UNITED STAT ES DIS TRICT COURT F OR THE DIS TRICT OF COLUM BIA

)
DEREK DA VIS, ) ) ) P laintif f, )

) v. ) Civil Action No. 10-1761 (R MC) ) WORLD SAVINGS BANK , F SB, n /k/a WACHOVIA MORTG AG E, FSB, et al ., ) ) ) Defendan ts. ) )

MEMORAN DUM OP INION
Der rick Davis purcha sed a home with a mortg ag e loan from World Savings Ba nk
FSB ; th e l o an is alleg edly now held by Wachovia Corporation and Wells Fa rg o Ba nk, N.A., (collec tively the “De fenda nts”). Mr. Davis defa

ulted on pay

ment of the mortg ag e, and then broug ht 1
suit ag ainst Def

endants asser

ting claims under District of Columbi a comm o n l aw : brea ch of
contra ct/brea ch of the implied c ovenant of g ood faith and fair dealing , promissory estoppel, fra ud, and n egl ige nt misrepre sentation. Def endants move to dismiss on various g rounds, including
pree mption under the Homeowne rs’ L oan Act (“H OL A”) , 12 U.S.C. § 1464. As explained below, the Complaint will be dismissed. 2

World S aving s Ba

nk, FSB , is now known as Wachovia Mor tga g e, F SB. 1 The Complaint alleg es that W achovia Corporation and Wells Fa rg o Ba nk, N.A., are 2 succe ssors to World Savings Ba nk by merg er, bu t t h e ac tual corpor ate rela tionship among Def endants is unclea

r. Be cause the C ourt dismiss es t he cla im based on pree mption and failure to state a claim, it is not nece ssary to sort out the rela tionships among the Def endants or to deter

mine whether eac h Def endant c ould be liable on the c laims alleg ed.I. F ACTS
Mr. Davis borrowe d $280,000 from World Savings Bank FSB (“World Savings
Ba nk”) in Dec ember 2007 pursuant to a fix ed-r ate mortg ag e note and a “Pick-a -Pay ment” mortg ag e loan. Notice of Removal [Dkt. #1], Ex

. 1 (“Compl.”), Ex

. A (“Note”)

. The P ick-a -Pay ment loan provided for various pay

ment options, including a minimum pay ment, an intere st-only

pay ment, a
pay ment based on a 30-y ear amortization, or a pay ment based on a 15-y ear

amortization. Compl.
at 1 (Preliminary Statement). Mr. Davis chose the minimum pay ment option, which was fix ed at the
amount of $1,273.01 per month for an initial term of one y ear , afte r which the monthly pay ment was subject to cha

ng e. The Note provide d:
1. Bor rowe r’s Promise to Pay I n return for a loan that I have rec eived, I promise to pay US $280,000.00, call ed “Principal,” plus interest, and any ot h er ch arge s incurre d during the course of the loan, to the order of the L ender

. The L ender is World Savings Ba nk, FSB , a Fe dera l Savings Ba

nk, its succe ssors an d / o r assig nees, or any one to whom this Note is transfe rre d.

. . . 3. Pay ments (A) T ime and Place of Pay ments I will pay Principal and intere st by

making pay

ments ever

y month. I will make my monthly pay ments on the 1st day of eac h month beg inning on Fe bruar y 1, 2008. I will make these pay ments ever

y month until I have paid (i) all the Principal and interest; and (ii) any other char g es descr ibed below that I may owe under this Note; and (iii) any char g es that may be due under the Security I nstrument. I f, on J anuar

y 1, 2038, I still owe amounts under this Note, I will pay those amounts in full on that date, which is ca lled the “Ma turity Date.”

. . . (B ) Amount of My

I nitial Monthl y

Pay ments Eac h of my

initial mont hly

pay ments will be in the amount of US $1,273.01. This am o u nt will chang e as descr ibed in Sections 3(C) and 3(D) below. My init i al monthly pay

ment amount was selec ted by me from a rang e of initial pay ment amounts approve d by the L ender and may not be sufficie nt to pay the entire amount of intere st acc ruing on the unpaid Principal B alanc e.
-2-(C) Pay ment Chang e Da

tes My monthly pay

ment will chang e as require d by Section 3(D) below beg inning on the 1s t day of Februa

ry , 2009 and on that day

ever y 12th month thereaf

ter unti l the 121st month, which will be the final pay ment chang e. Eac h of these dates is c alled a “Pay ment Chang e Date.” My monthly pay ment will also chang e at any time Section 3(F ) or 3(G) bel o w re q u i res me to pay a differ ent amount. I will pay the amount of my new monthly pay ment eac h month beg inning on eac h Pay ment Chang e Date a nd as provided in Sec tion 3(F) or 3(G) be low. (D) Ca lculation of Pay

ment Chang es Subject to Sections 3(F ) and 3(G), on the Pay ment Chang e Date my monthly pay ment may be chang ed to an amount sufficie nt to pay the unpaid principal balanc e toge ther with interest, including any defe rre d interest as descr ibed in Section 3(E) below, by the Maturity Date. Howeve r, the amount by which my pay ment can be incre ased will not be more than 7 1⁄2 % of the then exis ting Principal and interest pay ment. This 7 1⁄2 % limit ation is called the “Pay ment Cap.” The L ender will perf orm this Pay

ment Chang e calc ulation at least 60 but not more than 90 day s befor e the Pay ment Chang e Date. (E) D efe rre d I ntere st; Additi ons to My Unpaid Principal Fr om time to time, my monthly pay ments may be insufficient to pay the total amount of monthly interest that is due

. I f this occur s, the amount of interest that is not paid eac h month, called “De fer red I ntere st,” will be added to my Principal and will acc rue interest at the sa

me ra te as the Principa l. (F ) L imit on M y

Unpaid Principal; I ncre ased Monthly Pay ment My unpaid principal balanc e can never exceed 125% o f t h e P rincipal I orig inally borrowe d, called “Principal Ba lance Cap.” I f, as a result of the addition of defe rre d interest to my unpaid principal balanc e, the Principal Ba lance Cap limit ation would be ex ce ed ed o n the date that my monthly pay ment is due, I will instead pay a new monthly pay

ment. Notwithstanding Sections 3(C) and 3(D) above, I will pay a new monthly pay

ment which is equal to an amount that will be sufficie nt to repa y my then unpaid principal balanc e in full on the Maturity Date toge ther with interest, in substantially

equal pa y ments. (G) F inal Pay

ment Chang e On the 10th Pay

ment Chang e Date my monthly pay ment will be calc ulated as descr ibed in Section 3(D) above except that the Pay ment Cap limit ati o n will not apply

. Note §§ 1, 3(A)- (G). I n sum, when the minimum pay ment was sufficient t o pay only a portion of

-3-the interest due on t h e l o an , t h e Note provided that the unpaid portion of the interest, called

“De fer red I ntere st,” would be added to the principal balanc e and would, in turn, acc rue interest. Id

. § 3(E). So that the Note would still be paid in f ull by its maturity date, the minimum pay ment was subject to periodic inc rea ses. Id . § 3(D), ( F) , (G).

Mr. Davis alleg es that althoug h his loan car ried a fix ed interest rate of 8.8%, see id

. § 2, by opting for the minimum pay ment Mr. Davis was eff

ectively char g ed a much highe r interest
rate

. Compl. ¶ 15. “Plaintiff was promised

. . . a fix ed rate note. I n fac t[ ,] Plaintiff’s note states on its fac e that the note in whi ch P l ai ntiff rec eived was a fix ed rate note. Howeve r, Plaintiff never

rec eived a fi x ed rate note [because the note] is rea lly an adjustable rate note with a neg ative amortization component hidden within.” Id

. ¶ 23. Mr. Davis also claims that, at least during the initial minimum pay

ment period, the Note was neg atively amorti z ed

. Id

. ¶ 13. Despite the plain lang uag e of the Note, Mr. Davis contends that Def endants failed t o p ro v i d e sufficient disclosures
to him rega rd i n g the nature of the loan, the risk of neg ative amortization, and the fac t that the minimum pay

ment did not cover the full amount of interest due or the full cost of the loan. See,
e.g. , Compl. ¶¶ 13-14, 16-17. Also, he compl ains that Def endants failed t o inform hi m that if his balanc e incre ased to a cer

tain level, he could no longe r selec t the minimum pay ment option. Id

. ¶ 18.
As a result, Mr. Davis brough t s u i t , all eg ing brea ch of contra ct/brea ch of the i mplied covena nt of
g oo d faith and fair dealing , promissory estoppel, fra ud, and neg lige nt misrepre sentation. See Compl. ¶¶ 25- 60 (Counts I -I V). De fenda nts move to dismi ss. 3

Mr. Davis also broug ht suit ag ainst Def endants in D.C. Superior C ourt on two loans that 3 are not at issue here

. See Davis v. W orld Savings Bank, FSB , No. 2010 CA 007432 B (D.C. Superior Ct.). Mr. Davis asser

ted claims simil ar to those alleg ed here , and the court dismiss ed the case based -4-II. LEGAL STANDARDS
A. Jurisdiction Although Mr. Davis in i t i al l y fi led this case in D.C. Superior Court, Def endants

remove d the ca se to this Court on the basis of diversity jurisdiction. Fede ral c ourts have dive rsity jurisdiction wher e the suit is betwee n citizens of differ ent s t at es and the amount in controve rsy exceeds $75,000. 28 U.S.C. § 1332(a) (1). A court lacks diversity jurisdiction if there are litigants from the same state on opposing sides of the controve rsy . See Prakash v. Am. Univ. , 727 F.2d 1174,
1178 n.25 (D.C. Cir. 1984 ). A corpor ation is deeme d to be a citizen of the state in which it is incorpora ted and the state wher e it maintains its principal place of business. 28 U.S.C. § 1332(c) (1). The principal place of business for a corpor ation is u s u al l y its headqua rters, wher e day -to-day business is conducte d. Masterson-Cook v. Criss Bros. Iron W orks, Inc. , 722 F. Supp. 8 1 0 , 812 (D.D.C. 1989).
Her e, Mr. Davis is a citizen of the State of Mary land. World Savings Ba nk, Wachovia Corporation, and Wells Fa rg o are all fed er al ly char tere d and their principal place s of business are Texas, North Carolina, and South Dako t a, re s pectively

. As the Complaint seeks to

resc ind a loan or preve nt fore closure, see Compl. at 17 (Pray er for Relief), the amount in controve rsy is the loan amount, i.e ., over $280,000. See Orde r Deny ing Mot. to Remand [Dkt. # 12] at 2. The diversity of cit izenship and jurisdictional amount require ments are met, and diversity jurisdiction applies.

on HOL A pree mption and failure to state a claim. See Def s.’ Notice of Subsequent Authority [Dkt. # 18]. -5-B. Motion to Dism iss
A motion to dismiss for failure to state a claim pursuant to Fe dera l Rule of Civil Procedur e 12(b)( 6) challeng es the adequa cy of a complaint on its fac e. Fe d. R. Civ. P. 12(b)( 6). A complaint must be sufficie nt “to g ive a defe ndant fair notice of what the

. . . claim is and the g rounds
upon which it re s t s . ” B el l Atl. Corp. v. Twombly , 550 U.S. 544, 555 (2007) (interna l citations omitted). Although a

complaint does not nee d detailed f actua l alleg ations, a pl aintiff’s obligation
to provide the g rounds of his e ntitlement to relief “re quires more than labels and conclusions, and

a formulaic rec itation of the elements of a cause of action will not do.” Id. To survive a motion to dismiss , a complaint must contain sufficie nt fac tual matter, acc epted as true, to state a claim for relief that is “plausible on its face .” Id. , 550 U.S. at 570.

A court must trea t the com p l aint’s fac tual alleg ations as true, “eve n if doubtful in fac t.” Id. , 550 U.S. at 555. But a court need not acc ept as true leg al conclusio n s s et forth in a complaint. Ashcroft v. Iqbal , 129 S. Ct. 1937, 1949 (2009). I n deciding a motion under Rul e 12(b)( 6), a court considers the fac ts alleg ed in the complaint, documents attache d to the complaint

as exhibi ts or incorpora

ted by ref ere nce, and matters about which the court may take judicial notice. Abhe & Svoboda, Inc. v. Chao , 508 F.3d 1052, 1059 (D.C. Cir. 2007). Fur ther, “[a] copy of a written instrument that is an exhibi t to a pleading is a part of the pleading for all purposes.” Fe d. R. Civ. P. 10(c)

. III. ANALYSIS

A. P ree m ption Un der the Hom eowners’ Loan Act Def endants asser

t tha t a ll of the claims set forth in the Complaint ar e pree mpted by

-6-HOL A. There are three way s that fede ral law can pree mpt state law. First, Congr ess may pree mpt

state law by expressly stating that pree mption applies. Jones v. Rath Pack ing Co ., 430 U.S. 519, 525 (1977); Bank of A m. v. City and County of S.F

. , 309 F.3d 551, 558 (9th Cir. 2001)

. Second, “fie ld
pree mption” applies when fede ral reg ulation is so perva sive that i t i s rea sonable to infer that Congr ess left no room for the states to supplement an are a of law. Rice v. Santa Fe Elevator Corp ., 331 U.S. 218, 230 (1947); Bank of Am. , 309 F.3d at 558. Third, pree mption may apply when state law conf licts with feder al law suc h that compliance with both laws is imposs ible, Florida Li me &
Avoc ado Growers, Inc. v. Paul , 373 U.S. 132, 142-43 (1963), or when application of state law would impede Congr ess’s purposes and objectives, Hines v. Davidowitz , 312 U.S. 52, 67 (1941); Bank of
Am. , 309 F.3d a t 558.

H O L A e mp o w e r e d th e O f

f ic e o f T h r if

t Su p e r vision (“O TS”) to supervise and reg ulate fede ral saving s associations and fede ral saving s banks. 12 U.S.C. § 1464; see also Fidelity Fed. Sav.
& Loan Ass’n v. de la Cue sta , 458 U.S. 141, 161-62 (1982). I n order to ensure that the public had

acc ess to home financ ing and to ensure the solvency of fede ral saving s associations, OTS reg ulated fe d er al s aving s associations throug h a uniform set of reg ulations that occupie d the entire field o f lending reg ulation pursuant to 12 C.F.R. § 560.2(a) . Section 560.2(a) provided:

(a) Occ upation of field. Pursuant to 4(a) and 5(a) of the HOL A, 12 U.S.C. § 1463(a) , 1464(a) , OTS is authorized to promulg ate reg ulations that pree mpt state laws aff ecting the opera tions of fede ral saving s associations when deeme d appropr iate to fac ilitate the safe and sound opera tio n o f fede ral saving s associations, to e n a b le f e d e r a l s aving s associations to conduct t heir opera tions in acc ordanc e with the best prac tices of thrift instit utions in the United States, or to further other purposes of t he HOL A. To enhanc e safe ty and soundness and to en able fede ral saving s associations to conduct their opera tions i n ac corda nce with

-7-best prac tices (by eff iciently delivering low-cost cr edit to the public fre e from undue reg ul at o ry duplications and burden) , OTS hereby occu p i es t he entire field of lending regulation for federal savings associ a tions. OTS intends to g ive fede ral saving s associations maxi mum flex ibilit y

to exercise their le nding pow ers in ac corda nce with a uniform fede ral scheme of reg ulation. Acc ording ly , fed eral saving s associations may extend cre dit as author i z ed under fede ral law, including t h i s p art, without reg ard to state laws purporting to reg ulate or otherwise aff

ect their cre dit activities, except to the extent provided in para g raph (c) of this section or 560.110 of this part. For 4 purposes of this section, “state law” in cludes any state statute, reg ulation, ruling, or der or judicial decision. Id

. (empha sis added)

. Whil e ordinarily there is a presumption ag ainst pree mption over state police 5
power s, this presumption does not apply when there has been a history of signific ant fed eral
prese nce, such as in the are a o f n ati onal banking

. United States v. Locke , 529 U.S. 89, 108-20

12 C.F.R. § 560.110 is not rele vant here

. I t provided that a fede ral saving s association may 4 ch ar ge i n t ere st at t he max imum rate permitted t o any state-c harte red lending insti tution under th e laws of that state

. On J uly 21, 2011, OTS was transfe rre d t o t h e Offic e of the Comptroller of the Currenc y 5 pursuant to a n ew s t at u t e, the Dodd-F rank Wall Street Reform and Consumer Protection Act of 2010, P.L

. 111-203, 124 Stat. 2017 (“D odd-F rank Act”)

. See 12 U.S.C. § 5412. Effe ctive 90 day s afte r the transfe r date, the OTS will be abolished. Id

. § 5 413. The Dodd-F rank Act provides that HOL A does not occupy the field i n any are a of state law and that pree mption is g overne d by the standards applicable to national banks. Id

. § 1465(a) , (b); see Barnett Bank of Marion County, N.A. v. Nelson , 517 U.S. 25 (1996) (conf lict pree mption applies to national banks). The OCC has issued an I nterim Final Rule that chang es the pree mption re gu lations. See 76 Fe d. Reg

. 48950 (Aug

. 9, 2011) (§ 150.136 sets forth a new pree mption reg ulation, superse ding 12 C.F.R. § 560.2)). The new reg ulation, howeve r, does not g overn this case beca use reg ulations, like statutes, cannot be applied retroa ctively absent express direc tion from Congr ess. Bowen v. George town Univ. Hosp ., 488 U.S. 204, 208 (1988) (“[C] ong ressional enac tments and administrative rules will not be construed to have retroa ctive eff

ect unless their lang uag e require s this re sult.”); see also Nat’l Min. Ass’n v. Dep’ t of Labor , 292 F.3d 849, 859 (D.C. C ir. 2002). Congr ess di d not direct re troac tive application of the new reg ulation, and the Dodd-F rank Act provided that s ec t i o n 1 465 of Title 12 was enac ted and amende d eff

ect i v e o n t h e transfe r date, i.e

. J uly 21, 2011. See P.L

. 111-203, 124 Stat. 2017, §§ 1046, 1047(b), 1048. Section 560.2 g overns here beca use it was the reg ulation in eff ect when the parties e ntere d into the Pick-a-Pay ment mortg ag e loan tra

nsaction. -8-(2000) ; B a n k o f A m. , 309 F.3d at 559. “Tha t is, in the absenc e of the presumption against
pree mption, full field pree mption eff ectively g ives the court a presumption of pree mption.” Aguayo v. U.S. Bank

, Civ. No. 09-56679, 2011 WL 3250465, *6 (9th Cir. Aug . 1, 2011).
S ection 560.2(b) provided thirteen examples of the ty pes of state laws th at we re
pree mpted, including the following :

(b) I llustrative examples. [T] he ty pes of state laws preempted by para g raph (a) of this section include, without limit ation, state laws p u rporting to impose require ments reg arding :

. . . (4 ) The terms of cre dit, including amortization of loans and t h e defe rra l a nd capitalization of interest and adjustments to the interest rate , balanc e, pay

ments due, or term to maturity of the loan, including the circ umstances under which a loan may be called due and pay able upon the passag e of time or a specifie d event e x terna l to the loan; (5) L oan-r elated fees, including without limit ation, initial char g es, late char g es, prepa

y ment penalties, servicing fee s, and overlimit fee s;

. . . (9) Di sclosure and adver tising, including laws requiring specific statements, information, or other content to be included in cre dit application forms, cre di t solicitations, billing statements, cre dit contra cts, or other cre dit-relate d documents and laws requiring cre ditors to supply copies of cre dit repor ts to borrowe rs or applicants; (10) Processing , orig ination, servicing , sale or purcha se of, or investment or par

ticipation in, mortga g es; (11) Disburse ments and re pay ments . . . . 12 C.F.R. § 560.2(b).

Section 560.2 also provided e x amples of state laws that ar e not pre empted:

-9-(c) State laws that ar e not pre empted. State laws of the following ty pes are not pree mpted to the extent that they only incidentally aff

ect the lending opera tions of Fe dera l saving s associations or are o t h er wi se consistent with the purposes of para g raph ( a) of

this section: (1) Contrac t and commer cial law;

. . . (4) Tor t law;

. . . (6) Any other lawthat OTS, upon review , finds: (i) F urthers a

vital state interest; and (ii) Either has only an incidental eff ect on lending opera tions or is not otherwise contra ry to the purposes expressed in para g raph ( a) of

this section. Id . § 560.2(c)

. OTS outlined the steps it would take to analy ze whether

a state la w is pree mpted: When analy

zing t he st atus of st ate laws under § 560.2, the f irst step will be to deter

mine whether the ty

pe of law in question i s listed in para g raph (b). I f so, the analy sis will end there ; the law is pree mpted. I f the law is not cover ed b y p ar agraph (b), the next question is whether the law a ffe cts lending

. I f it doe s, then, in acc ordanc e with para g raph (a) , the presumption arises that the law is pree mpted. This presumption can be reve rsed only if the law can clea rly be shown to fit within the confine s of para g raph (c)

. For th es e p u rposes, para g raph (c) is intended to be interpre t ed n ar ro wly

. Any doubt should be resolve d in favor of pree mption.
61 Fe d. Reg . 50951-01 (Sept. 30, 1996).

Whil e the D.C. Circuit has not addre ssed the issue of pree mption under HOL A, three other circ uits have. The Eig hth and Ninth Circ uits ha ve applied § 560.2 to find broad pree mption;

-10-in contra st, the Seventh Circuit has rea d § 560.2 quite narr owly

. Compare Casey v. FDIC , 583 F.3d

586 (8th Cir. 2009) (finding claims under M i s s o u ri M erc handising Practice s Act pree mpted by
HOL A) and Silvas v. E*Trade Mort. Corp. , 514 F.3d 1001 (9th Cir. 2008) (findin g claims under California Unfa ir Competiti on L aw pree mpted by HOLA) with In re Ocwen Loan Servic ing, LLC , Mort. Servic ing Liti

g. , 491 F.3d 638 (7th Cir. 2007) (finding common law claims g ener ally are not
pree mpted). I n arg uing for pree mption, Def endants rely on Silvas

. I n arg uing ag ainst it, Mr. Davis relies on Ocwen

.

I n Silvas , the Ni nth Circuit deter mined that claims under the California Unfa ir Competiti on L aw (“U CL ”) wer e pree mpted by HOL A. There , mortg ag e applicants b ro u gh t s uit alleg ing that E*Tra d e Mortg ag e Corporation violated the UCL ’s unfair adver tising and unfair competition r

ules (1) by including false information in its website and in its adver tising and (2) by misrepre senting consumer leg al rig hts in its adver tising and other documents. 514 F.3d at 1003. The Ninth Circ uit he ld that the claims wer e pree mpted under § 560.2(b)( 9), which pree mpts state laws claims reg arding disclosure and adver tising. Id

. at 1006. The mortg ag e applicants also claimed that E*Tra de violated the UCL ’s unfair competition provision by char g ing an interest rate lock-in fee that

was not r efunde d when loan applicants canc elled their loan tra nsactions. The N inth Ci rcuit found that under § 560.2(b)( 5), state laws that purport to impose require ments on loan fee s are pree mpted. Id

. Be cause the UCL was the ty pe of state law that was contemplated under § 560.2(a) and (b), the
court ended its a

naly sis, e x plaining that there was no need to a ddress whether the UCL was a state

-11-law with only an incidental eff ect on lending under § 560.2(c)

. Id

. at 1 0 0 6

. The Ninth Circuit 6
aff irmed the district cour

t’s dismiss al on pre emption gr ounds. Id . at 1008.
I n Casey , the Eigh th Circuit found claims that lender s violated the Missouri
Merc handising Practice s Act by char g i ng fee s for prepa ration of documents by nonlawy ers wer e
pree mpted by HOL A under § 5 6 0.2(b)( 5). Section 560.2 provides that laws that are pree mpted include “state laws purporting to impose require ments” reg arding “[l] oan-r elated fee s.” 12 C.F.R. § 560.2(b)( 5). The plaintiff homeowner s in Casey interpre ted the phrase “state laws purporting to impose require ments” to mean state laws that on their face impose require ments on lender s. Casey , 583 F.3d at 593. Be cause the Missouri Merc handising Practice s Act was a law of g ener al application that did not on its fac e im pose requirements on lender s, the hom eowne rs reason ed that the s tatute was not pre empted by

HOL A.
I n contra st, the lender s viewed the phrase “state laws purporting t o i m pose
req u i re m en t s ” to mean state laws that as applied imposed require ments on lender s. Id

. at 595.
Be cause OTS had previously used an “as applied” an al y s i s t o deter mine whether a state law was
pree mpted, and beca

use an ag ency ’s interpre tation of its own reg ulation is owed defe renc e, the Eig hth Circuit conclude d that “a state law that either on its fac e or as applied imposes require ments
reg arding the examples listed in § 560.2(b) is pree mpted.” Id

. (citing Auer v. Robbins , 519 U.S. 452,
461 (1997) (ag ency ’s interpre tation of its own reg ulation is entitled to defe renc e))

. Even though the

Thus, Silvas followed the steps set forth in 61 F ed. Reg . 50951-01 and e nded it s analy sis 6 without making a determination of whether the state l aw had only an “incidental effec t” ef fe ct on lending under § 560.2(c)

. I n dicta , the court noted that if it did rea ch the issue, the same result would follow. Silvas , 514 F.3d at 1007 n.3. The court explained that when fede ral law pree mpts a field, it leaves no room f

or supplementation by

state law. Id

. -12-Missouri Merc handising Practice s Act was a law of g ener al application, as applied to the

homeowner s’ claims ag ainst their lender s, the state statute would i m p ose require ments reg arding loan-re lated fee s such as the document prepa ration fee

. Acc ording ly , the Eig hth Circuit found that
HOL A pree mpted the statute and a ffirme d the district court’s dismiss al of the claims. 583 F.3d at 596.
I n a case strikingly simil ar to this one, a fede ral court in this district followed Silvas and found contra ct and tort claims ag ainst the same lender s on the same ty pe of loan to be
p re em p t ed

. I n Bopp v. W ells Fargo Bank, N.A ., 740 F. Supp. 2d 12 (D.D.C. 2010), the plai n t i ff broug ht suit ag ainst World Savings Ba nk and its succe ssors in interest, Wachovia Mortg ag e, and Wells Fa rg o Ba nk, on a Pick-a-Pay

ment mortg ag e. I n addition to claims under the Truth in L ending
Act (“TI L A”) , 15 U.S.C. § 1638, Mr. Bopp asser ted claims for common law fra ud and brea ch of the

covena nt of g ood faith and fair dealing

. L ike Mr. Davis, Mr. Bopp complained that the lender did
not provide sufficie nt notice that neg ative amortization would result from his Pick-a-Pay ment loan. The c ourt reje cted Mr. B opp’s claims, explaining:

First, neg ative amortization was not cer tain to occur . I t re s u l ted beca use of the pay

ment option that Bopp himself chose. Second, the [deferr ed interest disclosure] clea rly and conspicuously disclose[d] that neg ative amortization would in fac t occur if Bopp chose to make a pay ment less than the intere st owed on the loan.
740 F. Supp. 2d at 16. The court noted that “[i] t is clea r that the g rava

men of Bopp’ s state law claims is the same as what underlies his TI L A claim. A thoroug h rea ding of plaintiff’s Complaint reve als that he is challeng ing the terms of his cre dit, the manner in which his loan was amortized, the quality and quantity of information disclosed to him, and the manner in which his mortg ag e application loan

-13-and orig ination was proce ssed. All of these complaints are expressly enumer ated i n HOL A as

illust rative examples of pree mpted state law.” Id

. at 16-17 (citing 12 C.F.R. § 560.2(b)( 4), (5), (9)- (11))

. The court also found that the plaintiff could not demonstrate that the state law claims had only incidental eff

ect o n l en d i n g opera tions under § 560.2(c) , that subsection (c) must be interpre ted

narr owly , and that any doubt should be re s o l v ed in favor of pree mption. Id

. at 17. The court conclud ed t h at t h e claims of fraud and brea ch of the covenant of g ood faith and fair dealing wer e
pree mpted by HOL A. See also Jones- Boyle v. W ashington Mutual Bank, FA , Civ. No. 08-02142JF,
201 0 W L 2724287, * 7 (N.D. Cal. J uly 8, 2010) (following Silvas , the court held that claims including fra

ud, brea ch of contra ct, and brea ch of the implied covena nt of g ood faith and fair dealing

wer e pre empted by

HOL A).
I n contra st, in Ocwen the Seventh Circuit held that as a gene ral propositi on HOL A does not p re em pt state common law claims. I n that case , the lower court had denied the lender s’ motion to di smiss num erous state law cla ims on HOL A pre emption gr ounds, including c laims for fra ud and breac h of contract. The lenders were permitted an int erloc utory appea l. On appea l, the Seventh Circuit was most troubled by the fac t that HOL A does not provide a private cause of action. 7
Ocwen , 491 F.3d at 643. “Ag ainst this backg round of limi t ed re m edial authority , we rea d [§ 560.2(c) ] to mean that OTS’s asser tion of plenar

y reg ulatory authority does not deprive persons harme d by the wrongf

ul acts of saving s and loans assoc iations of their basic [s] tate common-lawI n contra st, a borrowe r has a private cause of action under TI L A and may sue for resc ission 7 or statutory penalties if a cre ditor fails to make cer tain require d disclosures. 15 U.S.C. § 1640(a)

. Howev er , a o ne y ear statute of limit ations applies. Id

. § 1640(e)

. Mr. Davis filed suit more than one-y ear afte r closing on his loan and he did not asse rt a c laim under TI L A. -14-ty

pe reme dies.” Id

. The court listed two examples of state law claims that would not be pree mpted:

[S ]uppose an S & L

signs a mortg ag e ag ree ment with a homeowne r that specifie s an annual interest rate of 6 perc ent and a y ear later bills t h e homeowner at a rate of 10 perc ent and when the homeown er ref uses to pay instit utes fore closure proce eding s. I t would be surprising for a fede ral reg ulation to forbid the homeowner ’s state to g ive the homeowner a defe nse based on the mortg ag ee’ s brea ch of contra ct. Or if the mortg ag ee (or a service r like Ocwe n) fra udulently repr esents to the mortg ag or that it will forg iv e a d ef ault, and then fore closes, it would be surprising for a fede ral reg ulation to bar a suit for f raud. Id . at 643-44.
Even so, the Seventh Circuit rec og nized that pree mption depends on the nature of the claims alleg ed and examined eac h of the twenty -two cause s of action at issue. The court descr ibed
t h e co m p l aint as a “hideous sprawling mess,” and found it “diffic ult and in many instan ce s impossibl e to asce rtain t he nature of the charg es.” Id

. at 641. The c ourt noted, for example, that 8
the fra ud alleg ation “does not appea r to be pree mpted, though this could depend on the nature of the fra ud, which is unexplained.” Id. at 648. The court conclude d that the case was “lar g ely unripe for

a deter mination of pree mp t i o n , ” aff irmed the lower court’s denial of the motion to dismiss and

The c ourt commented: 8
I t would have been better had the defe ndants defe rre d their motion [t o dismiss ], and the district judge his ruling , until either the defe ndants serve d contention interrog atories desig ned to smoke out what exactly the plaintiffs are char g ing, or better, beca use quicker and chea

per, the judge told the plaintiffs to specify the acts of the defe ndants that they are complaining about s o that he could decide how much of the complaint was pree mpted. Stil l, the defe ndants can hardly be blamed for wa nting to strang le the monster in its crib. 491 F.3d a t 641. -15-rema

nded. The Seventh Circuit direc ted that “[o] n rema nd, the judge must focus on the acts alleg ed in the complaint, seeking clar ification from the p la in ti f f s w h e r e n e c e s s a

ry and deciding in acc ordanc e with this opi nion which [claims] are pree mpted and which a re not.” Id . at 648. District courts have rea ched conflicting conclusions in this are a of law. Some follow Silvas/Casey and find broad pree mption, while others follow Ocwen and find no pree mption. See , e.g ., Dixon v. W

ells Fargo Bank, N.A ., Civ. No. 11-10368-WGY, 2011 WL 2945795, *16 & nn. 9-10 (D. Mass. J uly 22, 2011) (collec ting case s). I n some case s, district courts have attempted to dissect the claims. See, e .g ., Thomas v. Onewest Bank , FSB , No. 10-6234-AA, 2011 WL 867880 (D. Or

. Mar. 10, 2011) (fr aud claim was pree mpted and brea ch of contra ct claim was not); but see Down v. Flagstaff Bank, FSB , Civ. No. 3:10-847, 2011 WL 1326961, *4-6 (E.D. Va. Apr. 4, 2011) (HOL A
pree mpted fra

ud claim; the alleg ed fra udulent repr esenta tions and the loan t ra n s ac t ion wer e “inextricably

linked to one another ” and c ould not be dissected by the cour t). 9
Mr. Davis points to the statement in Ocwen that HOLA “does not dep rive persons harme d by

the wrong ful ac ts of savings and loans associations of their basic [s] tate common-lawty pe reme dies.” See Ocwen , 491 F.3d at 643. Fr om this, he summarily conclude s that his claims for brea ch of contra ct / b re ac h of the implied covena nt of g ood faith and fair dealing , promissory estoppel, fra

ud, and neg lige nt misrepre sentation are n o t pree mpted by HOL A. This is an overly broad interpre tation of Ocwen

. The Seventh Circuit did not hol d that HOL A never pree mpts any

When a claim is based on alleg ations that fall completely outside the loan transac tion a nd 9 its supporting documents, the claim may not be pree mpted. See, e.g., Dixon , 2 0 1 1 WL 2945795, *15-17 (promissory estoppel claim alleg ing that lender promised to enter

into a loan modification if the borr ower s took certa in steps was not pree mpted by HOL A). -16-common law claim. As explained above, Ocwen pointed out that pree mption was depende nt upon

the pre cise a lleg ations in support of a cla im.

An analy sis of pree mption in this c ase must start with the proposition that there is

a presumption o f p re em p t i o n here

. See 61 Fe d. Reg

. 50951-01 (any doubt should be resolved in favor of pree mption); Aguayo , 2011 WL 3250465, *6 (bec ause field pree mption applies, there is a presumption of pree mption). Fur ther, a close rea ding of the Complaint and the Note reve als that all of the common law claims raised are inext rica bly linked to the loan transac tion and the documents rela ted to the loan. The claims of promissory estoppel, fra ud, and neg lige nt misrepre sentation are 1 0
based on the alleg ation that Def endants fra

udulently repr esente d that the loan was fix ed-r ate when i t was rea lly an adjustable rate loan with a neg ative amortization component “hidden within

. ” Compl. ¶ 23; see also id . ¶¶ 38-43, 44-51, 52-60. The claim of breach of contra ct/brea ch of g ood faith claim is based solely on one sentence o f § 3(A) of the Note, which provides “I will pay Principal and I ntere st by making pay ments ever

y month.” See id

. ¶ 28. Mr. Davis alleg es that Def endants brea ched the loan by “ag ree ing” that initial monthly pay ments would be sufficie nt to pay both the principal and int ere st owed on the Note and by failing to apply any of t he ini tial monthly
pay ments to principal. See id

. ¶ 31. All of t hese claims are based on the l oan tran s ac t i o n and are
g rounded in the loan documents. Be cause the common law claims cannot be remove d from the loan
transac tion, they are pree m p t ed by the fede ral reg ulations that g overn the loan transac tion. See
Down , 2011 WL 1326961 at *4-6 (HOL A pree mpted fra ud claim that was inext rica bly linked to the

S ee Abhe & Svoboda , 508 F.3d at 1059 (in deciding a motion to dismiss , a court may 1 0 consider the fac ts alleg ed in the complaint and attache d exhibi ts); Fe d. R. Civ. P. 10(c) (written instrument attache d to a pleading is part of the ple ading ).000000000000000000000000000000 -17-loan transa ction).
M o re o v er , this case is almost identical to Bopp , wher e the court found that HOL A
pree mpted fra

ud and brea ch of contra ct claims. L ike Mr. Bopp, Mr. Davis complains that Def endants did not provide sufficie nt notice that neg ative amortization could occur . The Note, howeve r, clearly and conspic uously disclosed that neg ative amor tiz ation could occ ur if Mr. Da vis chose to make a pay

ment amounting to less than the interest owed on the loan. The Note expressly
set forth a fix ed interest rate and also expressly set forth the possibili ty of neg ative amortization. Mr. Davis chose to make a minimum pay ment. The Note explained tha t the borrowe r had selec ted the
pay ment amount and that such pay ment might not be sufficie nt to pay the entire amount of interest that was a ccr

uing. N ote § 3(B ). I t further war ned that if monthly pay

ments did not cover inter est char g es, such unpaid char g es would be added to the principal as Def err ed I ntere st and would acc rue i n t er es t at t he same rate as t he principal. Id

. § 3(E). The Note also set forth the manner in which

m o n t hly pay

ments could be incre ased annually to an amount sufficie nt to repa y principal and interest, incl u d i n g t h e De ferred I ntere st. Id

. § 3(C), (D), (F ). Mr. Davis’s claims for brea ch of

co n trac t/breac h of the covena nt of g ood faith, promissory estoppel, fra ud, and neg lige n t misrepre sentation all asser t that differ ent terms of cre dit should have been offe red and that differ ent disclosures should have been ma de.

I n sum, Mr. Davis is challeng ing the terms of his cre dit, the manner in which his loan

was amortized, and the quality and quantity of information disclosed to him — all claims that wer e expressly enumer ated in §560.2(b) as illustrative examples of pree mpted state law. See 12 C.F.R. 560.2(b)( 4), (9); Silvas , 514 F.3d at 1006; Bopp , 740 F. Supp. 2d at 1 6 -1 7

. Also, in these

-18-circ umstances wher e the alleg ations are inext rica bly linked to the loan transac tion, Mr. Davis cannot demonstrate that his claims have only an incidental aff ect on lending opera tions. See Bopp , 740 F. Supp. 2d at 17

. Counts I throug h I V of the C omplaint — the claims for brea ch of c ontrac t/breac h of the c ovenant of

g ood faith, promissory

estoppel, fr aud, and ne g lige nt misreprese ntation — will be dismissed as pre empted by HOL A.
B. Failure t o State a Claim Even if the claims wer e not pree mpted, t h ey woul d still be dis missed for failure to
state a c laim.
1. Breac h of Contrac t Mr. Davis’s br eac h of contra ct/brea ch of g ood faith alleg ation rests solely on one 1 1

sentenc e of § 3(A) of the Note, which provides “I will pay Principal and I ntere st by making pay ments

ever y month.” See Compl. ¶ 28. Mr. Davis alleg es that Def endants “ ag ree d” that initial monthly
pay ments would be sufficie nt to pay both the principal and interest owed on the Note and by failing
to a pply any of the initial monthly pay ments to pr incipal. See Compl. ¶ 31. Mr. Davis’s brea ch of
contract alleg ation, based on a single sentenc e of the Note taken out of context, is unrea son ab l e beca use it is flatly

contra dicted by

the express terms of the N ote. “[ O] ne who signs a contra ct has a duty to rea d it and is obliga ted acc ordin g t o i t s terms.” Paterson v. Ree ves , 304 F.2d 950, 951 (D.C. Cir. 1962); W atson v. Gold N Diamonds, Inc. , 736 F. Supp. 2d 266, 269 (D.D.C. 2010). Fur ther, “whe n the bare alleg ations of the complaint

A claim for brea ch of the covena nt of g ood faith an d fa i r dealing must arise out of a 1 1 contra ct betwee n the parties. C & E Servs., Inc. v. Ashland, Inc ., 601 F. Supp. 2d 262, 265 (D.D.C. 2009). -19-conflict with any exhibi ts or documents, whe ther a ttached or adopted by

ref ere nce, the exhibi ts or documents preva il.” Miller v. Pacific Shore Funding , 224 F. Supp. 2d 977, 984 n.1 (D.D.C. 2002) (citing Faye tteville Inve

stors v

. Commercial Builders, Inc ., 936 F.2d 1462, 1465 (4th Cir. 1991) ); see also Thompson v. Ill. De p’t of Professional Regulation , 300 F.3d 750, 754 ( 7th Cir. 2002).
Her e, there is only one rea sonable interpre tation of the Note, and it contra dicts Mr. 1 2
Davis’s claim for brea ch of contra ct. The Note s t at ed t h at the minimum pay ment might not be sufficie nt to pay the entire amount of interest t h at was acc ruing , Note § 3(B ); that when monthly
pay ments wer e not larg e enough t o co v er interest, the Def err ed I ntere st would be added to the principal and would acc rue interest, id

. § 3(E); and that monthly pay ments could be incre ased annually to an amount sufficie nt to pay the principal and interest, including the Def err ed I ntere st. Id

. § 3(C), (D), (F ). Mr. Davis’s alleg ation that Def endants brea ched the loan b y “a gre ei n g” t hat initial monthly pay

ments would be sufficie nt to pay both the principal and interest owed on the Note and by failing to apply

any of the initial monthly

pay ments to principal ar e contr ary to the
express terms of the Note. Mr. Davis had a duty to rea d the Not e, an d h e i s bound by its unambig uous terms. Thus, Count I , alleg ing brea ch of contra ct/brea ch of the covena nt of g ood faith,

Under District o f Columbi a law, contra cts are construed in acc ord wit h the i ntention of 1 2 the parties insofar as it ca n b e d i s ce rned from the text of the instrument. See W ashington Metro. Area Transit Auth. v. George town Univ. , 347 F.3 d 9 4 1 , 9 4 5-46 (D.C. Cir. 2003); Found. for the Pres. of Historic George town v. Arnold , 651 A.2d 794, 796 (D.C. 1994). W h et h er a contra ct is ambi g uous is a question of law for the court. See Holland v. Hannan , 456 A.2d 807, 815 (D.C. 1983). A contra ct is not rendere d am b iguous mere ly beca use the parties disag ree over its proper interpre tation. Id. I nstead, a contra ct is ambig uous only when it is rea sonably and fairly susceptible of diffe rent interpr etations. See M organ v. Am. Univ ., 534 A.2d 323, 330 (D.C. 1987); Burbridge v. Howard Univ. , 302 A.2d 245, 247 (D.C. 1973). The Court f inds that the Note is not susceptible to more than one interpre tation; it i s not ambiguous. -20-fails to state a c laim.
2. P rom issory Estopp el C o u n t I I , the claim for promissory estoppel, must also be dismiss ed. Promiss o ry

es t o p pel provides a reme dy for the enfor ceme nt of a promise wher e the formal require m en t s o f a
contra ct have not been satisfied. Vila v. Inter-Am

. Inv. Corp ., 570 F.3d 274, 280 (D.C. App. 2009). District of Columbi a courts g ener ally prohibit litigants from asser ting a claim for prom i ssory estoppel when an express contra ct g overns the parties’ conduct. Plesha v. Ferguson , 725 F. Supp. 2d 106, 112 (D.D.C. 2009). Her e, the Note and other written mortg ag e documents g overn. Count
I I will be dismiss ed.

3. F raud and Negligent M isrepre sentation
I n order to state a claim for fra ud under District of Columbi a law, a plaintiff must alleg e that the defe ndant made a materia l misrepre sentation, with knowledg e of its falsity and with intent to dece ive, and that the plaintiff rea sonably relied on s u ch m i s repr esenta tion resulting in provable damag es. Essroc Cement Corp. v. CTI/D.C., Inc ., 740 F. Supp. 2d 131, 145 (D.D.C. 2010). The elements of a neg lige nt misrepre sentation claim are simil ar except that they do not include the scienter require ments of a fra ud claim. Parr v. Ebrahim i a n , 7 74 F. Supp. 2d 234, 240 (D.D.C. 2011). Whil e rea sonable relianc e can be a jury issue, dismiss al for failure to state a claim is proper when no rea sonable person would have relied on the repr esenta tion. Burman v. Phoenix W orldwide Indus., Inc ., 384 F. Supp. 2d 316, 329 (D.D.C. 2005) (citing Alicke v. MCI Comm. Corp ., 111 F.3d 909, 912 (D.C. Cir. 1997)).

Counts I I I and I V, alleg ing f

raud a nd neg lige nt misreprese ntation, are based on the

-21-claim that althoug h the Note stated on its fac e that it is fix ed-r ate, it is rea lly an adjustable rate note

with a neg ative amortizat i o n co m p onent “hidden within.” Compl. ¶ 23. Ag ain, in considering Def endants’ motions to dismiss , the C ourt must consider the Note attached to the complaint. S ee Abhe & Svoboda , 508 F.3d at 1059; Fe d. R. Civ. P. 10(c)

. Be cause the alleg ations of the Complaint conflict with the Note, the terms of the Note preva il. See Faye tteville Inve stors, , 936 F.2d at 1465; Thompson , 300 F.3d a t 754; Miller , 224 F. Supp. 2d at 984 n.1.

Contrary to Mr. Davis’s alleg ations, the Note does not “hide” any thing. On its fac e it expressly and clea

rly provided that the while the interest rate is fix ed, the minimum pay ment might
not be s u ff

i ci en t to pay the entire amount of interest acc ruing , Note § 3(B ); that when monthly
pay ments wer e not larg e enoug h to cover interest, Def err ed I ntere st would be added to the principal and would acc rue interest, id

. § 3(E); and that monthly pay ments would be incre ased annually to an
amount sufficie nt to pay the principal and interest, including the Def err ed I ntere st. Id

. § 3(C), (D), (F ). I n light of the terms of the Note, Mr. Davis fails to alleg e a fra udulent or neg lige nt misrepre sentation and fails to alleg e rea sonable relianc e. Be cause the claims for fra ud and neg lige nt misrepre sentation are flatly contra dicted by the express terms of the Note, they fail to state a claim.
Counts I I I and I V of the Complaint will be dismiss ed.
IV. CONCLUSION
For the fore g oing rea sons, the motion to dismiss filed by World Savings Ba nk, FSB [Dkt. #6] and the motion to dismiss filed by Wachovia Mortg ag e Corporation and Wells Fa rg o Ba nk
N.A. [Dkt. #7] will be g rante d. T h e C o m p l aint will be dismiss ed. A memorializing Orde r

acc ompanies this Memorandum Opinion.

-22-Date: Aug ust 29, 2011 /s/ ROSEMARY M. COL L YER United States District J udg e

-23-