to dismiss, a complaint must have facial plausibility.

To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim for relief that is plausible on its face.” Id. [Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)) at 570. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the Defendant is liable for the misconduct alleged. Id. at 556. The plausibility standard is not akin to a “probability requirement, ” but it asks for more than a sheer possibility that a Defendant has acted unlawfully. Id. Where a complaint pleads facts that are “merely consistent with” a Defendant's liability, it “stops short of the line between possibility and plausibility of ‘entitlement to relief.’ “ Id. at 557.

Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868, 884 (2009). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. “[C]ourts should look to the specific allegations in the complaint to determine whether they plausibly support a legal claim for relief.” Alvarado v. KOB–TV, L.L.C., 493 F.3d 1210, 1215 n. 2 (10th Cir. 2007). “While the 12(b)(6) standard does not require that Plaintiff establish a prima facie case in [his] complaint, the elements of each alleged cause of action help to determine whether Plaintiff has set forth a plausible claim.” Khalik v. United Air Lines, 671 F.3d 1188, 2012 WL 364058, at *3 (10th Cir. Feb. 6, 2012).

“The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's ... complaint alone is legally sufficient to state a claim for which relief may be granted.” Miller v. Glanz, 948 F.2d 1562, 1565 (10th Cir. 1991). The court accepts all well-pled factual allegations as true and views these allegations in the light most favorable to the nonmoving party. United States v. Smith, 561 F.3d 1090, 1098 (10th Cir. 2009), cert. denied, 558 U.S. 1148 (2010). The court, however, is not under a duty to accept legal conclusions as true. Iqbal, 556 U.S. 662. “Thus, mere ‘labels and conclusions' and ‘formulaic recitation of the elements of a cause of action’ will not suffice.” Khalik, 2012 WL 364058, at *2 (10th Cir. Feb.6, 2012) (quoting Twombly, 550 U.S. at 555).

In evaluating a Rule 12(b)(6) motion to dismiss, the court is limited to assessing the legal sufficiency of the allegations contained within the four corners of the complaint. Archuleta v. Wagner, 523 F.3d 1278, 1281 (10th Cir. 2008). But in considering the complaint in its entirety, the Court also examines any documents “incorporated into the complaint by reference, ” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007), and documents attached to the complaint, Rosenfield v. HSBC Bank, USA, 681 F.3d 1172, 1189 (10th Cir. 2012) (quotations and citations omitted).

II. Facts

In 2007, Plaintiffs took a residential mortgage loan originated by Defendant Citicorp Trust Bank, fsb, now known as Citibank, N.A. (“Citicorp”). Citicorp originated the loan through communications Plaintiffs had with a representative of Defendant Primerica Financial Services Home Mortgages, Inc. (“Primerica”). Plaintiffs also chose to participate in a Payment Waiver Protection Program and an Equity Builder Interest Rate Discount Program.

Plaintiffs allege that Citicorp failed to properly administer the loan, including overcharging them interest on the loan in violation of the Equity Builder Interest Rate Discount Program, not properly processing their request to use the Payment Waiver Protection Program, and overcharging them. Plaintiffs allege they applied in 2010 to Citicorp for refinancing of the loan, but were denied despite their good credit and qualifications. But on August 2, 2010, Plaintiffs obtained refinancing from HomeQuest. In connection with that closing, Plaintiffs allege Citicorp required them to pay a prepayment penalty of $829.42 in breach of the terms of the Note, and that Citicorp otherwise misrepresented the true amount needed to satisfy the loan, and overcharged them $6.76 as a payoff amount as a condition of releasing its lien on the mortgage. Other facts will be discussed below as relevant to the issues.

III. HOLA Preemption

Defendants contend that Plaintiffs’ claims concerning the origination, processing and payoff of their 2007 loan and Plaintiffs’ request for refinancing are preempted by the Home Owners’ Loan Act, 12 USC § 1461 et seq. (HOLA). Defendants assert that these claims purport to impose on Citicorp, a federal savings bank (or its successors, ) requirements regarding the “processing, origination, servicing, sale or purchase of, or investment or participation in, mortgages.” 12 CFR § 560.2(b)(10). Defendants contend that the OTS regulations occupy the field of lending regulation for federal savings associations.

But Defendants show no precedent construing HOLA preemption as broadly as they do. Instead, precedent consistently illustrates that at most, HOLA preempts the field of regulatory control over federal savings associations. See e.g., Fidelity Federal Sav. and Loan Ass'n v. de la Cuesta, 458 U.S. 141, 151, 102 S.Ct. 3014, 3021 (1982) (finding FHLB regulations have the force and effect of statute and preempt all conflicting state laws); Home Mortg. Bank v. Ryan, 986 F.2d 372 (10th Cir. 1993) (finding Office of Thrift Supervision (OTS) regulation requiring approval for thrift to bank conversion preempted state law); Federal Home Loan Bank Bd., Washington, D.C. v. Empie, 778 F.2d 1447, 1448 (10th Cir. 1985) (finding state statute prohibiting entities not conducting a banking business under the state banking laws to use various forms of the word “bank” in advertising was preempted by federal law).

Plaintiffs’ complaint primarily seeks damages, fees and costs arising from alleged misrepresentations, and does not seek an injunction or attempt to impose any regulation upon any Defendant or to effect any ongoing change in Defendants’ manner of doing business regarding mortgages. In such cases, preemption is not the norm. See e.g., Watkins v. Wells Fargo Home Mortg., 631 F.Supp.2d 776, 787-88 (S.D.W.Va. 2008) (finding no HOLA preemption of fraud claim but finding preemption of claim attacking the appraisal methodology used by the bank); DeLeon v. Wells Fargo Bank, N.A., 2011 WL 311376, *7 (N.D.Cal. Jan. 28, 2011) (finding plaintiffs' intentional misrepresentation claim not preempted by HOLA because it “d[id] not attempt to impose substantive requirements regarding loan terms, disclosures, or servicing or processing procedures”); Becker v. Wells Fargo Bank, N.A., 2011 WL 1103439 (E.D.Cal. Mar. 22, 2011) (finding no HOLA preemption 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, ” because 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.”)

Plaintiffs’ claims relate to Defendants’ issuance, servicing, and refusing to refinance the loan, “[b]ut the standard for express preemption is more than “relates to.” See Coffman v. Bank of America, NA, 2010 WL 3069905, at *6 (S.D.W.Va. 2010) (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).” Dixon v. Wells Fargo Bank, N.A., 798 F.Supp.2d 336, 357 (D.Mass. 2011) (finding no HOLA preemption where the borrower did not attack the lender’s underlying loan servicing policies and practices, but rather sought to hold the lender to its word, noting “requiring a bank to perform the obligations of its contract in good faith implicates none of the concerns embodied in HOLA.”) quoting Bishop v. Ocwen Loan Servicing, LLC., 2010 WL 4115463 at *5 (S.D.W.Va. 2010).

Importantly, the plain language of the regulation Defendants cite states that the types of claim brought by Plaintiffs (contract and tort claims) are not preempted by HOLA:

… OTS hereby occupies the entire field of lending regulation for federal savings associations. OTS intends to give federal savings associations maximum flexibility to exercise their lending powers in accordance with a uniform federal scheme of regulation. Accordingly, federal savings associations may extend credit as authorized under federal law, including this part, without regard to state laws purporting to regulate or otherwise affect their credit activities, except to the extent provided in paragraph (c) of this section or § 560.110 of this part. For purposes of this section, “state law” includes any state statute, regulation, ruling, order or judicial decision.

12 CFR § 560.2(b)(10). The excepted paragraph (c) encompasses the types of claims Plaintiffs bring here:

(c) State laws that are not preempted. State laws of the following types are not preempted to the extent that they only incidentally affect the lending operations of Federal savings associations or are otherwise consistent with the purposes of paragraph (a) of this section:
(1) Contract and commercial law;
(2) Real property law; …
(4) Tort law;

Id. Thus the “OTS's assertion of plenary regulatory authority does not deprive persons harmed by the wrongful acts of savings and loan associations of their basic state common-law-type remedies.” In re Ocwen Loan Servicing, 491 F.3d at 643-44 (giving the illustrations of ...


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