ROSEMARY M. COLLYER, District Judge.
Derrick Davis purchased a home with a mortgage loan from World Savings Bank FSB; the loan is allegedly now held by Wachovia Corporation and Wells Fargo Bank, N.A., (collectively the "Defendants").
Mr. Davis borrowed $280,000 from World Savings Bank FSB ("World Savings Bank") in December 2007 pursuant to a fixed-rate mortgage note and a "Pick-a-Payment" mortgage loan. Notice of Removal [Dkt. # 1], Ex. 1 ("Compl."), Ex. A ("Note"). The Pick-a-Payment loan provided for various payment options, including a minimum payment, an interest-only payment, a payment based on a 30-year amortization, or a payment based on a 15-year amortization. Compl. at 1 (Preliminary Statement). Mr. Davis chose the minimum payment option, which was fixed at the amount of $1,273.01 per month for an initial term of one year, after which the monthly payment was subject to change. The Note provided:
Note §§ 1, 3(A)-(G). In sum, when the minimum payment was sufficient to pay only a portion of the interest due on the loan, the Note provided that the unpaid portion of the interest, called "Deferred Interest," would be added to the principal balance and would, in turn, accrue interest. Id. § 3(E). So that the Note would still be paid in full by its maturity date, the minimum payment was subject to periodic increases. Id. § 3(D), (F), (G).
Mr. Davis alleges that although his loan carried a fixed interest rate of 8.8%, see id. § 2, by opting for the minimum payment Mr. Davis was effectively charged a much higher interest rate. Compl. ¶ 15. "Plaintiff was promised ... a fixed rate note. In fact[,] Plaintiff's note states on its face that the note in which Plaintiff received was a fixed rate note. However, Plaintiff never received a fixed rate note [because the note] is really an adjustable rate note with a negative amortization component hidden within." Id. ¶ 23. Mr. Davis also claims that, at least during the initial minimum payment period, the Note was negatively amortized. Id. ¶ 13. Despite the plain language of the Note, Mr. Davis contends that Defendants failed to provide sufficient disclosures to him regarding the nature of the loan, the risk of negative amortization, and the fact that the minimum payment did not cover the full amount of interest due or the full cost of the loan. See, e.g., Compl. ¶¶ 13-14, 16-17. Also, he complains that Defendants failed to inform him that if his balance increased to a certain level, he could no longer select the minimum payment option. Id. ¶ 18. As a result, Mr. Davis brought suit, alleging breach of contract/breach of the implied covenant of good faith and fair dealing, promissory estoppel, fraud, and negligent misrepresentation. See Compl. ¶¶ 25-60 (Counts I-IV). Defendants move to dismiss.
Although Mr. Davis initially filed this case in D.C. Superior Court, Defendants removed the case to this Court on the basis of diversity jurisdiction. Federal courts have diversity jurisdiction where the suit is between citizens of different states and the amount in controversy exceeds $75,000. 28 U.S.C. § 1332(a)(1). A court lacks diversity jurisdiction if there are litigants from the same state on opposing sides of the controversy. See Prakash v. Am. Univ., 727 F.2d 1174, 1178 n. 25 (D.C.Cir.1984). A corporation is deemed to be a citizen of the state in which it is incorporated and the state where it maintains its principal place of business. 28 U.S.C. § 1332(c)(1). The principal place of business for a corporation is usually its headquarters, where day-to-day business is conducted. Masterson-Cook v. Criss Bros. Iron Works, Inc., 722 F.Supp. 810, 812 (D.D.C.1989).
A motion to dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the adequacy of a complaint on its face. Fed.R.Civ.P. 12(b)(6). A complaint must be sufficient "to give a defendant fair notice of what the... claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal citations omitted). Although a complaint does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. 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., 550 U.S. at 570, 127 S.Ct. 1955.
A court must treat the complaint's factual allegations as true, "even if doubtful in fact." Id., 550 U.S. at 555, 127 S.Ct. 1955. But a court need not accept as true legal conclusions set forth in a complaint. Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). In deciding a motion under Rule 12(b)(6), a court considers the facts alleged in the complaint, documents attached to the complaint as exhibits or incorporated by reference, and matters about which the court may take judicial notice. Abhe & Svoboda, Inc. v. Chao, 508 F.3d 1052, 1059 (D.C.Cir.2007). Further, "[a] copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes." Fed. R.Civ.P. 10(c).
Defendants assert that all of the claims set forth in the Complaint are preempted by HOLA. There are three ways that federal law can preempt state law. First, Congress may preempt state law by expressly stating that preemption applies. Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S.Ct. 1305, 51 L.Ed.2d 604 (1977); Bank of Am. v. City and County of S.F., 309 F.3d 551, 558 (9th Cir.2002). Second, "field preemption" applies when federal regulation is so pervasive that it is reasonable to infer that Congress left no room for the states to supplement an area of law. Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 91 L.Ed. 1447 (1947); Bank of Am., 309 F.3d at 558. Third, preemption may apply when state law conflicts with federal law such that compliance with both laws is impossible, Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43, 83 S.Ct. 1210, 10 L.Ed.2d 248 (1963), or when application of state law would impede Congress's purposes and objectives, Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 85 L.Ed. 581 (1941); Bank of Am., 309 F.3d at 558.
HOLA empowered the Office of Thrift Supervision ("OTS") to supervise and regulate federal savings associations
Id. (emphasis added).
Section 560.2(b) provided thirteen examples of the types of state laws that were preempted, including the following:
12 C.F.R. § 560.2(b).
Section 560.2 also provided examples of state laws that are not preempted:
Id. § 560.2(c).
OTS outlined the steps it would take to analyze whether a state law is preempted:
61 Fed. Reg. 50951-01 (Sept. 30, 1996).
While the D.C. Circuit has not addressed the issue of preemption under HOLA, three other circuits have. The Eighth and Ninth Circuits have applied § 560.2 to find broad preemption; in contrast, the Seventh Circuit has read § 560.2 quite narrowly. Compare Casey v. FDIC, 583 F.3d 586 (8th Cir.2009) (finding claims under Missouri Merchandising Practices Act preempted by HOLA) and Silvas v. E*Trade Mort. Corp., 514 F.3d 1001 (9th Cir.2008) (finding claims under California Unfair Competition Law preempted by HOLA) with In re Ocwen Loan Servicing, LLC, Mort. Servicing Litig., 491 F.3d 638 (7th Cir.2007) (finding common law claims generally are not preempted). In arguing for preemption, Defendants rely on Silvas. In arguing against it, Mr. Davis relies on Ocwen.
In Silvas, the Ninth Circuit determined that claims under the California Unfair Competition Law ("UCL") were preempted by HOLA. There, mortgage applicants brought suit alleging that E*Trade Mortgage Corporation violated the UCL's unfair advertising and unfair competition rules (1) by including false information in its website and in its advertising and (2) by misrepresenting consumer legal rights in its advertising and other documents. 514 F.3d at 1003. The Ninth Circuit held that the claims were preempted under § 560.2(b)(9), which preempts state laws claims regarding disclosure and advertising. Id. at 1006. The mortgage applicants also claimed that E*Trade violated the UCL's unfair competition provision by charging an interest rate lock-in fee that was not refunded when loan applicants cancelled their loan transactions. The Ninth Circuit found that under § 560.2(b)(5), state laws that purport to impose requirements on loan fees are preempted. Id. Because the UCL was the type of state law that was contemplated under § 560.2(a) and (b), the court ended its analysis, explaining that there was no need to address whether the UCL was a state law with only an incidental effect on lending under § 560.2(c). Id. at 1006.
In Casey, the Eighth Circuit found claims that lenders violated the Missouri Merchandising Practices Act by charging fees for preparation of documents by nonlawyers were preempted by HOLA under § 560.2(b)(5). Section 560.2 provides that laws that are preempted include "state laws purporting to impose requirements" regarding "[l]oan-related fees." 12 C.F.R. § 560.2(b)(5). The plaintiff homeowners in Casey interpreted the phrase "state laws purporting to impose requirements" to mean state laws that on their face impose requirements on lenders. Casey, 583 F.3d at 593. Because the Missouri Merchandising Practices Act was a law of general application that did not on its face impose requirements on lenders, the homeowners reasoned that the statute was not preempted by HOLA.
In contrast, the lenders viewed the phrase "state laws purporting to impose requirements" to mean state laws that as
In a case strikingly similar to this one, a federal court in this district followed Silvas and found contract and tort claims against the same lenders on the same type of loan to be preempted. In Bopp v. Wells Fargo Bank, N.A., 740 F.Supp.2d 12 (D.D.C.2010), the plaintiff brought suit against World Savings Bank and its successors in interest, Wachovia Mortgage, and Wells Fargo Bank, on a Pick-a-Payment mortgage. In addition to claims under the Truth in Lending Act ("TILA"), 15 U.S.C. § 1638, Mr. Bopp asserted claims for common law fraud and breach of the covenant of good faith and fair dealing. Like Mr. Davis, Mr. Bopp complained that the lender did not provide sufficient notice that negative amortization would result from his Pick-a-Payment loan. The court rejected Mr. Bopp's claims, explaining:
740 F.Supp.2d at 16. The court noted that "[i]t is clear that the gravamen of Bopp's state law claims is the same as what underlies his TILA claim. A thorough reading of plaintiff's Complaint reveals that he is challenging the terms of his credit, the manner in which his loan was amortized, the quality and quantity of information disclosed to him, and the manner in which his mortgage application loan and origination was processed. All of these complaints are expressly enumerated in HOLA as illustrative examples of preempted state law." Id. at 16-17 (citing 12 C.F.R. § 560.2(b)(4), (5), (9)(11)). The court also found that the plaintiff could not demonstrate that the state law claims had only incidental effect on lending operations under § 560.2(c), that subsection (c) must be interpreted narrowly, and that any doubt should be resolved in favor of preemption. Id. at 17. The court concluded that the claims of fraud and breach of the covenant of good faith and fair dealing were preempted by HOLA. See also Jones-Boyle v. Washington Mutual Bank, FA, Civ. No. 08-02142JF, 2010 WL 2724287, *7 (N.D.Cal. July 8, 2010) (following Silvas, the court held that claims including fraud, breach of contract, and breach of the implied covenant of good faith and fair dealing were preempted by HOLA).
In contrast, in Ocwen the Seventh Circuit held that as a general proposition HOLA does not preempt state common law claims. In that case, the lower court had denied the lenders' motion to dismiss numerous state law claims on HOLA preemption grounds, including claims for fraud and breach of contract. The lenders
Id. at 643-44.
Even so, the Seventh Circuit recognized that preemption depends on the nature of the claims alleged and examined each of the twenty-two causes of action at issue. The court described the complaint as a "hideous sprawling mess," and found it "difficult and in many instances impossible to ascertain the nature of the charges." Id. at 641.
District courts have reached conflicting conclusions in this area of law. Some follow Silvas/Casey and find broad preemption, while others follow Ocwen and find no preemption. See, e.g., Dixon v. Wells Fargo Bank, N.A., Civ. No. 11-10368-WGY, 798 F.Supp.2d 336, 358-60 & nn. 9-10, 2011 WL 2945795, *16 & nn. 9-10 (D.Mass. July 22, 2011) (collecting cases). In some cases, district courts have attempted to dissect the claims. See, e.g., Thomas v. OneWest Bank, FSB, No. 10-6234-AA, 2011 WL 867880 (D.Or. Mar. 10, 2011) (fraud claim was preempted and breach of contract claim was not); but see Down v.
Mr. Davis points to the statement in Ocwen that HOLA "does not deprive persons harmed by the wrongful acts of savings and loans associations of their basic [s]tate common-law-type remedies." See Ocwen, 491 F.3d at 643. From this, he summarily concludes that his claims for breach of contract/breach of the implied covenant of good faith and fair dealing, promissory estoppel, fraud, and negligent misrepresentation are not preempted by HOLA. This is an overly broad interpretation of Ocwen. The Seventh Circuit did not hold that HOLA never preempts any common law claim. As explained above, Ocwen pointed out that preemption was dependent upon the precise allegations in support of a claim.
An analysis of preemption in this case must start with the proposition that there is a presumption of preemption here. See 61 Fed. Reg. 50951-01 (any doubt should be resolved in favor of preemption); Aguayo, 653 F.3d at 920-21 (because field preemption applies, there is a presumption of preemption). Further, a close reading of the Complaint and the Note reveals that all of the common law claims raised are inextricably linked to the loan transaction and the documents related to the loan.
Moreover, this case is almost identical to Bopp, where the court found that HOLA preempted fraud and breach of contract claims. Like Mr. Bopp, Mr. Davis complains that Defendants did not provide sufficient notice that negative amortization could occur. The Note, however, clearly and conspicuously disclosed that negative amortization could occur if Mr. Davis chose to make a payment amounting to
In sum, Mr. Davis is challenging the terms of his credit, the manner in which his loan was amortized, and the quality and quantity of information disclosed to him—all claims that were expressly enumerated in § 560.2(b) as illustrative examples of preempted state law. See 12 C.F.R. 560.2(b)(4), (9); Silvas, 514 F.3d at 1006; Bopp, 740 F.Supp.2d at 16-17. Also, in these circumstances where the allegations are inextricably linked to the loan transaction, Mr. Davis cannot demonstrate that his claims have only an incidental affect on lending operations. See Bopp, 740 F.Supp.2d at 17. Counts I through IV of the Complaint—the claims for breach of contract/breach of the covenant of good faith, promissory estoppel, fraud, and negligent misrepresentation—will be dismissed as preempted by HOLA.
Even if the claims were not preempted, they would still be dismissed for failure to state a claim.
Mr. Davis's breach of contract/breach of good faith
"[O]ne who signs a contract has a duty to read it and is obligated according to its terms." Paterson v. Reeves, 304 F.2d 950, 951 (D.C.Cir.1962); Watson v. Gold N Diamonds, Inc., 736 F.Supp.2d 266, 269 (D.D.C.2010). Further, "when the bare allegations of the complaint conflict with any exhibits or documents, whether attached or adopted by reference, the exhibits or documents prevail." Miller v. Pacific Shore Funding, 224 F.Supp.2d 977, 984 n. 1 (D.Md.2002) (citing Fayetteville Investors v. Commercial Builders, Inc., 936 F.2d 1462, 1465
Here, there is only one reasonable interpretation of the Note,
Count II, the claim for promissory estoppel, must also be dismissed. Promissory estoppel provides a remedy for the enforcement of a promise where the formal requirements of a contract have not been satisfied. Vila v. Inter-Am. Inv. Corp., 570 F.3d 274, 280 (D.C.App.2009). District of Columbia courts generally prohibit litigants from asserting a claim for promissory estoppel when an express contract governs the parties' conduct. Plesha v. Ferguson, 725 F.Supp.2d 106, 112 (D.D.C.2009). Here, the Note and other written mortgage documents govern. Count II will be dismissed.
In order to state a claim for fraud under District of Columbia law, a plaintiff must allege that the defendant made a material misrepresentation, with knowledge of its falsity and with intent to deceive, and that the plaintiff reasonably relied on such misrepresentation resulting in provable damages. Essroc Cement Corp. v. CTI/D.C., Inc., 740 F.Supp.2d 131, 145 (D.D.C.2010). The elements of a negligent misrepresentation claim are similar except that they do not include the scienter requirements of a fraud claim. Parr v. Ebrahimian, 774 F.Supp.2d 234, 240 (D.D.C.2011). While reasonable reliance can be a jury issue, dismissal for failure to state a claim is proper when no reasonable person would have relied on the representation. Burman v. Phoenix Worldwide Indus., Inc., 384 F.Supp.2d 316, 329 (D.D.C.2005) (citing Alicke v. MCI Comm. Corp., 111 F.3d 909, 912 (D.C.Cir.1997)).
Contrary to Mr. Davis's allegations, the Note does not "hide" anything. On its face it expressly and clearly provided that the while the interest rate is fixed, the minimum payment might not be sufficient to pay the entire amount of interest accruing, Note § 3(B); that when monthly payments were not large enough to cover interest, Deferred Interest would be added to the principal and would accrue interest, id. § 3(E); and that monthly payments would be increased annually to an amount sufficient to pay the principal and interest, including the Deferred Interest. Id. § 3(C), (D), (F). In light of the terms of the Note, Mr. Davis fails to allege a fraudulent or negligent misrepresentation and fails to allege reasonable reliance. Because the claims for fraud and negligent misrepresentation are flatly contradicted by the express terms of the Note, they fail to state a claim. Counts III and IV of the Complaint will be dismissed.
For the foregoing reasons, the motion to dismiss filed by World Savings Bank, FSB [Dkt. # 6] and the motion to dismiss filed by Wachovia Mortgage Corporation and Wells Fargo Bank N.A. [Dkt. # 7] will be granted. The Complaint will be dismissed. A memorializing Order accompanies this Memorandum Opinion.
491 F.3d at 641.
