Weiss v. Washington Mutual Bank

California Court of Appeal Jan 29, 2007 No. B187834Published

Before: Vogel

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Holding. The court held that state law claims challenging a federal savings association's prepayment penalty formula are preempted by the Home Owners' Loan Act (HOLA) and Office of Thrift Supervision (OTS) regulations.

Issues

Whether state law claims challenging a federal savings association's prepayment penalty formula are preempted by HOLA and OTS regulations.
Whether claims against a bank employee acting within the scope of employment are preempted if the claims against the employer are preempted.

Disposition. affirmed

Quotations verified verbatim against the opinion

“Because all of Weiss's claims against Washington Mutual seek relief that if granted would necessarily impose requirements on Washington Mutual's prepayment penalty provisions, all of those claims are preempted.”

53 Cal.Rptr.3d 782 (2007) 147 Cal.App.4th 72 Mitchell WEISS et al., Plaintiffs and Appellants,

WASHINGTON MUTUAL BANK et al., Defendants and Respondents.

No. B187834. Court of Appeal of California, Second District, Division One.

January 29, 2007. Huang P.C., Lawyers, Patrick K. Huang, Los Angeles, Gail Sanes and Angela Lin, Arcadia, for Plaintiffs and Appellants.

Bill Lockyer and Edmund G. Brown, Jr., Attorneys General, Tom Greene, Chief Assistant Attorney General, Albert Norman Shelden, Assistant Attorney General, Ronald [783] A. Reiter and Michele R. Van Gelderen, Deputy Attorneys General, for the State of California as Amicus Curiae on behalf of Plaintiffs and Appellants.

Stroock & Stroock & Lavan, Julia B. Strickland, Scott M. Pearson, JiAe Moon, David W. Moon, Los Angeles; Office of the General Counsel, Theresa Marchlewski and Edward J. McNamara for Defendants and Respondents.

VOGEL, Acting P.J.

The question on this appeal is whether a lawsuit challenging a federal savings and loan association's prepayment penalty formula is preempted by the Home Owners' Loan Act (HOLA) and the regulations promulgated by the Office of Thrift Supervision (OTS). (12 U.S.C. § 1461 et seq.; 12 C.F.R. §§ 560.2, 560.34). Our answer is yes.

FACTS[1]

In July 2003, Mitchell Weiss (and others included in our references to Weiss) borrowed about $4 million from Washington Mutual Bank and signed two 10-year promissory notesone for $1,175 million plus interest at 5.33 percent per annum and with monthly payments of $6,546.74 (secured by real property in Los Angeles), the other for $2.85 million plus interest at 5.33 percent per annum and with monthly payments of $15,879.32 (secured by real property in Beverly Hills). A prepayment addendum to each note set forth a formula for calculating the "prepayment premium" due in the event Weiss prepaid his obligations under the notes. Weiss negotiated the loans with Jeffrey Monahan, a Washington Mutual loan officer.

When Weiss read the prepayment addenda, he believed the prepayment penalty would be "below two percent" of the unpaid balance or, if higher than 2 percent, only by a "small margin." In fact, the addenda provided for a prepayment penalty of up to 10 percent of the unpaid balance (depending on the time of prepayment). In October and November 2004, Weiss prepaid both notes, including prepayment penalties of roughly 10 percent of the unpaid balances ($286,740.35 on the $2.85 million loan, and $116,509.98 on the $1,175 million loan).

Weiss v. Washington Mutual Bank

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DISCUSSION

DISPOSITION

NOTES

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