Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_06-cv-03327/USCOURTS-cand-5_06-cv-03327-5/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1331 Fed. Question

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United States District Court

For the Northern District of California

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 The court notes that no class has been certified under Fed. R. Civ. P. 23 in this action.

ORDER GRANTING MOTION TO DISMISS COUNTS TWO THROUGH SIX OF FIRST AMENDED COMPLAINT

No. C-06-03327 RMW

SPT

United States District Court

For the Northern District of California

E-FILED on 3/30/07

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

ARMANDO AND ALINDA MARTINEZ, on

behalf of themselves and a class of others

similarly situated,

Plaintiffs,

v.

WELLS FARGO BANK, N.A.; WELLS

FARGO HOME MORTGAGE, INC.; WELLS

FARGO FINANCIAL SERVICES, INC.; and

WELLS FARGO REAL ESTATE TAX

SERVICES, LLC,

Defendants.

No. C-06-03327 RMW

ORDER GRANTING MOTION TO DISMISS

COUNTS TWO THROUGH SIX OF FIRST

AMENDED COMPLAINT

[Re Docket No. 27]

Defendants Wells Fargo Bank, N.A., Wells Fargo Home Mortgage, Inc., Wells Fargo

Financial Services, Inc., and Wells Fargo Real Estate Tax Services, LLC (collectively, "Wells")

move to dismiss counts two through six of plaintiffs' first amended complaint ("FAC") for failure to

state a claim. Plaintiffs Armando and Alinda Martinez (together, the "Martinez's") purport to bring

this action on behalf of themselves and a class of similarly situated individuals.1

 Plaintiffs oppose

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the motion. The court has read the moving and responding papers and considered the arguments of

counsel. For the reasons set forth below, the court GRANTS defendants' motion to dismiss.

Plaintiffs have twenty days from the date of this order to amend their complaint, except as to count

two, which is dismissed with prejudice.

I. BACKGROUND

The Martinez's allege that they are home mortgage borrowers from whom Wells wrongfully

charged and collected "unearned fees" for settlement services related to the refinancing of their

home mortgage in May of 2005. FAC ¶ 3. Wells is a financial services company that provides,

inter alia, settlement services in connection with residential mortgage loans. Id. ¶ 9. According to

the complaint, Wells "requires its borrowers to pay the cost of automatic underwriting, tax services,

and related closing costs" as a condition to obtaining a loan by stating in its Commitment Letter: 

"You are responsible for payment of all closing costs incurred in this loan transaction. In no event

will the Lender be responsible for any closing costs." Id. ¶ 15.

Plaintiffs allege that Wells improperly charged them unearned fees for settlement services

including fees for underwriting services, tax services and other similar fees. Id. ¶ 29. In particular,

plaintiffs allege that Wells's initial good faith estimate of closing costs provided an estimated

underwriting fee of $350. Id. After the underwriting was completed Wells charged plaintiffs $800

for the underwriting service. Id. According to the complaint, the underwriter received the loan file

and completed the underwriting one hour and four minutes later. Id. Plaintiffs allege that Wells

utilized, Wells Fargo Real Estate Tax Services, LLC ("WFRETS"), a related entity, to provide tax

services for which plaintiffs were charged $75 by Wells. Id. Plaintiffs allege that they are informed

and believe that WFRETS charged Wells less than $75 for such tax service. Id. 

Plaintiffs also seek to bring this action on behalf of themselves and a class of similarly

situated individuals. Plaintiffs propose a class comprising:

All persons and entities who, on or after January 1, 1995, obtained one or more

federally-related home mortgages from any of the Defendants in which (1) automated

underwriting was utilized with a score indicating the loan was acceptable for

purchase by Fannie Mae or Freddie Mac, and the borrower was charged a fee for

underwriting, and (2) a fee was charged by the lender for a service reflected on the

HUD-1 and someone other than that particular lender performed such service.

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2

 Plaintiffs' allegations of overcharges and mark ups are similar to those made in Kruse v.

Wells Fargo Home Mortg., Inc., 383 F.3d 49 (2d Cir. 2004). As used in the complaint, overcharges

arise out of settlement services provided by the lender itself but charged to consumers at

substantially more than the provider's cost. See Kruse, 383 F.3d at 53. "A settlement service

provider 'marks up' the fee for a settlement service when the provider outsources the task of

providing the service to a third-party vendor, pays the vendor a fee for the service, and then, without

providing an additional service, charges homeowners seeking mortgages a higher fee for the

settlement service than that which the provider paid to the third-party vendor." Id. 

ORDER GRANTING MOTION TO DISMISS COUNTS TWO THROUGH SIX OF FIRST AMENDED COMPLAINT

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Id. ¶ 30. 

Plaintiffs contend generally that Wells improperly overcharges and marks up underwriting

service fees.2

 According to the complaint, Wells usually completes underwriting services in one of

three methods: (1) it performs the service itself and charges excessive fees; (2) it has an affiliate,

such as Wells Fargo Home Mortgage, Inc. ("WFHM"), perform the service and charges excessive

fees and/or mark ups; or (3) it has an unaffiliated third party perform the service, marks up the fee

without providing any additional services, and passes up the inflated fee to customers. Id. ¶ 23. 

Plaintiffs aver that Wells requires its borrowers to pay the cost of automatic underwriting, tax

services, and related closing costs as a condition to obtaining a loan. Id. ¶ 15. 

Beginning in 1995 the Federal Home Loan Mortgage Corporation ("Freddie Mac") and

Federal National Mortgage Association ("Fannie Mae") began requiring lenders who intended to sell

their loans to one of these agencies to use automated underwriting software. Id. ¶ 18. These

agencies purportedly charge $20 per loan using the automated underwriting software. Id. ¶ 19. 

Instead of passing savings to home buyers, Wells allegedly "charges hundreds of dollars for

underwriting services that only costs it less than $100 per loan," and pockets the savings for itself. 

Id. ¶¶ 20-21. Further, according to plaintiffs, Freddie Mac and Fannie Mae "guarantee" that they

will purchase on the secondary market the loans of home mortgage borrowers whose underwriting

score meets a certain level, thereby eliminating Wells's risk in the underwriting process. Id. ¶ 18.

Plaintiffs also contend that Wells improperly marks up tax service fees and related closing

fees. Wells allegedly utilizes either an affiliated or unaffiliated third party to provide tax service,

flood certification, document preparation, notary, and other similar fees, and charge plaintiffs a fee

that includes a "mark up" from the amount charged to defendants by the third party. Id. ¶¶ 27-28. 

Plaintiffs assert four causes of action. In count one, plaintiffs allege that Wells violated

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3

 Defendants note in their moving brief that they do not seek to address "mark ups" (count

one) in the present motion, but deny such allegations and intend to demonstrate that no mark ups

occurred in this case. See Defs.'s Mot. Dismiss at vi n.2, 1:23-25. 

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section 8(b)(2) of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601 et seq.,

and related regulations, by accepting unearned fees in the form of "mark ups" from plaintiffs for

settlement services, including underwriting, tax services, and related services, without providing any

actual, necessary, or distinct services, goods, or facilities to justify the mark up. In count two,

plaintiffs allege that Wells violated section 8(b)(2) of RESPA, and related regulations, by accepting

unearned fees in the form of "overcharges," described as fees that exceeded the reasonable value of,

or which bear no reasonable relationship to, goods, facilities, or services provided. In counts three,

four, and five, plaintiffs allege that Wells's alleged conduct constitutes (1) unlawful business acts

and practices, (2) unfair business acts and practices, and (3) fraudulent business acts and practices in

violation of Cal. Bus. & Prof. Code § 17200 et seq. In count six, plaintiffs allege that the Deed of

Trust between Wells and plaintiffs represents an agreement, which Wells breached by failing to

comply with both RESPA and HUD regulations implementing RESPA. The regulations were

purportedly incorporated into the Deed of Trust.

II. ANALYSIS

Wells moves to dismiss count two on the basis that the plain text of RESPA does not prohibit

overcharges.3

 Wells moves to dismiss plaintiffs' state law claims in counts three through six on the

basis that they are preempted by federal law.

A. Legal Standard

A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in the complaint.

Dismissal can be based on the "lack of a cognizable legal theory" or "the absence of sufficient facts

alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th

Cir. 1988). When evaluating a Rule 12(b)(6) motion, the court must accept all material allegations

in the complaint as true and construe them in the light most favorable to the non-moving party. 

Barron v. Reich, 13 F.3d 1370, 1374 (9th Cir. 1994). A court must not dismiss a complaint for

failure to state a claim unless "it appears beyond doubt that the plaintiff can prove no set of facts in

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support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46

(1957); see also United States v. Redwood City, 640 F.2d 963, 966 (9th Cir. 1981).

B. RESPA

Wells argues that plaintiffs have failed to state a violation of section 8(b) of RESPA based on

purported overcharges because section 8(b) only prohibits the splitting of unearned fees. Wells's

argument is twofold. First, Wells submits that the statutory language in section 8(b) is unambiguous

that the unearned fees need to be split between the lender and a third party in order to fall within the

purview of section 8(b). Therefore, no deference need be given to the HUD policy statement that

interprets section 8(b) as barring unilateral overcharges by a settlement services provider. See HUD

Policy Statement 2001-1, 60 Fed. Reg. 53052 (Oct. 18, 2001) ("PS2001-1"). Second, Wells argues

that plaintiffs have not alleged that Wells "split" the purported overcharges with any other party, and

therefore plaintiffs have not stated a claim under section 8(b). Plaintiffs argue that deference under

Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984) applies, and

under PS2001-1, Wells is liable for overcharges even if there are no allegations of a split of fees

with a third party. 

Section 8(b) of RESPA (codified as 12 U.S.C. 2607(b)) provides:

§ 2607. Prohibition against kickbacks and unearned fees

***

(b) Splitting charges

No person shall give and no person shall accept any portion, split, or percentage of

any charge made or received for the rendering of a real estate settlement service in

connection with a transaction involving a federally related mortgage loan other than

for services actually performed.

12 U.S.C. § 2607(b). The provision of PS2001-1 upon which plaintiffs rely provides that it is a

violation of section 8(b) for "one settlement service provider to charge the consumer a fee where no,

nominal, or duplicative work is done, or the fee is in excess of the reasonable value of goods or

facilities provided or the services actually performed." 66 Fed. Reg. 53052, available at 2001 WL

1240492.

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4

 In Schuetz, the Ninth Circuit did not address § 8(b) or HUD's interpretations of § 8(b), but

addressed only § 8(c)(2) and HUD's regulations pertaining to § 8(c)(2). Therefore, the Ninth

Circuit's determination in Schuetz that PS2001-1 should be accorded deference was limited only to

that regulation's interpretation of § 8(c) of RESPA. Schuetz did not reach HUD's interpretation of §

8(b) as plaintiffs suggest.

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As explained in Schuetz v. Banc One Mortg. Corp., 292 F.3d 1004, 1008 (9th Cir. 2002),

RESPA "sought to increase the supply of information available to mortgage consumers about the

cost of home loans in advance of settlement, and to eliminate abusive practices such as kickbacks, 

referral fees, and unearned fees." Id. Although the Ninth Circuit has not considered the issue of

whether section 8(b) reaches unilaterally imposed overcharges or mark ups (and the related issue of

whether deference should be accorded HUD's interpretation of section 8(b) in PS2001-1), several

other circuits have.4

The Second, Third, Fourth, Seventh, and Eighth Circuits have each found that based on a

plain text reading, section 8(b) does not prohibit overcharges. In Kruse, 383 F.3d at 56, the Second

Circuit held that "section 8(b) clearly and unambiguously does not extend to overcharges." The

Second Circuit reasoned that the text of section 8(b) indicates that it extends only to charges where

no services were performed. Id. Therefore, it concluded that whatever its size, a fee that is "for the

services rendered by the institution and received by the borrower, does not violate section 8(b)." Id.

The court also observed that it would be odd to read the statute as instructing courts to award treble

damages without giving the courts "so much as a hint" how to differentiate between reasonable and

unreasonable components of a charge for services. Id. Finally, the court noted that the legislative

history of RESPA indicates that Congress had declined to enact a bill directing HUD to set

regulations limiting the amount of closing costs that may be charged. Id. at 56-57. Thus, the court

concluded that because Congress did not intend for RESPA to impose price controls, Congress did

not intend for RESPA to cover overcharges, and no deference should be accorded HUD's

interpretation that section 8(b) bars overcharges under Chevron.

Similarly, in Santiago v. GMAC Mortgage Group, Inc., 417 F.3d 384, 387 (3d Cir. 2005), the

Third Circuit found that the text of section 8(b), as a whole, "states that no person can accept a

fraction of a charge for services provided, unless they have actually provided services." Like the

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5

 In Boulware, the practice at issue is a "mark up" but the court applied its analysis to both

mark ups and overcharges. 

6

 The charges at issue in Haug consist of what plaintiffs in this action refer to as mark ups but

the court's analysis appears to address both mark ups and overcharges. 

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Second Circuit, the Third Circuit found that the text of 8(b) does not support making a distinction

between a reasonable and an unreasonable portion of a charge for services performed, no language

in the statute provides for making such a distinction, and it would be unusual for Congress to

provide for treble damages without also providing for a definition of what constitutes an

unreasonable charge. Id. The court concluded that because the text of the statute is unambiguous, it

need not reach the question of whether PS2001-1 should be accorded deference. Id. 

The Seventh and Fourth Circuits have held that based on the plain language of the statute,

section 8(b) does not apply to overcharges unless "a 'portion' or 'percentage' of that overcharge is

kicked back to or 'split' with a third party." See Boulware v. Crossland Mortg. Corp., 291 F.3d 261,

265 (4th Cir. 2002)5

; Echevarria v. Chicago Title & Trust Co., 256 F.3d 623, 626-28 (7th Cir. 2001). 

The Seventh Circuit's holding relies primarily on its conclusion that, based on the plain text of the

statute, section 8(b) is an anti-kickback provision, not a price control statute. See Mercado v.

Calumet Fed'l Sav. & Loan Ass'n, 763 F.2d 269, 271 (7th Cir. 1985) (citing 1974 U.S.C.C.A.N.

6549-50) (noting that Congress considered and explicitly rejected a system of price control for fees

and concluded that the price of real estate services should be set in the market). Similarly, the

Fourth Circuit's holding rests on its determination that "Congress was clearly aiming at a sharing

arrangement rather than a unilateral overcharge by its use of the statutory language 'portion, split, or

percentage' and 8(b) is not meant to impose price controls. Boulware, 291 F.3d at 268, 268. 

The Eighth Circuit has adopted the Seventh and Fourth Circuit's holdings regarding

overcharges. In Haug v. Bank of America, N.A., 317 F.3d 832, 836 (8th Cir. 2003), the Eighth

Circuit held that the statutory text "unambiguously requires at least two parties to share a settlement

fee in order to violate the statute."6

Here, plaintiffs argue that the holdings of the Second, Third, Fourth, Seventh, and Eighth

Circuits are erroneous in that the courts did not properly defer to PS2001-1. Plaintiff argues that

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7

 Moreover, although not raised by defendants, 12 U.S.C. § 2607(c)(2) appears to provide a

safe harbor for fees charged in exchange for services rendered or goods provided: "Nothing in this

section shall be construed as prohibiting . . . (2) the payment to any person of a bona fide salary or

compensation or other payment for goods or facilities actually furnished or for services actually

performed." 

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under Chevron, courts first determine "whether Congress explicitly delegated interpretative

authority to a federal agency" and, "if the authority was delegated, then the court should give

deference to the agency interpretation, which is 'binding unless procedurally defective, arbitrary or

capricious in substance, or manifestly contrary to the statute.'" Pls.' Opp. at 4:20-28 (citing U.S. v.

Mead Corp., 533 U.S. 218, 219 (2001)). It is not disputed that Congress conferred to HUD authority

to issue rules, regulations, and interpretations to achieve the purposes of RESPA. However, under

Chevron, "[w]hen a court reviews an agency's construction of the statute which it administers," it

first must determine "whether Congress has directly spoken to the precise question at issue." 467

U.S. at 842. "If the intent of Congress is clear, that is the end of the matter; for the court, as well as

the agency, must give effect to the unambiguously expressed intent of Congress." Id. at 842-43. 

The Second, Third, Fourth, Seventh, and Eighth Circuits concluded that the statutory text was

unambiguous as applied to overcharges for services performed. Because the courts found the

statutory text unambiguous as to the issue of overcharges, they did not need to consider PS2001-1.

This court likewise finds that the text of section 8(b) is unambiguous and does not extend to

overcharges. In particular, the reasoning applied by the Second and Third Circuits that section 8(b),

by its text, applies only where a fee is charged without the performance of any services is

persuasive. Section 8(b)'s prohibition is expressly qualified by the clause "other than for services

actually performed." Although the Ninth Circuit has not ruled on this issue, in Geraci v. Homestreet

Bank, 347 F.3d 749, 751 (9th Cir. 2003), it observed in dicta that section 8(b) "prohibits the payment

of any percentage or division of a charge except for services actually rendered." (emphasis added). 

A plain reading of the statutory text does not support the contention that Congress intended section

8(b) to serve as a mechanism for private litigants to place a cap on the prices charged by settlement

service providers for the services they provide.7

 RESPA does not provide for any mechanism by

which a court could determine what portion of any particular purported overcharge is excessive, nor

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does it appear Congress delegated to HUD authority to set price limitations on the prices charged by

settlement service providers. See Kruse, 383 F.3d at 56-57 (citing 119 Cong. Rec. 26,548-49

(1973)) (observing that Congress declined to adopt a proposed bill "directing HUD to limit the

amount of closing costs which can be charged in each section of the country"). Where the

settlement service provider renders the service or provides the goods or facilities and overcharges, it

nevertheless has provided a service, good, or facility in exchange for the fee. Therefore, any

argument that an overcharge contains an unearned fee component boils down to a complaint that the

settlement service provider's profit is too high, enforcement of which necessarily requires a price

control mechanism. As the circuit courts who have considered section 8(b) in this context have also

concluded, section 8(b) is not a price control statute and does not extend to overcharges. 

Plaintiffs argue that the legislative history supports their position. This argument is not

persuasive as to overcharges. Plaintiffs point to the congressional intent set forth in RESPA, 12

U.S.C. § 2601(a), which states that a purpose of the statute is "to protect consumers . . . from

unnecessarily high settlement charges caused by certain abusive practices that have developed in

some areas of the country." However, this stated intent does not indicate that Congress sought for

the fees charged by settlement service providers for services they provide to be "controlled" through

private litigation (as PS2001-1 appears to suggest). When Congress elaborated on the specific

purposes of RESPA, it did not enumerate price control (or control of overcharges) as one of the

purposes. See 12 U.S.C. § 2601(b). Thus, while Congress could have enacted RESPA to direct a

cap on fees that may be charged by settlement service providers, it did not.

C. Section 17200 Claims

Defendants argue that plaintiffs' § 17200 claims are preempted by the National Bank Act of

1864, 12 U.S.C. § 21 et seq. and related federal regulations thereunder. In counts three through five,

plaintiffs allege that Wells's conduct constitutes unlawful, unfair, and fraudulent business acts and

practices in violation of Cal. Bus. & Prof. Code § 17200 et seq. The court finds that plaintiffs'

§ 17200 claims are either preempted by the National Bank Act and regulations thereunder or that

plaintiffs have otherwise failed to state a § 17200 claim.

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1. Unfair and Deceptive Business Acts or Practices

Congress expressly authorizes national banks to engage in real estate lending under the

National Bank Act: 

(a) Authorization to make real estate loans; orders, rules, and regulations of

Comptroller of the Currency

Any national banking association may make, arrange, purchase or sell loans or

extensions of credit secured by liens on interests in real estate, subject to section

1828(o) of this title and such restrictions and requirements as the Comptroller of the

Currency may prescribe by regulation or order.

12 U.S.C. § 371(a). 

Defendants argue there is both field preemption and conflict preemption. "[A] federal statute

implicitly overrides state law either when the scope of a statute indicates that Congress intended

federal law to occupy a field exclusively, or when state law is in actual conflict with federal law." 

Freightliner Corp. v. Myrick, 514 U.S. 280, 287 (1995) (internal citation omitted). Because of the

"extensive federal statutory and regulatory scheme" enacted by Congress in the field of banking,

"the usual presumption against federal preemption of state law is inapplicable to federal banking

regulation." Wells Fargo Bank N.A. v. Boutris, 419 F.3d 949, 956 (9th Cir. 2005). Nevertheless,

under Ninth Circuit law, it does not appear that Congress, through the National Bank Act, intended

to "occupy the field." See id. at 963 (holding that "states may regulate national banks where 'doing

so does not prevent or significantly interfere with the national bank's exercise of its powers'")

(quoting Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 33 (1996)).

We turn next to defendants' argument that conflict preemption applies. The extent of the

National Bank Act's regulation depends on both the enumerated and incidental powers conferred

upon national banks. Id. (noting that "the history of national banking legislation has been 'one of

interpreting grants of both enumerated and incidental 'powers' to national banks as grants of

authority not normally limited by, but rather ordinarily pre-empting, contrary state law'") (quoting

Bank of America v. City & County of San Francisco, 309 F.3d 551, 558 (9th Cir. 2002)). "[A]

national bank's activity is authorized as an incidental power, necessary to carry on the business of

banking, within the meaning of 12 U.S.C. § 24, Seventh, if it is convenient or useful in connection

with the performance of one of the bank's established activities pursuant to its express powers under

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8

 More specifically, § 24 addresses corporate powers authorized pursuant to a national bank's

corporate form following the filing of its articles of association and organization certificate.

9

 The National Bank Act confers authority upon the OCC to promulgate regulations

implementing the Act. See 12 U.S.C. § 371(a) (conferring upon the OCC the authority to set

restrictions and requirements for national banks' real estate lending power). "Federal regulations

have no less pre-emptive effect than federal statutes." Fidelity Fed. Sav. & Loan Ass'n v. de la

Cuesta, 458 U.S. 141, 153 (1982).

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the National Bank Act." Id. at 960 (citation and internal quotations omitted).8 A connection must

exist between an incidental activity and an express power in order for the activity to be authorized as

an incidental power. Id. (citations omitted).

Here, the express power conferred by the National Bank Act is the authority to "engage in

real estate lending," including to "make, arrange, purchase or sell loans or extensions of credit

secured by liens on interests in real estate." 12 U.S.C. § 371. Wells argues, and plaintiffs do not

dispute, that the determination of interest and non-interest charges and fees are incidental powers to

the express power of engaging in real estate lending. The Office of the Comptroller of the Currency

("OCC") has issued regulations that address national banks' powers to determine interest rates and

non-interest charges and fees, including the preemptive effect of such powers, in Title 12 Title,

Chapter I, Part 7, Subpart D.9

Specifically, 12 C.F.R. 7.4002 provides that a national bank "may charge its customers

non-interest charges and fees, including deposit account service charges" and that the determination

of such charges and fees are "business decisions to be made by each bank, in its discretion,

according to sound banking judgment and safe and sound banking principles." A national bank is

deemed to establish such charges and fees in accordance with safe and sound banking principles if

"the bank employs a decision-making process through which it considers the following factors:"

(i) The cost incurred by the bank in providing the service;

(ii) The deterrence of misuse by customers of banking services;

(iii) The enhancement of the competitive position of the bank in accordance with the bank's business plan and marketing strategy; and

(iv) The maintenance of the safety and soundness of the institution.

12 C.F.R. § 7.4002(b)(2). In addition, 12 C.F.R. § 34.4 provides that "a national bank may make

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Financial Code § 5000 et seq. without pointing to any specific provisions of that state code. To the

extent plaintiffs allege that the Cal. Fin. Code prohibits fees in excess of actual costs, such state law

would be preempted by the National Bank Act and § 7.4002.

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real estate loans under 12 U.S.C. 371 and § 34.3, without regard to state law limitations concerning .

. . [t]he terms of credit . . . [and] [p]rocessing, origination, servicing, sale or purchase of, or

investment or participation in, mortgages." 12 C.F.R. § 34.4(4), 34.4(10). 

Plaintiffs do not argue that the fees at issue in this action, namely, underwriting fees, tax

service fees, document preparation fees, and other similar settlement services fees related to closing

of a mortgage loan, do not fall within the OCC's regulations in 12 C.F.R. § 7.4002 or § 34.4. Cf.

Chaires v. Chevy Chase Bank, F.S.B., 131 Md. App. 64, 87 (2000) (finding that settlement related

fees such as tax service fee, documentation fees, underwriting fees, appraisal fees, and courier fees

are loan-related fees for a mortgage under a similar Office of Thrift Supervision federal regulation

applicable to federal savings and loan institutions). Likewise, plaintiffs do not argue that the

determination and charging of such fees are not incidental powers to a national bank's express power

to engage in real estate lending. Rather, plaintiffs argue that their claims are "consistent with the

National Bank Act" because the OCC has "specifically advised banks that they are subject to state

consumer protection laws." Pls.'s Opp. at 16:18-22. In support, plaintiffs rely on an OCC Advisory

Letter issued to the chief executive officers of national banks reminding them of "the risks present in

engaging in lending and marketing practices that may constitute unfair or deceptive acts or

practices." Pls.'s Opp. at 16:22-25 (citing OCC Advisory Letter, Guidance on Unfair or Deceptive

Acts or Practices Act AL 2002-03, available at 2002 WL 521380 *1 (March 22, 2002)). Thus,

plaintiffs argue, the OCC has expressly endorsed UCL liability. 

The court does not find that plaintiffs' arguments that there is no conflict preemption

persuasive. Here, plaintiffs' § 17200 claims are premised primarily upon allegations that defendants

(1) improperly overcharge or mark up settlement service charges and (2) fail to disclose actual costs

pursuant to 24 C.F.R. § 3500.8(b), Appendix A. See FAC ¶¶ 52, 58, 70-72.10 The OCC's

regulations in section 7.4001 establish that the setting of non-interest fees and charges for real estate

loans are business decisions within a national bank's discretion and that such decisions are

considered to fall within safe and sound banking principles if the decision considers certain factors. 

Here, the fees charged by Wells are not alleged to exceed the authority conferred by the National

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11 For the same reason, plaintiffs' reliance upon McKell v. Washington Mutual, Inc., 142 Cal.

App. 4th 1457, 1485 (2006), for the proposition that there is no preemption when the UCL statute is

employed to enforce a federal law is unavailing as to its § 17200 claims premised on unfair or

deceptive practices and acts. The excerpt of the McKell opinion cited by plaintiffs pertained to a

§ 17200 claim based on an alleged unlawful business act or practice. Plaintiffs' § 17200 claim based

on unlawful business acts or practices is discussed in subsection C.2, infra.

12 In so holding, the court does not conclude that § 17200 claims are per se preempted by the

National Bank Act and regulations thereunder. In their reply, defendants concede that section 17200

claims are not per se barred, but are preempted if such claims conflict with the federal law and

regulations. Defs.'s Reply at 8:22-26. Plaintiffs do not dispute that state laws that "obstruct, impair

or condition" provisions of the National Bank Act or its regulations are preempted. Pls.'s Opp. at

20:12-15.

13 The court notes that in so holding it essentially disagrees with the conclusion of the

California Court of Appeals in McKell as to a § 17200 claim based on the disclosure of actual

charges in a HUD-1 statement. There, the California court held that a § 17200 claim for fraudulent

or deceptive business act or practice was adequately alleged where the plaintiff alleged that the

defendant bank failed to disclose actual costs in the HUD-1 statement even though the court

recognized that federal law only required the HUD-1 statement to disclose actual fees imposed on

the buyer and seller. 142 Cal. App. 4th at 1472. The court concluded that "a reasonable consumer

likely would believe that fees charged in connection with a home mortgage loan bore some

correlation to services rendered." Id. Notably, although plaintiffs here cite McKell, they do not

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Bank Act and the regulations thereunder.11 Therefore, to the extent plaintiffs contend that Wells's

conduct nevertheless constitutes unfair or deceptive business practices or acts under § 17200, such

claims are preempted by the National Bank Act and regulation 12 C.F.R. § 7.4002 thereunder.12 

2. Unlawful Business Practices or Acts

Plaintiffs' claim that defendants' conduct constitutes unlawful business practices and acts is

premised in part on a finding that RESPA bars purported overcharges by Wells. As discussed

above, plaintiffs have not stated a claim that such alleged overcharges violate RESPA. Similarly,

plaintiffs have not alleged that Wells has acted unlawfully because it has exceeded its authority

conferred by the National Bank Act or regulations thereunder. Finally, although plaintiffs allege

that defendants violated HUD regulations at 24 C.F.R. § 3500, App. A, because they did not disclose

"actual costs," the applicable HUD regulation appears to require disclosure only of actual charges. 

See 24 C.F.R. § 3500, App. A ("This form is to be used as a statement of actual charges and

adjustments to be given to the parties in connection with the settlement. . . . The settlement agent

shall complete the HUD-1 to itemize all charges imposed upon the Borrower and the Seller by the

Lender and all sales commissions, whether to be paid at settlement or outside of settlement, and any

other charges which either the Borrower or the Seller will pay for at settlement.") (emphases added). 

Therefore, plaintiffs have not alleged a violation of 24 C.F.R. § 3500, App. A.13

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D. Breach of Contract Claim

In count six, plaintiffs allege that Wells is contractually obligated to comply with, inter alia,

HUD's regulations implementing RESPA and, because Wells failed to comply with PS2001-1, Wells

has breached its contract with plaintiffs. Defendants seek to dismiss plaintiffs' breach of contract

claim on the basis of preemption. The court does not reach the issue of preemption as to this claim. 

Plaintiffs' breach of contract claim is premised entirely on its contention that the HUD regulations

are specifically incorporated into the Deed of Trust between defendants and plaintiffs based on

language in the Deed of Trust, which states: "'RESPA' means the Real Estate Settlement Procedures

Act (12 U.S.C. Section 2601 et seq.) and its implementing regulation, Regulation X (24 C.F.R. Part5

3500 [sic]), as they might be amended from time to time." FAC ¶ 16 (emphasis in original). 

Assuming without deciding that the Deed of Trust is a contract between the parties, the court does

not find this language to create a contractual obligation to comply with RESPA and its regulations. 

Further, the court does not find that plaintiffs have alleged a breach of contract claim independent of

its allegations in counts one and two that defendants have violated RESPA and regulations

established thereunder. Therefore, plaintiffs' breach of contract claim is dismissed.

E. Leave to Amend

Leave to amend is to be freely granted when justice so requires. See Fed. R. Civ. P. 15(a). 

Absent prejudice or a strong showing of undue delay, bad faith, dilatory motive, repeated failure to

cure deficiencies by amendment, or futility of amendment, "there exists a presumption under Rule

15(a) in favor of granting leave to amend." Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048,

1052 (9th Cir. 2003). Previously, plaintiffs amended their initial complaint after defendants moved

to dismiss but prior to the court's hearing and ruling on that motion. The court finds that leave to

amend is proper except as to count two of the complaint, which asserts that overcharges are a

violation of section 8(b) of RESPA.

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ORDER GRANTING MOTION TO DISMISS COUNTS TWO THROUGH SIX OF FIRST AMENDED COMPLAINT

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III. ORDER

For the foregoing reasons, the court GRANTS defendants' motion to dismiss. Plaintiffs have

twenty days from the date of this order to amend their complaint, except as to count two, which is

dismissed with prejudice.

DATED: 3/30/07 

RONALD M. WHYTE

United States District Judge

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ORDER GRANTING MOTION TO DISMISS COUNTS TWO THROUGH SIX OF FIRST AMENDED COMPLAINT

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Notice of this document has been electronically sent to:

Counsel for Plaintiffs:

Jacquetta Bardacos jbardacos@packard.com

Ronald D. Packard rdpackard@packard.com

Von G. Packard vpackard@packard.com

Timothy G. Blood timb@mwbhl.com 

Counsel for Defendants:

Robert Bader rbader@goodwinprocter.com 

William F. Sheehan wsheehan@goodwinprocter.com 

Counsel are responsible for distributing copies of this document to co-counsel that have not

registered for e-filing under the court's CM/ECF program.

Dated: 3/30/07 SPT

Chambers of Judge Whyte

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