Petition for Writ of Certiorari — Ullico, Inc. v. Black

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Supreme Court, U.S.

FILED

011591 APR 23 2002

QPHIGE OF Tit Gunna

No. 01-__

In The

Supreme Court of the United States

ULLICO INC., MRCO, INC., THE UNION LABOR

LIFE INSURANCE COMPANY, FINANCIAL FREEDOM

SENIOR FUNDING CORPORATION, and

BEVERLY MIRTLE,

Petitioners,

CORINNE E. BLACK,

Respondent.

On Petition For A Writ Of Certiorari

To The California Court Of Appeal

For The First Appellate District

PETITION FOR A WRIT OF CERTIORARI

JAMES F. JORDEN James H. FLEMING

RICHARD J. OVELMEN Counsel of Record

JorpEN Burt LLP FLEMING & Puitups LLP

1025 Thomas Jefferson 1340 Treat Blvd., Suite 630

Street, N.W. Walnut Creek, CA 94596-2101

Suite 400 East (925) 296-2600

Washington, DC 20007-0805

(202) 965-8100

Counsel for Petitioners

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTION PRESENTED

The Preemption Clause of the Alternative Mortgage

Transaction Parity Act provides:

regulations

An alternative mortgage transaction may be

made by a housing creditor in accordance with

this section, notwithstanding any State constitu-

tion, law, or regulation.

12 U.S.C. § 3803(c). The question presented is:

Whether the California Court of Appeal violated the Pre-

emption Clause by allowing state law claims attacking an

alternative mortgage transaction made in full compliance

with the Parity Act by a state-chartered housing creditor?

PARTIES

Petitioners:

ULLICO Inc., MRCo, Inc., The Union Labor Life

Insurance Company, Financial Freedom Senior Funding

Corporation, and Beverly Mirtle

Respondent: >

Corinne E. Black and James R. Mahoney

ili

RULE 29.6 STATEMENT

The Petitioners are ULLICO Inc. (“ULLICO”), MRCo,

Inc. (“MRCo”), The Union Labor Life Insurance Company

(“Union Labor Life”), Financial Freedom Senior Funding

Corporation (“Financial Freedom”), and Beverly Mirtle.

MRCo and Union Labor Life are wholly-owned subsid-

iaries of ULLICO. There is no parent or publicly held

company owning 10% or more of ULLICO’s stock. Finan-

cial Freedom is a majority-owned subsidiary of Lehman

Brothers Bank, FSB, and an indirect subsidiary of Lehman

Brothers Holdings, Inc. No person or entity owns 10% or

more of Lehman Brothers Holdings, Inc.’s stock.

TABLE OF CONTENTS

Page

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SE 6 ou SR iv ah en cceshiceessssdssesseesnss 1

CONSTITUTIONAL AND STATUTORY PROVI-

SRI SPRITE 65. 0cs edb sccswenventboenancecen 3

STATEMENT ...... PEELE Te OCT TCE TCT CTT Tee 3

The Underlying Transaction...................... 4

Wee CREE PANS siden escecaccadsbscansvadeavecssss 5

PUN TUN oo. cn ccc ecc cassecsecscavécases 9

REASONS FOR GRANTING THE PETITION....... 10

I. THE PREEMPTION CLAUSE OF THE PARITY

ACT MANDATES DISMISSAL OF RESPON-

DENTS SIATE LAW CLAERED 2.22. ccc cesses 11

II. THE CALIFORNIA COURT OF APPEAL MISIN-

TERPRETED THE PREEMPTION CLAUSE SO

AS TO THWART THE PURPOSE OF THE PAR-

EN e SUE aSecudskskesnsbbGensedaes me wehoeses 17

III. THE CALIFORNIA COURT OF APPEAL’S

INTERPRETATION OF THE PREEMPTION

CLAUSE IS DIRECTLY CONTRARY TO EVERY

FEDERAL COURT DECISION THAT HAS

ADDRESSED THE PREEMPTION ISSUE...... 26

GN obi SRA ee deer ens dens heteeenaussnnes 30

TABLE OF AUTHORITIES

: Page

Cases:

Acosta v. Master Maintenance & Constr., Inc., 52

F. Supp. 2d 699 (M.D. MM sGabiuce ct tou 29

Ardestani v. I.N.S., 502 U.S. 129 | a rns 18

Barnett Bank of Marion County, N.A. v. Nelson, 517

Wah MCUs icin kcssckesi reac bosuhoe ee 12

Belknap, Inc. v. Hale, 463 U.S. 491 SR cua 1

Beverly Hills Fed. Sav. & Loan Ass'n v. Federal Home

Loan Bank Bd., 371 F. Supp. 306 (1973)......... 24, 25

Chevron, U.S.A.> Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837 i RR ear hey uh ae 2 21

Christensen v. Harris County, 529 U.S. 576 (2000)..... 21

Connecticut Nat'l Bank v. Germain, 503 U.S. 249

[ROOD Ska xdsvnress babdeatseaeeteis ae ee 16

Cox Broadcasting Corp. v. Cohn, 420 U.S. 469 th) oe 2

Crooks v. Harrelson, 282 U.S. 55 SOUNDS cn ben cunde Pe

De la Cuesta v. Fidelity Fed. Sav. & Loan Ass'n, 121

Cal. App. 3d 328, 175 Cal. Rptr. 467 (1981), rev'd,

Sm BOE CI 0 eso ok vad dca ee 26

F.E.C. v. Democratic Senatorial Campaign Comm., 454

PE MF COND 6 ok iveccuizaciecces te 22, 23

Federal Sav. & Loan Ins. Corp. v. Kidwell, 716

F. Supp. 1315 (N.D. Cal. 1989), vacated on other

grounds sub nom. Eureka Fed. and Sav. Ass’n v.

Kidwell, 937 F.2d 612 (9th Cir. | ee ma! 7

Fidelity Fed. Sav. & Loan Ass‘n v. de la Cuesta, 458

SPs BOE CEU 65 vids ansancseeeee passim

First Gibraltar Bank, FSB v. Morales, 19 F.3d 1032

(Sth Cir. 1994), vacated on other grounds, 42 F.3d

Oe Ge OR BI once toacseeveane ee 29

TABLE OF AUTHORITIES - Continued

Page

Florida Lime & Avocado Growers, Inc. v. Paul, 37%

GD CHMOD 0-006 cabbundeseteneeintsstecisse 12, 16

Fort Wayne Books v. Indiana, 489 U.S. 46 (1989) ....... 2

Grunbeck v. Dime Sav. Bank of New York, 74 F.3d 331

(APOE 6005 00enncceccteééenasevenssssaGeeuesesoneus 21

Hines v. Davidowitz, 312 U.S. 52 (1941) ....... 12, 16, 19

Jones v. Rath Packing Co., 430 U.S. 519 (1977)........ 12

Morales v. Trans World Airlines, Inc., 504 U.S. 374

CUED 6 cc ncsdnctadecebbabsexnvipesenesieetmarn 13

National Home Equity Mortgage Ass'n v. Face, 239

F.3d 633 (4th Cir.), cert. denied, __ U.S. ___, 122

De Ga Be Gee oes savdsccctesescusnsceesucueens passim

National Home Equity Mortgage Ass'n v. Face, 64

P. Supp. 2a SOG (ED. VO. BOPP) cc ccccecassccoscenes “

O'Connor v. Donaldson, G22 US. SES CiSTS) cccccces 29

Pacific Gas & Elec. Co. v. State Energy Resources

Conservation & Dev. Comm'n, 461 U.S. 190 (1983) .... 12

Panko v. Pan American Fed. Sav. & Loan Ass'n, 119

Cal. App. 3d 916, 174 Cal. Rptr. 240 (1981) ....... 26

Reich v. Webb, 336 F.2d 153 (9th Cir. 1964)........... 24

Reno v. Koray, 515 U.S. 50 (1995)................. 21, 23

Rice v. Santa Fe Elevator Corp., 331 U.S. 218 (1947) .... 12

Shinn v. Encore Mortgage Serv., 96 F. Supp. 2d 419

GADSE. GROED 6 00cun sctancsenvawaunaee 8, 13, 28, 29, 30

Skidmore v. Swift & Co., 323 U.S. 134 (1944) ......... 21

——————

TABLE OF AUTHORITIES - Continued

Page

United States Dept. of Health & Human Serv v

FLRA, 983 F.2d 578 (4th Cir. 1992).............. 29

Washington Mutual Bank, FA v Superior Court, 95

Cal. App. 4th 606, 115 Cal Rptr. 2d 765 (2002) 7

CONSTITUTION:

United States Constitution, Article VI, Clause 2...___ 3

STATUTES AND REGULATIONS:

ep a OF Nash schacca tenes ee oe 19

Oe WAU ME sakaunupeupitivsctundce se ee 6

12 U.S.C. §§ 1462a-1464.............................. 6

BE WBA. § DOGG oa anos ccc scncidceceenecencc.. 24

12 U.S.C. § 1831x(g)(2)(B)........................... 19

Be ees MN en cg cask snsatcecaeeeceern le 27

12 U.S.C. § 3801(a)(1).... 2.200. . 5

12 U.S.C. § 3801(a)(3)... 2... cece. 7

12 U.S.C. § 3801(b) ............................. 6, 7, 13

BS WSC. § SOGR1) 2.0... ccc cccccccccscccscccenenn., 5

A2 US.C. § SO0B(a) 2... ccc ccc ccc cee w cece ce. 7, 14

B2 USC. § SB0B(C) .. 2. ccc ccc ccc cnceeceeen. passim

Be Sela Fs io vine nansnacsceseecceecsiccsnicns 9

15 U.S.C. §§ 1601 et seq

Vill

TABLE OF AUTHORITIES - Continued

Garn-St. Germain Depository Institutions Act of

1982, Pub. L. No. 97-320, 96 Stat. 1469 (1982) ...5, 27

Se Rae Ee Mc he hoa Wie saeecde bucsiedhca<sscee eed 23

Be Gee es Bs OHS WR bis cnc cccsspeevnccccedesns 23

ee MR | RAPPORT OST TT eT TT eee TCT Te TTT eT 27

ee Rf Pre ery Ter rT TT Ter TT Cee 29

fat Ro ey ere ere ree 11

a a nn ch crv dosnee adore peebereces boner 20, 25

ge MG PPP eT Te eT Terr Terry Ter ere passim

ee eee NG hha od ue ko cede abe Raed ad aeeees 20, 25

Se ee NL eas a heeecauvebaleatabesaens 20, 25, 27

Se es UE I chccceedeescbisnbarceandnsetees 20, 25

ee Res Ue I Ochoa dans eee cueubensieesaneneia 19

ss . Se me OF et | PPererPrreerrrr rr reir ere e 6

COP. TU, Te CROP ED oh viva ke ee cesecciecsanndees 6

MISCELLANEOUS:

S. Cone. Rep. No. 97-641 (1982).................2..00. 7

PETITION FOR WRIT OF CERTIORARI

Petitioners respectfully request that the Court grant a

writ of certiorari to review the opinion of the First Dis-

trict Court of Appeal of the State of California.

OPINION BELOW

The opinion of the Court of Appeal (Appendix A) is

reported at 92 Cal. App. 4th 917, 112 Cal. Rptr. 2d 445

(2001). The order (Appendix B) and judgment of the trial

court (Appendix C), which the Court of Appeal reversed,

is not reported. The order of the California Supreme

Court denying review (Appendix D) is not reported.

JURISDICTION

The California Court of Appeal issued its opinion on

October 5, 2001. The California Supreme Court denied

review on January 3, 2002. The California Court of

Appeal’s determination that Respondent Corinne E.

Black’s state law claims are not preempted by the Alter-

native Mortgage Transaction Parity Act (12 U.S.C. §§ 380i

et seq.) is final within the meaning of 28 U.S.C. § 1257

because it finally disposed of the federal preemption

issue. Belknap, Inc. v. Hale, 463 U.S. 491, 497 n. 5 (1983)

(Kentucky court of appeal’s interlocutory decision that

State causes of action were not preempted by NLRA was

final within the meaning of 28 U.S.C. § 1257). If the writ is

denied, Petitioners may ultimately prevail in the state

court on non-federal grounds, precluding review of this

substantial federal question, and the important federal

policy that there be parity between state and federally

chartered lenders in the alternative mortgage market

would be undermined.! If review of the preemption issue

is granted now, a reversal of the decision below would

dispose of this litigation. See Cox Broadcasting Corp. v.

Cohn, 420 U.S. 469, 482-483 (1975); Fort Wayne Books v.

Indiana, 489 U.S. 46, 55 (1989); Belknap, 463 U.S. at 497.

1 Guidance from this Court is needed at this time because

numerous state law challenges to the alternative mortgages

offered by Petitioners and their predecessors have been filed in

California State Courts. DeLuca v. Transamerica HomeFirst, Inc.,

Superior Court of California, County of San Francisco, Case No.

400008; Ebersole v. Transamerica HomeFirst, Inc., Superior Court

of California, County of Santa Barbara, Case No. 01045770;

Flores v. Transamerica HomeFirst, Inc., Superior Court of

California, County of San Francisco, Case No. 310594; Ford v.

Freedom Investment Fund, Inc., Superior Court of California,

County of San Mateo, Case No. 413137 (class action); Gentle v.

Freedom Investment Fund, Inc., Superior Court California,

County of Santa Clara, Case No. CV 790194 (class action); Head

v. Transamerica Corporation, Superior Court of California, County

of San Francisco, Case No. 997850 (class action); San Mateo

County Public Guardian v. Transamerica HomeFirst, Inc., Superior

Court of California, County of San Mateo, Case No. 405495

(class action); Walker v. Transamerica Corporation, Superior Court

of California, County of San Mateo, Case No. 406465 (class

action). Petitioner Financial Freedom is the successor by merger

to Transamerica HomeFirst, Inc., which was the lender in the

DeLuca, Ebersole, Head, Public Guardian and Walker cases.

Petitioners Financial Freedom, ULLICO, MRCo, and Union

Labor Life are defendants in the Ford and Gentle cases.

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

The Supremacy Clause of the United States Constitu-

tion, Article VI, Clause 2, states in pertinent part:

“This Constitution, and the laws of the United

States which shall be made in pursuance there-

of... shall be the supreme law of the land. ... ”

--The Alternative Mortgage Transaction Parity Act of 1982

(12 U.S.C. § 3803(c)) states:

regulations

An alternative mortgage transaction may be

made by a housing creditor in accordance with

this section, notwithstanding any State constitu-

tion, law, or regulation.

STATEMENT

Reverse and shared appreciation mortgages enable

senior citizens to raise needed cash by pledging the

equity of their homes, while permitting their continued

occupancy without any interim repayments. The lender

of a reverse mortgage disburses the loan proceeds to or

for the borrower, and the loan is secured by a deed of

trust on the property. Some or all of the loan proceeds -

may be placed in an annuity which guarantees a stream

of monthly income payments for the borrower’s lifetime,

even after the loan has matured and been repaid. The

loan matures upon the death of the borrower or when the

borrower sells or vacates the property. A shared apprecia-

tion reverse mortgage operates the same way as any

other reverse mortgage, except that the borrower agrees

to repay the loan plus a percentage of any appreciation of

the property. This shared appreciation feature increases

the amount of money available to the borrower at the

outset of the loan.

The Underlying Transaction

Respondent Corinne E. Black (“Respondent”), and

her late husband, Charles T. Black, were senior citizen

homeowners. On March 28, 1994, Respondent and her

late husband entered into a shared appreciation reverse

mortgage with Freedom Investment Fund, Inc. The loan

was based on their home’s 1994 appraised value of

$1,060,000.00. The reverse mortgage converted 70.75% of

the appraised value to cash, which discounted at 3.75%

per year for the Blacks’ joint life expectancy, resulted in a

loan principal of $305,455. At maturity, the Blacks were

obligated to pay a 7% maturity fee plus 70.75% of 93% of

the then current value of the property. Thus, the effective

interest rate would depend on the rate of appreciation of

the home and the Blacks’ actual life span. Part of the

proceeds was deposited in an annuity issued by Union

Labor Life. The annuity paid immediate and continuing

benefits for the life of either borrower. The mortgage has

not been satisfied; no repayment is required as long as

either borrower occupies the home.

The loan documents and multiple disclosures

received by the Blacks prior to closing provided full

disclosure of all material aspects of the transaction. In

addition, the Blacks acknowledged in writing they con-

sulted their attorney and their accountant regarding the

terms of the reverse mortgage prior to entering into the

transaction.

The Parity Act

In the late 1970s and early 1980s, the United States

experienced an “alarming deterioration” in its home

mortgage lending markets. See National Home Equity

‘Mortgage Ass'n v. Face, 239 F.3d 633, 635 (4th Cir.), cert.

denied, ___ U.S. __, 122 S. Ct. 58 (2001). In enacting the

Garn-St. Germain Depository Institutions Act of 1982,

Congress found that this crisis was due to “increasingly

volatile and dynamic changes in interest rates [that had]

seriously impaired the ability of housing creditors to

provide consumers with fixed-term, fixed-rate credit

secured by interests in real Property.” 12 U.S.C.

§ 3801(a)(1). Congress passed Garn-St. Germain “to revi-

talize the housing industry by strengthening the financial

stability of home mortgage lending institutions and

ensuring the availability of home mortgage loans.” Pub.

L. No. 97-320, 96 Stat. 1469 (1982).

The Alternative Mortgage Transaction Parity Act of

1982 (“Parity Act”)2 was Title VIII of Garn-St. Germain.

Alternative mortgage transactions generally include any-

thing other than conventional fixed term, fixed rate mort-

gage loans. 12 U.S.C. § 3802(1). Congress enacted the

Parity Act to enable state-chartered lenders to compete

on an equal footing with federally chartered lenders in

212 U.S.C. §§ 3801 et seq.

the alternative mortgage markets.? 12 U.S.C. § 3801(b).

Congress’ stated goal was to establish “parity” - a “level

playing field” - between federally chartered and state-

chartered market participants. Id.

Prior to the Parity Act, federally chartered home

mortgage lenders enjoyed a competitive advantage over

their state-chartered rivals because federally chartered

lenders were governed by uniform federal regulations

under the Home Owners’ Loan Act (12 U.S.C. §§ 1461 et

seq.) (“HOLA”), while state-chartered lenders were sub-

ject to fifty different sets of state laws. HOLA established

the Federal Home Loan Bank Board (the “Board”),

replaced in 1989 by the Office of Thrift Supervision

(“OTS”),4 and vested it with plenary authority to imple-

ment and administer HOLA.° 12 U.S.C. §§ 1462a-1464.

Since this Court’s decision in Fidelity Fed. Sav. & Loan

Ass'n v. de la Cuesta, 458 U.S. 141 (1982), it has been

settled that HOLA and the regulations promulgated

3 Four years earlier, in 1978, the Federal Home Loan Bank

Board had authorized federal savings associations to use three

new “alternative” mortgage instruments: the variable rate

mortgage, the graduated payment mortgage, and the reverse

annuity mortgage. 43 Fed. Reg. 49,336 (1978); 44 Fed. Reg.

32,199 (1979).

4 This occurred in 1989 when Congress passed the Financial

Institutions Reform, Recovery, and Enforcement Act. 12 U.S.C.

§§ 1462a-1464.

5 Section 5(a) of the HOLA empowers the Board, “under

such rules and regulations as it may prescribe, to provide for the

organization, incorporation, examination, operation, and

regulation of associations to be known as ‘Federal Savings and

Loan Associations.’ ” De la Cuesta, 458 U.S. at 161 (citing 12

U.S.C. § 1464(a) (1976 ed., Supp. IV)).

thereunder by the Board, and later by the OTS, preempt

state regulation of the operations of federally chartered

mortgage lenders, and insulate them against state law

claims concerning their lending practices. Id. at 159-167:

Federal Sav. & Loan Ins. Corp. v. Kidwell, 716 F. Supp. 1315,

1317 (N.D. Cal. 1989) (state law claims for negligence and

waste preempted), vacated on other grounds sub nom.

Eureka Fed. and Sav. Ass‘n v. Kidwell, 937 F.2d 612 (9th Cir.

1991); Washington Mutual Bank, FA v. Superior Court, 95

Cal. App. 4th 606, 621, 115 Cal. Rptr. 2d 765, 776 (2002)

(state law claims preempted under HOLA and regula-

tions thereunder).

In the Parity Act, Congress ended the differential

regulatory treatment which placed state-chartered

lenders at a disadvantage in competing with federally

chartered lenders for alternative mortgages. Congress

declared that the Parity Act would henceforth “prevent

discrimination against State-chartered depository institu-

tions, and other nonfederally chartered housing creditors,

with respect to making, purchasing and enforcing alter-

native mortgage transactions.” 12 U.S.C. § 3803(a). By

“authoriz[ing] non-federally chartered housing creditors

to offer alternative mortgages in accordance with the

Federal regulations issued by the appropriate Federal

regulatory agencies” (12 U.S.C. §§ 3801(a)(3), 3801(b)),

Congress sought to “eliminate the discriminatory impact”

of a scheme where federally chartered lenders were

required to comply with only one set of laws to do

business in all fifty states, whereas state-regulated

lenders must comply with the disparate laws of each state

in which they sought to do business. S. Conr. Rep. No.

97-641, at 94 (1982). “Thus, those creditors will have

parity with federally chartered institutions.” Id.; see also

Shinn v. Encore Mortgage Services, Inc., 96 F. Supp. 2d 419,

422 (D.N.J. 2000) (“The Parity Act was passed to level the

playing field.”).

The “practical effect” of the Parity Act was “to permit

a non-federally chartered housing creditor to make a loan

either under state law, in which case the loan transaction

remains subject to the full range of state regulations, or

under federal law, in which case the loan transaction

becomes subject to federal regulations governing similar

loans by federally chartered lending institutions.” Face,

239 F.3d at 635-636. A state-chartered lender could thus

choose to issue its loans under the existing state law

framework, or it could opt to have its loans governed

instead by federal law “by affirmatively complying with

substantive federal regulations identified by [the Office

of Thrift Supervision].” Id. at 636. “In return for exercis-

ing this option, the non-federally chartered housing cred-

itor [was] promised parity with federally chartered

lenders.” Id. (citing 12 U.S.C. § 3803). In particular, the

Parity Act states:

regulations

An alternative mortgage transaction may be

made by a housing creditor in accordance with

this section, notwithstanding any State constitu-

tion, law, or regulation.

12 U.S.C. § 3803(c). Respondent’s lenders elected to com-

ply with, and be governed by, federal law.

Congress did not force the states to accept the Parity

Act. Congress afforded each state the opportunity to opt out

of federal preemption by enacting or adopting legislation

that the state “does not want the preemption provided in

[12 U.S.C. § 3803(c)] to apply with respect to alternative

mortgage transactions (or to any class or type of alterna-

tive mortgage transaction) subject to the laws of such

State.” 12 U.S.C. § 3804. “Simply stated, Congress gave

the states a choice - the states could choose to be regu-

lated by the federal regime under the Parity Act, or the

States could choose to opt out of the preemption provi-_

sion of the Parity Act and continue the state’s own reg-

ime.” National Home Equity Mortgage Ass'n v. Face, 64

F. Supp. 2d 584, 588 (E.D. Va. 1999).

California chose not to opt out. As a result, Califor-

nia’s state-chartered housing lenders were given the

option to make, purchase, and enforce their alternative

mortgage transactions either pursuant to state law and

regulations or pursuant to federal regulations designated

for that purpose. In the latter case, the loans could be

made “notwithstanding any State constitution, law, or

regulation.” 12 U.S.C. § 3803(c).

Proceedings Below

The late Charles T. Black and Respondent Corinne E.

Black, as Trustees of the Charles T. Black and Corinne E.

Black Trust, filed a class action against Petitioners and

Respondent James R. Mahoney asserting state law claims

that the reverse mortgages, which are in full compliance

with the Parity Act and the relevant Office of Thrift

Supervision regulations, are “misleading and unconscion-

able agreements” (Complaint {J 40-45), with terms that

charge “unconscionable ‘interest’ charges” in “misleading

loan documents” (Complaint {J 46-61), and levy “unfair

‘loan origination fees’ ” and “unfair ‘large cash advance

fees’ ” (Complaint {J 62-73). These allegations, styled as

causes of action for elder abuse, violation of Unfair Busi-

ness Practices Act, violation of Consumer Legal Remedies

Act, breach of fiduciary duty, fraud - concealment, and

fraud — negligent misrepresentation, are state law claims

that would render unlawful a transaction that would not

be subject to such a suit if executed by a federally char-

tered alternative mortgage lender. _

After discovery, Petitioners and Respondent james R.

Mahoney moved for summary judgment on the grounds

that all of Respondent’s state law claims are preempted

by the Parity Act. The trial court granted the motion,

dismissing all of the claims, and ruling that “the subject

matter of this action [is] preempted by Federal Law.”

Appendix B and C. The California Court of Appeal

reversed, holding that the Parity Act preempted none of the

Blacks’ state law claims. Appendix A. The California

Supreme Court denied a petition for discretionary review.

Appendix D.

REASONS FOR GRANTING THE PETITION

As this Court explained in Fidelity Fed. Sav. & Loan

Ass'n v. de la Cuesta, 458 U.S. 141 (1982), pursuant to

HOLA, the Board - now the OTS - has promulgated

regulations governing “the powers and operations of

every Federal savings and loan association from its cradle

to its corporate grave.” Id. at 145. Indeed, the OTS has

declared that:

To enhance safety and soundness and to enable

federal savings associations to conduct their

operations in accordance with best practices (by

efficiently delivering low-cost credit to the pub-

lic free from undue regulatory duplication and

burden), OTS hereby occupies the entire field of

lending regulation for federal Savings associa-

tions.

12 C.ER. § 560.2. Thus, state lending regulation of federal

Savings associations is preempted by the OTS. Id.

The Parity Act was designed to place state-chartered

alternative mortgage lenders on equal footing with fed-

eral savings associations. But the state court has denied

the Petitioners parity with federal alternative mortgage

lenders by holding that state law challenges to the

reverse mortgage transactions are not preempted. The

rationale of the decision is directly contrary to the deci-

sions of other courts that have addressed the scope of

preemption under the Parity Act. Moreover, numerous

actions similarly asserting state law challenges to alterna-

tive mortgages are currently pending against Petitioners

and other state-chartered alternative mortgage lenders.

(See footnote 1 supra.) This Court should act now to

prevent further erosion of the scope of preemption of

State law claims against alternative mortgage lenders.

I. THE PREEMPTION CLAUSE OF THE PARITY ACT

MANDATES DISMISSAL OF RESPONDENT'S

STATE LAW CLAIMS

This Court has explained that preemption may be

either express or implied; preemption “ ‘is compelled

whether Congress’ command is explicitly stated in the

statute's language or implicitly contained in its structure

and purpose.’ ” De la Cuesta, 458 U.S. at 152-153 (quoting

Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977)). Express

preemption occurs when Congress displaces state law

“by so stating in express terms.” Pacific Gas & Elec. Co. v.

State Energy Resources Conservation & Dev. Comm'n, 461

U.S. 190, 203 (1983). Implied preemption occurs when

“(t]he scheme of federal regulation [is] so pervasive as to

make reasonable the inference that Congress left no room

for the States to supplement it,” when “the Act of Con-

gress [touches] a field in which the federal interest is so

dominant that the federal system will be assumed to

preclude enforcement of state laws on the same subject,”

or when “the object sought to be obtained by the federal

law and the character of obligations imposed by it

[reveals] the same purpose.” Rice v. Santa Fe Elevator

Corp., 331 U.S. 218, 230 (1947); see also de la Cuesta, 458

U.S. at 153.

Even where Congress has not occupied the field,

however, state law is nevertheless preempted when it

actually conflicts with federal law (Florida Lime & Avocado

Growers, Inc. v. Paul, 373 U.S. 132, 141-143 (1963)), or

when it “stands as an obstacle to the accomplishment and

execution of the full purposes and objectives of Con-

gress” (Hines v. Davidowitz, 312 U.S. 52, 67 (1941)).

The starting point of any preemption analysis is to

ascertain Congress’ intent: “Did Congress, in enacting the

Federal Statute, intend to exercise its constitutionally del-

egated authority to set aside the laws of a State? If so, the

Supremacy Clause requires courts to follow federal, not

state, law.” Barnett Bank of Marion County, N.A. v. Nelson,

517 U.S. 25, 30 (1996). The best evidence of the intent of

Congress is the language of the statute. “[WJe [ ] begin

with the language employed by Congress and the

assumption that the ordinary meaning of that language

accurately expresses the legislative purpose.” Morales v.

Trans World Airlines, Inc., 504 U.S. 374, 383 (1992) (internal

quotations and citations omitted).

Congress expressly stated its purpose in section

802(b) of Garn-St. Germain (12 U.S.C. § 3801(b)):

It is the purpose of this chapter to eliminate the

discriminatory impact that those [federal] regu-

lations [authorizing federal lenders to make

alternative mortgages] have upon nonfederally

chartered housing creditors and provide them

with parity with federally chartered institutions

by authorizing all housing creditors to make,

purchase, and enforce alternative mortgage

transactions so long as the transactions are in

conformity with the regulations issued by the

Federal agencies.

Under section 802(b), Congress did not, as the Court

of Appeal concluded, merely authorize state housing

creditors to make alternative mortgages; rather, Congress

sought to subject “all” housing creditors to uniform fed-

eral regulations. Congress expressly sought “to eliminate

the discriminatory impact” on state-chartered lenders

who were subject to fifty different sets of laws if they

sought to do business nationwide, compared to federal

lenders who were subject to uniform federal regulations

nationwide sy “authorizing all housing creditors to

make, purchase, and enforce alternative mortgage trans-

actions so long as the transactions are in conformity with

the regulations issued by the Federal agencies,” Congress

demonstrated its intent to preempt not only state laws

that prohibit alternative mortgage transactions, but also

those that impede them. See Shinn, 96 F. Supp. 2d at

423-424 (rejecting the argument that the Parity Act was

meant to preempt only those state laws which prohibit

alternative mortgages).

Furthermore, nothing in the Congressional statement

of purpose suggests any intention merely to supplement

state regulation. Section 804(a) of Garn-St. Germain (12

U.S.C. § 3803(a)), provides that:

In order to prevent discrimination against State-

chartered depository institutions, and other

nonfederally chartered housing creditors, with

respect to making, purchasing, and enforcing

alternative mortgage transactions, housing cred-

itors may make, purchase, and enforce alterna-

tive mortgage transactions, except that this

section shall apply -

* * *

(3) with respect to all other housing creditors,

including without limitation, savings and loan

associations, mutual savings banks, and savings

banks, only to transactions made in accordance

with regulations governing alternative mortgage

transactions as issued by the Director of the

Office of Thrift Supervision for federally char-

tered savings and loan associations, to the

extent that such regulations are authorized by

rulemaking authority granted to the Director of

the Office of Thrift Supervision with regard to

federally chartered savings and loan associa-

tions under laws other than this section.

Thus, these provisions reiterate that the purpose of the

Parity Act is “to prevent discrimination against State-

chartered depository institutions, and other nonfederally

A AAV OTOL DED IN DN Nh AAO hE ECL ELE Ni intr Hat hikes esha ato BSE:

out.

roan

chartered housing creditors.” Id. In order to prevent dis-

crimination, the same regulations which apply to feder-

ally chartered savings and loan associations should apply

to state-chartered housing creditors. Id.

Section 804(c) of Garn-St. Germain (12 U.S.C.

§ 3803(c)) leaves no doubt that state law is preempted as

to any qualifying transaction:

regulations

An alternative mortgage transaction may be

made by a housing creditor in accordance with

this section, notwithstanding any State constitu-

tion, law, or regulation.

The use of the word “any” evinces an intention to pre-

empt state law completely. The broad language utilized

by Congress does not qualify or limit the breadth of

preemption only to conflicting constitutions, laws or reg-

ulations. There is simply no ambiguity in the terms of the

Statute: a transaction may be made in accordance with

section 804, “notwithstanding any State constitution, law,

or regulation.”

Time-honored principles of statutory interpretation

dictate that the unequivocal meaning of section 804(c)

should have been enforced by the California courts. As

this Court has explained:

[I]n interpreting a statute a court should always

turn first to one, cardinal canon before all

others. We have stated time and again that

courts must presume that a legislature Says ina

statute what it means and means in a statute

what it says there. When the words of a statute

are unambiguous, then, this first canon is also

the last: “judicial inquiry is complete.”

Connecticut Nat'l Bank v. Germain, 503 U.S. 249, 253-54

(1992) (citations omitted).

Moreover, it is well-settled that “all parts of a statute,

if possible, are to be given effect.” De la Cuesta, 458 U.S. at

163. Under the Supremacy Clause, conflict preemption

applies without any express congressional enactment.

Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132,

142-143 (1963) (“A holding of federal exclusion of state

law is inescapable and requires no inquiry into congres-

sional design where compliance with both federal [regu-

lations and state tort law] is a physical impossibility

... ”). Thus, interpreting section 804(c) as adopting only

conflict preemption renders the section superfluous and

unnecessary. Such an interpretation should be rejected,

especially given the plain language of the statute itself.

See de la Cuesta, 458 U.S. at 163 (counseling against an

interpretation of HOLA which would render certain pro-

visions nugatory).

It is also apparent that imposing a dual regime of

state and federal law would “stand| ] as an obstacle to the

accomplishment and execution of the full purposes and

objectives of Congress.” Hines, 312 U.S. at 67. As

explained above, the congressional purpose behind the

Parity Act was to invite state-chartered lenders into the

alternative mortgage markets by guaranteeing them a

“level playing field” with federally chartered lenders

already operating in those markets. By eliminating the

Act’s preemption protections for state-chartered lenders

and resurrecting the full panoply of state law claims that

may be asserted against them, the California Court of

Appeal defeated that Purpose.

If. THE CALIFORNIA COURT OF APPEAL MISIN-

TERPRETED THE PREEMPTION CLAUSE SO AS

TO THWART THE PURPOSE OF THE PARITY

ACT .

In order to conclude that the Parity Act preempts

State laws only to the extent it conflicts with the regula-

tions designated by the OTS, the California Court of

Appeal labored to find an ambiguity in the clear language

in 12 U.S.C. § 3803(c), reasoning that the words “notwith-

standing any State constitution, law or regulation” are

susceptible to two interpretations. Appendix A, at App.

17. The first interpretation - the correct one — is that the

Parity Act was intended to preempt all state law. The

second interpretation is that:

the phrase “any state constitution, law or regu-

lation” can be interpreted as implicitly limited

to those [state laws and regulations] that pro-

hibit or impede alternative mortgage transac-

tions or that conflict with federal regulations

deemed applicable to non-federally chartered

housing creditors.

Appendix A, at App. 17 (emphasts in original).

However, there is no textual support in the language

of section 3803(c) for the “implicit” limitation imposed by

the Court of Appeal. Indeed, the Court of Appeal recog-

nized that Congress’ use of the term “any” to modify the

phrase “state constitution, law or regulation” expresses

the intention that all such laws would be preempted. The

Court of Appeal never explained why it chose to disre-

gard the words Congress used so far as to create an

“implicit” limitation not found in these statutes. The

appellate court found that an implicit adoption of conflict

preemption “would leave broad room for state regulation

because there are only four federal regulations with

which the transactions of housing creditors must com-

ply.” Appendix A, at App. 17. This interpretation would

defeat the intention of Congress to level the playing field

between state and federal lenders. Since the OTS has not

adopted a reverse mortgage regulation applicable to

either state or federal lenders, this crabbed interpretation

of the Preemption Clause would grant a free hand to

California to regulate reverse mortgages made by state-

chartered housing creditors, while federal lenders could

make the same loans without similar restrictions.

The Court of Appeal relied on the last paragraph of

section 3802, which disqualifies a housing creditor from

Parity Act protection unless it holds any state license

otherwise necessary for the transaction and is subject to

“applicable regulatory requirements and enforcement

mechanisms provided by State law.” This, the Court said,

indicated that Congress intended conflict preemption

only.

The Court of Appeal overlooked “[t]he ‘strong pre-

sumption’ that the plain language of the statute expresses

congressional intent is rebutted only in ‘rare and excep-

tional circumstances,’ when a contrary legislative intent

is clearly expressed.” Ardestani v. I.N.S., 502 U.S. 129,

135-136 (1991) (citation omitted). This conclusion is espe-

cially unwarranted in the face of the express and broad

preemption of section 3803(c) and the absence of any

PLM A eats Teh IY Seder anal oy LOE

A ants The 988 ahd ROI TE Nitta LAE ten

statement, such as Congress has used before, preserving

non-conflicting state laws. See 12 U.S.C. § 484 (preserving

state unclaimed property and escheat laws); 12 U.S.C.

§ 1831x(g)(2)(B) (laws providing greater consumer protec-

tion not preempted); 24 C.RR. § 3500.21(h) (specified

State laws not preempted).

A sounder conclusion is that Congress intended to

require state housing creditors to have licenses and meet

applicable licensing standards, but not to permit states,

via the licensing power, to re-regulate alternative mort-

gage lending and thwart the intentions of Congress. This

would be impermissible because the licensing scheme

would stand “as an obstacle to the accomplishment and

execution of the full purposes and objectives of Con-

gress.” See Hines, 312 U.S. at 67.

This Court has often repeated that courts should

refrain from looking beyond the literal meaning of the

statute, unless “a literal interpretation would create an

absurd result.” Crooks v. Harrelson, 282 U.S. 55, 59-60

(1930). “[T]his principle is to be applied to override the

literal terms of a statute only under rare and exceptional

circumstances. ...” Id. “[T]o justify a departure from the

letter of the law upon that ground, the absurdity must be

SO gross as to shock the general moral or common sense.”

Id. at 60. In this case, the literal meaning of this statute

does not lead to an absurd result. On the contrary, it is

completely consistent with the announced intention of

Congress to level the playing field.

The Court of Appeal concluded that section 3803(c)

of the Parity Act was limited to conflicts with the regula-

tions set forth in 12 C.F.R. § 560.220. But nothing in

section 560.220 contradicts the broad preemption of sec-

tion 3803(c). On the contrary, section 560.220 reiterates

the proposition that any housing creditor that complies

with the designated regulations will secure the preemp-

tive benefits of the Parity Act:

Pursuant to 12 U.S.C. 3803, housing creditors

that are not commercial banks, credit unions, or

Federal savings associations may make alterna-

tive mortgage transactions as defined by that

section and further defined and described by

applicable regulations identified in this section,

notwithstanding any state constitution, law, or

regulation. In accordance with section 807(b) of

Public Law 97-320, 12 U.S.C. 3801 note,

§§ 560.33, 560.34, 560.35, and 560.210 of this part

are identified as appropriate and applicable to

the exercise of this authority and all regulations

not so identified are deemed inappropriate and

inapplicable. .. .

12 C.F.R. § 560.220. Thus, section 560.220 repeats the

language in section 3803(c): that state-chartered alterna-

tive mortgage lenders may make alternative mortgage

transactions notwithstanding any state constitution, law,

or regulation.

The Court of Appeal also erred in relying on a 1997

interpretive letter from the OTS. Appendix A, note 14, at

App. 24. The Court relied on this letter for the proposi-

tion that Congress could not have intended the Parity. Act

to preempt all state laws, since the OTS used the adjec-

tives “conflicting” and “inconsistent” in analyzing the

preemptive effect of the Parity Act. But in this interpre-

tive letter, the OTS did nothing more than identify restric-

tions which are preempted by the Parity Act. The OTS did

not state or even suggest that the Parity Act is limited to

conflict preemption or that other state laws and regula-

tions that are not conflicting or inconsistent with the

Parity Act are not preempted.

Even assuming the OTS did construe the Parity Act

to provide for only conflict preemption, the interpretive

letter would be entitled to little deference because it was

not arrived at after formal adjudication (Reno v. Koray,

515 U.S. 50, 61 (1995); Christensen v. Harris County, 529

U.S. 576, 587 (2000); Skidmore v. Swift & Co., 323 U.S. 134,

140 (1944)), and because it was not “based on a permiss-

ible construction of the statute” (Chevron, U.S.A., Inc. v.

Natural Resources Defense Council, Inc., 467 U.S. 837, 843

(1984)). Broad preemption is consistent with the stated

objectives of Congress in enacting the Parity Act. The

Parity Act was designed to ensure that borrowers -

including elderly homeowners on fixed incomes — have

available to them alternative avenues for mortgage

finance:

The Parity Act represents a congressional

response to a concern, amongst others, that State

bans on mortgages other than traditional fixed-

rate mortgages would reduce the overall avail-

ability of mortgage credit, since fixed-rate mort-

gages had become relatively more expensive as

the result of increased interest-rate vol-

atility. .. . These concerns prompted Congress to

authorize State-chartered housing lenders . . . to

enter into alternative mortgage transactions.

Grunbeck v. Dime Savings Bank of New York, 74 F.3d 331,

343 (1996) (emphasis in original). As such, the Parity Act

was an enabling statute by which Congress permitted

qualified housing creditors to escape from disparate and

inconsistent state regulation and gave individuals the

ability to take advantage of the equity in their homes. The

Parity Act was intended to place state-chartered housing

creditors on a level playing field as their federal counter-

parts. In keeping with this goal, the Parity Act enacted

broad preemption of state law, equivalent to the preemp-

tion enjoyed by their federal counterparts.® To the extent

the OTS letter suggests that state law governs all aspects

of a housing creditor’s operations that are not specifically

addressed by OTS regulations, this interpretation would

defeat the purpose of Congress. As such, it would have to

be rejected.

“The interpretation put on the statute by the

agency charged with administering it is entitled

to deference, but the courts are the final authori-

ties on issues of statutory construction. They

must reject administrative constructions of the

statute, whether reached by adjudication or by

rule-making, that are inconsistent with the stat-

utory mandate or that frustrate the policy that

Congress sought to implement.” >

F.E.C. v. Democratic Senatorial Campaign Comm., 454 U.S.

27, 31-32 (1981) (citations omitted).

6 HOLA expressly preempts all state laws concerning

federal mortgage lenders. See de la Cuesta, 458 U.S. at 162-163.

Having wrongly construed the Parity Act as not preemptive of

the state laws at issue, the Court of Appeal failed to apply

HOLA to determine whether the reverse mortgage terms at

issue in this action were also preempted under HOLA. Had the

Court done so, it would have reached the inescapable

conclusion that the lending transaction at issue in this litigation

falls squarely in the purview of both HOLA and its regulations.

Similarly, the Court of Appeal erroneously relied on

an OTS advance notice of proposed rule-making. Appen-

dix A, at App. 24. In this notice, the OTS opined that

“(t]he limited role the Parity Act plays in the overall

regulation of housing creditors has not always been

clearly understood.” Id. However, this OTS notice

deserves no deference as it was not a final rule-making or

adjudicative action and it frustrates the policy that Con-

gress sought to implement. See Reno, 515 U.S. at 61; F.E.C.,

454 U.S. at 31-32.

The Court of Appeal erroneously expressed concern

that if the section 3803(c) were construed according to its

manifest meaning, then the conduct complained of by

Respondent would go unregulated. There are multiple

reasons why such a view is short-sighted. First, and most

obvious, there is no federal reverse mortgage regulation

governing either federal lenders or state housing credi-

tors. Thus, it appears that the OTS has wisely chosen to

monitor the development of this fledgling industry,

rather than stifling it with heavy-handed litigation and

class action damage suits.

Second, Congress and the Federal Reserve Board

have already enacted numerous statutes and regulations

affecting mortgage lending generally. For example, Con-

gress and the Federal Reserve Board have adopted com-

prehensive cost disclosure mechanisms which cover

reverse mortgages, namely, the Truth in Lending Act (15

U.S.C. §§ 1601 et seq.), and “Regulation Z”(12 C.FR. Pt.

226). Appendix K to Regulation Z is designed for the

special circumstances of a reverse mortgage. 12 C.FR. Pt.

226, App. K.

Third, HOLA, the primary source of regulation of the

mortgage lending industry, is fully available for regula-

tion of housing creditors under the express terms of the

Parity Act. Under HOLA, Congress delegated broad

powers to the Board — now the OTS - to issue rules and

regulations concerning lending practices of federal sav-

ings and loan associations and to enforce them. See de la

Cuesta, 458 U.S. at 160-161; Reich v. Webb, 336 F.2d 153, 158

(9th Cir. 1964). Section 5(a) of HOLA provides that:

the [Board] is authorized, under such rules and

regulations as [it] may prescribe -

(1) to provide for the organization, incorpora-

tion, examination, operation, and regulation of

associations to be known as Federal savings

associations (including Federal savings

banks)...

12 U.S.C. § 1464(a)(1) (emphasis added). HOLA expresses

“no limits on the [OTS’] authority to regulate the lending

practices of federal savings and loans” such that it

“would have been difficult for Congress to give the [OTS]

a broader mandate.” De la Cuesta, 458 U.S. at 161.

The OTS’ broad powers under HOLA include

enforcement powers. The OTS may issue cease and desist

orders and bring an action in federal court for civil penal-

ties and damages. It may also seek remedies not provided

in HOLA. Beverly Hills Fed. Sav. & Loan Ass‘n v. Federal

Home Loan Bank Bd., 371 F. Supp. 306, 313 (1973). If the

remedy sought by the OTS is within the general enforce-

ment powers contemplated by the statute, then the OTS

has broad power in fashioning the appropriate relief. Id.

The OTS may also bring a complaint against a mortgage

lender based in federal common law. See Reich, 336 F.2d at

158. Moreover, in keeping with the principle of exclu-

sivity of federal regulation over federally chartered sav-

ings and loan associations, the OTS may adopt or impose

standards derived from state or general common law

principles to effectuate policies implicit in the Act. Beverly

Hills, 371 F. Supp. at 313. This plenary regulatory author-

ity - which is extended to state-chartered housing credi-

tors by the Parity Act - is hardly an “anything goes”

environment where improper conduct of state-chartered

lenders would go unchecked.

Any failure by the OTS to designate other regulations

in Part 560 of Title 12 as applicable to housing creditors is

ultimately immaterial because the conduct complained of

in this lawsuit falls within the regulatory ambit of the

four designated regulations. The four regulations cover

late charges (12 C.F.R. § 560.33), prepayments (12 C.F.R.

§ 560.34), adjustments to home loans (12 C.F.R. § 560.35)

and disclosures for variable rate interest transactions (12

C.F.R. § 560.210). See 12 C.F.R. § 560.220. Respondent

complains that Petitioners, among other things, allegedly

withheld key disclosures, concealed the debt-to-value

ratio and misrepresented facts concerning prepayment

charges, the applicable interest rate, calculations of the

lending value, and various elements of the shared appre-

ciation feature of their reverse mortgage. To the extent

the OTS has seen fit to regulate, Petitioners are in full

compliance. The remaining OTS regulations - too

numerous to list individually - cover areas such as pass

through investments, de minimis investments, commercial

paper and corporate debt securities, suretyship and guar-

anty, inter alia, and do not have any relevance to the

alleged conduct. The OTS has not regulated reverse mort-

gages for any lender, state or federal, but retains the

power to designate additional regulations in section

560.220. It may not be said that the lending activities of

state-chartered housing creditors would go unchecked

simply because so far only four regulations under HOLA

have been designated applicable.

Ill. THE CALIFORNIA COURT OF APPEAL’S INTER-

PRETATION OF THE PREEMPTION CLAUSE IS

DIRECTLY CONTRARY TO EVERY FEDERAL

COURT DECISION THAT HAS ADDRESSED

THE PREEMPTION ISSUE

In a reprise of the similar holding by another Califor-

nia Court of Appeal which this Court overruled in de la

Cuesta,” the California Court of Appeal refused to follow

the reasoning of National Home Equity Mortgage Ass‘n v.

Face, 239 F.3d 633 (4th Cir.), cert. denied, ___ U.S. ___, 122

S. Ct. 58 (2001).

7 In de la Cuesta, this Court held that a California law which

restricted the use of due-on-sale clauses was preempted by

HOLA, reversing the decision of the California Court of Appeal

(De la Cuesta v. Fidelity Fed. Sav. & Loan Ass‘n, 121 Cal. App. 3d

328, 175 Cal. Rptr. 467 (1981)), which was based on the Court of

Appeal’s decision in Panko v. Pan American Fed. Sav. & Loan

Ass‘n, 119 Cal. App. 3d 916, 174 Cal. Rptr. 240 (1981). Panko held

that HOLA and its implementing regulations did not preempt

the California common law prohibition against due-on-sale

clauses in mortgage loan contracts issued by federally chartered

savings and loan associations. To the extent this Court rejected

the reasoning behind the Court of Appeal’s decision in de la

Cuesta, this Court also overruled Panko by implication.

In Face, a trade association of state-chartered lenders

sued to enjoin the offering of alternative mortgage loans.

Id. at 635. The District Court and the Fourth Circuit both

held that the Parity Act preempted the application of the

Virginia law. Virginia argued in Face that the Parity Act’s

preemptive effect upon state law was only partial because

section 807(b) of the Parity Act® directed the Controller of

the Currency, the National Credit Union Administration,

and the Federal Home Loan Bank Board to “identify,

describe, and publish those portions or provisions of

their respective regulations that are inappropriate for

(and thus inapplicable to), or that need to be conformed

for the use of, the non-federally chartered housing credi-

tors to which their respective regulations apply.” Face,

239 F.3d at 639-640; Pub. L. No. 97-320, § 807(b) (1982), 96

Stat. 1545. The Board did so in 12 C.F.R § 545.33 and the

OTS later followed suit in 12 C.FR. § 560.220. Virginia

argued that because the OTS had identified only these

four regulations as applicable to state-chartered lenders,

state law should be preempted only to the extent it actu-

ally conflicted with one of them. Face, 239 F.3d at 639-640.

This is exactly the conclusion reached by the California

Court of Appeal. Virginia went on to assert that, since the

Board’s original response to section 807(b) had not identi-

fied 12 C.F.R. § 560.34 concerning prepayment penalties

as an applicable regulation, state law concerning prepay-

ment penalties had not been preempted.

The Fourth Circuit disagreed. First, the Court noted

that the prepayment regulation is now deemed applicable

(12 C.F.R. § 560.220) and that:

8 The language of Section 807(b) now appears as a note

under 12 U.S.C. § 3801.

Second, Virginia can derive little benefit from

the original omission. Section 807(b) is not a

provision that defines the scope of federal pre-

emption. Rather, it defines the gate through

which the non-federally chartered housing cred-

itors must pass in order to obtain the benefits of

the Parity Act. If a state lender conforms to the

regulations listed in the regulation implement-

ing 807(b), then it will enjoy the preemptive

protection that the Act grants in 12 U.S.C.

§ 3803(c). Accordingiy, the implementation of

§ 807(b) provides Virginia with little support.

Id. at 639-640.

The Court of Appeal acknowledged the reasoning of

Face, but declined to follow it because it appeared that

Face could have been resolved on conflict preemption

grounds. However, by refusing to view the list of regula-

tions designated by the OTS as defining the scope of

preemption, the Fourth Circuit necessarily rejected con-

flict preemption as the proper office of section 804(c).

The Court of Appeal also rejected Shinn v. Encore

Mortgage Serv., 96 F. Supp. 2d 419 (D.N.J. 2000), because it

believed that this case could also be explained on conflict

preemption principles. In Shinn, the New Jersey Court

held that the Parity Act preempted state regulation of

prepayment penalties. Id. at 423-424. The plaintiffs

- argued that the Parity Act was meant to preempt only

those state laws which prohibit alternative mortgages. Id.

at 425. The District Court rejected this narrow interpreta-

tion of the Parity Act as inconsistent with its purpose to

create parity between state and federal lenders.

The language of this section does not support

plaintiffs’ narrow interpretation of the statute’s

preemptive effect. Nor does the Court agree that

the sole purpose of the Act is to enable state

lenders to engage in AMTs. A paramount pur-

pose of the Act is create parity between state

and federal lenders who engage in AMTs.

Id.

Finally, the Court of Appeal gave no weight to First

Gibraltar Bank, FSB v. Morales, 19 F.3d 1032 (5th Cir. 1994),

because it was vacated on other grounds, 42 F.3d 895 (5th

Cir. 1995). Although a vacated decision has no preceden-

tial effect, O'Connor v. Donaldson, 422 U.S. 563, 578 n. 12

(1975), it still constitutes persuasive authority where the

vacatur did not undermine the reasoning supporting its

holding. United States Dept. of Health & Human Serv. v.

FLRA, 983 F.2d 578, 581-82 (4th Cir. 1992); Acosta v. Master

Maintenance & Constr., Inc., 52 F. Supp. 2d 699, 706 (M.D.

La.1999). First Gibraltar remains persuasive authority

because the vacatur was based on a statutory amendment,

not on any flaw in its reasoning (see First Gibraltar, 42 F.3d

895).

In First Gibraltar, the Fifth Circuit found Parity Act

preemption in the absence of a conflicting designated

OTS regulation. First -Gibraltar, 19 F.3d 1032. The Court

noted that federally chartered lenders were permitted to

make reverse annuity and line of credit mortgages (id. at

1053) and that the purpose of the Parity Act was to put

“nonfederally chartered lenders on a level playing field

with federal savings associations” (id. at 1052). Therefore,

the Court said, “these housing creditors may engage in

those types of transactions, consistent with OTS regula-

tions as specified in 12 C.E.R. § 545.33(f).” Id. at 1053. First

Gibraltar is not distinguishable in the way the Court of

Appeal purported to distinguish Face and Shinn, because

it finds Parity Act preemption in the absence of a conflict.

In short, the Court of Appeal’s opinion is irreconcilable

with the reasoning of each of the federal courts which has

dealt with the Parity Act.

CONCLUSION

For the reasons set. forth above, the Court should

grant this petition and issue a writ of certiorari to the

California Court of Appeal.

Respectfully submitted,

James H. FLEMING

FLEMING & Puiturrs LLP

1340 Treat Blvd., Suite 630

Walnut Creek, CA 94596-2101

App. 1

APPENDIX A

92 Cal.App.4th 917

Court of Appeal, First District, Division 2, California.

Corinne E. BLACK, as Trustee, etc.,

Plaintiff and Appellant,

FINANCIAL FREEDOM SENIOR

FUNDING CORPORATION, et al.,

Defendants and Respondents.

No. A092156.

Oct. 5, 2001.

Dario de Ghetaldi, George R. Corey, Millbrae, Corey,

Luzaich, Manos & Pliska LLP, Attorneys for Appellant.

James H. Fleming, Edward Romero, Walnut Creek,

Fleming & Phillips, LLP, Attorneys for Respondents

(Financial Freedom Senior Funding Corp., Beverly Mirtle,

MRCo., ULLICO, Inc., Union Labor Life Insurance Co.).

Michael P. Verna, Walnut Creek, Donald A. Velez,

Lawrence D. Goldberg, Bowles & Verna, Attorneys for

Respondent (James R. Mahoney).

Bill Lockyer, Attorney General, Richard M. Frank,

Chief Assistant Attorney General, Herschel T. Elkins,

Senior Assistant Attorney General, Ronald Reiter, Super-

vising Deputy Attorney General, Michele R. Van

Gelderen, Deputy Attorney General, Attorney General for

the State of California as Amicus Curiae.

HAERLE, J.

| |

App. 2

I. INTRODUCTION

In 1994, Charles T. Black! and Corinne E. Black (the

Blacks), then 68 and 67 years of age respectively, entered

into a reverse mortgage with Freedom Investment Fund,

Inc. (Freedom Investment), using their home as the basis

for the mortgage. In 1998, the Blacks, as trustees for the

Charles T. Black and Corinne E. Black Trust Agreement,

brought this action against Freedom Investment and a

host of other corporations, companies and individuals,

alleging that the manner of their marketing of the reverse

mortgage violated various state laws. The defendants

moved for summary judgment, arguing that the Blacks’

claims were preempted by three federal statutes and their

implementing regulations: the Alternative Mortgage

Transaction Parity Act of 1982 (the Parity Act) (12 U.S.C.

§§ 3801-3806), the Truth in Lending Act (TILA) (Pub.L.

No. 90-321, § 101 (May 29, 1968) 82 Stat. 146; see also 15

U.S.C. § 1601-1667f) and the Depository Institutions

Deregulation and Monetary Control Act of 1980

(DIDMCA) (Pub.L. No. 96-221, § 1 (March 31, 1980) 94

Stat. 132 (codified as amended in scattered sections of 12

U.S.C. & 15 U.S.C.)). The trial court granted the motion.

This appeal followed. We reverse.

1 Charles Black died during the pendency of this appeal.

We shall, nonetheless, refer to appellants in the plural

throughout.

App. 3

II. BACKGROUND

A. Reverse Mortgages

Reverse mortgages have been described as a financial

planning device for the elderly who are often “house rich,

but cash poor.” (See Hammond, Reverse “Mortgages: A

Financial Planning Device for the Elderly (1993) 1 Elder L.]J.

75, 76 (hereafter Hammond).) A reverse mortgage can

address this dilemma by providing a means for convert-

ing home equity into cash. (Ibid.) In a reverse mortgage,

as in a conventional mortgage, the mortgagee or lender

advances money to the borrower or mortgagor. However,

in a reverse mortgage the borrower is often times not

obligated to repay any portion of the loan or the interest

on the loan amount until the property is sold, the loan

matures or the borrower dies or experiences an extended

absence from the premises. (Id. at p. 86; see also 15 U.S.C.

§ 1602(bb)?.) The interest on the borrowed sums is added

to the principal loan amount and the lender acquires a

lien against the house in the amount of the initial princi-

pal and accumulated interest. (Hammond, supra, 1 Elder

L.J. at p. 86.)

2 15 U.S.C. section 1602(bb) provides as follows: “The term

‘reverse mortgage transaction’ means a nonrecourse transaction

in which a mortgage, deed of trust, or equivalent consensual

security interest is created against the consumer’s principal

dwelling — [p] (1) securing one or more advances; and [p] (2)

with respect to which the payment of any principal, interest,

and shared appreciation or equity is due and payable (other

than in the case of default) only after - [p] (A) the transfer of the

dwelling; [p] (B) the consumer ceases to occupy the dwelling as

a principal dwelling; or [p] (C) the death of the consumer.”

App. 4

B. The Blacks’ Reverse Mortgage

On March 28, 1994, the Blacks entered into a reverse

mortgage with Freedom Investment, a non-federally char-

tered lender, secured by a deed of trust on their home,

then valued at $1,060,000. Pursuant to this transaction,

the Blacks received $305,455 and Freedom Investment

received an interest equal to 70.75% of the “maturity

value” of the mortgaged property.* From the $305,455

that the Blacks borrowed, they paid $11,249.89 as a loan

origination fee and $5,583.47 in other fees, taxes and

expenses.

The loan amount of $305,455 was calculated as the

present value of $749,950 (representing 70.75% of the

value of the Blacks’ home) using a 3.75% discount rate

over a period of 24.4 years (the Blacks’ joint life expec-

tancy). In other words, $305,455 brought forward with

3.75% interest for each year of the Blacks’ joint life expec-

tancy should equal $749,950.4

The amount ultimately due on the loan, however,

would most likely exceed $749,950. If the home appreci-

ated in value, Freedom Investment acquired an interest in

a portion of that appreciation, thus increasing the amount

3 The reverse mortgage defines the “maturity value” as

“the lesser of (i) 93% of the ‘Fair Value’ of the Property, as

defined below in Section 2.5, or (ii) an amount equal to the

Property’s Initial Value (as defined below) increased at the rate

of 13% per annum, compounded annually from the date of this

Note to the Maturity Date.”

4 The Blacks contend that this calculation yields an amount

slightly greater than 70.75% of the then current value of the

home.

App. 5

ultimately due on the loan and simultaneously increasing

the interest rate on the initial borrowed sum.

Moreover, the interest rate was 3.75% only if one of

the Blacks survived for the length of their joint life expec-

tancy of 24.4 years and continued to reside at their house.

However, if they did not, the effective interest rate would

exceed 3.75% because the Blacks’ liability was 70.75% of

the maturity value of their home regardless of the actual

duration of the mortgage (subject to a limited exception).

C. The Annuity

The Blacks used $178,333.33 of the loan proceeds to

purchase an annuity from the Union Labor Life Insurance

Company (Union Labor Life), the terms of which pro-

vided for monthly payments of $1,701.30 for life provided

that the Blacks made a second payment on the annuity

four years later in the amount of $105,926.48. If the Blacks

failed to make the second payment, the monthly annuity

benefit was reduced to $719.58. The Blacks apparently did

not make this second payment.

App. 6

D. This Litigation

1. The parties

The Blacks filed this action agaimst 15 defendants.°®

The Blacks contend, without citation to the record, that

they dismissed their complaint as to five defendants and

took the defaults of four defendants, including Freedom

Investment. The defendants that allegedly remained

thereafter, and which are the respondents herein, are

ULLICO, Inc. (ULLICO), MRCo, Inc. (MRCo), Union

Labor Life, Financial Freedom Senior Funding Corpora-

tion (Financial Freedom Senior Funding), Beverly Mirtle,

and James R. Mahoney. The complaint alleges an intricate

relationship between the corporate respondents and Free-

dom Investment and concludes that the individuality and

separateness of these entities ceased and that they should

not be permitted to adhere to the fiction of their separate

existence. As to the individual respondents, the com-

plaint alleges that Mirtle was a sales person for Freedom

Investment and Mahoney the executive vice-president of

Financial Freedom Senior Funding.

2. The allegations

The Blacks’ complaint includes causes of action for

elder abuse (Welf. & Inst.Code, §§ 15600 et seq.),

> The Blacks purport to bring this action on behalf of all

California residents who have entered into a reverse mortgage

with any of the respondents, but the record on appeal includes

no indication that the Blacks have yet moved to certify a class.

Kt wtt~—C

App. 7

unlawful business practices (Bus. & Prof.Code, § 17200),¢

fraudulent concealment and negligent misrepresenta-

tion.” The complaint generally alleges that respondents

® Business and Professions Code section 17209 provides

that, “[i]f a violation of this chapter is alleged or the application

or construction of this chapter is in issue in any proceeding

in... a state court of appeal... the person who commenced that

proceeding shall serve notice thereof, including a copy of the

person's brief or petition and brief, on the Attorney General,

directed to the attention of the Consumer Law Section, and on

the district attorney of the county in which the lower court

action or proceeding was originally filed. The notice, including

the brief or petition and brief, shall be served within three days

after the commencement of the appellate proceeding, provided that

the time may be extended by the . . . presiding justice . . . for

good cause shown. No judgment or relief, temporary or permanent,

shall be granted until proof of service of this notice is filed with the

court.”

The Blacks did not serve the Attorney General or the

applicable district attorney within three days after

filing their opening brief. (See Californians for

Population Stabilization v. Hewlett Packard Co. (1997) 58

Cal.App.4th 273, 285, 67 Cal.Rptr.2d 621.) The Blacks

have now served the Attorney General and applicable

district attorney, the Attorney General has filed an

amicus brief, and respondents have filed an answer to

that amicus brief. Accordingly, we find good cause to

retroactively extend the time for providing the notice

required under Business and Professions Code

section 17209. The Blacks’ motion for an order

extending their time to serve their opening brief on

the Attorney General pursuant to Business and

Professions Code section 17209 is therefore granted.

(Cf. Application Group, Inc. v. Hunter Group, Inc. (1998)

61 Cal.App.4th 881, 907, fn. 20, 72 Cal.Rptr.2d 73.)

? The complaint also included a cause of action based on

the Consumer Legal Remedies Act and a cause of action alleging

App. 8

used “deceptive advertising [and] misleading transac-

tional documents” and that the reverse mortgage was

“written in a manner which was designed to disorient,

confuse, and upset the average homeowner... . ” The

complaint identifies the fellowing representations as false

and misleading: (1) assurances of uninterrupted monthly

annuity income, (2) guarantees of the highest monthly

payments and the lowest fees and expenses of any home

equity conversion plan being offered, and (3) promises of

no prepayment charge and the preservation for the Blacks

of 25% of the home’s future value. The complaint also

alleges that Freedom Investment used an unreasonably

low projection of home appreciation for its illustrations

and inaccurately described the tax characterization of the

reverse mortgage transaction.

Another component of the complaint is its allegation

that Freedom Investment did not advise the Blacks that

they would effectively be prepaying interest inasmuch as

Freedom Investment immediately acquired a 70.75%

interest in the home even though the amount disbursed

to the Blacks was a much smaller amount.®

breach of fiduciary duty but, for reasons unrelated to the issues

raised in this appeal, the trial court sustained demurrers

without leave to amend as to those two causes of action.

8 While portions of the complaint could be construed as

challenging the terms of the reverse mortgage, the Blacks

contend on appeal that their “claims are not based on the

illegality or amount of defendants’ charges” and that “in its

simplest form,” “Plaintiffs’ complaint .. . alleges that

defendants engaged in fraud, elder abuse, and unfair business

practices in order to dupe plaintiffs and other elderly California

homeowners into entering into reverse mortgage loans they

would not have entered into otherwise.”

App. 9

3. The motion for summary judgment

Respondents moved for summary judgment solely on

the ground that the Parity Act, DIDMCA, TILA and their

related regulations preempted the Blacks’ causes of

action.” The Blacks opposed the motion and interjected

numerous objections to the evidence on which the motion

relied. The trial court granted the motion, concluding that

federal law preempted the subject matter of the action.

III. DISCUSSION

A. General Principles of Preemption

The supremacy clause of the United States Constitu-

tion (art. VI, cl.2) grants Congress the power to preempt

State law. (Crosby v. National Foreign Trade Council (2000)

* On appeal, respondents also seek affirmance on the

ground that there was no factual basis for any of the Blacks’

claims. The mere fact that the phrase “there is no triable issue of

material fact” appears in the notice of motion is insufficient to

indicate that the motion was challenging the factual support for

the merits of the Blacks’ claim. Moreover, respondents’

memorandum of points and authorities did not identify the

elements of the causes of action much less argue the merits,

instead focusing exclusively on the issue of preemption.

Because respondents’ arguments concerning the merits of the

Blacks’ claims were not presented to any material extent at

all in respondents’ motion for summary judgment, we do not

consider them in this appeal. (See Cal. Rules of +

rule 313(b) [“A memorandum of points and authorities shall

contain ... arguments relied on... . ”].) This conclusion does

not foreclose respondents from moving for summary judgment

on the merits after this case returns to the trial court.

App. 10

530 U.S. 363, 372, 120 S.Ct. 2288, 147 L.Ed.2d 352.)

“Whether federal law preempts state law is fundamen-

tally a question whether Congress has intended such a

result. [Citations.] The ‘starting presumption’ is that Con-

gress has not so intended. [Citations.] Preemption of state

law by federal law is found in ‘three circumstances.’

[Citations.] First, there is so-called ‘express preemption’:

‘Congress can define explicitly the extent to which its

enactments pre-empt state law.’ [Citations.] Second, there

is so-called ‘field preemption’: ‘[S]tate law is pre-empted

where it regulates conduct in a field that Congress

intended the Federal Government to occupy exclusively.’

[Citations.] Third, there is so-called ‘conflict preemption’:

‘[S]tate law is pre-empted to the extent that it actually

conflicts with federal law.’ [Citations.] Such conflict must

be ‘of substance and not merely trivial or insubstantial.’

{Citation.] It exists when it is ‘impossible . . . to comply

with both state and federal requirements’ [citations] or

when state law ‘stands as an obstacle to the accomplish-

ment and execution of the full purposes and objectives’

underlying federal law [citations]. Although ‘state law is

pre-empted to the extent that it actually conflicts with

federal law’ [citation], it is preempted only to that extent

and no further [citation].” (Peatros v. Bank of America

(2000) 22 Cal.4th 147, 157-158, 91 Cal.Rptr.2d 659, 990 P.2d

539.)

“Federal regulations have no less pre-emptive effect

than federal statutes.” (Fidelity Federal Savings & Loan

Association v. de la Cuesta (1982) 458 U.S. 141, 153, 102

S.Ct. 3014, 73 L.Ed.2d 664.) An agency may preempt state

law through regulations that are within the scope of its

LS _aaNn

App. 11

Statutory authority and that are not arbitrary. (Id. at pp.

153-154, 102 S.Ct. 3014.)

Regardless of whether preemption allegedly arises by

Statute or by regulation, courts are reluctant to infer

preemption in ambiguous cases. (See Maryland v. Louisi-

ana (1981) 451 U.S. 725, 746, 101 S.Ct. 2114, 68 L.Ed.2d

576; Elsworth v. Beech Aircraft Corp. (1984) 37 Cal.3d 540,

548, 208 Cal.Rptr. 874, 691 P.2d 630 (Elsworth); Tribe,

American Constitutional Law (3d ed.2000) § 6-28, p.

1175.) It is, therefore, “the burden of the party claiming

that Congress intended to preempt state law to prove it”

(Elsworth, supra, 37 Cal.3d at p. 548, 208 Cal.Rptr. 874, 691

P.2d 630). Particularly in an area of law traditionally

occupied by the states, such as the exercise of a state’s

police powers, “Congress’s intent to preempt must be

‘clear and manifest’ to preempt state law. . . . [Citations.]”

(Spielholz v. Superior Court (2001) 86 Cal.App.4th 1366,

1371-1372, 104 Cal.Rptr.2d 197 (Spielholz).) Laws concern-

ing consumer protection, including laws prohibiting false

advertising and unfair business practices, are included

within the states’ police power, and thus subject to this

heightened presumption against preemption. (See Califor-___

nia v. ARC America Corp. (1989) 490 U.S. 93, 101, 109 S.Ct.

1661, 104 L.Ed.2d 86 [unfair business practices]; Smiley v.

Citibank (1995) 11 Cal.4th 138, 148, 44 Cal.Rptr.2d 441, 900

P.2d 690 [consumer protection], affd. (1996) 517 U.S. 735,

116 S.Ct. 1730, 135 L.Ed.2d 25; Spielholz, supra, 86

Cal.App.4th at p. 1372, 104 Cal.Rptr.2d 197.)

App. 12

B. Alleged Preemption under the Parity Act

1. The Parity Act

Respondents contend that three statutes preempt the

Blacks’ claims. The Parity Act is one of those three stat-

utes.

Congress enacted the Parity Act in 1982 after finding

that “increasingly volatile and dynamic changes in inter-

est rates” had “seriously impaired the ability of housing

creditors to provide consumers with fixed-term, fixed-

rate credit secured by interests in real property. ...” (12

U.S.C. § 3801(a)(1); see also Pub.L. 97-320, § 802 (Oct. 15,

1982) 96 Stat. 1545.) Congress concluded that the avail-

ability of loans other than traditional fixed-rate, fixed-

term transactions was essential to an adequate supply of

loans secured by residential property (12 U.S.C.

§ 3801(a)(2); 3802(1)) and that federally chartered deposi-

tory institutions had already been given permission to

engage in such alternative mortgage financing (12 U.S.C.

§ 3801(a)(3)).

In light of these findings, Congress enacted the Parity

Act “to eliminate the discriminatory impact that... reg-

ulations [authorizing federal institutions to engage in

alternative mortgage financing] have upon nonfederally

chartered housing creditors and provide them with parity

with federally chartered institutions by authorizing all

housing creditors to make, purchase, and enforce alterna-

tive mortgage transactions so long as the transactions are

App. 13

in conformity with the regulations issued by the Federal

agencies.” (12 U.S.C. § 3801(b).)!°

The substance of the Parity Act is found in title 12

United States Code section 3803, which provides in rele-

vant part as follows: “In order to prevent discrimination

against State-chartered depository institutions, and other

nonfederally chartered housing creditors, with respect to

making . . . alternative mortgage transactions, housing

creditors may make ... . alternative mortgage transac-

tions, except that this section shall apply - [p] (1) with

respect to banks, only to [transactions made in accor-

dance with certain regulations issued by the Comptroller

of the Currency]; [p] (2) with respect to credit unions,

10 The statute defines alternative mortgage transactions as

“a loan or credit sale secured by an interest in residential real

property ... [p] (A) in which the interest rate or finance charge

may be adjusted or renegotiated; [p] (B) involving a fixed-rate,

but which implicitly permits rate adjustments by having the

debt mature at the end of an interval shorter than the term of the

amortization schedule; or [p}] (C) involving any similar type of

rate, method of determining return, term, repayment, or other

variation not common to traditional fixed-rate, fixed-term

transactions, including without limitation, transactions that

involve the sharing of equity or appreciation.” (12 U.S.C.

§ 3802(1).) The parties do not dispute that this definition

includes reverse mortgage transactions. Their agreement

appears reasonable inasmuch as alternative mortgage

transactions include debts that can mature over an interval

shorter than the amortization schedule-and in which the lender

shares in the equity and sometimes the appreciation in the

mortgaged property. (See 12 U.S.C. § 3802(1)(B) & (C).) The

Office of Thrift Supervision has also concluded that the Parity

Act covers reverse mortgages. (Off. of Thrift Supervision,

interpretative letter (Oct. 20, 1995) p. 6.)

App. 14

only to [transactions made in accordance with other regu-

lations issued by the National Credit Union Administra-

tion Board]; [p] (3) with respect to all other housing

creditors . . . only to transactions made in accordance

with regulations governing alternative mortgage transac-

tions as issued by the Director of the Office of Thrift

Supervision for federally chartered savings and loan

associations, to the extent that such regulations are autho-

rized by rulemaking authority granted to the Director of

the Office of Thrift Supervision with regard to federally

chartered savings and loan associations under laws other

than this section.” (12 U.S.C. § 3803(a).)31 On the subject

of preemption, the Parity Act provides that “[a]n alterna-

tive mortgage transaction may be made by a housing

creditor in accordance with this section, notwithstanding

any State constitution, law, or regulation.” (12 U.S.C.

§ 3803(c).)

A note to the statute that created the Parity Act

directed “the Comptroller of the Currency, the National

Credit Union Administration,” and the predecessor to the

11 “Housing creditor” is defined within the Parity Act in

pertinent part as including “any person who regularly makes

loans, credit sales, or advances secured by interests in

[residential real property]; or [p] . . . any transferee of any of

them. [p] A person is not a ‘housing creditor’ with respect to a

specific alternative mortgage transaction if, except for this

chapter, in order to enter into that transaction, the person would

be required to comply with licensing requirements imposed

under State law, unless such person is licensed under applicable

State law and such person remains, or becomes, subject to the

applicable regulatory requirements and enforcement

mechanisms provided by State law.” (12 U.S.C. § 3802(2)(C) &

(D).)

App. 15

Office of Thrift Supervision (OTS), the Federal Home

Loan Bank Board (see United States v. Gaubert (1991) 499

U.S. 315, 319, fn. 1, 111 S.Ct. 1267, 113 L.Ed.2d 335), to

“identify, describe, and publish those portions or provi-

sions of their respective regulations that are inappropri-

ate for (and thus inapplicable to), or that need to be

conformed for the use of, the nonfederally chartered

housing creditors to which their respective regulations

apply....” (Pub.L. No. 97-320, § 807(b) (Oct. 15, 1982) 96

Stat. 1545). The OTS’s current response to the note’s

instruction appears in 12 Code of Federal Regulations

part 560.220 (part 560.220) and is as follows: “Pursuant to

12 U.S.C. 3803, housing creditors . . . may make alterna-

tive mortgage transactions as defined by that section and

further defined and described by applicable regulations

identified in this section, notwithstanding any state con-

stitution, law, or regulation. In accordance with section

807(b) of Public Law 97-320, 12 U.S.C. 3801 note,

§§ 560.33 [concerning late charges], 560.34 [concerning

treatment of prepayments and prepayment penalties],

960.35 [concerning loan adjustments], and 560.210 [con-

cerning disclosures for variable rate transactions] of this

part are identified as appropriate and applicable to the

exercise of this authority and all regulations not so identi-

fied are deemed inappropriate and inapplicable.” (12

C.F.R. § 560.220 (2000).)32

12 The Parity Act provided the states a three-year period

during which to opt out of its operation. (See 12 U.S.C. § 3804.)

The OTS has concluded that California did not opt out of

application of the Parity Act (see Off. of Thrift Supervision,

interpretative letter (May 3, 1996) p. 6) and the parties do not

argue otherwise.

App. 16

2. The Arguments

The Blacks construe title 12 United States Code sec-

tion 3803(c) in conjunction with part 560.220 and argue

that the Parity Act only preempts claims concerning the

areas identified in part 560.220, namely, late charges,

prepayments, prepayment penalties, loan adjustments,

and disclosures for variable rate transactions. Respon-

dents argue that part 560.220 does not define the scope of

preemption. They instead rely on title 12 United States

Code section 3803(c) and the purpose of the Parity Act to

argue that non-federally chartered institutions should

enjoy the same preemption of state claims that federally

chartered institutions receive under the statute applicable

to them - the Home Owners’ Loan Act of 1933, 12 United

States Codes 1461 et seq. (HOLA). According to respon-

dents, preemption under HOLA is broad enough to pre-

clude the Blacks’ claims had they been brought against

federal institutions and that the Parity Act extended to

state-chartered housing creditors that same protection.

3. Analysis

We begin by considering whether the Parity Act

expressly preempts claims such as the ones presented in

this case. The Parity Act permits an alternative mortgage

transaction to be made by a housing creditor “in accor-

dance with [section 3803,] notwithstanding any State con-

stitution, law or regulation.” (12 U.S.C. § 3803(c); see also

12 C.F.R. § 560.220 (2000).) Transactions that are “in accor-

dance with” section 3803 are these that are made “in

accordance with regulations governing alternative mort-

gage transactions as issued by the Director of the

—$—$—<—$—<——— ee ae ee ee neem emt anne nnn ne

|, i ee

App. 17

[OTS] for federally chartered savings and loan associa-

tions... . ” (12 U.S.C. § 3803(a)(3).) Had that language

been included expressly in the preemption provision

rather than by inference only, the provision would have

read: an alternative mortgage transaction may be made

by a housing creditor in accordance with regulations

governing alternative mortgage transactions as issued by

the Director of the OTS for federally chartered savings

and loan associations, notwithstanding any State consti-

tution, law or regulation.

This language is susceptible to at least two inter-

pretations. On one hand, the phrase “state constitution,

law, or regulation” is modified with the adjective “any,”

supporting the argument that the preemption provision

precludes all state regulation of alternative mortgage

transactions involving state-chartered housing creditors.

On the other hand, the phrase “any state constitu-

tion, law, or regulation” can be interpreted as implicitly

limited to those that prohibit or impede alternative mort-

gage transactions or that conflict with federal regulations

deemed applicable to non-federally chartered housing

creditors, i.e., the regulations that the transaction must be

made “in accordance with.” This interpretation would

leave broad room for state regulation because there are

only four federal regulations with which the transactions

of housing creditors must comply. (See 12 C.F.R.

§ 560.220.)

Other provisions of the Parity Act support the latter

interpretation. The Parity Act requires housing creditors -

to be “licensed under applicable State law” and “subject

App. 18

to the applicable regulatory requirements and enforce-

ment mechanisms provided by State law.” (12 U.S.C.

§ 3802(2).) Here, for example, certain housing creditors in

California are required to be licensed under the Califor-

nia Finance Lenders Law (see Fin.Code, § 22000, 22100,

[requiring license for finance lenders]; 22009 [defining

finance lenders as including persons engaged in the busi-

ness of making consumer loans]; 22203 [defining con-

sumer loan as including certain loans secured by real

property]). That law establishes permissible charges and

fees on loans (Fin.Code, § 22306), prohibits false, mislead-

ing or deceptive statements (Fin.Code, § 22161), and pro-

vides that unconscionable loans violate the statute

(Fin.Code, § 22302). When Congress enacted the Parity

Act, it was surely aware that such forms of state regula-

tion then existed or, at least, could come into existence in

the future because it had no control over the changes and

developments that states could subsequently make to

their regulatory schemes. Given the breadth accorded the

states in regulating “housing creditors” in 12 United

States Code section 3802, the preemption language of 12

U.S.C. section 3803(c) can certainly be interpreted as not

extending to state laws that concern aspects of those

transactions other than those addressed by the four appli-

cable federal regulations.

However, we need not conclude that this is the only

reasonable interpretation of the Parity Act’s preemption

language in order to reject express preemption in this

case. “As is always the case in our pre-emption jurispru-

dence, where ‘federal law is said to bar state action in

fields of traditional state regulation, . .. we have worked

on the “assumption that the historic police powers of the

_ App. 19

States were not to be superseded by the Federal Act

unless that was the clear and manifest purpose of Con-

gress.” ’” (California Div. of Labor Standards Enforcement v.

Dillingham Constr. N.A., Inc. (1997) 519 U.S. 316, 325, 117

S.Ct. 832, 136 L.Ed.2d 791, quoting Rice v. Santa Fe Eleva-

tor Corp. (1947) 331 U.S. 218, 230, 67 S.Ct. 1146, 91 L.Ed.

1447; see also Chicago & N.W. Tr. Co. v. Kalo Brick & Tile

Co. (1981) 450 U.S. 311, 317, 101 S.Ct. 1124, 67 L.Ed.2d 258

[“Pre-emption of state law by federal statute or regula-

tion is not favored ‘in the absence of persuasive reasons —

either that the nature of the regulated subject matter

permits no other conclusion, or that the Congress has

unmistakably so ordained.’ ”, italics added; Elsworth, supra,

37 Cal.3d at p. 548, 208 Cal.Rptr. 874, 691 P.2d 630

(“Courts are reluctant to infer preemption, and it is the

burden of the party claiming that Congress intended to

preempt state law to prove it.”].) As our analysis has

illustrated, the preemption language of the Parity Act

does not contain a clear manifestation of congressional

intent to preempt all state laws concerning the terms and

marketing of alternative mortgage transactions. Absent

such clear manifestation, the Parity Act does not

expressiy preempt claims such as those brought by the

Blacks in this action.

The Parity Act and part 560.220 do not impliedly

preempt the Blacks’ claims either. The regulations

deemed applicable to non-federally chartered housing

creditors are so limited in number as to be insufficient to

occupy the field (see 12 C.F.R. § 560.220 (2000)). (Cf. ITEL

Containers Intl. Corp. v. Huddleston (1993) 507 U.S. 60,

70-71, 113 S.Ct. 1095, 122 L.Ed.2d 421 [concluding the

App. 20

federal regulatory scheme at issue in that case was not

sufficiently pervasive to occupy the field].)

The last form of preemption is conflict preemption.

This form of preemption can exist through direct conflict,

which respondents do not contend exists here, or when

state law stands as an obstacle to the accomplishment and

execution of the full purposes and objectives of Congress,

which respondents contend will occur here. (See Spielholz,

supra, 86 Cal.App.4th at p. 1371, 104 Cal.Rptr.2d 197.)

Whether state law creates such an obstacle turns on Con-

gress’s purposes and objectives in enacting the Parity

Act.

Congress expressly stated that the purpose of the

Parity Act was to “eliminate the discriminatory impact

that those regulations have upon nonfederally chartered

housing creditors” and provide non-federally chartered

housing creditors “with parity with federally chartered

institutions by authorizing all housing creditors to make,

purchase, and enforce alternative mortgage transactions

so long as the transactions are in conformity with the

regulations issued by the Federal agencies.” (12 U.S.C.

§ 3801(b).) Respondents argue that this language indi-

cates that the purpose of the Parity Act is the achieve-

ment of absolute parity with federally chartered lending

institutions. Thus, if those entities enjoy complete pre-

emption of state regulation of their transactions, so

should state-chartered lending institutions.

We are not persuaded by respondents’ expansive

view of Congress’s purpose in enacting the Parity Act. Of

course, absolute parity would achieve the results that

App. 21

Congress sought, but so would much less, such as simply .

authorizing non-federally chartered housing creditors to

engage in alternative mortgage financing. The statute as a

whole, in particular the permission retained by the states

to regulate housing creditors (see 12 U.S.C. § 3802(2)),

counsels against respondents’ generous interpretation of

congressional purpose, an interpretation that would per-

mit non-federally chartered housing creditors to present

information to lenders in a misleading, distorted or even

inaccurate fashion with impunity because of the lack of

federal regulation.

For similar reasons, respondents’ contention that the

goal of the Parity Act is national uniformity in the regula-

tion of state-chartered housing lenders with respect to

alternative mortgage transactions is also flawed. Given

the dearth of applicable federal regulations, the national

uniform standard for state-chartered housing lenders

would be “anything goes.” That is hardly a uniform

standard.

Moreover, different treatment of federally and non-

federally chartered housing creditors is reasonable given

that they are very differently situated. “[S]avings associa-

tions are subject to a comprehensive regime of regular

examination, supervision, and enforcement to determine

their compliance with applicable laws and regulations[,]”

while “[nJon-depository institution state housing credi-

tors are not.” (65 Fed.Reg. 17811, 17816 (Apr. 5, 2000).)

This distinction is significant. For example, in Spitz v.

Goldome Realty Credit Corp. (1991) 210 Ill.App.3d 215, 155

Ill.Dec. 43, 569 N.E.2d 43, affirmed (1992) 151 Ill.2d 71,

175 Ill.Dec. 727, 600 N.E.2d 1185, the court considered

App. 22

whether HOLA preempted an Illinois statute upon which

the plaintiff relied in suing a subsidiary service corpora-

tion of a federal savings association. (155 IIl.Dec. 43, 569

N.E.2d at p. 45.) In that case “[t]here [was] no question

that the doctrine of preemption applie[d] with respect to

the parent corporation [citation]; nor [did] the parties

dispute that there [was] exclusive federal regulation of

federally chartered savings associations and that the Bank

Board ha[d] the exclusive and plenary power to ‘regulate

all the aspects of the operations of Federal associations.’

[Citation.] At issue [was] whether the preemption that

applie[d] to the parent federal savings associations [was]

applicable to the state chartered subsidiary service corpo-

ration.” (Id. at p. 46.)

The court concluded that service corporations did not

enjoy the same broad preemption of state law as their

federally chartered parent organizations, reasoning as fol-

lows: “[N]either Congress nor the Bank Board has

attempted to set forth a comprehensive regulatory

scheme for service corporations as they did for their

federally chartered parent associations. Recognizing the

lack of such a comprehensive scheme, it is difficult to

conceive that Congress and the Bank Board would only

regulate the home mortgage activities of service corpora-

tions in selected areas if they did not intend to subject

these entities to additional state regulation. An intent to

preempt without providing a comprehensive regulatory

scheme could lead to the intolerable result of permitting

service corporations to perform lending activities, which

are traditionally highly regulated, unfettered by any regu-

lation.” (155 Ill.Dec. 43, 569 N.E.2d at p. 48; see also 175

Ill.Dec. 727, 600 N.E.2d at p. 1187 [“Although service

App. 23

corporations are regulated by the Bank Board, they are

not regulated to the same extent as federal associa-

tions.”].) Similarly, here, it would be odd indeed to pro-

vide to non-federally chartered housing creditors, entities

that are subject to little federal regulation, the same relief

from state regulation that HOLA affords heavily-regu-

lated federally chartered institutions.

We reject respondents’ interpretation of congres-

sional purpose and conclude that Congress sought to

permit non-federally chartered housing creditors to

engage in alternative mortgage financing so long as they

complied with applicable féderal regulations. Permitting

the Blacks to pursue their claims does not stand as an

obstacle to that purpose. The Blacks’ complaint chal-

lenges the adequacy and completeness of disclosures and

representations regarding the reverse mortgage. These

claims do not seek to prohibit or impede the making of

alternative mortgage transactions that comport with the

applicable federal regulations; they simply require ade-

quate disclosures. Nor do their claims tread on the areas

of federal regulation applicable to non-federally char-

tered housing creditors, namely, late charges, prepay-

ments and prepayment penalties, loan adjustments, and

disclosures for variable rate transactions. (See 12 C.E.R.

§ 560.220 (2000).) Conflict preemption simply does not

apply in this instance.

Our conclusion that the Parity Act does not expressly,

impliedly or through conflict preempt the Blacks’ claims

is consistent with the OTS’s interpretation of the preemp-

tive scope of part 560.220. We defer to a federal agency’s

construction of its own regulations and the statute it is

charged to administer. (See Udall v. Tallman (1965) 380

App. 24

U.S. 1, 16-17, 85 S.Ct. 792, 13 L.Ed.2d 616.) Last year, the

Director of OTS issued an advance notice of proposed

rulemaking in which she explained that “[t]he Parity

Act... authorizes housing creditors to make alternative

mortgage loans as long as the transactions are ‘in accor-

dance with’ appropriate and applicable OTS regulations.

The Act does not grant housing creditors the same

powers as federal savings associations outside of the

context of alternative mortgage transactions. Even within

that context, state law governs those aspects of a housing

creditor’s operations not covered by regulations desig-

nated as applicable to alternative mortgage transactions

under the Parity Act. The limited role the Parity Act plays

in the overall regulation of housing creditors has not

always been clearly understood.”!5 (65 Fed.Reg., supra, at

pp. 17815-17816.)'4

13 Respondents urge us not to take judicial notice of this

notice of proposed rulemaking. Evidence Code section 451

mandates judicial notice of “[aJny.matter made a subject of

judicial notice by . . . Section 1507 of Title 44 of the United States

Code.” (Evid.Code, § 451, subd. (b).) That federal statute

provides that “[t]he contents of the Federal Register shall be

judicially noticed. ...” (44 U.S.C. § 1507.) We therefore reject

respondents’ argument and grant the Blacks’ request to take

judicial notice of portions of the Federal Register. In all other

respects, we deny the Blacks’ motion for judicial notice.

14 Additionally, in 1997, an interpretative letter issued by

the OTS similarly explained that under the Parity Act, “[a]s long

as the Company complies with the requirements of . . . OTS

regulations [identified in part 560.220] in making and enforcing

its [adjustable rate mortgage] loans, the Company need not

comply with conflicting or inconsistent state restrictions.” (Off. of

Thrift Supervision, interpretative letter (Feb. 10, 1997) p. 3,

italics added.) If OTS interprets the Parity Act as preempting all

App. 25

Respondents contend that National Home Equity Mort-

gage Assn. v. Face (4th Cir.2001) 239 F.3d 633 (Face) and

Shinn v. Encore Mortgage Services, Inc. (D.N.J.2000) 96

F.Supp.2d 419 (Shinn) support their preemption argu-

ment.

The Face decision does not provide us much assis-

tance because the case concerned the preemption of a

state law limiting prepayment fees (see Face, supra, 239

F.3d at p. 635), a subject addressed in a federal regulation

specifically identified in part 560.220 as applicable to

non-federally chartered housing creditors. That regula-

tion permits prepayment fees so long as they are agreed

to in the loan agreement. (See Face, supra, 239 F.3d at p.

639.) Thus, conflict preemption was manifest. The state

sought to avoid this result by arguing that the Parity Act

does not preclude states from regulating areas that are

not peculiar to alternative mortgage transactions, that is,

that apply to common traditional fixed-rate, fixed-term

transactions as well as alternative mortgage transactions.

(Face, supra, 239 F.3d at p. 636.) The court concluded that

the regulation of prepayment penalties was within the

regulation of alternative mortgage transactions and that

the Parity Act therefore preempted the state law limiting

prepayment fees. (Face, supra, 239 F.3d at pp. 638, 640.)

The Face decision also opines, however, that part

560:220 “is not a provision that defines the scope of

federal preemption. Rather, it defines the gate through

State restrictions, the use of the adjectives “conflicting” and

“inconsistent” would have been unnecessary.

App. 26

which the non-federally chartered housing creditors must

pass in order to obtain the benefits of the Parity Act. If a

state lender conforms to the regulations listed in the

regulation implementing § 807(b) [12 c.f.r. § 560.220],

THEN IT WILL ENJOY THE PREEMPTIVE PROTEC-

TION THAT THE Act grants in 12 U.S.C. § 3803(c).” (Face,

supra, 239 F.3d at p. 640.) However, because the state law

at issue in that case limited prepayment fees, a subject

expressly covered by an applicable federal regulation, the

court did not need to consider, as we must, the scope of

“the preemptive protection that the Act grants.”

Moreover, the framing of the question in the Face case

demonstrates that that court did not reach a result con-

trary to the one we adopt here. The Fourth Circuit

explained: “The particular issue presented in this case is

whether a non-federally chartered institution in Virginia

may require and enforce a prepayment fee in a mortgage

agreement notwithstanding Virginia’s limitation on pre-

payment penalties as contained in Virginia Code

§§ 6.1-330.83 and 6.1-330.85. The resolution of this issue

depends on whether the OTS has issued regulations

authorizing prepayment fees as part of its regulations for

alternative mortgage transactions, because if it has auth-

orized the collection of prepayment fees in alternative

mortgage transactions, then Virginia may not apply its

law proscribing such prepayment fees if the non-federally

chartered housing creditor has otherwise complied with

the requirements of the Parity Act.” (Face, supra, 239 F.3d

at p. 638.) Thus, the Fourth Circuit found it necessary to

consider whether the Virginia statute conflicted with a

federal regulation pertaining to alternative mortgage

transactions. Here, we have no such conflict.

App. 27

Shinn, supra, is similarly uninstructive because it also

considers whether the Parity Act preempts a state law

prohibiting prepayment fees. (Shinn, supra, 96 F.Supp.2d

at p. 422.) The plaintiffs in Shinn argued that the Parity

Act only preempts state laws that completely prohibit or

obstruct the creation of alternative mortgage transactions.

(Shinn, supra, 96 F.Supp.2d at p. 425.) The court concluded

that the language of the statute did not “support plain-

tiffs’ narrow interpretation of the statute’s preemptive

effect” and concluded that New Jersey’s prepayment law

was preempted by the Parity Act. (Id. at pp. 425-426.)15

Here, the Blacks’ claims relate to matters that are not

addressed by the federal regulations that part 560.220 iden-

tifies as applying to non-federally chartered housing

creditors. Thus, Face and Shinn, cases considering pre-

emption in that context, are inapposite and, for the rea-

sons given above, we conclude that the Parity Act does

not preempt the Blacks’ claims.

C. Alleged Preemption under TILA

Respondents also contend that the Blacks’ claims are

preempted by TILA. We disagree.

Clearly, there is no express preemption. Rather than

limiting the applicability of state law, TILA emphasizes

the continued role of state law, stating that it does “not

annul, alter, or affect the laws of any State relating to the

*° Respondents also cite First Gibraltar Bank, FSB v. Morales

(Sth Cir.1994) 19 F.3d 1032, but that decision has been vacated

(see First Gibraltar Bank, FSB v. Morales (Sth Cir.1995) 42 F.3d

895).

App. 28

disclosure of information in connection with credit trans-

actions, except to the extent that those laws are inconsis-

tent with the provisions of this subchapter and then only

to the extent of the inconsistency.” (15 U.S.C. § 1610(a)(1);

see also 15 U.S.C. § 1610(b) [“except to the extent that

those State laws are inconsistent with any provisions of

section 1639 of this title, and then only to the extent of the

inconsistency.”].) A federal regulation implementing

TILA explains, in relevant part, that “[a] State law is

inconsistent if it requires a creditor to make disclosures or

take actions that contradict the requirements of the Fed-

eral law . . . [and] [a] State law is contradictory if it

requires the use of the same term to represent a different

amount or a different meaning than the Federal law, or it

if [sic] requires the use of a term different from that

required in the Federal law to describe the same item.”

(12 C.F.R. § 226.28(a)(1).)

Respondents argue that a state law like Business and

Professions Code section 17200 would impose subjective

standards of “unfairness,” thus contradicting the require-

ments of federal law. Even if the disclosures provided to

the Blacks met all of the requirements of TILA and its

implementing regulations, which are known as Regula-

tion Z (see 12 C.F.R. part 226), an inconsistency or contra-

diction with federal law does not exist merely because the

and under TILA. (Cf. 12 C.F.R. § 226.28(a)(1); see also 12

C.F.R. § 226, Supp. I-Official Staff Interp. § 226.28(a)(3), p.

434 [“Generally, State law requirements that call for the

disclosure of items of information not covered by the

Federal law, or that require more detailed disclosures, do

not contradict the Federal requirements.”].) Respondents’

App. 29

vague assertions of a contradiction between state and

federal law are insufficient to Satisfy their burden of

proving Congress’s intent that TILA preempt claims such

as those brought by the Blacks. (See Elsworth, supra, 37

Cal.3d at p. 548, 208 Cal.Rptr. 874, 691 P.2d 630.)

Respondents also rely on 12 Code of federal Regula-

tions part 226.28(a)(2)(i) which provides: “State law

requirements are inconsistent with the requirements con-

tained in sections 161 (Correction of billing errors) or 162

(Regulation of credit reports) of the Act [15 U.S.C.A.

§§ 1666 or 1666a] and the implementing provisions of this

regulation and are preempted if they provide rights,

responsibilities, or procedures for consumers or creditors

that are different from those required by the Federal law.”

Respondents latch onto the word “different” and argue

that state laws that are merely “different” from federal

laws are preempted by TILA. But by its express terms, 12

Code of Federal Regulations part 226.28(a)(2)(i) concerns

correction of billing errors and regulation of credit

reports, two aspects of lending that are not at issue here.

Respondents have not established that TILA or its regula-

tions expressly preempt the Blacks’ claims.

Implied preemption has no application here either.

TILA preempts only “inconsistent” state laws, thus

implicitly negating occupation of the field. (See Mason v.

General Finance Corp. (4th Cir.1976) 542 F.2d 1226, 1230.)

Nor does conflict preemption apply in this instance.

As we have explained, respondents have not identified

any direct conflict. Moreover, the purpose of TILA, rele-

vant to this action, is the assurance of “a meaningful

App. 30

disclosure of credit terms so that the consumer will be

able to compare more readily the various credit terms

available to him and avoid the uninformed use of

credit....” (15 U.S.C. § 1601(a).) Stated more generally,

TILA is designed to protect consumers from inaccurate

and unfair credit practices. (See Fairley v. Turan-Foley

Imports, Inc., (5th Cir.1995) 65 F.3d 475, 477.) The Blacks’

claims advance this purpose, rather than thwart it.

Our conclusion is consistent with decisions reached

by federal courts. In Williams v. First Government Mortgage

& Investors Corp. (D.C.Cir.1999) 176 F.3d 497 (Williams), a

borrower brought suit under the District of Columbia

Consumer Protection Procedures Act (CPPA), alleging

that the lender knowingly took advantage of his inability

to protect his interests in the loan transaction and know-

ingly made him a loan he could not repay with any

reasonable probability. (Williams, supra, 176 F.3d at p.

498.) The United States Court of Appeal for the District of

Columbia rejected the argument that TILA preempted the

borrower’s CPPA claims. (Williams, supra, 176 F.3d at pp.

499-500.) The court explained that TILA and CPPA “have

quite different purposes and impose quite different

requirements. TILA mandates the disclosure of certain

documents in lending transactions. [Citation.] The CPPA

provides substantive protections for borrowers against

unconscionable loan terms and provisions. [Citation.]

Nothing in TILA or its legislative history suggests that

Congress intended the Act’s disclosure regime to provide

the maximum protection to which borrowers are entitled

nationwide; states remain free to impose greater protec-

tions for borrowers. .. . We thus hold that TILA does not

preempt the CPPA and that TILA compliance does not

App. 31

immunize lenders . . . against CPPA liability. [Citations.]”

(Id. at p. 500.)

The United States District Court for the-Northern

District of Illinois reached a similar result in Heastie v.

Community Bank of Greater Peoria (N.D.I11.1988) 696

F.Supp. 716 (Heastie). In that case, an elderly woman sued

a mortgage company and mortgage lender under the

Illinois Consumer Fraud and Deceptive Business Prac-

tices Act (Consumer Fraud Act), alleging predatory lend-

ing practices, such as the use of misrepresentations in

order to exact “oppressive” finance charges in the refi-

nancing of her home loan. (See Heastie, supra, 690 F.Supp.

at p. 717.) Defendants argued that TILA preempted the

Consumer Fraud Act claim. (Heastie, supra, 690 F.Supp. at

p. 720.) The court rejected this argument, reasoning in

part as follows: “Obviously, compliance with both the

TILA and the Consumer Fraud Act is not a physical

impossibility - compliance with the TILA does not imply

a violation of the Consumer Fraud Act. It also seems that

the Consumer Fraud Act promotes rather than hinders

the goals of the TILA. The Consumer Fraud Act prohibits,

inter alia, ‘deceptive practices [employed] in the conduct

of any trade or commerce... ’ [citation], thereby promot-

ing the TILA’s goal of ‘the informed use of credit,’ [cita-

tion], in a range of conduct larger than that covered by

the disclosure provisions in the TILA.” (Heastie, supra, 690

F.Supp. at p. 721.)

Consistent with these decisions and our own under-

standing of TILA and its impiementing regulations, we

conclude that TILA does not preempt the Blacks’ claims.

App. 32

D. Alleged Preemption under DIDMCA

Lastly, respondents contend that to the extent the

Blacks claim that the loan origination fees, interest

chargés and the large cash advance fee were unfair and

unconscionable, their claims are preempted. Respon-

dents’ motion for summary judgment similarly focused

solely on the preemptive effect of DIDMCA on these

limited aspects of the Blacks’ claims.

However, the Blacks concede that they do not chal-

lenge the fees or interest rates themselves. Given that

respondents do not contend that DIDMCA preempts any

other aspect of the Blacks’ claims, we find no DIDMCA

preemption on this record.

IV. DISPOSITION

We reverse the entry of summary judgment in favor

of respondents. Costs on appeal are awarded to the

Blacks. i

We concur: KLINE, P.J., and LAMBDEN, J.

App. 33

APPENDIX B

SUPERIOR COURT OF THE STATE OF CALIFORNIA

COUNTY OF SAN MATEO

Charles T. Black, et al. Case No. 406451

Plaintiffs, ORDER

vs. (Filed Apr. 26, 2000)

Freedom Investment Fund,

Inc., et al.

Defendants. ;

Defendants’ motions for Summary Judgment, Sum-

mary Adjudication, Judgment on the Pleadings and To

Strike came on regularly for hearing on February 25,

2000. Dario De Ghetaldi, Esq., of Corey, Luzaich, Manos

& Pliska LLP appeared on behalf of plaintiffs Charles and

Corrine Black, James H. Fleming, Esq., of Fleming &

Phillips LLP appeared on behalf of defendants ULLICO,

Inc., MRCo, Inc., The Union Labor Life Insurance Com-

pany, Financial Freedom Senior Funding Corporation,

and Beverly Mirtle. Michael P. Verna, appeared on behalf

of defendants John Vogt, Howard Hull, and James R.

Mahoney. Having considered the arguments of counsel,

the points and authorities and all admissible and compe-

tent supporting evidence and declarations, the Court now

rules as follows:

1. This court declines to specifically rule on each of the

seventy-six objections raised by plaintiffs. See Biljac v.

Ist Interstate Bank of Oregon (1990) 218 Cal App 3d

1410. Only competent and admissible evidence has

been considered in the present ruling.

— a Sd

App. 34

2. The court finds that there is no triable issue of mate-

rial fact. The Defendants’ Motions For Summary

Judgment are hereby GRANTED, the subject matter

of this action having been preempted by Federal Law.

Plaintiffs’ claims cannot be established in this court as

a matter of law and defendants are entitled te sum-

mary judgment.

3. The Motion for Summary Judgment having been

granted, the defendants’ Motions For Summary Adju-

dication, Motion for Judgment on the Pleadings and

Motions to Strike are DENIED as moot.

DATED: APR 26 2000

/s/ George A. Miram

HONORABLE

GEORGE A. MIRAM

App. 35

APPENDIX C

FLEMING & PHILLIPS LLP

JAMES H. FLEMING (SBN 042226)

EDWARD ROMERO (SBN 148495)

1340 Treat Boulevard, Suite 630

Walnut Creek, California 94596-2101

Telephone (925) 296-2600

Facsimile (925) 296-2626

Attorneys for Defendants,

Financial Freedom Senior Funding Corporation,

The Union Labor Life Insurance Company, ULLICO Inc.

MRCo, Inc. and Beverly Mirtle

SUPERIOR COURT OF CALIFORNIA

COUNTY OF SAN MATEO

CHARLES T. BLACK and No. 406451

CORINNE E. BLACK, Trustees

of the CHARLES T. BLACK cet pe

AND CORINNE E. BLACK

TRUST AGREEMENT dated (Filed

April 20, 1982, Jul. 7, 2000)

Plaintiffs,

FREEDOM INVESTMENT

FUND, INC., et al.,

Defendants.

This Court, having on April 26, 2000 entered the

order granting the Motions For Summary Judgment

of defendants Financial Freedom Senior Funding

App. 36

Corporation, ULLICO Inc., The Union Labor Life Insur-

ance Company, MRCo, Inc., Beverly Mirtle, (sued herein

as “Beverly Myrtle”) John Vogt, Howard Hull and James

R. Mahoney and having ordered entry of judgment as

requested in said motions:

IT IS HEREBY ORDERED, ADJUDGED AND

DECREED that judgment is entered in favor of defen-

dants Financial Freedom Senior Funding Corporation,

ULLICO Inc., The Union Labor life Insurance Company,

MRCo, Inc., Beverly Mirtle, (sued herein as “Beverly Myr-

tle”) John Vogt, Howard Hull and James R. Mahoney

(collectively “Defendants”) and against plaintiffs Charles

T. Black and Corinne E. Black (collectively “plaintiffs”),

that plaintiffs shall take nothing against Defendants by

their complaint and that Financial Freedom Senior Fund-

ing Corporation, ULLICO Inc., The Union Labor Life

Insurance Company, MRCo, Inc., Beverly Mirtle, John

Vogt, Howard Hull and James R. Mahoney shall recover

costs in the amount ef$to be determined pursuant to a

memorandum of costs to be filed with this Court.

DATED: Mey , 2000 JUL 07 2000

/s/ George A. Moran

JUDGE OF THE

SUPERIOR COURT

App. 37

APPENDIX D

Court of Appeal, First Appellate District,

Division Two — No. A092156

S102089

IN THE SUPREME COURT OF CALIFORNIA

En Banc

CORINNE E. BLACK, as Trustee, etc.

Plaintiff and Appellant,

FINANCIAL FREEDOM SENIOR

FUNDING CORPORATION, et al.,

Defendants and Respondents.

(Filed Jan. 23, 2002)

Petition for review DENIED.

/s/ GEORGE

Chief Justice

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.