Kelly J. Mellon, Et ux v. Regional Trustee Services Corporation ( 2014 )

FILED
JULY 17,2014
In the Office of the Clerk of Court
W A State Court of Appeals, Division III
~
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I IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
! DIVISION THREE
I KELLY J. MELLON and CYNTHIA L.
MELLON, husband and wife,
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No. 31570-3-111
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;1 v.
Appellants, )
)
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) PUBLISHED OPINION
J REGIONAL TRUSTEE SERVICES )
I CORPORATION, Trustee; INDYMAC )
)
I MORTGAGE SERVICES, A DIVISION
OF ONE WEST BANK, FSB; and ONE )
I WEST BANK, FSB, )
)
I Respondents. )
BROWN, AC.J.-Kelly J. and Cynthia L. Mellon appeal the CR 12(b)(6) dismissal
1 of their suit against IndyMac Mortgage Services and its parent organization, OneWest
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Bank FSB (collectively IndyMac), for alleged wrongful conduct surrounding a
I forbearance agreement on a defaulted note and deed of trust. The trial court concluded
federal regulation preempted state laws implicated in the Mellons' claims, and
regardless, those state laws did not support the Mellons' claims. The Mellons contend
the trial court erred in both conclusions and by failing to expressly decide their various
motions and releasing their injunction bond to IndyMac. We conclude the Mellons' state
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consumer protection claim is not federally preempted and that part of the CR 12(b)(6)
dismissal was error. We affirm the remaining rulings, finding no error regarding the
various motions or injunction bond. Accordingly, we affirm in part, reverse in part, and
remand for further proceedings.
FACTS
J
On October 25,2007, the Mellons borrowed $188,000 from IndyMac to buy
I residential real property. The Mellons signed a promissory note, payable in monthly
I installments of $1,523.89, and secured by a deed of trust benefitting IndyMac.
OneWest bought the loan in March 2009 as IndyMac transitioned from the role of lender
to loan servicer. OneWest and IndyMac were federally chartered savings associations
I during each relevant transaction.
Due to unemployment-related financial difficulties beginning in May 2010, the
I Mellons made no loan payments between August 2010 and January 2011. IndyMac
I offered the Mellons three new payment options. On February 21,2011, Mr. Mellon
signed a forbearance agreement promising to pay $10,004.89 in February 2011 and
$2,951.20 monthly from March to July 2011. IndyMac reserved the right to terminate
the forbearance agreement and foreclose the deed of trust if the Mellons defaulted
again. The Mellons made the first payment on time, made the second payment late,
and did not make the third payment at all. On April 1, 2011, IndyMac returned the
Mellons' untimely check and terminated the forbearance agreement. IndyMac then
initiated foreclosure.
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On May 5, 2011, the Mellons sued IndyMac under the deeds of trust act, chapter
61.24 RCW; the Foreclosure Fairness Act (FFA), Laws of 2011, chapter 58; the
mortgage loan servicing act, chapter 19.148 RCW; and the Consumer Protection Act
(CPA), chapter 19.86 RCW. The Mellons' alleged IndyMac "solicited ... a compromise
of the default, which was impossible of performance" and "unreasonable and impossible
to perform" considering Mr. Mellons' unemployment status. Clerk's Papers (CP) at 6, 7.
The Mellons further alleged IndyMac "failed to act in good faith and hard] a financial
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I gain not to cooperate and to foreclose the [deed of trust] as a foreclosure would
I produce a higher financial gain." CP at 6.
Based on these factual allegations, the Mellons sought six forms of relief. First,
the Mellons sought to either reinstate the defaulted note and deed of trust or fix an
equitable payment of $1 ,582.89 monthly while requiring IndyMac to deal with them in
good faith. Second, they sought to specifically compellndyMac to deal with them in
good faith by either removing their loan from default status or reducing their payments
to $1,582.89 monthly. Third, the Mellons sought a ruling that they timely made the first
and second payments under the forbearance agreement and may tender the third
payment to the court clerk. Fourth, they sought to temporarily and permanently enjoin
IndyMac from foreclosing the deed of trust. Fifth, the Mellons sought treble damages
and attorney fees for IndyMac's unfair or deceptive act or practice. Finally, they sought
attorney fees for IndyMac's nondisclosure regarding the loan transfer.
About two weeks later, the trial court temporarily enjoined the trustee's sale
scheduled for May 27, 2011, on condition that every month until trial, the Mellons pay to
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the court clerk the $1,523.80 in principal, interest, and reserves due under the note.
The Mellons consistently made these payments over the next 12 months, raising the
value of the injunction bond to $18,300.00.
The Mellons moved to fix the total loan amount, fix the unpaid loan balance, and
reinstate the note and deed of trust. IndyMac moved to dismiss the Mellons' complaint
with prejudice under CR 12(b)(6). The Mellons orally opposed IndyMac's motion in a
manner sufficient to preserve the appeal issues. See RAP 2.5{a). In October 2012, the
trial court implicitly denied the Mellons' motions by granting IndyMac's motion. The
court concluded federal regulation preempted state laws implicated in the Mellons'
claims, and regardless, those state laws did not support the Mellons' claims. The
Mellons moved for reconsideration.
On January 30, 2013, after a two-month medical absence, the trial judge issued
an order denying reconsideration and releasing the injunction bond to IndyMac. The
Mellons were not notified of the ruling and, consequently, did not appeal in time. Once
the Mellons discovered the ruling on March 8, 2013, they moved to vacate it for lack of
service. The trial court denied the Mellons' motion and instead extended the time for
them to appeal on March 25, 2013. The Mellons appealed two weeks later.
ANALYSIS
A. Extending Time to Appeal
The parties aptly observe: (1) the trial court erred by extending the time for the
Mellons to appeal because it lacked authority to waive RAP 5.2(a) and (e); and (2) the
Mellons improperly filed an untimely appeal without requesting relief from this court
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under RAP 18.8(a) and (b). See State v. Pilon, 23 Wash. App. 609, 612, 596 P.2d 664
(1979). We accept this appeal because "extraordinary circumstances"-namely the trial
court's failure to serve the Mellons the order denying reconsideration and releasing the
injunction bond to IndyMac-"prevent[ed] the filing of a timely document." RAP 18.8
cmt., 86 Wash. 2d 1271 (1976). Thus, "to prevent a gross miscarriage of justice," we
extend the time for the Mellons to appeal under RAP 18.8(a) and (b) and adopt the trial
court's time extension ruling nunc pro tunc.
B. CR 12(b)(6) Dismissal
The issue is whether the trial court erred in dismissing the Mellons' complaint
under CR 12(b)(6). The court based the CR 12(b)(6) dismissal on alternative grounds:
(1) federal regulation preempted state laws implicated in the Mellons' claims; and (2)
those state laws did not support the Mellons' claims. While the Mellons assigned error
to both grounds, they abandoned their challenge to the second ground as it concerns
their non-CPA claims. See Howell v. Spokane & Inland Empire Blood Bank, 117 Wn.2d
619,624,818 P.2d 1056 (1991) (an appellate court will not consider an error claim a
party fails to support with legal argument in his or her opening brief); see also Fosbre v.
State, 70 Wash. 2d 578, 583,424 P.2d 901 (1967); RAP 10.3(a)(6). The Mellons
essentially concede the law does not support their non-CPA claims. Therefore, we
affirm the CR 12(b)(6) dismissal except as it concerns the Mellons' CPA claim.
The Mellons contend they stated a CPA claim under the FFA and neither state
statute is federally preempted. We review CR 12(b)(6) dismissals de novo. Hoffer v.
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State, 110 Wn.2d 415,421,755 P.2d 781 (1988). And, we review preemption issues de
novo. McCurry v. Chevy Chase Bank, FSB, 169 Wash. 2d 96, 100,233 P.3d 861 (2010).
A complaint must contain "a short and plain statement of the claim showing that
the pleader is entitled to relief." CR 8{a)(1). Otherwise, a trial court may dismiss the
complaint on motion for "failure to state a claim upon which relief can be granted." CR
12{b){6). Dismissal is appropriate if, accepting all factual allegations as true, "it appears
beyond doubt that the plaintiff can prove no set of facts, consistent with the complaint,
which would entitle the plaintiff to relief." Corrigal v. Ball & Dodd Funeral Home, Inc., 89
Wash. 2d 959, 961, 577 P.2d 580 (1978); see Barnum v. State, 72 Wn.2d 928,929-30,
435 P.2d 678 (1967). Dismissal is not appropriate if the complaint conceivably alleges
some hypothetical situation, including facts argued for the first time on appeal, that if
proved would be legally sufficient to justify relief for the plaintiff. Halvorson v. Dahl, 89
Wn.2d 673,674-75,574 P.2d 1190 (1978); Bravo v. Dolsen Cos., 125 Wash. 2d 745, 750,
888 P.2d 147 (1995).
We begin with the trial court's conclusion that the Mellons did not state a
cognizable CPA claim. The Mellons' complaint alleged IndyMac violated the CPA by
proposing a bad faith forbearance agreement that was unreasonable and impossible to
perform. To prevail in a private CPA claim, a plaintiff must prove: "(1) unfair or
deceptive act or practice; (2) occurring in trade or commerce; (3) public interest impact;
(4) injury to plaintiff in his or her business or property; [and] (5) causation." Hangman
Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wash. 2d 778, 780, 719 P.2d 531
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(1986); see RCW 19.86.020, .090. We focus on the first CPA element because the
Mellons sufficiently alleged the other four elements.
A plaintiff may predicate the first CPA element on "a per se violation of statute,
an act or practice that has the capacity to deceive substantial portions of the public, or
an unfair or deceptive act or practice not regulated by statute but in violation of public
interest." Klem v. Wash. Mut. Bank, 176 Wash. 2d 771, 787, 295 P.3d 1179 (2013)
(clarifying Hangman Ridge, 105 Wash. 2d at 785-86). A defendant's act or practice is per
se unfair or deceptive if the plaintiff shows it violates a statute declaring the conduct to
be an unfair or deceptive act or practice in trade or commerce. See Hangman Ridge,
105 Wash. 2d at 786. To state a claim for a per se CPA violation, the plaintiff must allege
"'the existence of a pertinent statute'" and "'its violation.'" Fid. Mort. Corp. v. Seattle
Times Co., 131 Wash. App. 462, 471, 128 P.3d 621 (2005) (quoting Keyes v. Bollinger, 31
Wash. App. 286, 290, 640 P .2d 1077 (1982»; see Dempsey v. Joe Pignataro Chevrolet,
Inc., 22 Wash. App. 384, 393, 589 P.2d 1265 (1979). The Mellons have not done so here.
At the time the Mellons sued, FFA section 14 declared it an unfair or deceptive
act or practice in trade or commerce for an entity to violate its duty to mediate a deed of
trust foreclosure in good faith under former RCW 61.24.163(8) (2011), to fail to comply
with notice requirements under former RCW 61.24.031 (2011), or to violate its duty to
initiate contact and exercise due diligence under former RCW 61.24.174 (2011). See
RCW 61.24.135(2). But FFA section 14 took effect on July 22,2011, more than two
months after the Mellons sued and five months after Mr. Mellon signed the forbearance
agreement. LAws OF 2011, at ii; RCW 61.24.172 note; FINAL B. REP. on Second
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Substitute H.B. 1362, at 4, 62d Leg., Reg. Sess. (Wash. 2011). Because this provision
is not retroactive, it does not govern here. 1 And, proposing a forbearance agreement
that is unreasonable and impossible to perform does not fall squarely within the conduct
prohibited by FFA section 14. Thus, IndyMac's act or practice is not per se unfair or
deceptive.
If a defendant's act or practice is not per se unfair or deceptive, the plaintiff must
show the conduct is "unfair" or "deceptive" under a case-specific analysis of those
terms. See Klem, 176 Wash. 2d at 785-87. Because the CPA does not define those
terms, their meaning evolves through a '''gradual process of judicial inclusion and
exclusion.'" State v. Reader's Digest Ass'n, 81 Wash. 2d 259, 275,501 P.2d 290 (1972)
(quoting Fed. Trade Comm'n v. Raladam Co., 283 U.S. 643, 648, 51 S. Ct. 587, 75 L.
Ed. 1324 (1931», modified by Hangman Ridge, 105 Wn.2d. at 786; see Saunders v.
Lloyd's of London, 113 Wash. 2d 330, 344, 779 P .2d 349 (1989). We focus on unfairness
because the Mellons allege no facts supporting deceptiveness. 2
1 Our legislature did not explicitly provide for FFA section 14 to apply
retroactively and it is neither curative nor remedial where it creates a right of action for
new per se CPA violations. See Densley v. Dep't of Ret. Sys., 162 Wash. 2d 210, 223,
173 P.3d 885 (2007); State v. T.K., 139 Wash. 2d 320, 332, 987 P.2d 63 (1999); In re F.D.
Processing, Inc., 119 Wash. 2d 452, 460-63, 832 P.2d 1303 (1992); Johnston v. Beneficial
Mgmt. Corp. of Am., 85 Wash. 2d 637, 642, 538 P.2d 510 (1975).
2 A defendant's act or practice is "deceptive" if it "has a capacity to deceive a
substantial portion of the public." Hangman Ridge, 105 Wash. 2d at 785; see Fisher v.
World-Wide Trophy Outfitters, Ltd., 15 Wash. App. 742, 748,551 P.2d 1398 (1976). But a
defendant's act or practice is not "deceptive" unless it involves '''a representation,
omission or practice that is likely to mislead' a reasonable consumer." Panang v.
Farmers Ins. Co., 166 Wn.2d 27,50,204 P.3d 885 (2009) (quoting Sw. Sunsites, Inc. v.
Fed. Trade Comm'n, 785 F.2d 1431, 1435 (9th Cir. 1986». In their briefing to this court,
the Mellons argue IndyMac engaged in a "deceptive practice" by "bundling ...
attorneys' fees and inspection fees into 'loan-related fees and services' totaling
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We must liberally construe the CPA to serve its beneficial purposes and may look
to federal law for guidance in doing so. RCW 19.86.920. Our Supreme Court has
suggested a defendant's act or practice might be "unfair" if it '''causes or is likely to
cause substantial injury to consumers which is not reasonably avoidable by consumers
themselves and is not outweighed by countervailing benefits.'" Klem, 176 Wash. 2d at 787
(quoting 15 U.S.C. § 45(n». Similarly, a defendant's act or practice might be "unfair" if it
"offends public policy as established 'by statutes [or] the common law,' or is 'unethical,
oppressive, or unscrupulous,' among other things." Id. at 786 (alteration in original)
(quoting Magney v. Lincoln Mut. Sav. Bank, 34 Wash. App. 45, 57, 659 P.2d 537 (1983)};
see Fed. Trade Comm'n v. Sperry & Hutchinson Co., 405 U.S. 233, 244 n.5, 92 S. Ct.
898, 31 L. Ed. 2d 170 (1972) (quoting Unfair or Deceptive Advertising and Labeling of
Cigarettes in Relation to the Health Hazards of Smoking, 29 Fed. Reg. 8324, 8355
(1964». For example, advancing a substantively or procedurally unconscionable
contract term is likely an "unfair" act or practice. See State v. Kaiser, 161 Wash. App. 705,
722, 254 P .3d 850 (2011 ) (citing State v. Ralph Williams' Nw. Chrysler Plymouth, Inc.,
87 Wn.2d 298,309,553 P.2d 423 (1976)}.
Asserting bad faith, the Mellons argue that because IndyMac knew Mr. Mellon
was unemployed when he signed the forbearance agreement, it was "unconscionable"
for IndyMac to propose "higher payments than those originally defaulted upon, plus a
balloon payment of over $10,000." Appellants' Opening Br. at 18. The question
$53,295.46." Appellants' Opening Br. at 19. But this alleged bundling occurred after
the Mellons sued and cannot serve as a post hoc factual basis for their earlier claim of
deceptiveness.
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becomes whether IndyMac, by proposing a bad faith forbearance agreement that was
unreasonable and impossible to perform, advanced a substantively or procedurally
unconscionable contract term in a manner amounting to an "unfair" act or practice. This
is a summary judgment or trial question, not a CR 12(b)(6) question. 3 We hold this
hypothetical situation, if proved, would justify CPA relief for the Mellons. Therefore, the
trial court erroneously concluded the Mellons did not state a cognizable CPA claim.
Next, we turn to the trial court's conclusion that federal regulation preempts state
laws implicated in the Mellons' CPA claim. Under the preemption doctrine, a federal
statute trumps state laws if the U.S. Congress expressly or impliedly intended that
result, commanding it explicitly in the statutory language or implicitly in the statutory
structure and purpose. 4 Fid. Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141,
3 Regarding unconscionability, our Supreme Court has instructed:
Substantive unconscionability involves those cases where a clause or
term in the contract is alleged to be one-sided or overly harsh. Shocking
to the conscience, monstrously harsh, and exceedingly calloused are
terms sometimes used to define substantive unconscionability.
Procedural unconscionability is the lack of meaningful choice, considering
all the circumstances surrounding the transaction including the manner in
which the contract was entered, whether each party had a reasonable
opportunity to understand the terms of the contract, and whether the
important terms were hidden in a maze of fine print. . .. [T]hese three
factors should not be applied mechanically without regard to whether in
truth a meaningful choice existed.
Zuverv. Airtouch Commc'ns, Inc., 153 Wn.2d 293,303,103 P.3d 753 (2004) (citations
omitted) (internal quotation marks omitted) (alterations omitted); accord Adler v. Fred
Lind Manor. 153 Wash. 2d 331, 344-45, 103 P.3d 773 (2004).
4 The preemption doctrine derives from the Supremacy Clause, which provides,
"This Constitution, and the laws of the United States which shall be made in pursuance
thereof ... , shall be the supreme law of the land; and the judges in every state shall be
bound thereby, anything in the Constitution or laws of any State to the contrary
notwithstanding." U.S. CONST. art. VI, cl. 2.
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152-53, 102 S. Ct. 3014, 73 L. Ed. 2d 664 (1982) (quoting Jones v. Rath Packing Co.,
430 U.S. 519, 525, 97 S. Ct. 1305, 51 L. Ed. 2d 604 (1977)); Silvas v. E*Trade Mortg.
Corp., 514 F.3d 1001, 1004 (9th Cir. 2008); Bank of Am. V. CityofS.F., 309 F.3d 551,
557-58 (9th Cir. 2002). A federal administrative rule has no less preemptive effect than
a federal statute if the agency acted within its statutory mandate in promulgating the
rule. de la Cuesta, 458 U.S. at 153-54 (citing United States V. Shimer, 367 U.S. 374,
381-83, 81 S. Ct. 1554, 6 L. Ed. 2d 908 (1961)); Silvas, 514 F.3d at 1005; Bank of Am.,
309 F.3d at 560.
We may infer preemptive intent where federal regulation is so pervasive as to
occupy the entire field on a subject matter, leaving no room for supplemental state
laws-a phenomenon called field preemption. 5 de la Cuesta, 458 U.S. at 153 (quoting
Rice V. Santa Fe Elevator Corp., 331 U.S. 218,230,67 S. Ct. 1146,91 L. Ed. 1447
(1947)); Silvas, 514 F.3d at 1004; Bank of Am., 309 F.3d at 558,560. Because
Congress has heavily regulated the banking field for almost 200 years, the usual
presumption against preemption does not apply here. See Silvas, 514 F.3d at 1004-05;
Bank of Am., 309 F.3d at 558-59.
Congress enacted the Home Owners' Loan Act of 1933 (HOLA), Pub. L. No. 73­
43, 48 Stat. 128, during the Great Depression, when loan default was rampant and
5 Alternatively, we may infer preemptive intent where state laws actually conflict
with federal regulation, making simultaneous compliance physically impossible or
interposing an obstacle to discernable federal objectives-a phenomenon called conflict
preemption. de la Cuesta, 458 U.S. at 153 (quoting Fla. Lime & Avocado Growers, Inc.
V. Paul, 373 U.S. 132, 142-43,83 S. Ct. 1210, 10 L. Ed. 2d 248 (1963); Hines V.
Oavidowitz, 312 U.S. 52,67,61 S. Ct. 399, 85 L. Ed. 581 (1941)); Silvas, 514 F.3d at
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credit was scarce. de fa Cuesta, 458 U.S. at 159-60. HOLA tried to ameliorate these
circumstances with "'a radical and comprehensive response to the inadequacies of the
existing state systems.'" fd. at 160 (quoting Conference of Fed. Sav. & Loan Ass'ns v.
Stein, 604 F.2d 1256, 1257 (9th Cir. 1979), aff'd mem., 445 U.S. 921,100 S. Ct. 1304,
63 L. Ed. 2d 754 (1980». Later HOLA amendments delegated to the Office of Thrift
Supervision (OTS) broad rulemaking authority over the lending operations of federal
savings associations. Compare HOLA §§ 4(a), 5(a), 48 Stat. at 129,132 (delegating
rulemaking authority to an OTS predecessor, the Federal Home Loan Bank Board), and
de fa Cuesta, 458 U.S. at 145,161-66 (discussing the breadth of the Board's
rulemaking authority), with Financial Institutions Reform, Recovery, and Enforcement
Act of 1989, Pub. L. No. 101-73, sec. 301, §§ 4(a), 5{a), 103 Stat. 183,280,282
(transferring the Board's rulemaking authority to the OTS).
Acting within its statutory mandate, the OTS promulgated an administrative rule
establishing HOLA preemption by declaring "OTS hereby occupies the entire field of
lending regulation for federal savings associations." 12 C.F.R. § 560.2(a).
"Accordingly," the OTS confirmed, "federal savings associations may extend credit as
authorized under federal law, ... without regard to state laws purporting to regulate or
otherwise affect their credit activities." fd. The OTS listed illustrative examples of
preempted state laws, such as laws imposing new requirements on a federal savings
association's "terms of credit," "[IJoan-related fees," "[d]isclosure," and loan "servicing."
fd. § 560.2(b){4)-(5), (9)-(10). The OTS clarified it does not intend to preempt state laws
1004; Bank of Am., 309 F.3d at 558. We focus on field preemption because the parties
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concerning real property, contracts, and torts, among other topics, if those laws "only
incidentally affect the lending operations of Federal savings associations or are
otherwise consistent with the purposes of paragraph (a) of this section." Id. §
560.2(c)(1 )-(2), (4).
The OTS explained how we should apply HOLA preemption standards:
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 preempted. 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
paragraph (c). For these purposes, paragraph (c) is intended to be
interpreted narrowly. Any doubt should be resolved in favor of
preemption.
Lending and Investment, 61 Fed. Reg. 50,951, 50,966-67 (Sept. 30, 1996). The OTS's
interpretation of its own administrative rule controls our analysis. See Silvas, 514 F.3d
at 1005 n.1 (citing Auerv. Robbins, 519 U.S. 452,117 S. Ct. 905,137 L. Ed. 2d 79
(1997)); see also Bowles v. Seminole Rock Co., 325 U.S. 410, 413-14, 65 S. Ct. 1215,
89 L. Ed. 1700 (1945). But see McCurry, 169 Wash. 2d at 105 (apparently disregarding
this rigid analytical framework to reach "the dispositive issue [of] whether the generally
applicable state law more than incidentally affects [lending]").
Congress diminished HOLA preemption in enacting the Dodd-Frank Wall Street
Reform and Consumer Protection Act, 12 U.S.C. §§ 25b, 1465. An OTS successor, the
Office of the Comptroller of the Currency (OCC), soon promulgated an administrative
do not discuss conflict preemption.
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rule implementing Dodd-Frank preemption. 6 12 C.F.R. § 150.136. These statutes and
this administrative rule took effect on July 21,2011. 12 U.S.C. §§ 5481 (9),5551 note,
5582; Office of Thrift Supervision Integration Pursuant to the Dodd-Frank Wall Street
Reform and Consumer Protection Act, 76 Fed. Reg. 48,950, 48,953 (Aug. 9, 2011);
Designated Transfer Date, 75 Fed. Reg. 57,252, 57,252-53 (Sept. 20,2010). After
taking effect, those provisions "shall not be construed to alter or affect the applicability
of any regulation, order, guidance, or interpretation prescribed, issued, and established
by the [OCC] or the [OTS] regarding the applicability of State law under Federal banking
law to any contract entered into on or before July 21,2010." 12 U.S.C. § 5553.
Mr. Mellon signed the forbearance agreement five months before Dodd-Frank
preemption standards took effect on July 21,2011. Because those provisions are not
retroactive, HOLA preemption standards govern here.7 See McCauley v. Home Loan
Inv. Bank, F.S.B., 710 F.3d 551, 554 n.2 (4th Cir. 2013); Molosky v. Wash. Mut., Inc.,
664 F.3d 109,113 n.1 (6th Cir. 2011); In re Frykberg, 490 B.R. 652, 658 n.6 (B.A.P. 1st
Cir. 2013); Henning v. Wachovia Mortg., FSB, _ F. Supp. 2d _,2013 WL 5229837,
at *5 & n.7 (D. Mass. 2013); Davis v. World Sav. Bank, FSB, 806 F. Supp. 2d 159, 167
n.5 (D. D.C. 2011). In relating HOLA preemption standards to the Mellons' complaint,
we must consider what "functional effect" their suit would have on IndyMac's lending
6 Dodd-Frank transferred the OTS's functions to the OCC on July 21,2011 and
abolished the OTS on October 19,2011. 12 U.S.C. §§ 5411,5412,5413.
7 The loan origination date does not fully determine what law applies because
the forbearance agreement is a separate "contract" from the note and deed of trust. 12
U.S.C. § 5553. See generally Bailey v. Sec. Nat'! Servicing Corp., 154 F.3d 384, 388
(7th Cir. 1998) (explaining, in a different setting, that a forbearance agreement is distinct
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operations, noting any "new requirements" imposed. Plastino v. Wells Fargo Bank, 873
F. Supp. 2d 1179, 1185 (N.D. Cal. 2012); Appling v. Wachovia Mortg., FSB, 745 F.
Supp. 2d 961, 972 (N.D. Cal. 2010). This approach evaluates state laws solely "as
applied" to IndyMac by the Mellons' complaint. Silvas, 514 F.3d at 1006, 1008; In re
Menjivar, No. CC-12-1608-KuBaPa, 2014 WL 308912, at *6 (B.A.P. 9th Cir. Jan. 28,
2014).
The Mellons do not complain IndyMac violated generally applicable state
foreclosure laws in exercising its rights under the forbearance agreement. And, they do
not allege IndyMac breached any contract or fraudulently misrepresented facts
concerning any contract. Cf. McCurry, 169 Wash. 2d at 104-05, 109. Instead, they
complain IndyMac played hardball in negotiating the forbearance agreement, lamenting
their lack of bargaining power and inability to demand a better deal.
A forbearance agreement is basically a temporary loan modification. See
generally RCW 19.146.010(20) (including a forbearance agreement or renegotiated
payment plan in the definition of a mortgage loan modification); RCW 31.04.015(22)
(same); RCW 61.24.050(2)(a)(ii) (equating a forbearance plan or loan modification with
a deed of trust loss mitigation agreement); Albice v. Premier Mortg. Servs. of Wash.,
Inc., 174 Wash. 2d 560, 571, 276 P.3d 1277 (2012) (sirnilar). Many courts have
concluded, in a context unrelated to HOLA preemption standards, that negotiating a
loan modification is a "traditional money lending activity" intimately connected to a
lender's role because the process mirrors negotiations preceding loan origination. E.g.,
from and temporarily displaces a defaulted note by establishing a renegotiated payment
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Flores v. EMC Mortg. Co., _ F. Supp. 2d _,2014 WL 641097, at *16 (E.D. Cal.
2014); Khan v. CitiMortgage, Inc., _ F. Supp. 2d _,2013 WL 5486777, at *14 (E.D.
Cal. 2013); Rockridge Trust v. Wells Fargo, N.A., _ F. Supp. 2d _,2013 WL
5428722, at *35-36 (N.D. Cal. 2013); Casault v. Fed. Nat'l Mortg. Ass'n, 915 F. Supp.
2d 1113, 1130-31 (C.D. Cal. 2012).
Still, the Mellons' suit would not have the functional effect of imposing new
requirements on IndyMac's lending operations. The Mellons' complaint alleged
IndyMac violated the CPA by proposing a bad faith forbearance agreement that was
unreasonable and impossible to perform, i.e., "unconscionable." Appellants' Opening
Br. at 18. The Mellons then sought treble damages and attorney fees for IndyMac's
unfair or deceptive act or practice. Generally applicable state contract law has long
provided remedies to victims of substantively or procedurally unconscionable contract
terms. See, e.g., Ward v. Buckley, 1 Wash. Terr. 279, 282 (1870); Gandee v. LDL
Freedom Enters., Inc., 176 Wash. 2d 598, 603, 293 P.3d 1197 (2013). This contract law
properly escapes HOLA preemption. See Lending and Investment, 61 Fed. Reg. at 50,
966 (stating 12 C.F.R. § 560.2 "preserve[s] the traditional infrastructure of basic state
laws that undergird commercial transactions.").
This contract law, as applied in the Mellons' claim, might arguably impact a
federal savings association's "terms of credit," "[I]oan-related fees," U[d]isclosure," or
loan "servicing." 12 C.F.R. § 560.2(b)(4)-(5), (9)-(10). But "[a]ny effect this [contract
law] has on [lndyMac's] lending operations is unintended, ancillary, and subordinate to
plan suspending a mortgage foreclosure).
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the purpose of the contract law." McCurry, 169 Wash. 2d at 108 (holding 12 C.F.R. §
560.2 did not preempt the CPA, to the extent it relied on generally applicable state
contract law requiring adherence to contracts and prohibiting fraudulent
misrepresentation of facts concerning contracts, because any impact this contract law
has on a federal savings association's lending operations "is, by definition, incidental").
We hold this impact would "only incidentally affect [lndyMac's] lending operations." 12
C.F.R. § 560.2(c). Therefore, the trial court erroneously concluded federal regulation
preempts state laws implicated in the Mellons' CPA. In summary, the trial court
committed two errors in dismissing the Mellons' CPA claim under CR 12(b)(6).
C. Undecided Motions
The issue is whether the trial court erred by failing to expressly decide the
Mellons' motions to fix the total loan amount, fix the unpaid loan balance, and reinstate
the defaulted note and deed of trust. The Mellons contend we should remand to resolve
these motions.
By granting the CR 12(b)(6) dismissal, the trial court implicitly decided the
Mellons' various motions against them because the law did not provide the remedies
they sought. The court did not err in this determination. These motions concerned
solely the Mellons' non-CPA claims. As discussed above, the Mellons essentially
concede the law does not support their non-CPA claims. Given this backdrop, we
conclude the trial court did not err by failing to expressly decide the Mellons' various
motions.
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D. Bond Release
The issue is whether the trial court erred by releasing the injunction bond to
IndyMac. The Mellons contend the court should have either returned the bond to them
or instructed IndyMac to apply the bond solely to the loan principal.
The Mellons asked to temporarily enjoin the trustee's sale under RCW
61.24.130. As a condition to receiving this remedy, the Mellons had to "pay to the clerk
of the court the sums that would be due on the obligation secured by the deed of trust if
the deed of trust was not being foreclosed." RCW 61.24.130(1). Specifically, this
injunction bond required the Mellons to tender "the periodic payment of principal,
interest, and reserves paid to the clerk of the court every thirty days." RCW
61.24.130(1 )(a). The bond exists to "protect good faith lenders." Bowcutt v. Delta N.
Star Corp., 95 Wash. App. 311, 321, 976 P.2d 643 (1999).
RCW 61.24.130 does not specify what the trial court must do when it concludes a
trustee's sale party has been wrongfully enjoined. But the procedure is presumably the
same as with CR 65(c) and RCW 7.40.080. Thus, the court could use the bond to
compensate IndyMac for actual damages caused by the wrongful injunction. See Swiss
Baco Logging Co. v. Haliewicz, 14 Wash. App. 343, 345,541 P.2d 1014 (1975); Knappett
v. Locke, 92 Wash. 2d 643, 646-47, 600 P.2d 1257 (1979); 1 GRANT S. NELSON & DALE A.
WHITMAN, REAL ESTATE FINANCE LAw § 7.22, at 690 (4th ed. 2002); Joseph L. Hoffman,
Comment, Court Actions Contesting the Nonjudicial Foreclosure of Deeds of Trust in
Washington, 59 WASH. L. REV. 323, 327-28, 333 (1984). The court released the bond to
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IndyMac for that very purpose following a 20-month delay in the deed of trust
foreclosure.
First, the Mellons unpersuasively argue the bond release effectuated a forfeiture,
which equity abhors. See Stephen A. Spitz, Forfeitures, in 9 THOMPSON ON REAL
PROPERTY § 77.01, at 86 (David A. Thomas ed., 3d. Thomas ed. 2011) (defining a
"forfeiture" as the '''divestiture of property without compensation, in consequence of a
default or an offense'" (quoting 36 AM. JUR. 20 Forfeiture and Penalties § 1 (1968))).
The bond release functioned as compensation for IndyMac's actual losses rather than
an automatic forfeiture based on the Mellons' loan default. See Dan B. Dobbs, Should
Security Be Required as a Pre-Condition to Provisional Injunctive Relief?, 52 N.C. L.
REV. 1091, 1093-94, 1122 (1974). Second, the Mellons unpersuasively argue the bond
required additional restrictions on its use. Its use is already limited to the "principal,
interest, and reserves" that would be due on the note but for the deed of trust
foreclosure. RCW 61.24.130(1 )(a). Accordingly, we conclude the trial court did not err
by releasing the injunction bond to IndyMac.
E. Attorney Fees and Costs
The parties seek appellate attorney fees and costs as the prevailing party under
the deed of trust, RCW 4.84.330, and RAP 18.1 (a). But considering our analysis, each
party prevails on a major issue and loses on others. Thus, no party stands as the clear
victor meriting such an award. See Am. Nursery Prods., Inc. v. Indian Wells Orchards,
115 Wn.2d 217,234,797 P.2d 477 (1990); Tallman v. Durussel, 44 Wash. App. 181, 189,
721 P.2d 985 (1986); Oneal v. Colton Consol. Sch. Dist. No. 306, 16 Wash. App. 488,
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493,557 P.2d 11 (1976). Additionally, the Mellons request an award of appellate
attorney fees and costs under RCW 19.148.030(3}. But we conclude the Mellons are
not entitled to such an award because they alleged no injury or actual damages
resulting from IndyMac's nondisclosure regarding the loan transfer. Therefore, we deny
each party's request.
Affirmed in part. Reversed in part. Remanded for further proceedings.
Brown, A.C.J.
WE CONCUR:
(Y\ ( J )
Lawrence-Berrey, J.
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