Opinion
No. CV05 401 06 07
May 22, 2006
MEMORANDUM OF DECISION RE MOTION TO DISMISS
The issue before this court is whether the court must dismiss the plaintiff's General Statutes § 49-8 claim, because the statute is preempted by § 5(a) of the Homeowners Loan Act, 12 U.S.C. § 1464(a); 12 C.F.R. § 560.2. The motion to dismiss is denied because § 49-8 does not regulate the lending activity of national thrifts, and, accordingly, the statute is not preempted.
The plaintiff, Aida Santana, filed a complaint on August 2, 2005, alleging in a single count that the defendant, CitiMortgage, Inc., failed to furnish a proper release of mortgage upon full payment pursuant to the time limitation set by General Statutes § 49-8. On November 25, 2005, the defendant filed a motion to dismiss along with a corresponding memorandum of law challenging the court's subject matter jurisdiction on the ground that § 49-8 is preempted by § 5(a) of the Homeowner's Loan Act (HOLA), 12 U.S.C. § 1464(a); 12 C.F.R. § 560.2. The plaintiff filed an opposing memorandum on January 6, 2006, and the matter was argued before the court. During oral argument the court requested that both parties provide briefs discussing the legislative history of § 49-8. Briefs were submitted on February 28, 2006 and March 1, 2006, by the defendant and the plaintiff respectively.
The defendant has presented evidence that it is a wholly owned subsidiary of CitiBank (West) F.S.B., a federal savings bank.
General Statutes § 49-8(c) provides in relevant part that: "The mortgagee . . . shall execute and deliver a release within sixty days from the date a written request for a release of such encumbrance . . . was sent to such mortgagee . . . The mortgagee or plaintiff shall be liable for damages to any person aggrieved at the rate of two hundred dollars for each week after the expiration of such sixty days up to a maximum of five thousand dollars . . ."
12 C.F.R. § 560.2 is entitled "Applicability of the Law," and is intended to illustrate the scope of federal regulation over national thrifts. Subsection (a) entitled "Occupation of field" provides the OTS with the power to promulgate regulations to further the purposes of HOLA. It also provides that the OTS occupies the entire field of lending regulation. Subsection (b) entitled "Illustrative examples" provides examples of state laws that are preempted by subsection (a). Subsection (c) is entitled "State laws that are not preempted" and provides a list of state laws that are not preempted to the extent that they only incidentally affect the lending operations of federal savings associations.
"A motion to dismiss . . . properly attacks the jurisdiction of the court, essentially asserting that the plaintiff cannot as a matter of law and fact state a cause of action that should be heard by the court . . . A motion to dismiss tests, inter alia, whether, on the face of the record, the court is without jurisdiction." (Internal quotation marks omitted.) Filippi v. Sullivan, 273 Conn. 1, 8, 866 A.2d 599 (2005) "Federal preemption implicates the court's [subject matter] jurisdiction." Lewis v. Chelsea C.C.A. Realty Partnership, L.P., 86 Conn.App. 596, 601, 862 A.2d 368 (2004), cert. denied, 273 Conn. 909, CT Page 9279 870 A.2d 1079 (2005).
The defendant argues that as an operating subsidiary of a federal savings association, it is subject to federal rules and regulations that preempt § 49-8. Specifically, they argue that the Office of Thrift Supervision (OTS), pursuant to the broad authority granted them by Congress, has regulated the "servicing" functions of national banks, thus preempting § 49-8. Regarding the history of § 49-8 the defendant argues that there is committee testimony indicating that § 49-8 was amended specifically to deal with national banks and thrifts. The plaintiff contends that § 49-8 falls within the category of contract and commercial law specifically not preempted under 12 C.F.R. § 560.2(c)(1), and is thus not regulatory in nature. They contend further that the statute is not preempted because it is not directed solely towards national banks, but is directed to any individual acting as a mortgagee. They also argue that the act of sending a release does not fall within the parameters of "servicing" of mortgages pursuant to 12 C.F.R. 560.2.(b)(10). The plaintiff maintains that § 49-8 provides a remedy for tortious conduct and is thus excluded by the federal regulation. The plaintiff also contends that the legislative history provided by the defendant is not dispositive as it fails to acknowledge that § 49-8 extends to non-bank mortgagees.
"The preemption doctrine is rooted in the Supremacy Clause of the Constitution . . . Preemption can generally occur in three ways: where Congress has expressly preempted state law, where Congress has legislated so comprehensively that federal law occupies an entire field of regulation and leaves no room for state law, or where federal law conflicts with state law.
. . .
"There is typically a presumption against preemption in areas of regulation that are traditionally allocated to states and are of particular local concern . . . The presumption against federal preemption disappears, however, in fields of regulation that have been substantially occupied by federal authority for an extended period of time. Regulation of federally chartered banks is one such area . . . States have a legitimate role in regulating certain banking activity, and it is often said that we have a dual banking system of federal and state regulation . . . Nonetheless, state regulation is preempted if it will significantly interfere with the national bank's exercise of its powers." (Citations omitted; internal quotation marks omitted.) Wachovia Bank, N.A. v. Burke, 414 F.3d 305, 313-14 (2nd Cir. 2005). subs.app. 126 S.Ct. 791, 163 L.Ed.2d 626 (2005).
Pursuant to 12 U.S.C. § 1464(a)(1), Congress has enabled the OTS to promulgate regulations that "provide for the organization, incorporation, examination, operation and regulation of associations . . . known as Federal savings associations . . ." In 12 C.F.R. § 560.2, the OTS explicitly states that it "hereby occupies the entire field of lending regulation for federal savings associations." "[W]hen the examined federal law contains an express preemption clause, as is the case with Section 560.2, the question of state-law displacement depends in the first instance not upon any presumption but upon the text of that clause." Pinchot v. Charter One Bank, F.S.B., 99 Ohio St.3d 390, 394, 792 N.E.2d 1105 (2003). Accordingly the court will look to the regulation for guidance in order to determine if § 49-8 is preempted.
"When analyzing the status of state laws under § 560.2, the Court must first 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 issue 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." 61 Fed.Reg. No. 190, p. 50966 (1996).
The defendant argues that § 49-8 is preempted by 12 C.F.R. § 560.2(b)(10) which provides that a state law will be preempted if it imposes requirements on the "[p]rocessing, origination, servicing, sale or purchase of, or investment or participation in, mortgages." In particular the defendant contends that executing a release falls under "servicing" pursuant to the regulation. In response the plaintiff maintains that § 49-8 does not fall under either servicing pursuant to subsection (b)(10), or lending pursuant to subsection (a). The court agrees with the plaintiff.
General Statutes § 49-8 explicitly or by implication does not conflict with the federal regulations governing the lending activity of national thrifts. Pursuant to the OTS test for determining preemption the court first looks to the illustrative examples listed in 12 C.F.R. § 560.2(b). 12 C.F.R. § 560.2(b)(10), which the defendant cites in support of preemption, is concerned with preempting state laws that govern the processing, origination, servicing, sale or purchase of, or investment or participation in, mortgages. Executing a release does not occur during the lifetime of a loan, therefore it does not constitute servicing of the loan under 12 C.F.R. § (b)(10), because there is no longer a loan to service. The only issue that remains in the present matter is for the mortgagee to provide a release of the encumbrance to record on the land records. The payoff statement has been received and all outstanding amounts have been paid by the plaintiff. Further, the defendant does not cite to, nor is there another example listed under subsection (b) that is applicable to the activity governed by § 49-8.
Accordingly, the court will next address whether § 49-8 regulates lending activity under 12 C.F.R. § 560.2(a). Lending activity, pursuant to subsection (a), may be defined as activity affecting the operations of federal thrifts, specifically, the extension of credit and all other activities connected with a loan during its lifetime. Such intent is evidenced by the illustrative examples listed in 12 C.F.R. § 560.2(b), which all deal with financial activities. In determining whether subsection (a) preempts § 49-8 the court is guided by the decision of the Ohio Supreme Court in Pinchot v. Charter One Bank, F.S.B., supra, 99 Ohio St.3d 390.
In Pinchot the Ohio Supreme Court considered a similar issue, namely, whether a state statute that imposed a penalty for failing to record a satisfaction was preempted by 12 C.F.R. 560.2. The court noted that "[t]he recording of a mortgage satisfaction or real estate lien release is not an integral part of the lending process, as it occurs after the debt is satisfied and the extension of credit is extinguished. Such a recording requirement cannot even begin until the mortgage has already been terminated. It does not center around the essential reasons lenders issue home loans, for it has nothing to do with charging and collecting interest or any other lending or credit-related function. And such a recording requirement cannot be realistically connected to lending practices or to the operations of savings associations because it has not concrete significance to whether and how loans are made. The mortgage is taken to secure the loan and filed to perfect the lien. When the loan is paid, the mortgage is satisfied, leaving a cloud on the title to the realty until the satisfaction is recorded. There is nothing in either the lending regulations themselves or in the regulatory history to indicate that the OTS intended to occupy the field of clearing real estate titles, much less to include the filing of notices of mortgage satisfactions within the preempted category of mortgage servicing under [§]560.2(b)(10)." Pinchot v. Charter One Bank, F.S.B., supra, 99 Ohio St.3d 398.
Similarly, in Konynenbelt v. Flagstar Bank, 242 Mich.App. 21, 617 N.W.2d 706 (2000), cert. denied, 463 Mich. 972, 623 N.W.2d 596 (2001), the Michigan Court of Appeals held that a state law requiring a mortgagee to record a satisfaction within ninety days after full payment was not preempted by 12 C.F.R. § 560.2. In Konyenenbelt, the defendant, Flagstar Bank, had passed along the recording fee to the mortgagor in contravention of the statute. The court rejected Flagstar's preemption argument by stating that "[t]he fee in question is merely incidental and has nothing to do with the lending of money. The fee is charged after lending has occurred." Konynenbelt v. Flagstar Bank, supra, 242 Mich.App. 34.
The relevant statute, Michigan Compiled Laws (Rev. to 2000) § 565.41; provides: "A mortgagee or his personal representative, successor or assign, within 90 days after a mortgage has been paid or otherwise satisfied and discharged, shall prepare and file a discharge thereof with the register of deeds for the county where the mortgaged property is located and pay the fee for recording the discharge."
In support of their preemption argument the defendant cites Boursiquot v. Citibank, F.S.B., 323 F.Sup.2d 350 (D.Conn. 2004), where the district court found that 12 C.F.R. § 560.2 preempted a claim against a thrift under the Connecticut Unfair Trade Practices Act (CUTPA). The decision, however, is not factually similar to matter presently before the court. In Boursiquot, the plaintiff alleged that the defendant, Citibank, held excess interest and other funds from the plaintiff for almost twenty days, depriving the plaintiffs of their funds and permitting Citibank to profit by "floating" the money in violation of CUTPA. Id., 352. Further, the plaintiffs alleged that Citibank wrongfully kept a sum of money, $31.79, representing an amount due regarding the mortgage insurance for a time period after the payoff. The plaintiff also maintained that a $90 fax/statement fee was an undisclosed finance charge. They alleged that these charges constituted an undisclosed finance charge in violation of CUTPA. In analyzing the regulation, the court noted that the alleged CUTPA violations fell squarely within the purview of 12 C.F.R. 560.2(b)(4), (5), (9) and (11). Id., 355-56. The court then found that the CUTPA claim did not fall under the exclusions section of the regulation, because the act had a direct bearing on the lending operations of federal savings association. Id., 356.
The defendant also cites Haehl v. Washington Mutual Bank, F.A., 277 F.Sup.2d 933 (S.D.Ind. 2003), to support its argument that 12 C.F.R. § 560.2 preempts General Statutes § 49-8, because § 49-8 relates to the lending activity of a national thrift. Haehl does not support the position advanced by the defendant. In Haehl the plaintiffs alleged that Washington Mutual illegally charged a reconveyance fee when the plaintiffs obtained a mortgage despite the fact that they never conveyed their property interests to the bank. Id., 935. The plaintiffs alleged that the reconveyance fee charged by Washington Mutual constituted a violation of the state consumer credit act as well as a violation of various common-law principles. Id., 938. The district court held that the state consumer credit act and the common-law claims were preempted because they imposed requirements on the types of "loan-related" fees that a federal savings association may charge. Id., 942.
Finally, the defendant also maintains that the court should follow the decision of the Illinois Court of Appeals in Moskowitz v. Washington Mutual Bank, F.A., 329 Ill.App.3d 144, 768 N.E.2d 262, cert. denied, 201 Ill.2d 574, 786 N.E.2d 186 (2002). Moskowitz, however, like Haehl, is not factually similar to the present matter. In Moskowitz the issue was whether a state consumer fraud law was violated by Washington Mutual's charging of a payoff statement fee on the final statement. Id., 146. Washington Mutual would not release the lien until the full amount on the statement was paid. While the case does mention the release practice of Washington Mutual, the only issue was whether a state law could regulate a "loan-related fee." Id., 148. The Illinois Appellate Court determined that the OTS, pursuant to 12 C.F.R. § 560.2 and their agency opinions, had "described the payoff statement as an integral part of the lending process . . . and the payoff statement fee as a loan-related fee . . . within the meaning of section 560.2(b)." Id., 149.
The clear distinction between Pinchot and Konynenbelt, on the one hand, and Boursiquot, Haehl and Moskowitz, on the other hand, is that the courts in Boursiquot, Haehl and Moskowitz were not presented with a claim concerning the execution of a release. All three claims considered by the district court in Boursiquot dealt with finance charges imposed by the lender, which fell within the list of lending activities occupied by federal regulation. Similarly, in Haehl the district court held that a state law cannot dictate the permissible loan-related fees a federal thrift can charge. CT Page 9284 Moskowitz dealt with a payoff statement fee. The disbursement of excess funds, the floating of funds, or the determination of loan-related fees are activities that are properly characterized as financial in nature, and, accordingly, have an impact on the lending activities of thrift. The goal of the OTS in preempting certain state laws is that "instead of being subject to a hodgepodge of conflicting and overlapping state lending requirements, federal thrifts are free to originate loans under a single set of uniform federal laws and regulations." (Emphasis added.) 61 Fed.Reg. No. 190, p. 50965 (1996).
The executing of a release, however, has no bearing on the lending requirements of a thrift, because it is not financial in nature. Our Appellate Court has confirmed that § 49-8 is not intended to influence the lending practices of federal thrifts. In Bellemare v. Wachovia Mortgage Corp., 94 Conn.App. 593, 894 A.2d 335 (2006), the court, after conducting a thorough analysis of the history and purpose of § 49-8, stated that "the legislative history and statutory scheme of § 49-8 establish that the statute was enacted and continues not only to protect property owners, but it has a more general purpose of enhancing the marketability of titles and facilitating economic intercourse in deeded transactions." Id., 605. Because § 49-8 does not concern lending, and is more concerned with the marketability of land titles, there is no need to determine if § 49-8 qualifies as an exclusion listed in 12 C.F.R. § 560.2(c).
Since § 49-8 does not affect lending, it is not preempted by federal law. Accordingly, the motion to dismiss is denied.