                             UNITED STATES DISTRICT COURT
                             FOR THE DISTRICT OF COLUMBIA


   LATAWNYA BROWN,

                          Plaintiff,

                        v.                                  Civil Action 11-1156 (BJR)

   WELLS FARGO BANK, N.A.,

                          Defendant.




                           MEMORANDUM OPINION
       GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION TO DISMISS

       Latawnya Brown (“Brown”) brings suit against Wells Fargo Bank, N.A. (“Wells Fargo”

or “the Bank”), alleging that World Savings Bank (“World”) committed fraud and violated the

District of Columbia Consumer Protection Procedures Act (“CPPA”) during the process of

refinancing a loan she obtained from World. Wells Fargo, the successor to World as a result of a

series of corporate mergers, moves to dismiss Brown’s complaint under Federal Rule of Civil

Procedure 12(b)(6), arguing that the claims are preempted by the Home Owners’ Loan Act of

1933, 12 U.S.C. §§ 1461 et. seq. (“HOLA” or “the Act”), and that two of her counts are

precluded by a class-action settlement agreement with certain defendants, including World.

Upon consideration of the motion, the opposition thereto, and the record of the case, the Court

concludes that Wells Fargo’s motion should be granted in part and denied in part.1




       1
               The Court finds this motion appropriate for decision without oral argument. See
Fed. R. Civ. P. 78.
                                      I. BACKGROUND

       In late 2006, Brown sought a mortgage from World Savings Bank to refinance a property

in Washington, D.C. Compl. ¶ 13; Ex. B at 1, 3. On January 3, 2007, Brown entered into an

Option Adjustable Rate Mortgage (“ARM”) loan agreement, which is also known as a “Pick-A-

Pay” loan because the borrower can choose from several payment options.2 Id. ¶¶ 31–32. The

original balance of the loan was $750,000. Id. ¶12. Brown avers that Wells Fargo falsified the

loan documents by overstating her income and assets. She also claims that Wells Fargo put her

in a coercive situation by not allowing her time to review the documents at closing. Id. ¶¶

109–10. Brown further alleges that Wells Fargo failed to disclose the actual payment amounts

and interest rate which she would owe, as well as the fact that the actual amount and rates would

cause negative amortization. Id. ¶¶ 97–98. She goes on to claim that the entire Pick-A-Pay

product is illegal. In addition to common law claims, she asserts violations of the CPPA.

       Wells Fargo moves to dismiss all of Brown’s claims, arguing that they are preempted by

the Home Owners’ Loan Act of 1933, 12 U.S.C. §§ 1461 and that the class action settlement in

In re Wachovia Corp. “Pick-A-Payment” Mortg. Mktg.and Sales Practices Litig., 2011 WL

1877630 (N.D. Cal. May 17, 2011) precludes Brown’s assertion of Counts I and III of the

complaint, which allege fraud and CPPA violations.3 In response, Brown contends that her



       2
               As described in Brown’s complaint, borrowers can choose from four different
levels of repayment. The highest payment pays the mortgage in full before the maturity date, the
second highest pays the mortgage by the maturity date, the third highest payment is interest-only,
and the lowest is a deferred interest payment. Compl. ¶ 32. If a borrower chooses the lowest
payment, the unpaid interest is added to the principal amount due, which also increases the
amount due every month. Id.
       3
               As discussed further below, the Court does not organize its analysis of Brown’s
claims by the poorly-articulated counts asserted in the complaint.

                                                2
claims are not subject to preemption or claim preclusion.4 The Court concludes that, while

defendant is correct as to most of Brown’s complaint, certain claims should survive its motion to

dismiss.
                                     II. LEGAL STANDARD

       Under Federal Rule of Civil Procedure Rule 12(b)(6), a defendant may move to dismiss a

complaint for failure to state a claim upon which relief may be granted. Fed. R. Civ. P. 12(b)(6).

“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as

true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Here, Wells Fargo does

not argue that Brown has failed to state a claim for fraud or violations of the CPPA. Instead, it

advances the alternatively plead defenses of preemption and claim preclusion. Defendants bear

the burden of proving their elements. See Taylor v. Sturgell, 553 U.S. 880, 907 (2008)

(concluding that defendants bear the burden of proving claim preclusion); see also 5 Charles

Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1277 (3d ed. 2004); Cf. Adair

v. Sherman, 230 F.2d 890, 894 (7th Cir. 2000). With these standards in mind, the Court assesses

the merits of defendant’s defenses against Brown’s allegations.




       4
                Brown asserts that both preemption and claim preclusion (or res judicata) are
affirmative defenses and therefore not proper grounds for a motion to dismiss under Federal Rule
of Civil Procedure 12(b)(6). As Wells Fargo argues, she is incorrect. A defendant may raise the
affirmative defense of federal preemption over state law claims as grounds for a motion to
dismiss under Rule 12(b)(6) where the face of the complaint clearly demonstrates facts giving
rise to the defense. Smith-Haynie v. District of Columbia, 155 F.3d 575, 578 (D.C. Cir. 1998);
Stewart v. Nat’l Educ. Ass’n, 471 F.3d 169, 173 (D.C. Cir. 2006) (affirming the trial court’s
dismissal of state law claims based on a showing of ERISA preemption); Olivo v. Elky, 646 F.
Supp. 2d 95, 98–99 (D.D.C. 2009). Similarly, claim preclusion must be “affirmatively state[d]”
in a responsive pleading. Fed. R. Civ. P. 8(c).

                                                   3
                                          III. ANALYSIS

A.     HOLA Preempts Portions of Brown’s Complaint

       Wells Fargo first argues that it is entitled to dismissal of Brown’s claims because they are

preempted by HOLA. Brown disagrees, contending that HOLA’s preemptive reach does not

encompass her claims. The Court agrees in part with both parties. Before parsing though each

of Brown’s poorly-articulated claims, the Court first establishes the preemptive reach of HOLA.

1.     Preemption Under HOLA

       A product of the Great Depression, HOLA was passed in 1933 and “provided for the

creation of a system of federal savings and loan associations . . . to ensure their vitality as

permanent associations to promote the thrift of the people in a cooperative manner, to finance

their homes and the homes of their neighbors.” Fidelity Fed. Sav. & Loan Ass’n v. de la Cuesta,

458 U.S. 141, 159–60 (1982) (internal quotation marks omitted). It also sought “to provide

emergency relief with respect to home mortgage indebtedness” as a “radical and comprehensive

response to the inadequacies of the existing state systems.” Id. Under HOLA, the Treasury

Department’s Office of Thrift Supervision (“OTS”) had “plenary authority to issue regulations

governing federal savings and loans.” Id. at 160; see also Sec. Sav. & Loan Ass’n v. Director,

Office of Thrift Supervision, 960 F.2d 1318, 1321 n.8 (5th Cir. 1992).5 Pursuant to the Act, the


       5
               The preemption landscape was altered significantly on July 21, 2011 when the
Dodd-Frank Wall Street Reform and Consumer Protection Act was passed. Poindexter v.
Wachovia Mort. Corp., 2012 WL 1071248, at *3 n.9 (D.D.C. Mar. 30, 2012). The Act provides
that HOLA does not occupy the field in any area of state law and that preemption is governed by
the standards applicable to national banks. 12 U.S.C. § 1465(a), (b); see Barnett Bank of Marion
County, N.A. v. Nelson, 517 U.S. 25 (1996) (conflict preemption applies to national banks). It
also merged the OTS into the Office of the Comptroller of the Currency (“OCC”), which issued
an Interim Final Rule that changes the preemption regulations. See 76 Fed. Reg. 48950 (Aug. 9,
2011). Section 150.136 established a new preemption regulation, superseding 12 C.F.R. § 560.2.
Because the Act was passed after plaintiff received the loan at issue, the changes are not relevant

                                                   4
Director of OTS has broad authority to promulgate regulations regarding federal savings

associations. See 12 U.S.C. §§ 1463(a), 1464(a). These regulations preempt state law. Fidelity,

458 U.S. at 161–62 (“Congress expressly contemplated, and approved, [OTS’] promulgation of

regulations superseding state law.”). One such regulation, 12 C.F.R. § 560.2(a), provided that

OTS “occupied the field” of lending regulation.6



to the issues before the Court. Regulations, like statutes, cannot be applied retroactively absent
express direction from Congress. See Davis v. World Savings Bank, F.S.B., 806 F. Supp. 2d 159,
166 n.5 (D.D.C. 2011) (citing Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988)
(“[C]ongressional enactments and administrative rules will not be construed to have retroactive
effect unless their language requires this result.”). Congress did not direct retroactive application
of § 150.136, and the Dodd–Frank Act provided that the governing section of the statute (§ 1465
of Title 12) was enacted and amended effective on the transfer date, i.e. July 21, 2011. See P.L.
111–203, 124 Stat. 2017, §§ 1046, 1047(b), 1048. Id. Therefore, § 560.2 governs in this case
because it was the regulation in effect when the parties entered into the Pick–a–Pay mortgage
loan transaction.
       6
               In relevant part,§ 560.2(a) provides:

       Occupation of field. Pursuant to sections 4(a) and 5(a) of the HOLA, 12
       U.S.C. 1463(a), 1464(a), OTS is authorized to promulgate regulations that
       preempt state laws affecting the operations of federal savings associations
       when deemed appropriate to facilitate the safe and sound operation of
       federal savings associations, to enable federal savings associations to
       conduct their operations in accordance with the best practices of thrift
       institutions in the United States, or to further other purposes of the HOLA.
       To enhance safety and soundness and to enable federal savings associations
       to conduct their operations in accordance with best practices (by efficiently
       delivering low-cost credit to the public free from undue regulatory
       duplication and burden), 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.


                                                 5
       Section 560.2(b) provides “[i]llustrative examples” of the types of laws HOLA preempts.

12 C.F.R. § 560.2(b). In parts relevant to the case before the Court, it lists “the types of state

laws preempted by paragraph (a) of this section.” Id. These include, “without limitation, state

laws purporting to impose requirements regarding:

       (4) The terms of credit, including amortization of loans and the deferral and capitalization
       of interest and adjustments to the interest rate, balance, payments due, or term to maturity
       of the loan, including the circumstances under which a loan may be called due and
       payable upon the passage of time or a specified event external to the loan;

       (5) Loan-related fees, including without limitation, initial charges, late charges,
       prepayment penalties, servicing fees, and overlimit fees; . . .

       (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 contracts, or other credit-related documents and laws requiring
       creditors to supply copies of credit reports to borrowers or applicants;. . .

       (10) Processing, origination, servicing, sale or purchase of, or investment or participation
       in, mortgages;

       (11) Disbursements and repayments[.]

Id.

        In the next section of the governing regulation, § 560.2(c) lists the types of state laws

that 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

[§ 560.2].” 12 C.F.R. § 560.2(c). Those relevant to this case include contract, commercial, and

tort law as well any other state law that OTS finds “(i) Furthers a vital state interest; and (ii)




12 C.F.R. § 560.2(a) (emphasis added).

                                                   6
Either has only an incidental effect on lending operations or is not otherwise contrary to the

purposes expressed in [12 C.F.R. 560.2(a)].” Id.7

           To aid navigation of this three-tiered test, OTS provided guidance on how a challenged

law should be analyzed for preemption. The agency instructs:


           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.

61 Fed. Reg. 50951–01, 50966–67 (Sept. 30, 1996).

           In other words, if the law at issue in plaintiff’s claim falls into one of the categories

enumerated in § 560.2 (a), then it is preempted. If it does not fall into one of the enumerated

categories but affects lending, a presumption of preemption arises that is reversed only if the law

fits within the confines of § 560.2(c). In turn, § 560.2(c) excepts from preemption listed state

laws that only incidentally affect the lending operations of federal savings associations or are

otherwise consistent with the purposes of paragraph (a).

2.         Brown’s Claims and HOLA

           Within this framework, Wells Fargo argues that Brown’s common-law fraud claims fall

under several of the enumerated examples in § 560.2(b), specifically (4), (5), (9), (10), and (11),

and outside the narrow exceptions in § 560.2(c). As well, the Bank contends that Brown’s



       7
                  Other exempted state laws include real property law, certain homestead laws, and
criminal law.

                                                     7
CPPA claims are also preempted under § 560.2(b). In response, Brown argues that HOLA does

not preempt her claims because they are based on laws of general applicability that only

incidentally affect regulated lending activities.8 After carefully parsing Brown’s claims, the

Court concludes that Wells Fargo has the better argument with respect to most of Brown’s

claims, but that certain allegations are not preempted.

           All courts of appeals that have addressed this question have effectively conducted an “as

applied” analysis, consistent with OTS’s approach that “a state law that on its face is not one

described in § 560.2(b) may nevertheless be preempted if, as applied, it fits within § 560.2(b).”

Casey, 583 F.3d at 593–95. The Ninth Circuit held that, under § 560.2(b), HOLA preempted a

class claim brought under the California Unfair Competition Law. In that case, mortgage

applicants alleged that defendant savings and loan association violated the law when they

required clients to pay a lock-in deposit for a mortgage and did not return the fee after

applications were cancelled.9 See Silvas v. E*Trade Mort. Corp., 514 F.3d 1001 (9th Cir. 2008).

The Eighth Circuit deemed preempted mortgagors’ allegation that the mortgagee violated

Missouri law when it charged a fee for preparation of loan documents by nonlawyers. Casey,

583 F.3d at 595. The Seventh Circuit, on the other hand, ruled that HOLA does not necessarily


       8
                Brown also argues that HOLA preemption is not applicable to Wells Fargo
because it is a subsequent assignee to the original lender, Landmark Funding, LLC. Compl. Ex.
B at 1. This argument is belied by both the Note itself and the allegations in Brown’s complaint.
The Adjustable Rate Mortgage Note itself provides that “[t]he lender is WORLD SAVINGS
BANK, FSB, A FEDERAL SAVINGS BANK, ITS SUCCESSORS AND/OR ASSIGNEES, or
anyone to whom this Note is transferred.” Compl. Ex. A at 1. In addition, Brown alleges that
“Wells Fargo is the present form of World Savings Bank, which originated, approved, and
funded Plaintiff’s mortgage.” Compl. ¶11. Accordingly, the Court rejects Brown’s argument as
to HOLA’s applicability in this case.
       9
               The D.C. Circuit has yet to address the HOLA preemption issue. Other circuit
courts have taken different approaches to HOLA preemption.

                                                  8
preempt state law claims and that mortgagor’s claims of fraud were not preempted. In re Ocwen

Loan Servicing, LLC, Mort. Servicing Litig., 491 F.3d 638 (7th Cir. 2007).10

        Against this backdrop, Wells Fargo urges the Court to adopt the test applied in other

courts in this district. In particular, it points to Davis v. World Savings Bank, F.S.B. (a case

decided while this motion was pending and examined thoroughly in defendant’s reply brief) in

which the court found preemption of claims that plaintiff’s loan was a fixed rate loan when it

was actually an adjustable rate loan with a negative amortization feature. See Davis v. World

Savings Bank, F.S.B., 806 F. Supp. 2d 159, 171 (D.D.C. 2011). Adopting the test set forth in

Down v. Flagstar Bank, F.S.B, the Davis court found that “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.” Id. at 172 (citing Down v. Flagstar Bank,

F.S.B., 2011 WL 1326961, *6 (E.D. Va. Apr. 4, 2011)). As well, it concluded that because the

plaintiff’s claims were “based on the loan transaction and grounded in the loan documents” and

“because the common law claims cannot be removed from the loan transaction, they are

preempted by the federal regulations that govern the loan transaction.”11 Id. Accordingly, the

court concluded that HOLA preempted the plaintiff’s allegations.




       10
                The agency’s approach is entitled to deference. Casey, 583 F.3d 594–95, citing
Auer v. Robbins, 519 U.S. 452, 461 (1997). “Federal regulations have no less pre-emptive effect
than federal statutes.” Fidelity, 458 U.S. at 153. As well, “a pre-emptive regulation’s force does
not depend on express congressional authorization to displace state law.” Id. at 154.
       11
                As well, the Davis court went on to note that even if the claims were not
preempted under § 560.2(b), “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” and are therefore not saved by § 560.2(c). Davis, 806 F.
Supp. 2d at 173.

                                                  9
        This Court declines to adopt the preemption rule that the Davis and Down courts

establish. A test that blocks a claim based on a transaction that is “inextricably linked” to the

loan or is “based on the loan transaction and grounded in the loan documents” is overly broad

and inconsistent with the regulation. By its terms, § 560.2(b) looks to whether or not the state

law is “purporting to impose requirements” such as disclosure parameters or loan-to-ratio ranges

or other expressly listed loan characteristics. 12 C.F.R. § 560.2(b). If it does not, then the

regulation requires courts to examine the effects of the claim on the federal regulatory scheme,

not the claims’ relation (extricable or otherwise) to the loan transaction at issue in the case. See

id. Indeed, such a broad, preemptive scope swallows all § 560.2(c) exceptions. Most (if not all)

torts and contractual breaches stemming from a loan transaction or document are “linked,” often

inextricably, to the loan. They are undoubtedly “based on loan transactions” and often on “loan

documents” as well. Cf. Reyes v. Downey Savings and Loan Ass’n, F.A., 541 F. Supp. 2d 1108,

1114 (C.D. Cal. 2008) (“[A] law against breach of contract will not be preempted just because

the contract relates to loan activity.”). As evidenced by the express § 560.2(c) list, OTS intended

to preserve state causes of action, in so far as they do not affect lending institutions. Thus, the

Court rejects the Davis and Downs test and applies a narrower preemption rule that other courts

have employed in HOLA cases.

        Specifically, the Court finds persuasive the reasoning underpinning the Seventh

Circuit’s holding in Ocwen and the holding of district courts applying its logic and methodology.

See Ocwen, 491 F.3d at 643–44; Chang v. Wachovia, 2011 WL 2940717, at *7 (N.D. Cal. Jul.

21, 2011). Writing for the Ocwen court, Judge Posner concluded that “OTS’s assertion of

plenary regulatory authority does not deprive persons harmed by the wrongful acts of savings

and loans associations of their basic state common-law-type remedies.” See Ocwen, 491 F.3d at

                                                 10
643–44. It observed that OTS cannot provide a remedy to persons injured by wrongful acts of

savings and loan associations, and furthermore HOLA creates no private right to sue to enforce

the provisions of the statute or the OTS’s regulations.” Id. at 643–44 (citing Burns Int’l Inc. v.

Western Savings & Loan Ass’n, 978 F.2d 533, 535–37 (9th Cir. 1992). Thus, reasoned the court,

HOLA was not intended to occupy the entire remedial field. To illustrate this point, Judge

Posner provided two examples of state law claims that would not be preempted:

       [S]uppose a[] [Savings and Loan] signs a mortgage agreement with a homeowner
       that specifies an annual interest rate of 6 percent and a year later bills the
       homeowner at a rate of 10 percent and when the homeowner refuses to pay
       institutes foreclosure proceedings. It would be surprising for a federal regulation
       to forbid the homeowner’s state to give the homeowner a defense based on the
       mortgagee’s breach of contract. Or if the mortgagee (or a servicer like Ocwen)
       fraudulently represents to the mortgagor that it will forgive a default, and then
       forecloses, it would be surprising for a federal regulation to bar a suit for fraud.

        Id.

        The Court agrees with the Seventh Circuit that preemption depends on the nature and

effects of the claims alleged, see e.g. Thomas v. OneWest Bank, F.S.B., 2011 WL 867880 (D. Or.

Mar. 10, 2011) (finding that fraud claim was preempted and breach of contract claim was not),

and that a careful analysis is required of each claim even if the complaint is a “hideous sprawling

mess,” and “difficult and in many instances impossible to ascertain the nature of the charges.”

Id. at 641. Applying this test and methodology to Brown’s claim, the Court finds the complaint

preempted in large part. However, certain claims withstand Wells Fargo’s defenses. In

examining the allegations, the Court reviews the facts alleged rather than Brown’s haphazard and

redundant counts.

B.      Brown’s Allegations of Misrepresentation of Her Income and Assets Are Not
        Preempted


                                                 11
        Brown alleges that Wells Fargo inflated her income and assets in the loan application.12

Wells Fargo claims that § 560.2(b)(9) preempts these allegations. Compl. ¶¶ 16–18. Citing 12

C.F.R. § 560.2(b), the Bank argues that because HOLA encompasses state laws purporting to

impose requirements regarding “[d]isclosure and advertising, including laws requiring specific

statements, information, or other content to be included in credit application forms, credit

solicitations, billing statements, credit contracts, or other credit-related documents and laws

requiring creditors to supply copies of credit reports to borrowers or applicants,” Brown’s

allegations are foreclosed. Brown rejoins that her allegations are not preempted because they do

not seek to impose new regulations and only incidentally affect lending because they are

consistent with general commercial, contract and tort law. Brown is correct.

        An allegation of affirmative misrepresentation of a material fact is distinct from a failure

to disclose claim. It asserts that an untruthful action was taken — in this case, entry of incorrect

assets and income on a loan application. Thus, Brown’s allegations cannot be read to fall within

§ 560.2(a)’s scope of laws that “purport[] to impose requirements” regarding disclosures made

during the mortgage lending process, as the defendant maintains. Proceeding to the second step

of the analysis, the Court finds that such a claim does not “affect lending” in a general sense.

Common law fraud and misrepresentation claims offer a private cause of action against lenders

who misrepresent material facts. In so doing, such claims affect lending insofar as they deter

and sanction fraudulent lending. An interpretation of HOLA that bars such claims is not


       12
                It is unclear whether Brown’s claims sound in contract or in tort. However, this
difference is of no moment at this stage in the litigation and in light of defendant’s preemption
and claim preclusion challenges which do not test the sufficiency of the claims’ element. See
Coffman v. Bank of America, 2010 WL 3069905, at *10 (D.D.C. Aug. 4, 2010); Cf. Ocwen, 491
F.3d at 643–46.

                                                 12
reasonable or consistent with § 560.2(c).13 Proceeding to step three, the Court finds that Brown’s

affirmative misrepresentation claims fit within the confines of the types of laws enumerated in

§ 560.2(c) (commercial, contract or tort law) and “has only an incidental effect on lending

operations.” Allowing Brown to prevail on such a claim would not change the regulatory

landscape; rather, it would merely provide a means of redress for an alleged misdeed in this

particular case. As the Chang court stated, “the only ‘requirement’ these [fraud, intentional tort,

promissory estoppel, and breach of the implied covenant of good faith and fair dealing] claims

impose on lending institutions is that they be held responsible for the statements they make to

their borrowers. If these causes of action were preempted, federal savings associations would be

free to lie to their customers with impunity.” Chang, 2011 WL 2940717, at *5. The Court

agrees with the Chang and Ocwen courts that such an outcome is not consistent with HOLA or

preemption principles and that mortgagors are entitled to redress for such violations. Thus,

Brown’s claim of Wells Fargo’s affirmative misrepresentation of Brown’s income and assets is

not preempted. This conclusion is consistent with holdings in similar cases in which affirmative

misrepresentations were asserted. See, e.g., Haggarty v. Wells Fargo Bank, N.A., 2011 WL

445183, *16 (N.D. Cal. Feb. 2, 2011) (contract claim not preempted “because the breach of

contract claim uses state law only as a mechanism to enforce the parties’ agreement, not as an

independent basis for the imposition or new or different obligations on Wells Fargo”); Davis v.

Chase Bank U.S.A., N.A., 650 F. Supp. 2d 1073, 1086 (C.D. Cal. 2009) (holding breach of



       13
                 Indeed, as suggested above, to interpret HOLA otherwise would render §
560.2(c) a null set. Put another away: if common law affirmative misrepresentation is not saved
under the tort, contract or commercial law subsections of that provision, then what is? Brown
alleges that Wells Fargo misstated a material fact of her income and assets. Such behavior
cannot be permissible under any regulatory scheme.

                                                13
contract claim not preempted; noting that such a claim would “have at most an incidental effect

on the exercise of Chase’s lending powers . . . [because s]uch a claim does not seek to force

Chase to set its contracts in a certain way, but rather merely to adhere to the contracts it does

create.”).

         In addition, Wells Fargo is not entitled to an affirmative defense against Brown’s

corresponding causes of action under the CPPA. As the Seventh Circuit noted in Ocwen, “[n]ot

all state statutes that might be invoked against a federal S & L are preempted, any more than all

common law doctrines. This is because such laws are listed in 560(c).” Ocwen, 491 F.3d at 646.

Therefore, the claims of violations of the CPPA as to affirmative misrepresentations are not

preempted. These include claims asserted under section 3904(e) of the Act, which provides that

“[i]t shall be a violation of this chapter, whether or not any consumer is in fact misled, deceived

or damaged thereby, for any person to . . . misrepresent as to a material fact which has a

tendency to mislead.” D.C. Code § 28-3904(e).

         To be sure, a different result would be required if these common law or CPPA causes of

action acted as a back door to impose requirements outside of the fraud claim at issue that would

more than incidentally impact lending operations.14 As well, if the state law purported to define


        14
                Brown’s contention that her misrepresentation and fraud claims are saved by
virtue of the type of law under which she asserting them — namely, laws of general application
to all businesses — misses the mark. Under the “as applied” approach to the preemption
analysis that most courts, include this one, have adopted, plaintiffs may not save their claims
from preemption by merely asserting them under certain types of laws whose general purpose or
affect are something other than lending or mortgage regulation. Instead, the relevant question is
what the effect the rule applied in the instant lawsuit will have on the applicable regulatory field,
which the OTS occupied until recently. Whether the claim derives from a common law cause of
action or a consumer protection statute is of no moment under this rubric. Ocwen, 491 F.3d at
644. Therefore, the Court examines closely the nature of each claim and, as Judge Posner
determined, whether the effect is on the common law or regulatory side of the ledger. Id.
Contrary to Brown’s assertions, the tests employed by most other district courts that found no

                                                 14
precise disclosure requirements, preemption would be required. But this is not the case for this

particular set of claims, where the plaintiff is alleging affirmative misrepresentations that, in any

context, could state a claim for misrepresentation or fraud. Chang, 2011 WL 2940717, at *6.

Therefore, the Court concludes that because Wells Fargo has not met its burden, it is not entitled

to the defense of preemption as to Brown’s claims of affirmative misrepresentation and fraud of

her income and assets. These include the following paragraphs of the complaint: ¶¶ 2, 12–21,

25–27, 33–36, 52, 111 and the portion of ¶124 that asserts a violation of § 28-3904(e) of the

CPPA.

C.       Defendant has Demonstrated that All Other Claims are Preempted

         In the remainder of her complaint, Brown asserts a raft of allegations, both specific and

general, that touch upon the transaction itself and the legitimacy of the Pick-A-Pay loan system.

First, Brown alleges, inter alia, that Wells Fargo failed to disclose or disclosed in a confusion

manner a wide range of information including the fact that the payment amounts as scheduled

would be insufficient to pay the interest due and would therefore result in negative amortization.

Compl. ¶¶ 97–99.15 Second, she maintains that the Bank did not provide her with the loan



preemption are not to the contrary. For example, in both McAnaney v. Astoria Financial Corp.,
665 F. Supp. 2d 132 (E.D.N.Y. 2009) and Baldanzi v. WFC Holdings Corp, 2008 WL 4924987,
at *3 (S.D.N.Y. Nov. 14, 2008), the courts held that certain common law claims were not
preempted, not simply because they were asserted under common law or consumer protection
laws, but also because the claims sought to challenge defendant’s conduct of its business by
general standards and not to impose any limitations on the exercise of its national banking
power.
        15
                Brown argues in her opposition that she “does not allege [in her complaint] that
the disclosures were insufficient. Rather, Brown claims that the disclosures are an intentional
misrepresentation of the essential terms of a subprime loan. Despite what might be defendant’s
full technical compliance with the face of the regulations as promulgated by OTS and the
statutes passed by Congress, the contents of the documents completely misrepresented the
financial product for which Plaintiff applied.” Pl.’s Opp’n at 16 n.2. This assertion is both

                                                 15
application prior to the closing or give her time to review it, allegedly in violation of the CPPA

and common law. Id. ¶¶ 109–110. Third, Brown claims that Wells Fargo maintained inadequate

quality control and underwriting guidelines were inadequate so that they could acquire fees

through originating and selling Pick-A-Pay loan products to borrowers who did not have the

ability to repay the loans. Id. ¶¶ 113–114. Fourth, Brown alleges that, as a general matter,

defendant devised the Pick-A-Pay loan “to defraud and mislead consumers into believing that

they could pay both principal and interest with low payments.”16 In erecting its affirmative

defense, Wells Fargo advances the same preemption arguments — namely, that these claims are

preempted by § 560.2(a) because they purport to impose additional requirements on lenders and,

in any event, affect lending more than incidentally in violation of section § 560.2(c). Here, the

Court finds that the Bank has the better argument and successfully asserts preemption against

Brown’s claims.




inaccurate and revealing. In numerous instances, the complaint avers that the defendant is liable
for failing to disclose information. For example, as Wells Fargo points out in reply, Brown
alleges that “Wells Fargo failed to disclose material facts about the loan, required under
consumer protection statutes and common law. . . .” Compl. ¶ 3. Plaintiff further alleges that
“Wells Fargo failed to clearly and conspicuously disclose to Plaintiff, in Defendant’s Option
Adjustable Rate Mortgage loan documents, and in the required Truth in Lending Disclosure
Statements, accompanying the loan [the following]. . . .” Id. ¶ 54; see generally, id. ¶¶55–95.
As well, to the extent Brown seeks to sanction behavior with regard to a financial product that is
legal under HOLA, she is preempted.
       16
                Brown advances a raft of other sweeping attacks on the ARM loan product. For
example, she claims that due to prepayment penalties, negative amortization, and loss of equity,
it would be “nearly impossible for consumers to extricate themselves” from the Option ARM
loans. Compl. ¶ 103. These assertions may have merit. As evidenced in numerous other cases
filed under the federal Truth In Lending Act (“TILA”). See, e.g., Hughes v. Abell, 2012 WL
2054882 (D.D.C. June 7, 2012). However, in this instance, Brown is preempted from recovering
under these state law theories. As well, the statute of limitations that applies to TILA cases
expired before Brown filed her claim.

                                                16
        In opposition to Wells Fargo’s motion, Brown attempts to recast her complaints as mere

contract claims that seek to enforce generally applicable commercial rules. The Court agrees

with the defendant that this line of argument is entirely unpersuasive. If allowed to stand,

Brown’s allegations of insufficient disclosure and ARM illegality would no doubt affect the

“[t]he terms of credit, including amortization of loans and the deferral and capitalization of

interest and adjustments to the interest rate, balance, payments due, or term to maturity of the

loan, including the circumstances under which a loan may be called due and payable upon the

passage of time or a specified event external to the loan” under § 560.2(b)(4); “[l]oan-related

fees, including . . . prepayment penalties” under § 560.2(b)(5); “[p]rocessing, origination,

servicing, sale or purchase of, or investment or participation in mortgages” under § 560.2(b)(10);

and “repayments” under § 560.2(b)(11). Insofar as Brown is invoking common law or the CPPA

to regulate Wells Fargo’s lending activity, her claim seeks to regulate conduct for which OTS

has occupied the field. Unlike the claim of affirmative misrepresentation during the loan

transaction, these portions of the complaint seek to add to disclosure requirements and to make

illegal the Pick-a-Pay loan. While such a prohibition may be desirable from a public policy

perspective, the discussion stops here, as HOLA precludes such an examination in this case.

These wide-ranging claims, including any assertion of a “failure to disclose”, are preempted by

§ 560(a) because they seek to impose new, substantive requirements on lenders that amount to

regulatory action. See Chang, 2011 WL 2940717, at *7 (disallowing claims that would “amount

to an imposition of new disclosure and notice requirements on federal savings associations.”).

D.      Defendants Have not Demonstrated that the Class Action Settlement Precludes
        Plaintiff’s Claims




                                                 17
          Wells Fargo contends that the class settlement agreement and order entered on May 17,

2011, In re Wachovia Corp., precludes Counts I and III of Brown’s complaint under the

doctrine of claim preclusion. In support of this affirmative defense, the Bank argues that it has

met all the requirements for claim preclusion under Rule 23 as well as due process. Specifically,

it maintains that (1) Brown is a member of the class in the “Pick-A-Payment” class action (2)

who was provided with notice of the settlement agreement (3) that she opt out of and that (4) the

terms of the settlement agreement release claims by class members of the very type alleged in

this action.17 Brown disputes each of these contentions. Because the Court agrees with Brown

that Wells Fargo has not proven notice to Brown was sufficient, it confines its analysis to that

issue.

          Where a class is certified under Federal Rule of Civil Procedure 23(b)(3), the court must

give class members “the best notice that is practicable under the circumstances,” regarding the

specifics of the class action, the member’s right to request exclusion from the class, the

procedure for requesting exclusion and the binding effect of a class action judgment on the

members. See Fed. R. Civ. P. 23(c)(2), 23(e). In addition, when a class action is maintainable

because common questions of law or fact predominate, see Fed. R. Civ. P. 23(b)(3), Rule 23

requires that “the court . . . direct to the members of the class the best notice practicable under

the circumstances, including individual notice to all members who can be identified through



         17
                Rule 23 of the Federal Rules of Civil Procedure provides that “[o]ne ormore
members of a class may sue . . . as representative parties on behalf of all members”provided the
four prerequisites of Rule 23(a), numerosity, commonality, typicality, and adequacy, are met.
Fed. R. Civ. P. 23(a). Rule 23(b) provides for three types of class actions, including those based
on the court’s finding that “questions of law or fact common to class members predominate over
any questions affecting only individual members, and that a class action is superior to other
available methods for fairly and efficiently adjudicating the controversy.” Fed. R. Civ. P.
23(b)(3).

                                                  18
reasonable efforts.” Fed. R. Civ. P. 23(c)(2). “Individual notice must be sent to all class

members whose names and addresses may be ascertained through reasonable effort.” Eisen v.

Carlisle & Jacquelin, 417 U.S. 156, 173 (1974). “The purpose of rule 23(c)(2) is to afford

members of the class due process which, in the context of the rule 23(b)(3) class action,

guarantees them the opportunity to be excluded from the class action and not be bound by any

subsequent judgment.” Peters v. Nat’l R.R. Passenger Corp., 966 F.2d 1483, 1486 (D.C. Cir.

1991) (citing Eisen, 417 U.S. at 173–174). Actual notice is not required. See id. However,

notice must be “reasonably calculated . . . to apprise interested parties of the pendency of the

action and afford them an opportunity to present their objections.” Mullane v. Central Hanover

Bank & Trust Co., 339 U.S. 306, 314 (1950).

        Here, to substantiate its notice sufficiency argument, Wells Fargo cites the Wachovia

court’s approval of the class action settlement as evidence that notice was sufficient. In the

judgement, the court found that notice of the settlement satisfied Rule 23(a) and due process

requirements because “[c]lass members received direct notice by United States mail, and

additional notice was given by publication on the Internet and in USA Today.” The court noted

that “[t]hese were the best practicable means of informing class members of their rights and of

the settlement’s terms.” In re Wachovia Corp., 2011 WL 1877630, at *3 (citing Silber v.

Mabon, 18 F.3d 1449, 1453–54 (9th Cir. 1994) (affirming district court’s conclusion that notice

by direct mail and publication was best practicable notice)). Wells Fargo contends that this

judgment is binding upon Brown. Such an argument cannot prevail on the evidence presented.

As Brown points out, the Bank has furnished no facts demonstrating that Brown was mailed the

Wachovia settlement notice nor has it submitted a copy of the USA Today publication. Indeed, it

proffers no actual evidence in support of its claim that notice to Brown met Rule 23 and due


                                                 19
process requirements. Instead, Wells Fargo asks the Court to infer that because Brown is a class

member and because the Wachovia court found that class members received notice by direct

mail, notice to her was sufficient. The Court declines to make such an inference. The Wachovia

court made a summary finding as to over 516,000 class members. In re Wachovia Corp., 2011

WL 1877630, at *3. Whether Brown was on the notice mailing list is unclear. Because the

Bank has the burden to prove this affirmative defense, Taylor, 553 U.S. at 907, the mere citation

of the Wachovia settlement and suggestion that the Court should infer sufficient notice as to

Brown is not sufficient.18 Cf. Besinga v. United States, 923 F.2d 133, 137 (9th Cir. 2009)

(“Where the basis for applying res judicata is . . .[a] purported class action status under Rule 23,

and where it is clear that . . . parties in [the settled action] failed to comply with Rule 23(c)(2)’s

mandate that notice be provided to absent class members, it would defy logic and law to hold

that such putative class members are bound by res judicata.”); Anderson v. John Morrell & Co.,

830 F.2d 872 (8th Cir. 1987) (retirees seeking wrongfully denied benefits were not bound by a

previous class 23(b)(3) class action where there was no notice to absent class members pursuant



       18
                 Even if the Court were to take judicial notice of the USA Today publication, as the
Court did in Hecht v. United Collection Bureau, Inc., 2011 WL 1134245, at *4 (D. Conn. Mar.
25, 2011), it cannot conclude that mere publication is sufficient. Indeed, the Wachovia court
found that notice was sufficient because it had been mailed via first class mail to all class
members in addition to publication. In re Wachovia Corp, 2011 WL 1877630, at *3. Many
courts have found the same mail-publication duo to be “reasonably calculated.” See generally
Peters v. Nat’l R.R. Passenger Corp., 966 F. 2d 1483, 1485 (D.C. Cir. 1992). Only in a narrow
set of circumstances, which do not exist here, has mere publication been deemed sufficient. See,
e.g., Herbst v Able, 47 F.R.D. 11, 18 (S.D.N.Y. 1969) (in a consolidation of five securities fraud
class actions, the court held that in regard to the action involving one of the defendants,
published notice to the plaintiff class was the best notice practicable under the circumstances,
because of the large number of common-stock purchasers and transferees and the extreme
difficulty in identifying them for purposes of individual notice); Biechele v. Norfolk & W. R. Co.,
309 F. Supp. 354, 360 (D. C. Ohio 1969) (holding that since no list of the potential members of
the class in the damage suit was available nor could one have been compiled, the notice required
by Rule 23(c)(2) should be given by publication).

                                                  20
to 23(c)(2)); Jones v. Diamond, 594 F.2d 997, 1023 (C.A. Miss. 1979) (prisoners could not be

precluded from bringing their claims for damages where it was unclear whether or not the judge

certified (b)(2) or (b)(3) class and where there was no indication in record that class members

were properly notified; “[w]ithout valid notice and an opportunity to opt out of the class, there

can be no res judicata effect given to judicial determinations of the claims of unrepresented

parties”); Wright v. Collins, 766 F.2d 841, 847–48 (4th Cir. 1985) (holding that before class

member may be barred from pursuing individual claim for damages, he must have been notified

that he was required to adjudicate his damage claims as part of prior class action suit and finding

that notice to prisoner class members was inadequate where it failed to explain that participation

in class action would preclude subsequent individual damage suit); Gert v. Elgin, 773 F.2d 154,

159 (7th Cir. 1985) (“A personal judgment entered without jurisdiction over the person violates

due process and is void . . . Notice to (b)(3) class members is an unambiguous requirement for

jurisdiction” (citation omitted)). Therefore, because Wells Fargo has not demonstrated that

Brown was mailed notice of the Wachovia class settlement, the Court concludes that it is not

entitled to the defense of claim preclusion at this stage of the litigation.


                                        III. CONCLUSION

         For the foregoing reasons, the Court concludes that Wells Fargo’s motion to dismiss

should be granted in part and denied in part. Accordingly, all claims are dismissed with the

exception of those alleging affirmative misrepresentation and fraud (i.e. Compl. ¶¶ 2, 12–21,

25–27, 33–36, 52, 111, and the D.C. Code § 28-3904(e) allegation asserted in ¶ 124 of the

complaint). An appropriate Order accompanies this Memorandum Opinion.


Dated: June 22, 2012


                                                  21
     BARBARA JACOBS ROTHSTEIN
     UNITED STATES DISTRICT JUDGE




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