Silvas v. Etrade ( 2008 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
EDNA SILVAS; RODOLFO SILVAS,  No. 06-55556
Plaintiffs-Appellants,
v.  D.C. No.
CV-05-02348-TJW
E*TRADE MORTGAGE CORPORATION,
OPINION
Defendant-Appellee.

Appeal from the United States District Court
for the Southern District of California
Thomas J. Whelan, District Judge, Presiding
Argued and Submitted
December 5, 2007—Pasadena, California
Filed January 30, 2008
Before: Harry Pregerson, John T. Noonan, and
Stephen S. Trott, Circuit Judges.
Opinion by Judge Trott
1491
SILVAS v. E*TRADE MORTGAGE CORP. 1493
COUNSEL
Norman B. Blumenthal, David R. Markham, Kyle R. Nordre-
haug, Blumenthal & Markham, La Jolla, California, for the
plaintiffs-appellants.
Daniel Harris, The Law Offices of Daniel Harris, Chicago,
Illinois, for the plaintiffs-appellants.
Douglas P. Lobel, David A. Vogel, Cooley Godward Kronish,
LLP, Reston, Virginia, for the defendant-appellee.
Lori R.E. Ploeger, Cooley Godward Kronish, LLP, Palo Alto,
California, for the defendant-appellee.
OPINION
TROTT, Circuit Judge:
Based on the doctrine of preemption, the district court dis-
missed Plaintiffs-Appellants’ class action suit against
1494 SILVAS v. E*TRADE MORTGAGE CORP.
Defendant-Appellee E*TRADE Mortgage. Appellants argue
that the district court erred in applying field preemption to bar
their claims. We have jurisdiction pursuant 28 U.S.C. § 1291
over this timely appeal, and we affirm.
I
BACKGROUND
In October 2001, Plaintiffs-Appellants Edna and Rodolfo
Silvas began the process of refinancing their mortgage with
Defendant-Appellee E*TRADE Mortgage Corporation
(“E*TRADE”). During the process, Appellants paid
E*TRADE a $400.00 fee to lock-in the interest rate. In
November 2001, Appellants elected to rescind the mortgage
within the three days allotted for cancellation under the Truth
in Lending Act (“TILA”). E*TRADE did not refund Appel-
lants’ lock-in fee, and, according to Appellants, it was
E*TRADE’s corporate policy not to refund the fee.
Nearly four years later, in September 2005, Appellants filed
suit in the Superior Court of Orange County, California. Their
complaint alleged that E*TRADE committed unlawful,
unfair, and deceptive conduct in violation of California’s
Unfair Competition Law (“UCL”), §§ 17200 and 17500 of the
California Business and Professions Code, by misrepresenting
rescission rights under TILA and by failing to provide a
refund of the deposit as required by TILA. Although both
UCL claims were predicated exclusively on a violation of
TILA, Appellants did not assert a claim under TILA itself.
The first claim alleged that E*TRADE violated UCL
§ 17500, the unfair advertising section, by representing to its
customers that its lock-in fee is non-refundable when, under
law, it is refundable if the consumer decides to exercise his or
her rescission rights under TILA. The complaint further
averred that the false statement was made in E*TRADE’s
SILVAS v. E*TRADE MORTGAGE CORP. 1495
website and its customer disclosures and thus constituted false
advertising.
The second claim alleged that E*TRADE violated UCL
§ 17200, the general unfair competition section, in two ways.
First Appellants alleged the lock-in policy itself violated UCL
§ 17200 as an unlawful business act. Second, Appellants
alleged that E*TRADE’s practice of misrepresenting consum-
ers’ legal rights in advertisements and other documents is
unfair, deceptive, and contrary to the policy of California.
Appellants brought this class action on behalf of all Cali-
fornia residents who, any time after October 1, 2001, paid a
lock-in deposit to E*TRADE for a mortgage secured by real
property within the state of California and did not get the fee
back after canceling an application or the mortgage loan
transaction. Appellants sought disgorgement of all lock-in
fees E*TRADE collected from class members.
E*TRADE removed the action to the United States District
Court for the Central District of California under 28 U.S.C.
§ 1441(a). Soon after, E*TRADE moved to dismiss the com-
plaint under Federal Rule of Civil Procedure 12(b)(6) on the
ground that federal law preempted the UCL claims. The dis-
trict court granted the motion to dismiss.
II
DISCUSSION
A. Standard of Review.
We review de novo a district court’s decision to dismiss for
failure to state a claim pursuant to Rule 12(b)(6). Knievel v.
ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). All allegations
of material fact are taken as true and construed in the light
most favorable to the nonmoving party. Id. A complaint must
not be dismissed unless it appears beyond doubt that the
1496 SILVAS v. E*TRADE MORTGAGE CORP.
plaintiff can prove no set of facts in support of the claim that
would entitle the plaintiff to relief. Homedics, Inc. v. Valley
Forge Ins. Co., 315 F.3d 1135, 1138 (9th Cir. 2003). “Ques-
tions of statutory interpretation are reviewed de novo, as are
questions of preemption.” Lopez v. Wash. Mut. Bank, 302
F.3d 900, 903 (9th Cir. 2002) (internal citation omitted).
B. Type of Preemption.
We have identified three ways federal law may preempt
state law:
First, Congress may preempt state law by so stating
in express terms. Second, preemption may be
inferred when federal regulation in a particular field
is so pervasive as to make reasonable the inference
that Congress left no room for the States to supple-
ment it. In such cases of field preemption, the mere
volume and complexity of federal regulations dem-
onstrate an implicit congressional intent to displace
all state law. Third, preemption may be implied
when state law actually conflicts with federal law.
Such a conflict arises when compliance with both
federal and state regulations is a physical impossibil-
ity, or when state law stands as an obstacle to the
accomplishment and execution of the full purposes
and objectives of Congress . . . .
Bank of Am. v. City and County of S. F., 309 F.3d 551, 558
(9th Cir. 2002) (internal quotation marks and citations omit-
ted).
Appellants’ arguments against preemption are premised on
their assertion that conflict preemption analysis applies to the
case at bar. We agree, however, with the district court, and
hold that field preemption applies because Appellants’ state
law claims provide state remedies for violations of federal law
in a field preempted entirely by federal law. The general pre-
SILVAS v. E*TRADE MORTGAGE CORP. 1497
sumption against preemption is not applicable here, and the
relevant regulation is clear—the field of lending regulation of
federal savings associations is preempted. See 12 C.F.R.
§ 560.2. Appellants were too late to sue under TILA. Their
end run will not do.
1. No Presumption Against Preemption.
[1] While there is a strong presumption against federal pre-
emption of state law governing historic police powers, the
Supreme Court has held that the presumption does not apply
“when [a] State regulates in an area where there has been a
history of significant federal presence.” United States v.
Locke, 529 U.S. 89, 108 (2000).
“Congress has legislated in the field of banking from the
days of M’Culloch v. Maryland, creating an extensive federal
statutory and regulatory scheme.” Bank of Am., 309 F.3d at
558 (citation omitted). Specific to this case, Congress enacted
the Home Owners’ Loan Act of 1933 (“HOLA”) to charter
savings associations under federal law, at a time when record
numbers of home loans were in default and a staggering num-
ber of state-chartered savings associations were insolvent. Id.
at 559. HOLA was designed to restore public confidence by
creating a nationwide system of federal savings and loan asso-
ciations to be centrally regulated according to nationwide
“best practices.” Fid. Fed. Sav. & Loan Ass’n v. de la Cuesta,
458 U.S. 141, 160-61 (1982). We have described HOLA and
its following agency regulations as a “radical and comprehen-
sive response to the inadequacies of the existing state sys-
tem,” and “so pervasive as to leave no room for state
regulatory control.” Conference of Fed. Sav. & Loan Ass’ns
v. Stein, 604 F.2d 1256, 1257, 1260 (9th Cir. 1979), aff’d, 445
U.S. 921. “[B]ecause there has been a history of significant
federal presence in national banking, the presumption against
preemption of state law is inapplicable.” Bank of Am., 309
F.3d at 559 (internal quotation marks omitted).
1498 SILVAS v. E*TRADE MORTGAGE CORP.
2. The OTS Regulation Occupies the Field.
[2] Through HOLA, Congress gave the Office of Thrift
Supervision (“OTS”) broad authority to issue regulations gov-
erning thrifts. 12 U.S.C. § 1464. As the principal regulator for
federal savings associations, OTS promulgated a preemption
regulation in 12 C.F.R. § 560.2. That the preemption is
expressed in OTS’s regulation, instead of HOLA, makes no
difference because, “[f]ederal regulations have no less pre-
emptive effect than federal statutes.” de la Cuesta, 458 U.S.
at 153. The regulation reads inter alia:
OTS hereby occupies the entire field of lending regu-
lation for federal savings associations. OTS intends
to give federal savings associations maximum flexi-
bility 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, includ-
ing 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 . . . .
12 C.F.R. § 560.2(a) (emphasis added). Section 560.2(b) goes
on to provide a list of specific types of state laws that are pre-
empted, two of which, § 560.2(b)(5) and § 560.2(b)(9), are
specifically applicable to this case.
[T]he types of state laws preempted by paragraph (a)
of this section, include, without limitation, state laws
purporting to impose requirements regarding:
....
(5) Loan-related fees, including without limitation,
initial charges, late charges, prepayment penalties,
servicing fees, and overlimit fees;
SILVAS v. E*TRADE MORTGAGE CORP. 1499
....
(9) Disclosure and advertising, including laws
requiring specific statements, information, or other
content to be included in credit application forms,
credit solicitations, billing statements, credit con-
tracts, or other credit-related documents and laws
requiring creditors to supply copies of credit reports
to borrowers or applicants;
12 C.F.R. § 560.2(b)(5) and (9).
In addition to the mandate in § 560.2(a) and (b), OTS has
outlined a proper analysis in evaluating whether a state law is
preempted under the regulation.
When analyzing the status of state laws under
§ 560.2, the first step will be to determine whether
the type of law in question is listed in paragraph (b).
If so, the analysis will end there; the law is pre-
empted. If the law is not covered by paragraph (b),
the next question is whether the law affects lending.
If it does, then, in accordance with paragraph (a), the
presumption arises that the law is preempted. This
presumption can be reversed only if the law can
clearly be shown to fit within the confines of para-
graph (c). For these purposes, paragraph (c) is
intended to be interpreted narrowly. Any doubt
should be resolved in favor of preemption.
OTS, Final Rule, 61 Fed. Reg. 50951, 50966-67 (Sept. 30,
1996).1
1
See also OTS Legal Opinion at 7 (Dec. 24, 1996), available at
http://www.ots.treas.gov/docs/5/56615.pdf. (recognizing the preemption
of Indiana law under § 560.2(b)(9) when it merely incorporated by refer-
ence already applicable federal requirements); OTS Legal Opinion No. P-
99-3 at 14-16 (Mar. 10, 1999), available at http://www.ots.treas.gov/
1500 SILVAS v. E*TRADE MORTGAGE CORP.
Appellants’ specific claims are analyzed directly below.
I UCL § 17500: Unfair Advertising
[3] As outlined by OTS, the first step is to determine if
UCL § 17500, as applied, is a type of state law contemplated
in the list under paragraph (b) of 12 C.F.R. § 560.2. If it is,
the preemption analysis ends. Here, Appellants allege that
E*TRADE violated UCL § 17500 by including false informa-
tion on its website and in every media advertisement to the
California public. Because this claim is entirely based on
E*TRADE’s disclosures and advertising, it falls within the
specific type of law listed in § 560.2(b)(9).2 Therefore, the
preemption analysis ends. UCL § 17500 as applied in this
case is preempted by federal law.
II UCL § 17200: Unfair Competition
[4] Again, the first step is to determine if UCL § 17200, as
applied, is a type of state law contemplated in the list under
paragraph (b) of 12 C.F.R. § 560.2. Appellants allege
E*TRADE’s practice of misrepresenting consumers’ legal
rights in advertisements and other documents is contrary to
the policy of California and thus violates UCL § 17200. This
claim, similar to the claim under § 17500, fits within
§ 560.2(b)(9) because the alleged misrepresentation is con-
tained in advertising and disclosure documents.
docs/5/56903.pdf. (noting the application of § 560.2(b)(9) and (5) in the
context of advertising and loan-related fees under California law). This
construction of 12 C.F.R. § 560.2 by the OTS must be given controlling
weight under Auer v. Robbins, 519 U.S. 452 (1997). See also Bassiri v.
Xerox Corp., 463 F.3d 927, 930 (9th Cir. 2006) (explaining that an agency
interpretation of its own regulation is “controlling” under Auer).
2
Appellants do not contest that E*TRADE is a federal thrift subject to
HOLA and the OTS regulations.
SILVAS v. E*TRADE MORTGAGE CORP. 1501
[5] In addition, Appellants’ claim under UCL § 17200
alleges that the lock-in fee itself is unlawful. That allegation
triggers a separate section of paragraph (b). Section
560.2(b)(5) specifically preempts state laws purporting to
impose requirements on loan related fees. See Jones v.
E*TRADE Mortgage Co., 397 F.3d 810, 813 (9th Cir. 2005)
(finding E*TRADE’s lock-in fee is not a separate transaction,
but a loan related fee). Because the UCL § 17200 claim, as
applied, is a type of state law listed in paragraph (b)—in two
separate sections—the preemption analysis ends there. Appel-
lants’ claim under UCL § 17200 is preempted.
C. Incidental Affect Analysis Under 12 C.F.R. § 560.2(c).
Section 560.2(c) provides that state laws of general applica-
bility only incidentally affecting federal savings associations
are not preempted. Appellants argue that both of their state
law claims fit under § 560.2(c)(1) and (4) because they are
founded on California contract, commercial, and tort law,
merely enforcing the private right of action under TILA. They
further contend that their claims use a predicate legal duty
supplied by TILA, and therefore only have an incidental
affect on lending.
We do not reach the question of whether the law fits within
the confines of paragraph (c) because Appellants’ claims are
based on types of laws listed in paragraph (b) of § 560.2, spe-
cifically (b)(9) and (b)(5).3
3
If we did reach the issue, we would reach the same result. When fed-
eral law preempts a field, it leaves “no room for the States to supplement
it.” Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947). When an
entire field is preempted, a state may not add a damages remedy unavail-
able under the federal law. Pub. Util. Dist. No. 1 of Grays Harbor County
Wash. v. IDACORP, Inc., 379 F.3d 641, 648-49 (9th Cir. 2004) (noting
that it would be inconsistent with congressional intent to permit a state
court to do, through a legal principle of general applicability, that which
the federal entity in the preempted field itself may not do). An integral part
of any regulatory scheme is the remedy available against those who vio-
1502 SILVAS v. E*TRADE MORTGAGE CORP.
D. TILA’s Savings Clause does not Trump HOLA.
[6] TILA’s savings clause provides that TILA does not pre-
empt state law unless the state law is inconsistent with TILA.
15 U.S.C. § 1610(b). TILA, however, does not trump HOLA
and OTS regulations.
[7] We have held that a “no preemption clause” or a “sav-
ings clause” in a specific act does not preclude the preemptive
effect of HOLA. Bank of Am., 309 F.3d at 565-66. In that
case we analyzed section 1693q of the Electronic Fund Trans-
fer Act (“EFTA”), which has a savings clause similar to that
of TILA. We held that the reference to “this subchapter” in
the savings clause indicated that EFTA’s anti-preemption pro-
vision did not apply to HOLA. The same can be said in this
case. The savings clause here begins: “[T]his subchapter does
not otherwise annul, alter, or affect . . . the laws of any State
. . . .” 15 U.S.C. § 1610(b). Following the holding articulated
in Bank of America, TILA’s savings clause is limited to
TILA, and does not apply to HOLA and its OTS regulations.
late the regulations. See, e.g., San Diego Bldg. Trades Council v. Garmon,
359 U.S. 236, 247 (1959) (“The obligation to pay compensation can be,
indeed is designed to be, a potent method of governing conduct and con-
trolling policy. Even the States’ salutary effort to redress private wrongs
or grant compensation for past harm cannot be exerted to regulate activi-
ties that are potentially subject to the exclusive federal regulatory
scheme.”).
In this case, it is clear that the UCL has a much longer statute of limita-
tions than does TILA. Compare CAL. BUS. & PROF. CODE § 17208 (West
2007) (providing a four-year statute of limitations period) with 15 U.S.C.
§ 1640(e) (providing a one-year limitations period for TILA claims). It is
also clear that Appellants seek to take advantage of the longer statute of
limitations under UCL to remedy TILA violations, because without the
extended limitations period their claims would be barred.
An attempt by Appellants to go outside the congressionally enacted lim-
itation period of TILA is an attempt to enforce a state regulation in an area
expressly preempted by federal law.
SILVAS v. E*TRADE MORTGAGE CORP. 1503
E. The Entire Class is Dismissed.
Appellants’ last argument is that there is no justification for
preemption under HOLA, OTS, TILA, or any other statute or
regulation for claims that began to accrue after September 26,
2004 because those claims fit within the one-year statute of
limitations period provided by state law. We do not find this
argument persuasive.
First, the claim was not presented to the district court, so
it is not appropriately before this court. Doi v. Halekulani
Corp., 276 F.3d 1131, 1140 (9th Cir. 2002). “[I]t is well-
established that an appellate court will not consider issues that
were not properly raised before the district court. . . . It fol-
lows that if a party fails to raise an objection to an issue
before judgment, he or she waives the right to challenge the
issue on appeal.” Id. (quoting Slaven v. Am. Trading Transp.
Co., 146 F.3d 1066, 1069 (9th Cir. 1998)).
Second, even if this court were to entertain the argument,
Appellants’ complaint does not assert any federal causes of
action. This court has allowed state causes of action based on
TILA as an exercise of supplemental jurisdiction when there
are valid federal claims under TILA. Jones, 397 F.3d at 813
(“The vitality of the [plaintiffs’] claim under the Truth In
Lending Act gives vitality as well to their state claim.”). How-
ever, that is not the case here. Appellants’ complaint only sets
forth state-law causes of action, and we held above that those
causes of action are preempted by 12 C.F.R. § 560.2.
III
CONCLUSION
[8] The district court properly dismissed this class action
against E*TRADE based on federal preemption. HOLA,
through OTS, preempted the entire field of lending regulation.
UCL § 17500 and § 17200, as applied, are specifically listed
1504 SILVAS v. E*TRADE MORTGAGE CORP.
under § 560.2(b) as types of state laws OTS intended to pre-
empt. Our analysis ends there.
AFFIRMED.