Quicken Loans, Inc., a Michigan Corporation v. William P. Wood, in His Official Capacity as Commissioner of the California Department of Corporations, Quicken Loans, Inc., a Michigan Corporation v. William P. Wood, in His Official Capacity as Commissioner of the California Department of Corporations

Citations: 449 F.3d 944; 2006 U.S. App. LEXIS 12518Docket: 04-16244

Court: Court of Appeals for the Ninth Circuit; May 22, 2006; Federal Appellate Court

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Quicken Loans, Inc. appeals against William P. Wood, the Commissioner of the California Department of Corporations, regarding the enforcement of California's per diem loan interest statutes. The United States Court of Appeals for the Ninth Circuit reviews a decision from the Eastern District of California, which determined that these statutes were preempted by the Depository Institutions Deregulation and Monetary Control Act (DIDMCA), but denied a permanent injunction against their enforcement. The court references Wells Fargo Bank N.A. v. Boutris, which concluded that California's per diem statutes are not preempted by the DIDMCA, establishing that this precedent applies to the current case. The district court also found that the Alternative Mortgage Transaction Parity Act (Parity Act) does not preempt the per diem statutes for alternative mortgage transactions, as they do not conflict with or obstruct Congressional intent. Additionally, the court upheld the dismissal of Quicken Loans' federal takings claim due to lack of ripeness and ruled that any facial claim was waived.

Quicken Loans, licensed for residential mortgage lending in California, typically uses independent escrow companies to manage loan transactions. The process involves Quicken approving a loan, depositing funds into escrow, and instructing the escrow company to disburse funds and record the deed of trust once conditions are met. Quicken acknowledges occasional delays between the disbursement of funds and the recordation of the deed, during which it assesses interest on the disbursed loans.

Quicken, licensed under the California Residential Mortgage Lending Act, is subject to a prohibition against charging interest more than one day prior to recordation, as stipulated in CAL. FIN. CODE. 50204(o) and CAL. CIV. CODE. 2948.5. Although these statutes were amended in 2003 to extend the prohibition to interest charged more than one day prior to disbursement, the amendments did not apply retroactively, meaning Quicken’s prior interest charges violated the earlier laws. On March 11, 2002, the Commissioner notified Quicken of these violations, subsequently ordering a review of all California loans since October 14, 1999, requiring refunds of excess interest collected, along with 10% interest on the refunds. The Commissioner also sought to revoke Quicken’s license for non-compliance.

Quicken's First Amended Complaint claimed that the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) and the Parity Act preempted the per diem statutes and that these statutes constituted an unlawful taking under the Takings Clause. Both parties moved for summary judgment; the district court partially granted Quicken's motion regarding the DIDMCA claim but dismissed its takings claim for lack of ripeness, while granting the Commissioner summary judgment on the Parity Act claim. Quicken appealed the decisions on the Parity Act and Takings Clause claims and the denial of a permanent injunction, while the Commissioner cross-appealed on the DIDMCA claim.

The court referenced the Wells Fargo decision, which held that California's per diem statutes are not preempted by the DIDMCA. Quicken argued against following Wells Fargo, claiming it was not decided en banc and that its DIDMCA discussion was dicta. However, the court reaffirmed that one three-judge panel cannot overturn another's decision and emphasized that Wells Fargo’s analysis on preemption was direct and substantive. Therefore, the DIDMCA does not preempt the California per diem statutes, and since Quicken did not succeed on the merits, an injunction was not warranted.

The Parity Act was enacted by Congress to address the challenges faced by housing creditors in providing fixed-term, fixed-rate credit due to fluctuating interest rates. It recognizes the role of the Office of Thrift Supervision (OTS) in regulating alternative mortgage transactions and aims to eliminate the discriminatory effects of existing regulations on non-federally chartered housing creditors. The Act allows these creditors to engage in alternative mortgage transactions in accordance with OTS regulations, explicitly stating that such transactions can proceed despite conflicting state laws or regulations.

Quicken argues that the district court wrongly determined that the Parity Act does not preempt California's per diem statutes as they relate to alternative mortgage transactions. Quicken presents two main arguments: first, that the per diem statutes conflict with an OTS regulation regarding adjustments, and second, that these statutes are expressly preempted because they undermine the parity intended between federally and non-federally chartered lenders. 

The Supremacy Clause establishes that federal law supersedes state law unless Congress has clearly intended otherwise. Preemption analysis begins with the assumption that states retain their historic police powers unless Congress's intent to preempt is clear. Congress's intent may be explicit in the statute, implicit in its structure and purpose, or evident if state law conflicts with federal law. Furthermore, conflict preemption occurs when compliance with both federal and state laws is impossible, or when state law obstructs federal objectives.

Quicken's claims involve both express and conflict preemption, referencing the OTS’s authority to specify regulations applicable to non-federally chartered housing creditors, including 12 C.F.R. 560.35, which imposes limitations on adjustments to home loan payment amounts.

Adjustments to payment and loan balances that do not involve an interest rate change are permitted under specific conditions: (1) adjustments must reflect a change in an applicable index; (2) payment adjustments must correspond to changes in the loan balance or follow a specified formula or schedule in the loan contract; and (3) for open-end line-of-credit loans, adjustments must relate to borrower advances as permitted by the loan contract. Quicken argues that California's per diem statutes, which prohibit interest collection more than one day prior to recording, conflict with these regulations, claiming that delays in recording necessitate adjustments based on this arbitrary date. However, the Commissioner and the district court counter that the regulation does not preempt state laws regarding interest commencement, and compliance with the per diem statutes would eliminate the need for adjustments. The court found no conflict between the California statutes and the OTS regulation, affirming that it is feasible to charge no interest prior to recording while adhering to the regulation's adjustment criteria. Quicken's argument regarding the Parity Act's preemption of the per diem statutes relies on a misunderstanding of payment adjustments versus interest commencement and does not demonstrate a genuine factual dispute. The Parity Act aims to level the playing field between federally and non-federally chartered lenders, allowing alternative mortgage transactions that comply with federal regulations despite state laws.

Quicken argues that the Parity Act preempts state per diem statutes applicable to housing creditors because these statutes do not apply to federally chartered creditors, and preemption is necessary to achieve parity. However, the Parity Act does not fully preempt state laws regulating alternative mortgage transactions (AMTs) and lacks explicit language requiring identical treatment for federally and non-federally chartered creditors under state law. Judicial precedents indicate that the Parity Act does not express an unequivocal intent to preempt all state laws governing AMTs, allowing for the existence of state licensing and regulatory requirements. Quicken's argument, although framed as express preemption, aligns more with the idea that state laws obstruct Congressional objectives. By distinguishing "parity" from "absolute parity," Quicken implicitly acknowledges that the Parity Act does not preempt all state restrictions on AMTs. The court is tasked with defining the preemptive scope of the Parity Act, which, based on its language, does not intend to eliminate all state regulations. Prior rulings on the Parity Act's preemptive scope involved direct conflicts with state laws and Office of Thrift Supervision (OTS) regulations, but this case does not present such conflicts, as the per diem statutes do not prohibit alternative mortgage transactions.

The California Court of Appeals examined whether California's per diem statutes are preempted by the Parity Act, determining that these statutes do not obstruct Congressional objectives. It rejected the notion that the Parity Act aims for national uniformity in regulating state-chartered lenders, highlighting the lack of applicable federal regulations and arguing that a uniform standard would be ineffective. The court noted that state claims do not impede alternative mortgage transactions compliant with federal regulations and do not encroach on areas of federal regulation for non-federally chartered creditors as identified by the OTS.

California's per diem statutes apply equally to both alternative and fixed-rate mortgages and thus do not inherently impede alternative mortgage transactions. These statutes are not applicable to federally chartered creditors because Congress has assigned complete regulatory authority over them to the OTS. Quicken's argument against the application of these statutes to non-federally chartered creditors was dismissed, as Congress has not conferred similar authority to the OTS for this group. Instead, the Parity Act aims to eliminate discrimination against non-federally chartered creditors by ensuring they can engage in alternative mortgage financing under OTS regulations, promoting parity among housing creditors.

The per diem statutes are generally applicable and do not specifically pertain to alternative mortgages, nor do they impede a housing creditor's ability to engage in such transactions. These statutes do not conflict with OTS regulations for nonfederally chartered housing creditors and are therefore not preempted by the Parity Act. Quicken's takings claim was dismissed by the district court as unripe, with Quicken arguing that the court applied an incorrect ripeness standard. For an as-applied takings claim, Quicken must demonstrate that the government has made a final decision regarding regulation application and that it has sought state compensation, neither of which was established. Quicken did not prove any exceptions to the compensation requirement, such as the unavailability of state procedures. Regarding a potential facial takings claim, Quicken contended that the per diem statutes do not advance legitimate state interests, which would have been ripe upon enactment. However, Quicken failed to assert this claim in the district court, explicitly stating it was pursuing an as-applied takings claim during proceedings, which precluded it from later making a facial claim on appeal.

The court is determining whether a facial taking is involved in Quicken Loans' complaint, to which Mr. Sangster confirms it is not; the complaint only addresses an applied taking. The district court noted that Quicken Loans clarified during a June 30, 2003 hearing that its complaint and regulatory taking motion do not assert a facial challenge against the per diem statutes but instead contest the application of those statutes regarding interest on mortgage loans. Quicken Loans has withdrawn any facial challenge and waived the opportunity to assert a ripe facial takings claim. Subsequently, the judgment in favor of Quicken on the DIDMCA claim is vacated, while the judgment denying a permanent injunction on the DIDMCA claim, granting summary judgment on the Parity Act claim, and dismissing the takings claim is affirmed. The case is vacated in part, affirmed in part, and remanded, with the Commissioner entitled to recover costs on appeal.