United States District Court, N.D. California
WILLIAM KIVETT, individually and on behalf of others similarly situated, Plaintiff,
FLAGSTAR BANK, FSB, a federal savings bank, and DOES 1-100, inclusive, Defendant.
ORDER GRANTING CLASS CERTIFICATION AND MOTION TO
WILLIAM ALSUP, UNITED STATES DISTRICT JUDGE
putative class action, plaintiff moves for class
certification and for new plaintiffs to intervene with leave
to amend the complaint. To the extent stated herein, both
motions are Granted.
Civil Code § 2954.8(a) requires “[e]very financial
institution that makes loans upon the security of real
property containing only a one- to four-family residence and
located in this state” to “pay interest on the
amount so held to the borrower.” Defendant Flagstar
Bank, FSB is a federal savings bank that makes the loans
covered by Section 2954.8(a).
2010, the enshrinement of the Dodd-Frank Wall Street Reform
and Consumer Protection Act changed the federal preemption
scheme for banks and federal savings associations. See,
e.g., Dodd-Frank Act § 1046 (codified at 12 U.S.C.
§ 1465). In 2018, our court of appeals relied on this
change to hold that the National Bank Act - which governs
national banks - did not preempt Section 2954.8(a).
Lusnak v. Bank of Am., N.A., 883 F.3d 1185, 1194
(9th Cir. 2018). The instant action is one of three pending
actions in the wake of Lusnak to allege violation of
Section 2954.8(a). See also McShannock v. JP Morgan Chase
Bank N.A., 354 F.Supp.3d 1063 (N.D. Cal. 2018) (Judge
Edward Chen); Wilde v. Flagstar Bank FSB, No.
18-cv-1370-LAB (BGS), 2019 WL 1099841 (S.D. Cal. Mar. 8,
2019) (Chief Judge Larry Alan Burns). Judge Edward Chen has
since certified for interlocutory appeal the question of
whether the Home Owners' Loan Act preempts state law
claims. McShannock v. JP Morgan Chase Bank N.A., No.
18-cv-01873-EMC, 2019 WL 955289, at *1 (N.D. Cal. Feb. 27,
civil action began in April 2018, filed by Lowell and Gina
Smith. The Smiths alleged that in October 2004, they had
obtained a mortgage loan to finance their purchase of real
property located in California. The Smiths had executed a
deed of trust as security for the loan. The deed of trust
called for the establishment of an escrow impound account and
required that interest be paid on funds in the escrow account
if doing so was required by applicable law. Flagstar then
took over the servicing of the Smiths' mortgage account
and remained the loan servicer until August 2015. No.
interest accrued on the funds (No. 18-02350, Dkt. No. 1).
Smiths' complaint alleged two claims against Flagstar:
(i) breach of contract, and (ii) violation of
California's Unfair Competition Law, California Business
& Professions Code §§ 17200 et seq. In
August 2018, a Rule 12 order dismissed that complaint without
prejudice due to the Smiths' failure to comply with a
threshold notice-and-cure requirement provided by the deed of
trust. Judgment then entered in favor of Flagstar and against
the Smiths (No. 18-02350, Dkt. Nos. 1, 38).
Smiths quickly provided Flagstar written notice and an
opportunity to cure, which Flagstar refused. Having fixed the
cure issue, the Smiths filed the instant suit, alleging the
same claims on the same facts as before (No. 18-05131, Dkt.
October 2018, William Kivett came in as another plaintiff. He
only alleged a violation of Section 17200 (Dkt. No. 30 at 2).
He alleged that he had obtained a mortgage loan from Flagstar
in September 2012. Flagstar serviced his loan from the
loan's inception in 2012 until he refinanced with another
institution in April 2015. Flagstar held his money in an
escrow account during that time. No. interest accrued on the
account. In September 2018, plaintiff Kivett gave written
notice and demand for cure, which Flagstar denied (First Amd.
Compl. ¶¶ 19, 22-24) (Dkt. No. 16).
December 2018, a case management schedule set a deadline of
January 30, 2019, for leave to add any new parties or to
amend the pleadings (Dkt. No. 28). Rule 12 practice followed
as to the Smiths but not to plaintiff Kivett. In February
2019, an order converted Flagstar's motion to dismiss
into one for summary judgment under Rule 12(d).
bottom, Flagstar's motion presented a threshold issue as
to whether or not the Home Owners' Loan Act preempted the
Smiths' claims. To be clear, the enactment of the
Dodd-Frank Act in 2010 had generally ended HOLA preemption.
Section 1043 of the Dodd-Frank Act, however, preserved
HOLA's preemption scheme for any contract entered
into on or before July 21, 2010, “by national
banks, [f]ederal savings associations, or subsidiaries
thereof . . . .” 12 U.S.C. § 5553. The Smiths had
obtained their mortgage in October 2004.
preemption argument veered outside the complaint. Flagstar
sought judicial notice of the Smiths' promissory note to
establish that Flagstar participated in the origination of
the Smiths' loan and became its original servicer
immediately after origination. The Smiths, however, countered
that the deed of trust clearly identified Wholesale America
Mortgage as the lender, not Flagstar. Owing to the importance
of this factual question and because “matters outside
the pleading [were] presented to and not excluded by the
court, ” the motion to dismiss became one for summary
judgment (Dkt. Nos. 26-1, 29, 37).
discovery and further briefing, summary judgment issued in
favor of Flagstar (Dkt. No. 63). In brief, the order hewed to
a practical construction of the Dodd-Frank Act's phrase
“entered into, ” determining that even though
Flagstar had not directly entered into the contract
with the Smiths, it sufficed that Flagstar had participated
in the origination of the Smiths' loan in 2004. Put
simply, the Smiths' claims were still preempted by the
Home Owners' Loan Act. With the Smiths out of the
picture, the sole surviving plaintiff and claim in this
action became plaintiff Kivett and his claim under Section
17200. This brings us to the two instant motions.
plaintiff Kivett seeks to certify a single class of 125, 189
Flagstar customers who, from April 18, 2014, onward, have not
received two percent interest on the amounts Flagstar held in
their mortgage escrow accounts (Dkt. No. 65). More
specifically, plaintiff Kivett seeks to certify the following
class pursuant to Rule 23(b)(3):
All persons who on or after April 18, 2014 had mortgage loans
serviced by Flagstar Bank FSB (“Flagstar”) on 1-4
unit residential properties in California and paid Flagstar
money in advance to hold in escrow for the payment of taxes
and assessments on the property, for insurance, or for other
purposes relating to the property, but did not receive
interest on the amounts held by Flagstar in their escrow
accounts (excluding, however, any such persons whose mortgage
loans originated on or before July 21, 2010).
class plaintiff Kivett seeks to represent will be within the
four-year statute of limitations counting from the filing of
the complaint in the first action. The proposed
class would also exclude the mortgage loans that originated
before July 21, 2010, for which the claims continue to be
preempted. Flagstar opposes plaintiff Kivett's motion for
class certification, training all its fire on one Rule 23
plaintiff Kivett also moves for Bernard and Lisa Bravo to
intervene in this action and to amend the complaint. The
primary purpose for this motion is to add a class member
currently serviced by Flagstar to ensure standing
for an injunction and a class under Rule 23(b)(2), as
plaintiff Kivett has not been a Flagstar customer since 2015.