Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_08-cv-02142/USCOURTS-cand-3_08-cv-02142-10/pdf.json

Nature of Suit Code: 480
Nature of Suit: Consumer Credit
Cause of Action: 15:1601 Truth in Lending

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 This disposition is not designated for publication in the official reports. 1

 Because all claims against the FDIC are dismissed by this order, the FDIC’s motion to 2

strike is terminated as moot.

Case Number CV 08-02142 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND IN PART

(JFEX2)

**E-Filed 7/8/2010**

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

KAREN L. JONES-BOYLE, individually and on

behalf of all others similarly situated,

 Plaintiff,

 v.

WASHINGTON MUTUAL BANK, FA, and 

JPMORGAN CHASE BANK, NA

 Defendants.

Case Number CV 08-02142 JF (PVT)

ORDER GRANTING MOTIONS 1

TO DISMISS WITH LEAVE TO

AMEND IN PART2

[re doc. no. 76, 77, 78, & 95]

Defendants Federal Deposit Insurance Corporation (“FDIC”), as receiver for Washington

Mutual Bank, FA (“WaMu”) and JPMorgan Chase Bank, NA (“JPMorgan”) move separately to

dismiss the second amended complaint (“SAC”) of Plaintiff Karen Jones-Boyle (“Jones-Boyle”)

pursuant to Fed. R. Civ. P. 12(b)(6). JPMorgan also moves to dismiss pursuant to Fed. R. Civ P.

9(b) for failure to plead fraud or misrepresentation with the requisite particularity. The FDIC

moves to strike Plaintiff’s class allegations pursuant to Fed. R. Civ. P.12(f) and 23(d). The Court

Case 3:08-cv-02142-EMC Document 118 Filed 07/08/10 Page 1 of 21
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Case Number CV 08-02142 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND IN PART

(JFEX2)

has considered the moving and responding papers and the oral arguments of counsel presented at

the hearing on June 25, 2010. For the reasons discussed below, the motions will be granted.

Leave to amend will be granted only as to Jones-Boyle’s first, third, and fourth claims against

JPMorgan.

I. BACKGROUND

A. Factual Allegations

On June 6, 2007, Jones-Boyle entered into an Option Adjustable Rate Mortgage loan

(“Option ARM”) with WaMu in the amount of $1,000,000, which was secured by her primary

residence in Baldwin, Maryland (the “Property”). (SAC ¶ 5.) The loan gave the borrower four

monthly payment options: (1) minimum payment, (2) an interest-only payment, (3) payment on a

30-year amortization, and (4) payment on a 15-year amortization. (SAC ¶ 16.) Jones-Boyle chose

the minimum payment option. 

Jones-Boyle alleges that she and a putative class of Option ARM loan borrowers chose

the minimum payment option each month because they were not properly informed about the

terms of the loan. Jones-Boyle claims that the minimum payment schedule provided to her by

WaMu was not based on the interest rate disclosed in the loan or the Truth in Lending Disclosure

Statement (“TILDS”). (SAC ¶ 25.) According to Jones-Boyle, the payment schedule failed to

“clearly, conspicuously, and accurate[ly] disclose a payment amount that corresponds to the

actual interest rate being charged on the loan sufficient to pay both principal and interest.” (Pl.’s

Opp’n 2:22-24, Mar. 19, 2010.) Jones-Boyle also alleges that the TILDS contained language that

led her to believe that the payment option listed was the only option available at consummation

of the loan (SAC ¶ 31), and it did not disclose that the minimum monthly payments would be

insufficient to pay both interest and the principal balance, resulting in a loss of equity known as

“negative amortization.” Finally, Jones-Boyle alleges that WaMu’s application of her minimum

monthly payment to interest only breached WaMu’s contractual obligation to apply the payment

to both principal and interest every month. (SAC ¶ 95.)

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Case Number CV 08-02142 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND IN PART

(JFEX2)

Jones-Boyle asserts that during the loan application process, WaMu told her that the

Option ARM terms would allow her to lower her mortgage payments and save money, (SAC ¶

30), even though WaMu knew and had designed its Option ARM loans to result in and cause

negative amortization. (SAC ¶ 26.) She also claims that the loan terms made it difficult for her to

tender or refinance the loan balance back to WaMu. (SAC ¶ 20.) 

On September 25, 2008, the Office of Thrift Supervision (“OTS”) closed WaMu and

appointed the FDIC as receiver. (SAC ¶ 41.) That same day, JPMorgan and FDIC entered into a

Purchase & Assumption Agreement. The Purchase & Assumption Agreement allowed JPMorgan

to purchase WaMu’s assets, mortgage servicing rights, and obligations, including WaMu’s

portfolio of Option ARM loans. 

Jones-Boyle asserts that JPMorgan entered into the Purchase & Assumption Agreement

knowing the defects, fraudulent omissions, and misleading nature of WaMu’s Option ARM

loans, as well as WaMu’s deceptive conduct in marketing and selling these loans. (SAC ¶ 38.)

After it acquired ownership and servicing rights of her loan, JPMorgan did not apply JonesBoyle’s monthly payments to interest and principal, nor did JPMorgan cure or remedy the alleged

omissions and defects in the loan. (SAC ¶ 44.) 

Jones-Boyle and the putative class claim that WaMu and JPMorgan, through their alleged

actions, obtained additional payments, fees, and increased equity positions in property secured by

the Option ARM loans. (SAC ¶ 49.) 

B. Procedural History

The instant action initially was filed by Veronica Jordan, a citizen of California, naming

WaMu as the sole defendant. (Compl., Apr. 24, 2008.) On June 6, 2008, the complaint was

amended to add Jones-Boyle, a citizen of Maryland, as a named plaintiff. (First Am. Compl.,

June 6, 2008.) WaMu subsequently went into receivership. At the request of the FDIC in its

capacity as receiver, the Court stayed the action until October 9, 2009 so that the FDIC’s

mandatory administrative claims process could be exhausted. (Order Granting Stay Mot., Jan. 15,

2009.) The FDIC disallowed Jones-Boyle’s claim on July 20, 2009. 

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Case Number CV 08-02142 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND IN PART

(JFEX2)

On December 9, 2009, Jones-Boyle filed the operative SAC, removing Jordan as a named

plaintiff and adding JPMorgan as a defendant as the “owner, assignees, and servicer of the

Option ARM loans....” (Pl.’s Opp’n 1:4-5.) Jones-Boyle alleges claims on behalf of herself and

others similarly situated for: (1) violation of the Truth in Lending Act (“TILA”), 15 U.S.C. §

1601, et seq.; (2) fraudulent omissions; (3) violation of California Business and Professions code

§§ 17200, 17500, et seq. (“UCL”) by unfair and fraudulent business acts or practices; and (4)

breach of contract and the implied covenant of good faith and fair dealing.

II. MOTIONS TO DISMISS

As explained below, the Court concludes that all of Jones-Boyle’s claims against the

FDIC are barred or preempted by statute and cannot be saved by amendment. The Court also

concludes that JPMorgan’s motion is well taken, but that leave to amend is appropriate as to

Jones-Boyle’s first, third, and fourth claims.

A. Legal Standards

1. Rule 12(b)(6)

“Dismissal under Rule 12(b)(6) is appropriate only where the complaint lacks a

cognizable legal theory or sufficient facts to support a cognizable legal theory.” Mendiondo v.

Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). For purposes of a motion to

dismiss, "all allegations of material fact are taken as true and construed in the light most

favorable to the nonmoving party.” Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir.

1996). However, “the tenet that a court must accept as true all of the allegations contained in a

complaint is inapplicable to legal conclusions.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).

Thus, "[w]hile a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed

factual allegations, a plaintiff's obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’

requires more than labels and conclusions, and a formulaic recitation of the elements of a cause

of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Only a complaint

that states “a plausible claim for relief survives a motion to dismiss.” Iqbal, 129 S. Ct. at 1950. 

The plausibility analysis is “context-specific” and is guided by the Court’s “judicial

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Case Number CV 08-02142 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND IN PART

(JFEX2)

experience and common sense,” id., and is limited to the face of the complaint and matters

judicially noticeable, MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986); N.

Star Int’l v. Ariz. Corp. Comm’n, 720 F.2d 578, 581 (9th Cir. 1983). Leave to amend must be

granted unless it is clear that the complaint's deficiencies cannot be cured by amendment. Lucas

v. Dep’t. of Corrs., 66 F.3d 245, 248 (9th Cir.1995).

In assessing whether to grant leave to amend, the Court also considers “the presence or

absence of undue delay, bad faith, dilatory motive, repeated failure to cure deficiencies by

previous amendments, undue prejudice to the opposing party[,] and futility of the proposed

amendment.” Lee v. SmithKline Beecham, Inc., 245 F.3d 1048, 1052 (9th Cir. 2001) (quoting

Moore v. Kayport Package Exp., Inc., 885 F.2d 531, 538 (9th Cir. 1989)). When amendment

would be futile, dismissal may be ordered with prejudice. Dumas v. Kipp, 90 F.3d 386, 393 (9th

Cir. 1996). 

When an allegation of fraud or mistake is made, Fed. R. Civ. P. 9(b) requires the pleader

“state with particularity the circumstance constituting fraud or mistake. Malice, intent,

knowledge, and other conditions of a person’s mind may be alleged generally.” Additionally,

“Rule 9(b) does not allow a complaint to merely lump multiple defendants together but requires

plaintiffs to differentiate their allegation when suing more than one defendant...and inform each

defendant separately of the allegations surrounding his alleged participation in the fraud.”

Schwartz v. KPMG, 476 F.3d 756, 764-65 (9th Cir. 2006). This heightened pleading standard of

Rule 9(b) serves three purposes:

(1) to provide defendants with adequate notice to allow them to

defend the charge and deter plaintiffs from the filing of complaints as

a pretext for the discovery of unknown wrongs; (2) to protect those

whose reputation would be harmed as a result of being subject to

fraud charges; and (3) to prohibit...plaintiff[s] from unilaterally

imposing upon the court, the parties and society enormous social and

economic cost absent some factual basis. 

Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009).

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Case Number CV 08-02142 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND IN PART

(JFEX2)

2. Preemption under the Home Owners’ Loan Act

“[T]he laws of the United States . . . shall be the supreme law of the land; . . . any Thing

in the Constitution or laws of any state to the contrary notwithstanding.” U.S. Const., art. VI, cl.

2. The Constitution through the Supremacy Clause allows for federal law and regulations to

preempt state laws, however, “[i]t will not be presumed that a federal statute was intended to

supersede the exercise of the power of the state unless there is a clear manifestation of intention

to do so.” Schwartz v. Texas, 344 U.S. 199, 202-03 (1952). For such a manifestation, courts look

to the congressional intent to preempt, which may either be “explicitly stated in the statute’s

language or implicitly contained in its structure and purpose.” Fid. Federal Sav. & Loan Assn. v.

De La Cuesta, 458 U.S. 141, 152-53 (1982). A federal agency regulation also may result in

preemption. Gibson v. World Sav. & Loan Assn., 128 Cal. Rptr. 2d 19, 23 (Cal Ct. App. 2002).

However, instead of looking to congressional authorization to preempt, courts consider whether

(1) the agency intended its regulation to have a preemptive effect, and (2) the agency acted within

the scope of its congressionally delegated authority by issuing the preemptive regulation. De La

Cuesta, 458 U.S. at 154. If these conditions are met, “[f]ederal regulations have no less preemptive effect than federal statutes.” Id. at 153. The construction of statutes, legislative intent,

interpretation of administrative regulations are all questions of law. See Bravo Vending v. City

of Rancho Mirage, 16 Cal. Rptr. 2d 164, 166-67 (Cal. Ct. App. 1993).

While preemption analysis begins with the presumption that Congress did not intend to 

supplant state law, this presumption is “not triggered when the State regulates in an area where

there has been a history of significant federal presence.” United States v. Locke, 529 U.S. 89, 108

(2000). See Bank of Am. v. City & County of San Francisco, 209 F.3d 551, 558 (9th Cir. 2002). 

“Congress has legislated in the field of banking from the days of McCulloch v. Maryland, 17 U.S.

316, 325-26 (1819), creating an extensive federal statutory and regulatory scheme.” Bank of Am.,

209 F.3d at 558. Congress enacted the Home Owners’ Loan Act of 1933 (“HOLA”), 12 U.S.C. §

1461 (2006), et seq., to charter savings associations during a time of economic uncertainty for

state-chartered savings associations. See Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1005-06

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 Recognizing a clear intent for regulatory preemption under § 560.2(a):

3

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.

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Case Number CV 08-02142 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND IN PART

(JFEX2)

(9th Cir. 2008). HOLA was crafted in part to restore public confidence in a network of centrally

regulated federal savings and loan associations. Id. Through HOLA and its implementing

regulation, 12 C.F.R § 560, Congress authorized and delegated power and authority to OTS to

regulate and govern “every federal savings and loan association from its cradle to its corporate

grave." De La Cuesta, 548 U.S. at 145. See 12 C.F.R. §§ 500.1(a) (the OTS “is responsible for the

administration and enforcement of the [HOLA]”), 500.10 (the functions of the OTS are to

“charter, supervise, regulate and examine Federal savings associations.”).

3

As relevant here, HOLA sets forth “without limitation” examples of the types of state

laws that are expressly preempted. § 560.2(b):

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; 

...

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 creditreports to borrowers or applicants;

...

Processing, origination, servicing, sale or purchase of, or investment

or participation in, mortgages;

Section 560.2(b)(4), (b)(9)-(10). 

However, HOLA preemption of state laws affecting federal savings associations is not

absolute. Section 560.2(c) carves out state laws that “only incidentally affect the lending

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Case Number CV 08-02142 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND IN PART

(JFEX2)

operations of Federal savings associations or are otherwise consistent with the purposes of

paragraph (a) of this section.” (Emphasis added). The Ninth Circuit has given further guidance

with respect to whether a state law is preempted by HOLA:

[T]he first step will be to determine whether the type of law in

question is listed in paragraph (b) [of 12 C.F.R. § 560.2]. 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.

Silvas, 514 F.3d at 1005 (quoting OTS, Final Rule, 61 Fed. Reg. 50951, 50966-67 (Sept. 30, 1996)).

B. FDIC’s Motion to Dismiss

1. TILA violation (Claim 1)

Jones-Boyle asserts a TILA claim against WaMu and JPMorgan, seeking rescission,

injunctive relief, and damages. (SAC ¶ 84.) However, when WaMu was shut down by OTS and

placed in receivership, it became subject to the Financial Institutions Reform Recovery and

Enforcement Act of 1989, Pub. L. No. 101-73, 103 Stat. 183 (1989) (“FIRREA”). Under

FIRREA, the FDIC’s role was to wind up WaMu’s business affairs. As part of that process, the

FDIC entered into a Purchase & Assumption Agreement with JPMorgan. Under that agreement, 

JPMorgan assumed no liabilities arising from WaMu’s Option ARM program, and the FDIC

assumed sole responsibility for claims arising from WaMu’s activities prior to September 25,

2009. 

It has been observed that “the world changes when a bank goes into receivership,” FDIC

v. Shain, Schaffer & Rafanello, 944 F.2d 129, 134 (3d Cir. 1991). 12 U.S.C. § 1821(j) provides

in part: “[e]xcept as provided in this section, no court may take any action, except at the request

of the Board of Directors by regulation or order, to restrain or affect the exercise of powers or

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Case Number CV 08-02142 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND IN PART

(JFEX2)

functions of the Corporation [FDIC] as a conservator or receiver.” In Sahni v. American

Diversified Partners, 83 F.3d 1054, 1058-59 (9th Cir. 1996), the Ninth Circuit recognized that:

Congress has granted the FDIC as receiver excess statutory authority

to dispose of receivership assets, thereby reducing the losses borne by

federal taxpayers when federally insured financial

institutions...fail....It is well-established that § 1821(j) bars restraint

by the courts on the statutory powers of the FDIC when it acts as

receiver....12 U.S.C. § 1821(j) bars the remedy of rescission....

It is apparent that any equitable remedy against the FDIC arising from Jones-Boyle’s TILA claim

would restrain the FDIC’s statutory powers. See, e.g., Hansen v. FDIC, 113 F.3d 866, 871-72

(8th Cir. 1997); Freeman v. FDIC, 56 F.3d 1394, 1399 (D.C. Cir. 1995) (“Not only does [§

1821(j)] bar injunctive relief, but in the circumstances of the present case where appellants seek a

declaratory judgment that would effectively ‘restrain the FDIC from foreclosing on their

property, § 1821(j) deprives the court of power to grant that remedy as well.”); Lloyd v. FDIC, 22

F.3d 335, 336 (1st Cir. 1994) (holding that § 1821(j) bars suit for injunctive relief); Russell v.

Indymac Bank, FSB, No. 09-03134, 2010 U.S. Dist. LEXIS 38759, at * 3 (N.D. Cal. Apr. 20,

2010).

Jones-Boyle’s claim for damages against the FDIC is barred by 15 U.S.C. §§ 1641(a) and

(e), pursuant to which involuntary assignees are not subject to TILA damages. Under § 1641(a),

“[A]ny civil action for a violation of [TILA] which may be brought against a creditor may be

maintained against any assignee of such creditor only if the violation for which such action or

proceedings is brought is apparent on the face of the disclosure statement, except where the

assignment was involuntary.” (Emphasis added).

Sharpe v. FDIC, 126 F.3d 1147 (9th Cir. 1997), upon which Jones-Boyle relies, is

factually distinguishable. The plaintiffs in Sharpe were borrowers who had entered into a

settlement agreement with their lender. 126 F.3d at 1150. Pursuant to the settlement agreement,

the plaintiffs executed a note, deed of trust and reconveyance documents. In exchange, the lender

delivered two bank cashier’s checks for $510,000. Id. at 1151. Shortly thereafter, the bank failed,

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Case Number CV 08-02142 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND IN PART

(JFEX2)

and the FDIC was appointed as receiver. Id. The FDIC notified plaintiffs that their checks would

not be honored and recorded title on the plaintiffs’ property. Id. The plaintiffs sued the FDIC for

breach of contract and rescission. The court held that plaintiffs’ claim for breach of contract “is

not affected by the jurisdictional bar imposed by § 1821(j), but the claims for rescission and

declaratory relief must fall under an exception to § 1821(j) in order to survive. The bar imposed

by § 1821(j) does not extend to situations in which the FDIC as receiver asserts authority beyond

that granted it as receiver....Although the statute clearly contemplates the FDIC can escape the

obligations of contracts, it may do so only through the prescribed mechanism.” Id. at 1155.

Jones-Boyle does not contend, nor does it reasonably appear that she could, that FDIC breached

any agreement between herself and WaMu, nor does she claim that the FDIC has acted outside

the scope of its delegated authority. 

2. Fraudulent omissions, violation of California Business and Professions Code,

and breach of contract (Claims 2, 3 and 4)

Jones-Boyle also asserts state-law claims for fraudulent omissions (claim 2), violation of

the UCL (claim 3), and breach of contract and the implied covenant of good faith and fair dealing

(claim 4). Specifically, Jones-Boyle alleges that WaMu created, designed, and marketed Option

ARM loans for the purpose of causing negative amortization despite its promises of “low, fixed

payment, with only a small annual increase...for a period of 3 to 5 years; and that the payment

amount would be based on the listed interest rate.” (SAC ¶ 143.) The FDIC contends that

because WaMu was a federally-chartered savings association regulated by the OTS, JonesBoyle’s state-law claims are preempted by HOLA. The Court agrees.

Although Jones-Boyle invokes broad state laws of general applicability, the Ninth Circuit

recognized in Silvas that HOLA preemption still may apply. 514 F.3d at 1005. Accord Casey v.

FDIC, 583 F.3d 586, 593-94 (8th Cir. 2009); State Farm Bank, FSB v. District of Columbia, 640

F. Supp. 2d 17, 23 (D.D.C. 2009). Jones-Boyle relies upon this Court’s decision in Mandrigues

v. World Savings, Inc., No. 07-4497, 2008 U.S. Dist. LEXIS 31810 (N.D. Cal. Apr. 9, 2008)

which concluded on the facts alleged at the pleading stage that the plaintiff’s state-law claims for

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Case Number CV 08-02142 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND IN PART

(JFEX2)

breach of contract, fraudulent concealment, and violations of the UCL were not necessarily

preempted by HOLA. While the plaintiff in Mandrigues also complained of a bank’s lending

practices and promises of applying payments to interest and principal, the Court noted that

“Plaintiffs allege claims based upon the ‘generally applicable duty to refrain from unfair and

deceptive business practices.’” 2008 U.S. Dist. LEXIS 31810, at *8. Because the UCL claim was

not clearly preempted, the breach of contract claim also survived, as the allegations of breach

also could be read as involving non-lending activities. Id. at *8-9. In contrast, Jones-Boyle’s

state-law claims against WaMu are based upon solely its lending activities and representation in

loan documents.

Jones-Boyle also argues that the framework articulated by the Seventh Circuit In re

Ocwen Loan Servicing LLC Mortgage Servicing Litigation, 491 F.3d 638 (7th Cir. 2007) should

be applied to the preemption analysis here. However, this Court is not at liberty to disregard the

approach adopted by the Ninth Circuit in Silvas. Examining Jones-Boyle’s fraudulent omissions

claim in light of Silvas, it is apparent that the claim is preempted by §§560.2(b)(4) and

560.2(b)(9). Jones-Boyle alleges non-disclosure of negative amortization in the loan documents,

non-disclosure of different monthly payment options and their respective effect over the life of

the loan, misleading statements in the loan documents as to how monthly payments would be

applied, and misleading representations as to the interest rate in credit documents. Applying state

law to these claims clearly would impose requirements on a federal savings association and affect

its “terms of credit, including amortization of loans and the deferral and capitalization of interest

and adjustments to the interest rate, balance...or term to maturity of the loan[,]” §560.2(b)(4), as

well as its “[d]isclosure[s] and advertising...included in...credit contracts, or other credit-related

documents[,]” § 560.2(b)(9). See Conder v. Home Sav. of Am., 680 F. Supp. 2d 1168, 1175 (C.D.

Cal. 2009) (“Plaintiff’s fraudulent omissions claim is based on his allegations that [Defendant]

failed to disclose that the 1.25% interest rate would only apply for one month and the scheduled

monthly payments would be insufficient to pay both principal and interest.”)

Jones-Boyle’s claim that WaMu violated the UCL in its marketing of Option ARM loans

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also is preempted by HOLA. Requiring WaMu to comply with state laws with respect to the

means by which it advertises, discloses, processes, and extends terms of credit conflicts directly

with federal law. A number of other district courts within the Ninth Circuit have concluded that

UCL claims with similar allegations are preempted. See Newbeck v. Wash. Mut. Bank, No. 09-

1599, 2010 U.S. Dist. LEXIS 3830, at *14 (N.D. Cal. Jan. 19, 2010); Hava v. U.S. Bancorp., No.

09-3855, 2009 U.S. Dist. LEXIS 119857, at *24-25 (N.D. Cal. Dec. 22, 2009); Carnero v.

Weaver, No. 09-1995, 2009 U.S. Dist. LEXIS 117957, at *7-9 (N.D. Cal. Dec. 18, 2009); Buick

v. World Sav. Bank, 637 F. Supp. 2d 765, 774 (E.D. Cal. 2008) (holding UCL claim based on

savings association’s advertising practices were preempted by HOLA).

Jones-Boyle’s remaining state-law claim against WaMu alleges breach of contract and the

implied covenant of good faith and fair dealing. This claim is based entirely on the Note and the

TILDS. (SAC ¶ 172-74.) Jones-Boyle alleges that the interest rate in these documents did not

apply to the payment schedule and that “WaMu...knew that the payment schedule was not based

on the interest rate listed” but on a lower rate “which caused the loan contract to be uncertain and

ambiguous as to the amount borrowers would have to pay each month in order to avoid negative

amortization.” (SAC ¶ 167.) Jones-Boyle also claims that “[WaMu] expressly and/or through its

conduct and actions agreed that Plaintiff’s monthly payment obligations would be sufficient to

pay both the principal and interest owed on the loan.” (SAC ¶ 171.) These allegations are

premised on WaMu’s conduct “processing, originat[ing], and servicing...mortgages” and its

disclosures in credit-related documents. See § 560.2(b)(9)-(10). Accordingly, the contract-based

claims also are preempted.

B. JPMorgan’s Motion To Dismiss

1. TILA violation (Claim 1)

Jones-Boyle asserts that the Purchase & Assumption Agreement between the FDIC and

JPMorgan does not bar her claims because “[p]arties cannot contract away obligations imposed

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by federal law.” (Pl.’s Opp’n 8:3.) Article 2.5 of the Agreement states: 4

[A]ny liability associated with borrower claims for payment of or

liability to any borrower, whether or not such liability is reduced to

judgment, liquidated or unliquidated...legal or equitable...related in

any way to any loan or commitment to lend made by the Failed Bank

[WaMu] prior to failure, or to any loan made by a third party in

connection with a loan which is or was held by the Failed Bank, or

otherwise arising in connection with the Failed Bank’s lending or

loan purchase activities are specificallynot assumed by the Assuming

Bank [JPMorgan]. 

(JPMorgan Mot. Dismiss 5:1-7, Feb. 1, 2010.) 

It is clear from the terms of the Agreement that JPMorgan did not assume any of the

liabilities arising from TILA claims brought by WaMu’s borrowers. See 12 U.S.C. §§

1821(d)(A)-(B), (G) (The FDIC as Receiver succeeds to “all rights, titles, powers and privileges

of” the failed bank, and has power to transfer assets and liabilities through assumption

agreements.); West Park Assocs. v. Butterfield Sav. & Loan Ass’n, 60 F.3d 1452, 1459 (9th Cir.

1995); Hilton v. Wash. Mut. Bank, No. C 09-1191 SI, 2009 WL 3485953, at *2 (N.D. Cal. Oct.

28, 2009). In West Park, the Ninth Circuit upheld an assumption agreement similar to the one at

issue here in which the FDIC as receiver for a failed bank transferred all liabilities except for any

claims by the failed bank’s shareholders. Id. at 1458. In rejecting the shareholders’ claims against

the assuming bank, the Ninth Circuit held that a finding in favor of the shareholders would

undermine the statutory power of the FDIC. Id at 1459. Pursuant to this authority, the Court

concludes that the Agreement between FDIC and JPMorgan is valid and enforceable. 

Article 2.5 of the Agreement bars claims against JPMorgan for the conduct, actions,

omissions of WaMu before September 25, 2008. However, actions by JPMorgan after assuming

Jones-Boyle’s loan are not be barred. Jones-Boyle contends that JPMorgan violated TILA after

September 25, 2008 by continuing to service her loan in the same manner as WaMu without

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correcting WaMu’s omissions and misleading statements. JPMorgan asserts several defenses

against these claims.

First, JPMorgan argues that Jones-Boyle’s TILA damages are time-barred. See 15 U.S.C.

§ 1640(e). Jones-Boyle consummated her loan with WaMu on June 6, 2007 and first asserted a

TILA damages claim in her first amended complaint on June 6, 2008. See King v. State of Cal.,

784 F.2d 910, 915 (9th Cir. 1986) (“hold[ing] that limitations period in Section 1640(e) runs

from the date of consummation of the transaction but that the doctrine of equitable tolling may,

in the appropriate circumstances, suspend the limitations period until the borrower discovers or

had reasonable opportunity to discover the fraud or nondisclosures that form the basis of the

TILA action.”). JPMorgan was not added as a defendant until the filing of the SAC on

December 29, 2009. Jones-Boyle’s claims against JPMorgan do not relate back to her claim

against WaMu, nor would it be appropriate to apply the doctrine of equitable tolling. JPMorgan

began servicing Jones-Boyle’s loan approximately three months after Jones-Boyle commenced

the instant action, and she obviously believed that her loan violated TILA when she did so.

Jones-Boyle also seeks rescission of her loan under TILA. Such claims are subject to a

three-year limitations period, see 15 U.S.C. § 1635(f), and plaintiffs seeking rescission must

plead that they are able to return the principal of the mortgage loan (minus the appropriate

interest and fees), see 15 U.S.C. § 1635(b). Jones-Boyle’s rescission claim against JPMorgan is

based on her allegation that JPMorgan owns and continues to service a loan that violates TILA.

JPMorgan contends that the equitable remedy of rescission is barred by the terms of the

Purchase & Assumption Agreement. 

However, “equity looks through forms to substance.” Texas v. Hardenburg, 77 U.S. 88,

89 (1869). The FDIC no longer owns Jones-Boyle’s loan, and JPMorgan is claiming protection

under the Purchase & Assumption Agreement. Accepting JPMorgan’s argument would leave

Jones-Boyle with no remedy at all, even if she could show that JPMorgan is committing

ongoing TILA violations. See Allen v. United Fin. Mortgage Corp., No. 09-2507, 2010 WL

1135787, at *7 (N.D. Cal. March 22, 2010) (dismissing damage claim against defendant JP

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Morgan Chase Bank but not rescission claim under TILA). 12 U.S.C. § 1821(j) bars the remedy

of rescission judicially imposed on the FDIC, but as the FDIC makes clear “FDIC no longer

holds Plaintiff’s loan...” (FDIC Mot. Dismiss 5:21-22, Feb. 1, 2010.) The Court finds Allen

instructive and persuasive. See also Ambassador Hotel Co. v. Wei-Chuan Inv., 189 F.3d 1017,

1031. (9th Cir. 1999) ( “Under true rescission, the plaintiff returns to the defendant the subject

of the transaction, plus any other benefit received under the contract, and the defendant returns

to the plaintiff the consideration furnished, plus interest.”). 

A borrower must allege an ability to return the principal of the loan in order for a court

to consider rescission under TILA. 15 U.S.C. § 1635(b). See Yamamoto v. Bank of N.Y., 328

F.3d 1167, 1171-72 (9th Cir. 2003). In addition, 15 U.S.C. § 1635(f) permits rescission only

when the lender fails to make “material disclosures.” Although the SAC is defective in both

respects, Jones-Boyle may be able to amend her pleading to cure the defects. 

2. Fraudulent omissions (Claim 2)

Under California law, the elements of a common-law claim for fraudulent omission are

as follows: (1) the defendant concealed or suppressed a material fact; (2) the defendant was

under a duty to disclose the fact to the plaintiff; (3) the defendant intentionally concealed or

suppressed the fact with intent to defraud the plaintiff; (4) the plaintiff was unaware of the fact

and would have acted differently, if he had known of the concealed or suppressed fact; and (5)

as a result of the concealment or suppression the plaintiff sustained damage. See Terra Ins. Co.

v. New York Life Inv. Mgmt. LLC, No. 09-1609, 2010 WL 1910057, at * 6 (N.D. Cal. May 11,

2010); Hovsepian v. Apple, Inc., No. 08-5788, 2009 WL 5069144, at *5 (N.D. Cal. Dec. 17,

2009); Hahn v. Mirda, 54 Cal. Rptr. 3d 527, 532, (Cal App. Ct. 2007).

Jones-Boyle claims that “Defendants had a duty to disclose to Plaintiff, and at all times

relevant, failed to disclose and/or concealed material facts by making partial misrepresentations

of some material facts when Defendants had exclusive knowledge of material facts....” (SAC ¶

129; Pl.’s Opp’n 24:18-24). However, her allegations lack particularity with respect to any of

the elements of a fraudulent omission claim. Jones-Boyle also conflates the actions of WaMu

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and JPMorgan by alleging that “Defendants purposefully and intentionally devised this Option

ARM loan scheme to defraud and/or mislead consumers...” (SAC ¶ 133.) Although, she alleges

exclusively that WaMu sold and marketed her loan (SAC ¶ 32), there are no factual allegations

with respect to JPMorgan’s purported fraudulent intent. 

While such defects might in some circumstances be curable by amendment, the Purchase

& Assumption Agreement expressly prevents Jones-Boyle from asserting claims against

JPMorgan for the conduct of WaMu. Thus, any fraudulent omission made by JPMorgan must

involve the servicing of Jones-Boyle’s loan. The first complaint in which Jones-Boyle is named

as a plaintiff was filed on June 6, 2008, three months before JPMorgan assumed the loan. Under

these circumstances, Jones-Boyle cannot allege reliance on the alleged fraudulent omission by

JPMorgan.

3. UCL (Claim 3)

The UCL prohibits any “unlawful, unfair or fraudulent business practices.” Cel-Tech

Commc’ns, Inc. v Los Angeles Cellular Tel. Co., 5973 P.2d 527, 539 (Cal. 1999). Because the

statute is written in the disjunctive, it applies separately to business practices that are (1)

unlawful, (2) unfair, or (3) fraudulent. See Pastoria v. Nationwide Ins., 6 Cal. Rptr. 3d, 148,

152 (2003). Jones-Boyle alleges that JPMorgan’s conduct violated all three prongs. However,

JPMorgan points out that because (1) Jones-Boyle is a resident of Maryland; (2) the subject loan

was entered into in Maryland; (3) the loan secures property in Maryland (SAC ¶ 5), and (4)

JPMorgan is not a citizen of California, Jones-Boyle lacks standing to assert UCL claims. The

Court agrees.

While the Court accepts as true Jones-Boyle’s assertion that JPMorgan has significant

business contacts in California, “[t]he existence of personal jurisdiction over a defendant does

not alone permit application of the forum law to the claims of nonresident plaintiffs.” Tidenburg

v. Bidz, Inc., No. 08-5553, 2009 WL 605249, at *4 (C.D. Cal. Mar. 4, 2009) (dismissing Texas

plaintiff’s UCL claim where plaintiff did not allege she was injured by defendant’s conduct in

California). As the California Court of Appeal observed in Northwest Mortgage, Inc. v.

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Washington. (JPMorgan Mot. Dismiss 11:n.5.) 

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Superior Court, 85 Cal. Rptr. 2d 18, 22-23 (Cal. App. Ct. 1999), the UCL was neither designed

nor intended to regulate claims of nonresidents arising from conduct occurring entirely outside

of California. See also Tidenburg, 2009 WL 605249, at *4. Jones-Boyle relies upon Diamond

Multimedia Systems Inc. v. Superior Court, 968 P.2d 539 (Cal. 1999), but a careful reading of

that case makes clear that JPMorgan’s business contacts in California do not automatically give

Jones-Boyle standing to assert a UCL claim. “The linchpin of Diamond’s analysis is that state

remedies may be invoked by out-of-state parties when they are harmed by wrongful conduct

occurring in California.” Nw. Mortgage, Inc., 85 Cal. Rptr.2d at 224 (emphasis added); see also

Standfacts Credit Servs., Inc. v. Experian Info. Solutions, Inc., 405 F. Supp. 2d 1141, 1148

(C.D. Cal. 2005), aff’d 294 Fed. Appx. 217 (9th Cir. 2008); Speyer v. Avis Rent a Car Sys., Inc.,

415 F. Supp. 2d 1090, 1098-99 (S.D. Cal. 2005). 

Here, Jones-Boyle has failed to identify any activity of JPMorgan in California that has

caused her injury. Instead, Jones-Boyle asserts that if her proposed plaintiff class is considered,

JPMorgan’s conduct likely would affect California class members. (Pl.’s Opp’n 28:3-5.) This

may be true, but it is immaterial to the question of whether Jones-Boyle has standing. JonesBoyle alleges that because WaMu is headquartered in Chatsworth, California5

 and the Option

ARM loans at issue originally were held by WaMu, JPMorgan is subject to UCL claims under

the Purchase & Assumption Agreement. However, as explained previously, the Agreement bars

all claims against JPMorgan arising prior to September 25, 2008. The SAC contains no

allegations against JPMorgan concerning conduct after that date that would give rise to a UCL

claim. 

Jones-Boyle asks that she be permitted to amend her UCL claim to allege additional

information recently made known to her. (Pl.’s Opp’n 29:27-30:2.) This request is reasonable

and will be granted.

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4. Breach of Contract and the Implied Covenant of Good Faith and Fair

Dealing (Claim 4)

Jones-Boyle alleges that, “as the servicer and owner of the Option ARM loans, Chase

[JPMorgan] is obligated to properly apply Plaintiff and Class Members’ payments” (SAC ¶

170), and that JPMorgan breached its contract and the implied covenant of good faith and fair

dealing under California law. However, there is confusion in the moving and responding papers

as to whether California or Maryland law applies to the claim, and the parties have briefed the

applicable law of both states. 

When exercising supplemental jurisdiction over state claims, “the federal court applies

the choice-of-law rules of the forum state....” Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96

F.3d 1151, 1164 (9th Cir. 1996). Under California Civil Code § 1646, “A contract is to be

interpreted to the law and usage of the place where it is to be performed; or if it does not

indicate a place of performance, according to the law and usage of the place where it is made.”

Jones-Boyle entered into the subject loan with WaMu in Maryland, and the loan secured

property located in Maryland. Jones-Boyle was required to remit monthly payments to a post

office box in Arizona. Nothing in these facts supports a choice of California law. Accordingly,

absent a choice-of-law clause in the loan documents, Maryland law governs. 

“Maryland adheres to the principle of the objective interpretation of contracts. The court

will ‘give effect to the clear terms of the contract regardless of what the parties to the contract

may have believed those terms to mean.’” Clancy v. King, 954 A.2d 1092, 1101 (Md. 2008)

(Citation omitted). Under Maryland law, the meaning of a contract is focused on the “four

corners of the agreement.” Id. “Effect must be given to each clause so that a court will not find

an interpretation which casts out or disregards a meaningful part of the language of the writing

unless no other course can be sensibly and reasonably followed.” Id. Jones-Boyle’s breach of

contract claim against JPMorgan alleges that JPMorgan failed to apply Jones-Boyle’s monthly

payments to both her principal and interest. Jones-Boyle also alleges a breach of contract

because the scheduled payment provided in the loan documents was not based on the disclosed

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interest rate. Jones-Boyle fails to state a claim on either ground.

District courts confronted with identical claims and similar loans have concluded that a

careful reading of the loan documents taken as a whole undermines any breach of contract

claim, even though the loan documents “may have been less than clear and conspicuous as

required by TILA....” Amparan v. Plaza Home Mortgage, Inc., 678 F. Supp. 2d 961, (N.D. Cal

2008); see also Plascenia v. Lending 1st Mortgage, 583 F. Supp. 2d 1090, 1101 (N.D. Cal.

2008) (“Plaintiffs may be able to show that, considered as a whole, the disclosures provide

confusing and seemingly contradictory information concerning the terms of the loan, the

disclosures nonetheless accurately describe the relationship between the minimum monthly

payment and the accrued interested.”); Quezada v. Loan Ctr. of Cal., Inc., No. 08-177, 2008

U.S. Dist. LEXIS 96479, at *18-19 (E.D. Cal. Nov. 26, 2008). The Court reaches the same

conclusion here.

Like the note at issue in Amparan, Jones-Boyle’s Note contains an explicit admonition

that “THIS NOTE CONTAINS PROVISIONS FOR CHANGES IN MY INTEREST RATE

AND MY MONTHLY PAYMENT. MY MONTHLY PAYMENT INCREASES WILL HAVE

LIMITS WHICH COULD RESULT IN THE PRINCIPAL AMOUNT I MUST REPAY BEING

LARGER THAN THE AMOUNT I ORIGINALLY BORROWED, BUT NOT MORE THAN

115% OF THE ORIGINAL AMOUNT (OR $1,150,000).” The Note also provides, “[M]y

monthly payment could be less or greater than the amount of the interest portion of the monthly

payment that would be sufficient to repay the unpaid Principal I owe at the monthly payment

date in full on the maturity date in substantially equal payments.” (First Am. Compl. Ex. 2,

5:¶4(G).) To the extent that Jones-Boyle’s breach of contract claim is based on the imposition of

a different interest rate, it is further weakened by the TILDS, which states: “VARIABLE RATE;

YOUR LOAN CONTAINS A VARIABLE-RATE FEATURE....”(First Am. Compl. Ex. 2, 2.)

Jones-Boyle also claims that her own promise to “pay principal and interest by making a

payment every month[,]” (First Amended Compl. Ex. 2 5:¶3(A)), indicates an obligation on the

part of the lender to apply payment to both interest and principal. However, the same paragraph

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provides that, “Each monthly payment will be applied to interest before Principal.” An objective

construction of the Note as a whole does not preclude JPMorgan from applying Jones-Boyle’s

monthly payments to interest only, nor does it bar scheduled payments reflecting an interest rate

different from that stated in the Note and TILDS.

Jones-Boyle also alleges a breach of the covenant of good faith and fair dealing implied

in every contract under California law. See Schwarzkopf v. Int’l Bus. Machs., Inc., No. 08-2715,

2101 U.S. Dist. LEXIS 46813, at *32 (N.D. Cal. May 12, 2010). However, “Maryland does not

recognize a separate cause of action for breach of the implied covenant of good faith and fair

dealing; the allegation making up such a claim should be pursued under a plaintiff’s breach of

contract claim.” Magnetti v. Univ. of Md., 909 A.2d 1101, 1105 n.3 (Md. Ct. Spec. App. 2006);

See Swedish Civ. Aviation Admin. v. Project Mgmt. Enters., 190 F. Supp. 2d 785, 793-94 (D.

Md. 2002) (“Maryland recognizes that every contract imposes a duty of good faith and fair

dealing in its performance. However, Maryland courts have not explicitly recognized a separate

cause of action for breach of this duty.”).

Jones-Boyle seeks leave to amend to add a California plaintiff or to allege claims under

Maryland state law. While the Court has grave doubts as to whether Jones-Boyle’s contractbased claims can be amended successfully, leave to amend will be granted.

//

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IV. ORDER

Good cause therefor appearing:

(1) The FDIC’s motion to dismiss is GRANTED, without leave to amend.

(2) JPMorgan’s motion to dismiss is GRANTED, with leave to amend in part.

(3) The FDIC’s motion to strike is TERMINATED as moot. 

Any amended pleading shall be filed and served within twenty (20) days of the

date this order is filed. 

IT IS SO ORDERED.

DATED: 7/7/2010 __________________________________

JEREMY FOGEL

United States District Judge

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