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Jose Aguayo, An Individual v. U.S. Bank

August 1, 2011


Appeal from the United States District Court for the Southern District of California Thomas J. Whelan, Senior District Judge, Presiding D.C. No.3:08-cv-02139-W-BLM

The opinion of the court was delivered by: Zouhary, District Judge:



Argued and Submitted February 9, 2011-Pasadena, California

Before: Harry Pregerson and Kim McLane Wardlaw, Circuit Judges, and Jack Zouhary, District Judge.*fn1

Opinion by Judge Zouhary



Jose Aguayo ("Aguayo") appeals the district court's grant of Defendant U.S. Bank N.A.'s ("U.S. Bank") motion to dismiss. Aguayo claims U.S. Bank violated a section of California's Rees-Levering Act that requires a car loan lender to provide certain post-repossession notices to a defaulting borrower prior to selling the repossessed car. If the lender fails to provide the required notices, the lender is barred from collecting any remaining deficiency after the car is sold. Aguayo argues that because the notices he received from U.S. Bank did not contain all the information required under the relevant section of the Rees-Levering Act, U.S. Bank is barred from collecting any deficiency. U.S. Bank argues the ReesLevering post-repossession notice requirements are preempted by the National Bank Act ("NBA") and its regulations. Because the Rees-Levering Act sections at issue are directed toward debt collection and are therefore not preempted by the NBA, we reverse.


A. Factual Background

In August 2003, Aguayo purchased a Ford Expedition from the Star Ford dealership in Glendale, California. Like many car buyers, Aguayo financed the purchase of the Expedition through the dealership. Aguayo signed a standard Retail Installment Sale Contract ("RIC") that detailed the financing terms of his purchase. Shortly after the purchase, and unbeknownst to Aguayo, Star Ford assigned the RIC to U.S. Bank.

A few years later, Aguayo fell behind on his car payments, defaulted on the loan, and U.S. Bank repossessed the Expedi- tion. Aguayo does not dispute U.S. Bank's right to purchase the RIC from Star Ford and assume the contract terms as an assignee, nor does Aguayo challenge U.S. Bank's repossession of the car.

After the Expedition was repossessed in August 2007, U.S. Bank sent Aguayo a "Notice of Our Plan to Sell Property" which stated the car would be sold sometime after September 3, 2007. Enclosed with the Notice were two other documents. The first was a "Request for Extension" by which Aguayo could request a ten-day extension of the deadline to redeem the car. The second document was a "California Redemption Letter with an Extension Agreement Accompanied." The Letter provided details about the amount of Aguayo's overdue payments and the total amounts due for Aguayo to either redeem the car or reinstate the contract. The Letter also contained a conspicuous notice, located at the bottom of the page and written in bold, all capital letters, that stated Aguayo may be subject to suit and liability for any deficiencies if U.S. Bank's sale of the car was not sufficient to satisfy the balance of the contract. The Letter, while closely tracking, did not contain all the information required under the Rees-Levering Act.

After sending the August 2007 Notice, U.S. Bank eventually sold the Expedition when Aguayo did not redeem the car. Because the sale proceeds were not sufficient to satisfy the contract, U.S. Bank sought to recover the deficiency from Aguayo. In response, Aguayo filed the lawsuit that forms the basis for this appeal.

B. Procedural Background

Aguayo filed his original action in California state court on behalf of himself and a proposed class of other similarly situated California consumers. Using the California Unfair Competition Law ("UCL") as a procedural vehicle, Aguayo alleges U.S. Bank's failure to provide post-repossession notices in accordance with certain sections of the ReesLevering Act constituted unlawful, unfair, and fraudulent practices under the three prongs of the UCL. Aguayo further argues that U.S. Bank forfeited its right to collect any deficiency debt under California law by failing to comply with the Rees-Levering Act's post-repossession notice requirements. Accordingly, Aguayo claims U.S. Bank's demands for deficiency payments were improper and requests monetary relief for himself and similar deficiency claims paid by the proposed class in the last four years. Aguayo also seeks injunctive relief to prevent U.S. Bank from making improper deficiency claims in the future.

U.S. Bank timely removed the action, asserting that the requested relief for the proposed class would satisfy the removal requirements under the Class Action Fairness Act, 28 U.S.C. § 1332(d)(2)(A). U.S. Bank then moved to dismiss the case, arguing the NBA and regulations promulgated by the Office of the Comptroller of the Currency ("OCC") preempt the California Rees-Levering Act notice provisions. U.S. Bank claims the requirements interfere with its federal authority to carry on the business of banking free from state-law restrictions. Furthermore, because Aguayo's cause of action under the UCL was predicated on the alleged Rees-Levering Act violation, U.S. Bank argues Aguayo's entire claim should be dismissed.

The district court dismissed the case, finding the ReesLevering Act repossession notice requirements were expressly preempted by the NBA and OCC regulations. Aguayo v. U.S. Bank, 658 F. Supp. 2d 1226, 1235 (S.D. Cal. 2009).


The district court had jurisdiction under 28 U.S.C. §§ 1332(d)(2) and 1441(a). We have jurisdiction pursuant to 28 U.S.C. § 1291. We review de novo a district court's dismissal for failure to state a claim under Federal Civil Rule 12(b)(6). Nw. Envtl. Def. Ctr. v. Brown, 640 F.3d 1063, 1069 (9th Cir. 2011). "Questions of statutory interpretation are reviewed de novo, as are questions of preemption." Lopez v. Wash. Mut. Bank, 302 F.3d 900, 903 (9th Cir. 2002) (citations omitted); see also Toumajian v. Frailey, 135 F.3d 648, 652 (9th Cir. 1998) ("[P]reemption is also a question of law reviewed de novo."). A complaint must not be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts in support of the claim that would entitle the plaintiff to relief. Homedics, Inc. v. Valley Forge Ins. Co., 315 F.3d 1135, 1138 (9th Cir. 2003). All allegations of material fact in Aguayo's Complaint are taken as true and construed in the light most favorable to Aguayo as the non-moving party. Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995).


There are "two cornerstones" of preemption jurisprudence. Wyeth v. Levine, 555 U.S. 555, 129 S. Ct. 1187, 1194 (2009). "First, 'the purpose of Congress is the ultimate touchstone in every pre-emption case.' " Id. (quoting Medtronic, Inc. v. Lohr, 518 U.S. 470, 485 (1996)). Second, "[i]n all preemption cases, and particularly in those in which Congress has 'legislated . . . in a field which the States have traditionally occupied,' . . . we 'start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.' " Id. at 1194-95 (quoting Lohr, 518 U.S. at 485).

Aguayo's claims, rooted in California's consumer-protection laws, fall in an area that is traditionally within the state's police powers to protect its own citizens. "Because consumer protection law is a field traditionally regulated by the states, compelling evidence of an intention to preempt is required in this area." Gen. Motors Corp. v. Abrams, 897 F.2d 34, 41-42 (2d Cir. 1990).*fn2

This Court has previously expressed three ways a federal law may preempt state law:

First, Congress may preempt state law by so stating in express terms. Second, preemption may be inferred when federal regulation in a particular field is so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it. In such cases of field preemption, the mere volume and complexity of federal regulations demonstrate an implicit congressional intent to displace all state law. Third, preemption may be implied when state law actually conflicts with federal law. Such a conflict arises when compliance with both federal and state regulations is a physical impossibility, or when state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.

Bank of Am., 309 F.3d at 558 (internal quotation marks and citations omitted). These three forms of preemption are commonly referred to as express, field, and conflict preemption, respectively. Regardless of the name attached to the type of preemption, the dispositive issue in any federal preemption question remains congressional intent. Barnett Bank of Marion Cnty., N.A. v. Nelson, 517 U.S. 25, 30 (1996). "Did Congress, in enacting the Federal Statute, intend to exercise its constitutionally delegated authority to set aside the laws of a State? If so, the Supremacy Clause requires courts to follow federal, not state, law." Id.

The district court relied on express preemption, holding that the post-repossession notices required under the ReesLevering Act are preempted by regulations promulgated under the NBA by which national banks are exempt from state laws concerning "[d]isclosure and advertising, including laws requiring specific statements, information, or other content to be included in credit application forms, credit solicitations, billing statements, credit contracts, or other credit-related documents[.]" Aguayo, 658 F. Supp. 2d at 1232-33 (quoting 12 C.F.R. § 7.4008(d)(2)(viii)). Specifically, the district court held the Rees-Levering notice requirements are "disclosures" under the terms of the regulation. Aguayo, 658 F. Supp. 2d at 1232 ("The Rees-Levering post-repossession notice standards are undoubtedly disclosure requirements."). The district court then analyzed whether the Rees-Levering notices were "credit-related documents" under the regulation. Id. ("[T]he real question is whether the post-repossession notice qualifies as an 'other credit-related document' under section 7.4008(d)(2)(viii)."). Finding that U.S. Bank's post-repossession notice was "issued . . . during its continuing credit relationship with Aguayo . . . [and is thus] a 'credit-related document' under section 7.4008(d)(2)(viii)[,]" the district court held the provisions of the Rees-Levering Act requiring specific post-repossession notices are preempted. Id. at 1233.

The district court also acknowledged, but refused to apply, the savings clause found in Subsection (e) of the same regulation. Id. at 1234. The savings clause explicitly lists state laws that are not preempted, including state laws pertaining to "contracts" and "rights to collect debts." 12 C.F.R. ยง 7.4008(e)(1), (4). Because the district court erred in refusing to apply the regulation's savings clause, and because the Rees-Levering ...

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