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Campidoglio LLC v. Wells Fargo Bank, N.A.

United States District Court, W.D. Washington, Seattle

September 24, 2014

WELLS FARGO BANK, N.A., et al., Defendants.


THOMAS S. ZILLY, District Judge.

THIS MATTER comes before the Court on a motion for summary judgment, docket no. 72, brought by defendant Wells Fargo Bank, N.A. ("Wells Fargo"). Having reviewed all papers filed in support of, and in opposition to, Wells Fargo's motion, [1] the Court enters the following Order.


Plaintiffs Campidoglio LLC, Carmen LLC, and San Marco LLC are Washington limited liability companies that each own a multi-family residential property subject to a deed of trust securing an adjustable-rate mortgage ("ARM") promissory note executed in favor of World Savings Bank, FSB ("World Savings").[2] See Exs. 25-30 to Dolan Decl. (docket no. 87); Complaint at ¶¶ 11-13, Ex. 1 to Notice of Removal (docket no. 1-1). Each note indicates a maximum interest rate of 11.95%, as well as a minimum interest rate, which is 2.65% on the two loans issued in 2004, and 4.11% on the third loan, which originated in 2006. Exs. 25-27 to Dolan Decl. The interest rate for each loan is calculated as the sum of (i) the "stated margin, " which for all three loans is 2.65%, and (ii) the "current index, " which may vary from month to month. Id.

When the loans were made in 2004 and 2006, the "current index" was the "weighted average of the interest rates in effect as of the last day of each calendar month on the deposit accounts of the federally insured depository institution subsidiaries... of Golden West Financial Corporation ("GDW")." Id. At that time, World Savings was a subsidiary of GDW, and the "current index" described in the notes was the GDW "cost of savings" index or GDW COSI. GDW and World Savings were subsequently purchased by Wachovia Corporation ("Wachovia"), and World Savings changed its name to Wachovia Mortgage, FSB. See Dolan Decl. at ¶ 2 & Ex. 24.

In July 2007, plaintiffs were notified that, because the GDW COSI would no longer be available, it would be replaced with either the Wachovia COSI or, at the borrower's election, the Wachovia certificates of deposit index ("CODI"). Ex. B to Complaint (docket no. 1-1 at 42-44). Plaintiffs did not elect the CODI. The Wachovia COSI became the applicable "current index" for the loans at issue sometime between September 15 and October 14, 2007, depending on each plaintiff's billing cycle.[3] Id. The substitution was pursuant to the following language contained in each note:

The Lender may choose an alternative index to be the Index if the Index is no longer available.... The selection of the alternative index shall be at the Lender's sole discretion. The alternative index may be a national or regional index or another type of index approved by the Lender's primary regulator. The Lender will give notice to the Borrower of the alternative index.

Exs. 25-27 to Dolan Decl.

As a result of a later merger, Wachovia Mortgage, FSB converted to a national bank with the name Wells Fargo Bank Southwest, National Association. Ex. 23 to Dolan Decl. It then merged into Wells Fargo Bank, N.A., the only remaining defendant in this action.[4] See id. ; see also Ex. 24 to Dolan Decl. In October 2009, plaintiffs received notice that the Wachovia COSI would be replaced with the Wells Fargo COSI in December 2009. Ex. C to Complaint (docket no. 1-1 at 46-47). In May 2012, plaintiffs filed a putative class action in King County Superior Court, alleging that one or both index substitutions constituted a breach of contract, a breach of the covenant of good faith and fair dealing, a violation of Washington's Consumer Protection Act ("CPA"), and unjust enrichment. Complaint at ¶¶ 78-126.[5] Wells Fargo timely removed the case to this Court, and now moves for summary judgment in its favor on all of these claims.


A. Standard for Summary Judgment

The Court shall grant summary judgment if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett , 477 U.S. 317, 323 (1986). A fact is material if it might affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248 (1986). To survive a motion for summary judgment, the adverse party must present affirmative evidence, which "is to be believed" and from which all "justifiable inferences" are to be favorably drawn. Id. at 255, 257. When the record, [6] however, taken as a whole, could not lead a rational trier of fact to find for the non-moving party, summary judgment is warranted. See Celotex , 477 U.S. at 322.

B. Use of Alternative Index

The Home Owners' Loan Act of 1933 ("HOLA") was enacted in the midst of the Great Depression to restore the public's confidence in savings and loan associations by inter alia implementing centralized regulation according to nationwide "best practices." Silvas v. E*Trade Mortg. Corp. , 514 F.3d 1001, 1004 (9th Cir. 2008); see also Fidelity Fed. Sav. & Loan Ass'n v. de la Cuesta , 458 U.S. 141 (1982). In 1989, HOLA was substantially amended by the Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA"), Pub. L. No. 101-73, 103 Stat. 183 (1989), and the powers and duties of the regulatory agency created by HOLA were transferred to the Department of Treasury's Office of Thrift Supervision ("OTS"). See FIRREA § 301 (formerly codified at 12 U.S.C. § 1462a); see also Bank of Am. v. City & County of San Francisco , 309 F.3d 551, 559 n.4 (9th Cir. 2002).

In 1996, OTS adopted a regulation dealing with adjustable rate residential loans secured by borrower-occupied property. The regulation requires that federal savings associations use a national or regional index for ARM loans unless they follow the procedure for using an alternative, "readily available and independently verifiable, " index. See 12 C.F.R. §§ 560.35(d)(1) & (2); see also 61 Fed. Reg. 50951-01 at 50955 (Sep. 30, 1996). A federal savings association may use such alternative index "30 days after filing a notice unless, within that 30-day period, OTS has notified the association that the notice presents supervisory concerns or raises significant issues of law or policy." 12 C.F.R. § 560.35(d)(3).[7]

The language of the notes at issue is consistent with OTS's regulation in that substitution of a national or regional index would not have required OTS's approval, but use of an alternative index was permitted only if, during the 30-day period after filing of the requisite notice, OTS stated no objection. Plaintiffs do not dispute that OTS silence in the wake of a filed notice concerning the substitution of an alternative index would constitute the "primary regulator" approval contemplated in the three promissory notes executed in favor of World Savings.[8] Plaintiffs argue, however, that the notices sent to OTS, on behalf of (i) World Savings, which would become Wachovia Mortgage, FSB, and (ii) Wells Fargo, were deficient and that, as a result, OTS's explicit lack of objection was meaningless. Plaintiffs' contention lacks merit.

1. Wachovia COSI

In December 2006, Wachovia, acting on behalf of World Savings, submitted notice pursuant to § 560.35(d)(3), indicating as follows:

If OTS has no objection pursuant to Section 560.35(d)(3), World plans to begin use of the Wachovia COSI as soon as possible in the origination of new loans.
Shortly following the introduction of the Wachovia COSI for new loan originations, World will undertake an index substitution process, as contemplated by the loan documents, for existing loans that use Current [GDW] COSI.
Although specific plans for substitution have not been finalized, World has undertaken a similar index substitution in the past, when an index previously in use ceased to exist and intends to follow a similar process. Before undertaking any substitution or [sic] the Current COSI, World will submit its substitution plan to OTS for review and give OTS opportunity to comment on both the substitution plan and the materials being provided to borrowers.

Ex. 1 to Davis Decl. (docket no. 74). Plaintiffs assert that the above language is operative only with regard to new loans, and not as to existing loans like those at issue in this case. Plaintiffs' argument ignores the similarity in the phrases "plans to" and "will undertake, " which are used with respect to new loans and existing loans, respectively. Both clauses connote an intent to act and, contrary to plaintiffs' reasoning, "will undertake" is actually more, rather than less, forceful than "plans to." See WEBSTER'S THIRD NEW INT'L DICTIONARY at 1730 & 2491 (1981) ("plan" means "to devise or project the realization or achievement of:... to have in mind: INTEND, " while "undertake" is defined as "to take upon oneself solemnly or expressly: put oneself under obligation to perform: CONTRACT, COVENANT... GUARANTEE, PROMISE").[9]

Plaintiffs' suggestion that OTS viewed Wachovia's notice as restricted solely to new loans is belied by OTS's written response, which broadly states that, "based upon the regulatory criteria and the representations made in the Notice, the OTS takes no objection to World's use of the proposed alternative adjustable-rate loan index." Ex. 5 to Davis Decl. (docket no. 78). Although OTS, in its response, described Wachovia's notice as seeking "to establish an alternative adjustable-rate loan index for new mortgage loans , " id. (emphasis added), the concluding sentence, in which OTS expressed its lack of objection, contains no similar qualification.[10]

Moreover, when Wachovia, as promised, provided to OTS the details concerning substitution of the Wachovia COSI for the GDW COSI and the related form of letter it intended to send to borrowers, OTS orally conveyed to Wachovia that "no OTS approval or non-objection [was] needed." See Exs. 3 & 4 to Davis Decl. (docket nos. 76 & 77). Indeed, as of the date of that telephonic conference (May 30, 2007), more than thirty days had elapsed from the date Wachovia's notice had been filed, and OTS's subsequent silence had operated as approval with regard to substitution of the Wachovia COSI for existing loans. See 12 C.F.R. § 516.280(b) ("If OTS fails to act under paragraph (a)(1) of this section, your application is approved."); see also 12 C.F.R. § 560.35(d)(3).[11] The Court is persuaded that, as a matter of law, Wachovia obtained the requisite approval of the "primary regulator" to substitute the Wachovia COSI for the GDW COSI.

2. Wells Fargo COSI

In July 2009, Wells Fargo & Company, acting on behalf of both Wachovia Bank and Wachovia Mortgage, FSB, the latter of which subsequently merged into Wells Fargo Bank, N.A., a subsidiary of Wells Fargo & Company, submitted to OTS and the Office of the Comptroller of the Currency ("OCC") a notice pursuant to § 560.35(d)(3) and 12 C.F.R. § 34.22, [12] proposing as follows:

If you have no objection pursuant to Section 560.35(d)(3) or 12 CFR Section 34.22(b), as applicable, Wachovia will undertake an index substitution process, as contemplated by the loan documents, for existing loans that use Wachovia COSI.

Ex. 6 to Davis Decl. (docket no. 79); see also Ex 8 to Davis Decl. (docket no. 81) (similar notice sent in August 2009 only to OCC on behalf of Wachovia Bank and Wells Fargo Bank, N.A.). The notice explained that Wachovia Mortgage, FSB no longer offered new loans based on the Wachovia COSI, and that Wells Fargo did not intend to offer new loans using the Wells Fargo COSI; the substitution for which OTS and OCC approval was sought related only to existing loans. Id. In August 2009, OTS explicitly indicated no objection to the substitution of the Wells Fargo COSI, Ex. 7 to Davis Decl. (docket no. 80), and in September 2009, OCC "approve[d] the use of the Wells [Fargo] COSI on the portfolio of ARM loans currently held by Wachovia and that will be acquired by Wells [Fargo], " Ex. 9 to Davis Decl. (docket no. 82).

Plaintiffs do not dispute the authenticity or admissibility of the correspondence between Wells Fargo & Company and the "primary regulator, " either OTS or OCC. Rather, plaintiffs contend, at least with respect to OCC, that approval was explicitly premised on a misrepresentation and therefore lacks legal effect.[13] The misrepresentation alleged by plaintiffs appears in the second footnote of OCC's response, which states: "Wachovia COSI was approved by the OTS for use by World Savings in May 2007. Wachovia COSI replaced a similar World Savings index the OTS had approved in 1997." Ex. 9 to Davis Decl. (docket no. 82). In contrast, OTS's response contains no similar recitation of procedural facts, and plaintiffs make no comparable argument with regard to OTS's lack of objection to the substitution of the Wells Fargo COSI.

Plaintiffs' contention concerning OCC's letter is without merit. The Court is satisfied that the discussion in the second footnote, concerning OTS's prior forbearances, is sufficiently accurate. Moreover, the Court is not persuaded that OCC viewed these procedural facts as "representations" being made by the regulated entity. Unlike in other passages of its response, OCC did not qualify the statements at issue with the phrase "the Banks have represented."[14] Indeed, OCC's reference to a May 2007 approval date is inconsistent with the attachments that were included with the notice submitted by Wells Fargo & Company, which showed that OTS expressed its lack of objection in January 2007. See Exs. 6 & 8 to Davis Decl. (docket nos. 79 & 81). In addition, the filed notice did not actually represent that OTS's approval occurred in May 2007; it stated only that the Wachovia COSI had been in use since May 2007. Id. OCC's understanding might have been based on its own or OTS's records, which likely would have reflected that OTS orally communicated in late May 2007 that no "non-objection" was necessary with respect to the form of letter to be sent to borrowers. See Ex. 4 to Davis Decl. (docket no. 77). The Court concludes, as a matter of law, that plaintiffs have no basis for claiming Wells Fargo or its predecessor failed to obtain the requisite approval of the "primary regulator" to use or substitute the alternative indices, namely the Wachovia COSI and the Wells Fargo COSI.[15]


For the foregoing reasons, Wells Fargo's motion for summary judgment, docket no. 72, is GRANTED. Plaintiffs' claims against defendants Does 1-25 are DISMISSED without prejudice as discussed in footnote 4. Plaintiffs' motion for sanctions, docket no. 256, is DENIED as indicated in footnote 13. In light of the Court's decision, Wells Fargo's alternative motion pursuant to Federal Rule of Civil Procedure 12(c), docket no. 220, is STRICKEN as moot, and plaintiffs' motion for class certification, docket no. 37, is DENIED. The Clerk is DIRECTED to enter judgment consistent with this Order, in favor of Wells Fargo and against plaintiffs, to CLOSE this case, and to send a copy of this Order to all counsel of record.

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