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FLAGG v. YONKERS SAVINGS AND LOAN ASSOCIATION

United States District Court, S.D. New York


March 8, 2004.

HANS W. FLAGG and EILEEN S. FLAGG, on behalf of themselves and all others similarly situated, Plaintiffs, -against- YONKERS SAVINGS AND LOAN ASSOCIATION, FA (a/k/a YONKERS FINANCIAL), Defendant

The opinion of the court was delivered by: WILLIAM CONNER, Senior District Judge Page 1

OPINION AND ORDER

Plaintiffs Hans W. Flagg and Eileen S. Flagg, on behalf of themselves and all others similarly situated, bring this action against defendant Yonkers Savings and Loan Association, a/k/a Yonkers Financial ("Yonkers"),*fn1 seeking declarations: (1) pursuant to 28 U.S.C. § 2201 that federal law neither preempts nor precludes the applicability of New York statutes requiring the payment of interest on escrow accounts; (2) pursuant to 28 U.S.C. § 2202 that defendant's actions in connection with the mortgages of plaintiffs and the putative class violated N.Y. GEN. OBLIG. LAW § 5-601; GEN. Bus. LAW § 349, BANKING LAW §§ 14-b and 6-k, REAL PROP. TAX LAW § 953(2) and constitute breach of contract and unjust enrichment; and (3) pursuant to 28 U.S.C. § 2202 that plaintiffs and the putative class are entitled to compensatory damages or disgorgement or restitution in an amount to be determined at trial.*fn2 In the alternative, should this Court hold that the federal regulations preempt the state statutes, plaintiffs seek a declaration that the federal regulations constitute a taking under the Fifth Amendment that entitles them to just compensation. Plaintiffs also seek certification of this case as a class action pursuant to FED. R. CIV. P. 23 with plaintiffs certified as class representatives.*fn3 Defendant has moved pursuant to FED. R. CIV. P. 12(b)(6) to dismiss the Complaint with prejudice for failure to state a claim on which relief can be granted. Plaintiffs have cross moved Page 2 pursuant to FED. R. CIV. P. 56 and 23 for summary judgment and class certification. For the reasons set forth herein, we grant defendant's Rule 12(b)(6) motion to dismiss the Complaint with prejudice and deny as moot plaintiffs' Rule 56 cross motion for summary judgment.*fn4

BACKGROUND

  The facts underlying this dispute are simple and undisputed. Plaintiffs entered into a mortgage contract with defendant on June 12, 1998, in connection with a loan on their residence in Scarsdale, New York. (Pls. Rule 56.1 Stmt. ¶ 1; Complt. ¶ 6.) That contract included a provision governing funds held in escrow by defendant to pay for, inter alia, taxes, assessments and insurance, entitled "Lender's Obligations." (Pls. Rule 56.1 Stmt. ¶ 2.) This provision provides in relevant part:

Lender will not be required to pay me any interest or earnings on the funds unless either (i) Lender and I agree in writing, at the time I sign this Security Instrument, that Lender will pay interest on the Funds; or (ii) the law requires Lender to pay interest on the Funds.
With respect to the governing law, the mortgage agreement states:
This Security Instrument is governed by federal law and the law that applies in the place where the Property is located. If any term of this Security Instrument or of the Note conflicts with the law, all other terms of this Security Instrument and of the Note will remain in effect if they can be given effect without the conflicting term. This means that any terms of this Security Instrument and of the Note which conflict with the law can be separated from the remaining terms, and the remaining terms will still be enforced.
(Pls. Rule 56.1 Stmt. ¶ 3 (emphasis added).) Pursuant to this agreement, plaintiffs deposited more than $4,000 into the escrow account with defendant at the time that their loan closed, and the balance Page 3 of that account sometimes exceeded $6,000 during the life of that loan. (Id. ¶ 4.) Defendant never paid plaintiffs interest on that account before Yonkers merged with Atlantic Bank in May 2002. (Id. ¶ 5.) After the merger, Atlantic Bank began to pay plaintiffs interest on their escrow account. (Id. 16.)

  DISCUSSION

 I. Standard of Review

  On a motion to dismiss pursuant to FED. R. CIV. P. 12(b)(6), the court must accept as true all of the well pleaded facts and consider those facts in the light most favorable to the plaintiff. See Warth v. Seldin, 422 U.S. 490, 501 (1975); Hertz Corp. v. City of New York, 1 F.3d 121, 125 (2d Cir. 1993); In re AES Corp. Sec. Litig., 825 F. Supp. 578, 583 (S.D.N.Y. 1993) (Conner, J.). On such a motion, the issue is "whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984). A complaint should not be dismissed for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Padavan v. United States, 82 F.3d 23, 26 (2d Cir. 1996) (quoting Hughes v. Rowe, 449 U.S. 5, 10 (1980)). Generally, "[c]onclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss." 2 JAMES WM. MOORE ET AL., MOORE'S FEDERAL PRACTICE § 12.34 [l][b] (3d ed. 1997); see also Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1088 (2d Cir. 1995). Allegations that are so conclusory that they fail to give notice of the basic events and circumstances of which the plaintiff complains, are insufficient as a matter of law. See Martin v. N.Y.S.tate Dep't of Mental Hygiene, 588 F.2d 371, 372 (2d Cir. 1978). Page 4

 II. Whether the New York Escrow Account Interest Statutes are Preempted

  Defendant claims that regulations implemented by the Office of Thrift Supervision ("OTS") pursuant to the Home Owners Loan Act, 12 U.S.C. § 1464(a) (the "HOLA Regulations") preempt those New York state statutes that require the payment of interest on escrow funds because those regulations completely occupy the field of regulating federal savings associations and do not require interest payments in the absence of a written agreement to that effect. (Def. Mem. Supp. Mot. Dismiss at 4, 8.) Defendant also claims that the preemptive effect of these regulations is not vitiated by the Real Estate Settlement Procedures Act of 1974 ("RESPA"). (Id. at 10.) Plaintiffs contend otherwise. We begin our analysis with a review of the statutes and regulations at issue.

  A. Review of the State and Federal Statutes and Regulations at Issue

  The HOLA Regulations are promulgated pursuant to 12 U.S.C. § 1463(a)*fn5 and 1464(a).*fn6 Page 5 With respect to federal preemption as to the operation of federal savings associations, 12 C.F.R. § 545.2 provides generally:

The regulations in this Part 545 are promulgated pursuant to the plenary and exclusive authority of the Office to regulate all aspects of the operations of Federal savings associations, as set forth in section 5(a) of the Act. This exercise of the Office's authority is preemptive of any state law purporting to address the subject of the operations of a Federal savings association.
Id. (emphasis added). The HOLA Regulation governing preemption with respect to the lending and investment practices of federal savings associations is 12 C.F.R. § 560.2(a), which provides:

  Pursuant to sections 4(a) and 5(a) of the HOLA, 12 U.S.C. § 1463(a), 1464(a), OTS is authorized to promulgate regulations that preempt state laws affecting the operations of federal savings associations when deemed appropriate to facilitate the safe and sound operation of federal savings associations, to enable federal savings associations to conduct their operations in accordance with the best practices of thrift institutions in the United States, or to further other purposes of the HOLA. 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 public free from undue regulatory duplication and burden), OTS hereby occupies the entire field of lending regulation for federal savings associations. OTS intends to give federal savings associations maximum flexibility to exercise their lending powers in accordance with a uniform federal scheme of regulation. Accordingly, federal savings associations may extend credit as authorized under federal law, including this part, without regard to state laws purporting to regulate or otherwise affect their credit activities, except to the extent provided in paragraph (c) of this section or § 560.110 of this part.*fn7 For purposes of this section, "state law" includes any state statute, regulation, ruling, order or judicial decision. Page 6

 Id. (emphasis added). Section 560.2 also provides "illustrative examples" of "the types of state laws preempted by paragraph (a) of this section" and states that they "include, without limitation, state laws purporting to impose requirements regarding . . . Escrow accounts, impound accounts, and similar accounts." Id. § 560.2(b)(6) (emphasis added). Section 560.2 then sets forth a list of state laws that are not preempted; this list does not mention escrow accounts or other laws relating to interest. See id. § 560.2(c).*fn8 This chapter does not contain a regulation specifically requiring the payment of interest by lenders on funds held in escrow accounts.

  New York has, however, several state statutes governing mortgage lending institutions that do require the payment of interest on escrow accounts. N.Y. GEN. OBLIG. LAW § 5-601 provides in relevant part:

  Any mortgage investing institution which maintains an escrow account pursuant to any agreement executed in connection with a mortgage on any one to six family residence occupied by the owner or on any property owned by a cooperative apartment corporation, . . . located in this state shall, for each quarterly period in which such escrow account is established, credit the same with dividends or Page 7 interest at a rate of not less than two per centum per year based on the average of the sums so paid for the average length of time on deposit or a rate prescribed by the banking board pursuant to section fourteen-b of the banking law and pursuant to the terms and conditions set forth in that section whichever is higher. The banking board shall prescribe by regulation the method or basis of computing any minimum rate of interest required by this section and any such minimum rate shall be a net rate over and above any service charge that may be imposed by any mortgage lending institution for maintaining an escrow account. . . .

 With respect to specific escrow accounts, N.Y. REAL PROP. TAX LAW § 953 prescribes the duties and responsibilities of mortgage investing institutions concerning real property tax escrow accounts and provides, inter alia, that:

Every mortgage investing institution subject to the provisions of section fourteen-b of the banking law shall pay at least the minimum rate of interest on each real property tax escrow account as prescribed therein except that any such mortgage investing institution shall not be required to pay such minimum rate of interest on real property tax escrow accounts established for non-mortgagors.
Id. § 953(2). N.Y. BANKING LAW § 6-k(2)(b) governs the duties of mortgage investing institutions relating to real property insurance escrow accounts and provides that "[every] mortgage investing institution shall pay at least the minimum rate of interest on each real property insurance escrow account as prescribed therein." The interest rates to be paid under these state escrow provisions are set by the state banking board pursuant to procedures set forth in N.Y. BANKING LAW § 14-b.*fn9 Page 8

  B. Preemption Analysis

  "Within constitutional limits, federal preemption of state law is found where Congress has explicitly expressed its intent to preempt, or where the nature and object of the federal laws and regulatory scheme show Congress' intent to occupy the entire field." Ingham Micro, Inc. v. Airborne Cargo Exp., Inc., 154 F. Supp.2d 834, 838 (S.D.N.Y. 2001). The Second Circuit has described the Supremacy Clause origin of the preemption doctrines:

The Supremacy Clause of the United States Constitution provides that "[t]his Constitution, and the Laws of the United States which shall be made in Pursuance thereof . . . shall be the supreme Law of the Land." U.S. CONST, art. VI, cl. 2. State law is preempted explicitly where Congress states an intent to occupy a field and to exclude state regulation. State law is preempted implicitly where the federal interest in the subject matter regulated is so pervasive that no room remains for state action, indicating an implicit intent to occupy the field, or where the state regulation at issue conflicts with federal law or stands as an obstacle to the accomplishment of its objectives.
Rondout Elec., Inc. v. N.Y. State Dep't of Labor, 335 F.3d 162, 166 (2d Cir. 2003) (citing, inter alia, Fid. Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 153 (1982)), cert. denied, 124 S.Ct. 1045 (2004). Moreover, "[f]ederal law may preempt state regulation in whole or in part." Id.

  "Federal regulations have no less preemptive effect than federal statutes." de la Cuesta, 458 U.S. at 153. When Congress "has directed an administrator to exercise his discretion, his judgments are subject to judicial review only to determine whether he has exceeded his statutory authority or acted arbitrarily." Id. at 153-54. This limited inquiry applies to regulations promulgated with the intention of preempting state law. Id. at 154. Thus, if the administrator's "`choice represents a Page 9 reasonable accommodation of conflicting policies that were committed to the agency's care by the statute, [the courts] should not disturb it unless it appears from the statute or its legislative history that the accommodation is not one that Congress would have sanctioned.'" Id. (quoting United States v. Shimer, 367 U.S. 374, 383 (1961)). Finally, a "pre-emptive regulation's force does not depend on express congressional authorization to displace state law; moreover, whether the administrator failed to exercise an option to promulgate regulations which did not disturb state law is not dispositive." Id.

  In determining whether the HOLA Regulations preempt state law, we must consider "whether the regulations evidence a desire to occupy a field completely. . . . Pre-emption, [however], should not be inferred, however, simply because the agency's regulations are comprehensive." R.J. Reynolds Tobacco Co. v. Durham County, N.C., 479 U.S. 130, 149 (1986) (citations omitted) (citing de la Cuesta, 458 U.S. at 153-54, and Hillsborough County v. Automated Med. Labs., Inc., 471 U.S. 707, 716-18 (1985)) (noting that "the present statutes and regulations that guide this monitoring and the warehouse proprietor's own conduct with respect to the imported goods are not so comprehensive as to leave no room for North Carolina's assessment of ad valorem taxes" in concluding that Congress has not "exercised its power under the Supremacy Clause to pre-empt ad valorem state taxation of imported goods that are stored in customs-bonded warehouses and that are destined for domestic markets"). Moreover, "as long as a federal statute contains an express preemption clause, it is wholly unnecessary and inappropriate to import notions of implied preemption through conflict into the express preemption analysis." Dow Agrosciences LLC v. Bates, 332 F.3d 323, 329-30 (5th Cir. 2003) (footnotes omitted) (discussing Cipollone v. Liggett Group, Inc., 505 U.S. 504, 517, 531-32, 544 (1992) (plurality opinion)), petition for cert. filed, 72 U.S.L.W. Page 10 3184 (U.S. Sept. 9, 2003) (No. 03-388). Thus, if the legislation includes a specific preemption provision, "`the Court's task is one of statutory interpretation-only to identify the domain expressly preempted by the provision.'" Dow Agrosciences, 332 F.3d at 330 n.12 (quoting Cipollone, 505 U.S. at 532 (Blackmun, J., concurring in part and dissenting in part)).

  Defendant, citing the preamble to the HOLA Regulations and several opinion letters authored by OTS's chief counsel, claims that the HOLA Regulations preempt the New York escrow statutes because they expressly occupy the entire field of lending by federal associations and leave the payment of interest on escrow accounts to be governed by the loan agreement. (Def Mem. Supp. Mot. Dismiss at 4-6, 8.) In response, plaintiffs claim that the regulations, preamble and interpretive letters are unreasonable as applied and entitled to no deference because the HOLA Regulations could not occupy the entire field since they do not include a regulation governing the payment of interest in connection with escrow accounts and specifically defer to RESPA with respect to such accounts. (Pls. Mem. Supp. Summ. J. at 9-11, 16.) We conclude that the New York escrow account interest statutes are preempted because the HOLA Regulations occupy the entire field of governing federal loan associations.

  1. The Preemptive Language of the Regulations

  Occupation of the entire field is primarily evinced by the plain text of the applicable regulations. For example, 12 C.F.R. § 560.2(a), the Regulation that governs federal preemption in the lending and investment practices of federal savings associations,*fn10 states explicitly that it Page 11 "occupies the entire field of lending regulation for federal savings associations" and that such associations "may extend credit without regard to state laws purporting to regulate or otherwise affect their credit activities." Id. (emphasis added). Indeed, as stated previously, the express exemptions from preemption under this regulation are indisputably inapplicable in the present case. See supra notes 7-8. Most tellingly, state laws pertaining to escrow accounts are explicitly included as an "illustrative example" of state laws that are preempted by the OTS regulations. Id. § 560.2(b).

  2. The Preamble and the Regulatory History

  This evidence of OTS's preemptive intent is further reinforced by the preamble to 12 C.F.R. § 560.2, as published in the Federal Register. According to the preamble, § 560.2 was intended to "set[] forth OTS's longstanding position, as developed in case law and legal opinions by both OTS and its predecessor, the FHLBB,*fn11 and as reflected in § 545.2, on the federal preemption of state laws affecting the lending activities of federal savings associations." It was promulgated when OTS moved "its lending regulations out of Part 545 and, thus, separate[d] them from its general preemption regulation, § 545.2." OTS Final Rule, 61 Fed. Reg. 50,951, 50,965 (Sept. 30, 1996) (codified at 12 C.F.R. pts. 545, 556, 560, 563, 566, 571 and 590). Indeed, the new preemption regulation was expressly intended "to confirm and carry forward [OTS's] existing preemption position." Id.

  Substantively, the HOLA Regulations are silent on the topic of the payment of interest on escrow accounts. This silence is by design; in 1983, the FHLBB promulgated regulations that "remove[d] the [existing] substantive provisions pertaining to escrow accounts, allowing such Page 12 matters to be governed by the loan contract, and in their place require a more detailed disclosure about the accounts." Rules and Regulations of Federal Home Loan Bank Board, 48 Fed. Reg. 23,032, 23,039 (May 23, 1983) (codified at 12 C.F.R. pts. 523, 526, 541, 545, 555, 561 and 563). Among these deleted provisions was a section requiring the payment of interest on escrow accounts by lenders if the state wherein the security dwelling was located had a statute requiring such payments. See First Fed. Sav. & Loan Ass'n v. Greenwald, 591 F.2d 417, 420 & n.3 (1st Cir. 1979) (describing previous regulation). That provision was deleted because the 1983 revision "only referenc[es] the requirements of RESPA" and allows lenders to "require escrow accounts to the extent agreed to in the loan contract," subject to new disclosure requirements as to the escrow account's purpose, computation of amount paid and the rights of the lender if the borrower fails to make escrow payments. Rules and Regulations of Federal Home Loan Bank Board, 48 Fed. Reg. at 23,039.

  3. Agency Interpretations of the HOLA Regulations

  Moreover, our conclusion is consistent with the position that OTS has taken with respect to the broad preemptive effect of the HOLA Regulations on other matters. Indeed, in 1991, OTS concluded that N.Y. REAL PROP. TAX LAW § 953, a statute at issue in this case, see supra Part II.A., was preempted by the more general preemption statement of 12 C.F.R. § 545.2 "insofar as it purports to regulate interest payments, service charges, and the disclosure of information on escrow accounts for mortgages between Federal savings associations and their borrowers." Opinion Letter by Chief Counsel Harris Weinstein, at 1 (Jan. 3, 1991). That letter noted the regulatory history of the 1983 revision, and concluded that "escrow accounts on mortgage loans are among the operations of federal Page 13 savings associations that are governed solely by federal law." Id. at 3-4. Moreover, OTS has continued to endorse a construction that gives broad preemptive effect to the HOLA Regulations.*fn12 See Opinion Letter by Chief Counsel Carolyn J. Buck, at 17-18 (Mar. 10, 1999) (relying on 12 C.F.R. § 560.2 and examples cited therein to conclude that the HOLA Regulations preempt application of the broad provisions of the California Unfair Competition Act in a manner that would apply to federally chartered loan associations' advertising, forced placement of hazard insurance and charging of loan-related fees); Opinion Letter by Chief Counsel Carolyn J. Buck, at 1 (Dec. 24, 1996) (concluding with respect to credit card issuance by federally chartered savings association that "federal law does not preempt the cited Indiana law prohibiting fraudulent and deceptive loan practices" but does preempt Indiana statutes that "pertain to disclosure and loan-related charges" that are within the purview of § 560.2). "An agency's consistent interpretation of its regulations is to be given controlling weight unless plainly erroneous or inconsistent with the regulation." Taylor v. Vt. Dep't of Educ., 313 F.3d 768, 780 (2d Cir. 2002). Moreover, this deference extends to interpretive positions taken in opinion or policy letters issued by the agency. See id. at 780 & n.7. Given the preemptive language of 12 C.F.R. § 560.2 and the various examples discussed therein, OTS's Page 14 construction of that language is neither inconsistent nor plainly erroneous, and thus is entitled to deference by this Court. Indeed, our conclusion is in accord with Wis. League of Fin. Insts., Ltd. v. Galecki, 707 F. Supp. 401 (W.D. Wis. 1989), wherein the court concluded that a Wisconsin state statute requiring lenders, including federally chartered savings institutions, to pay interest on escrow accounts was preempted explicitly by the statement in 12 C.F.R. § 545.2 and implicitly by the structure and purpose of the federal regulations, which was to create flexibility in the negotiation of escrow arrangements. Id. at 404-06. Accordingly, we disagree with plaintiffs' contention that OTS cannot occupy a field wherein it has not issued specific regulations (Pls. Mem. Supp. Summ. J. at 11) and we conclude that the New York escrow account interest statutes are preempted by the HOLA Regulations.

  C. Whether Preemption is Consistent with the HOLA and RESPA Statutes

  Plaintiffs claim, however, that this preemptive effect is inconsistent with both HOLA and RESPA, to which OTS has deferred with respect to escrow accounts. (Pls. Mem. Supp. Summ. J. at 12-13.) We address each claim in turn.

  1. Whether the HOLA Regulations are Consistent with HOLA

  With respect to HOLA, plaintiffs cite 12 U.S.C. § 1464(n)(1), and claim that HOLA specifically subjects federal savings associations to state laws. Section 1464(n) governs federal savings associations acting as trustees or in other fiduciary capacities. In particular, § 1464(n)(1) describes the applicable permitting process: Page 15

 

The Director may grant by special permit to a Federal savings association applying therefor the right to act as trustee, executor, administrator, guardian, or in any other fiduciary capacity in which State banks, trust companies, or other corporations which compete with Federal savings associations are permitted to act under the laws of the State in which the Federal savings association is located. Subject to the regulations of the Director, service corporations may invest in State or federally chartered corporations which are located in the State in which the home office of the Federal savings association is located and which are engaged in trust activities.
Furthermore, plaintiffs cite Jamaica Sav. Bank v. Lefkowitz, 390 F. Supp. 1357 (E.D.N.Y.), aff'd without opinion, 423 U.S. 802 (1975), in support of the proposition that a "federal savings association is acting as a `trustee . . . or in [another] fiduciary capacity' in connection with the escrow deposits of plaintiffs and the Class," and thus is subject to the same rights and conditions as state associations under § 1464(n)(1). (Pls. Mem. Supp. Summ. J. at 12-13.)

  We conclude that § 1464(n)(1) does not subject federal savings associations to state laws with respect to the payment of interest on escrow accounts. We do not read the language of that subsection as imposing any specific substantive state law standards on the conduct of federal savings associations acting as fiduciaries. Our reading is further reinforced because § 1464(n) contains other subsections that do in fact affirmatively and expressly direct federal savings institutions to follow state laws with respect to deposits and oaths and affidavits, namely, § 1464(n)(5)*fn13 and § Page 16 1464(n)(6).*fn14 Moreover, the section of Jamaica Savings Bank cited by plaintiffs is inapposite because it does not relate to a preemption issue; rather, it concluded that the New York escrow account interest statutes did not amount to an unconstitutional taking because the bank "did not obtain an ultimate beneficial interest in the funds for itself," but nevertheless realized profits from their investment that should be shared with mortgagors. 390 F. Supp. at 1363. Accordingly, we conclude that the HOLA Regulations are not inconsistent with the HOLA statute.

  2. Whether the HOLA Regulations are Consistent with RESPA

  We next turn to plaintiffs' claim that the HOLA Regulations are inconsistent with RESPA because regulations promulgated pursuant to that Act: (1) apply to post-closing obligations such as interest payments on escrow accounts; and (2) incorporate state escrow statutes that provide greater consumer protection, such as New York's escrow account interest laws. (Pls. Mem. Supp. Summ. J. at 4-9.) Defendant contends that RESPA does not blunt the preemptive effect of the HOLA Regulations because the payment of interest on escrow accounts is not a "settlement practice" under Page 17 RESPA. (Def. Mem. Supp. Mot. Dismiss at 10.) Accordingly, we first address the purpose and scope of RESPA.

  As stated in 12 U.S.C. § 2601, Congress enacted RESPA because:

(a) The Congress finds that significant reforms in the real estate settlement process are needed to insure that consumers throughout the Nation are provided with greater and more timely information on the nature and costs of the settlement process and are protected from unnecessarily high settlement charges caused by certain abusive practices that have developed in some areas of the country. . . .
(b) It is the purpose of this chapter to effect certain changes in the settlement process for residential real estate that will result —
(1) in more effective advance disclosure to home buyers and sellers of settlement costs;
(2) in the elimination of kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services;
(3) in a reduction in the amounts home buyers are required to place in escrow accounts established to insure the payment of real estate taxes and insurance; and
(4) in significant reform and modernization of local recordkeeping of land title information.
With respect to escrow accounts, RESPA provides limitations on the amount that lenders can require borrowers or prospective borrowers to deposit into escrow accounts and requires loan servicers to provide borrowers with account statements and notifications of shortages. See 12 U.S.C. § 2609. This provision is, however, silent about the payment of interest. Finally, RESPA contains a savings provision describing its interaction with state laws governing real estate settlement practices, and expressly allowing state laws to provide consumer protections greater than those contained therein:

  This chapter does not annul, alter, or affect, or exempt any person subject to the provisions of this chapter from complying with, the laws of any State with respect to settlement practices, except to the extent that those laws are inconsistent with any provision of this chapter, and then only to the extent of the inconsistency. The Secretary is authorized to determine whether such inconsistencies Page 18 exist. The Secretary may not determine that any State law is inconsistent with any provision of this chapter if the Secretary determines that such law gives greater protection to the consumer. In making these determinations the Secretary shall consult with the appropriate Federal agencies.

 12 U.S.C. § 2616 (emphasis added).

  Accordingly, plaintiffs claim that the payment of interest on escrow accounts is a "settlement practice" under RESPA and therefore the Secretary may not preempt the New York law that gives greater protection to the consumer. "Settlement practice" is not a term defined in RESPA's definitions section, 12 U.S.C. § 2602. The definitions section does, however, define the term "settlement services" to include:

any service provided in connection with a real estate settlement including, but not limited to, the following: title searches, title examinations, the provision of title certificates, title insurance, services rendered by an attorney, the preparation of documents, property surveys, the rendering of credit reports or appraisals, pest and fungus inspections, services rendered by a real estate agent or broker, the origination of a federally related mortgage loan (including, but not limited to, the taking of loan applications, loan processing, and the underwriting and funding of loans), and the handling of the processing, and closing or settlement.
12 U.S.C. § 2602(3). The First Circuit has concluded that the payment of interest on escrow accounts is not a "settlement practice" within the scope of RESPA and that its savings clause did not bar preemption of state laws*fn15 requiring such payments. Greenwald, 591 F.2d at 426. Although the First Circuit did not explicate its reasoning, the district court in that case engaged in a temporal Page 19 analysis that concluded that "interest payment on tax escrow accounts, which can continue long after the closing of the mortgage transaction and which can continue to occur during the entire life of the mortgage, is obviously not a settlement practice within the meaning of the statute." Greenwald v. First Fed. Sav. & Loan Ass'n, 446 F. Supp. 620, 625 (D. Mass. 1978).

  Plaintiffs claim that the Greenwald temporal analysis is both legally incorrect and, in any event, rendered obsolete by the 1990 enactment of 12 U.S.C. § 2605(g). (Pls. Mem. Supp. Summ. J. at 5-6.) They contend that § 2605(g), as well as § 2609(a)(2), which existed at the time of the Greenwald decision, evince Congress's desire to extend "settlement practices" with respect to escrow accounts past the initial closing. In response, defendant relies on the Greenwald analysis with respect to RESPA's applicability, but also claims that RESPA was a remedial statute intended to improve disclosure and prohibit abusive practices, not to impose on lenders new substantive obligations such as the payment of interest on escrow accounts. (Def. Mem. Supp. Mot. Dismiss at 11; Def. Reply Mem. Supp. Mot. Dismiss at 6.)

  12 U.S.C. § 2605(g) provides:

If the terms of any federally related mortgage loan require the borrower to make payments to the servicer of the loan for deposit into an escrow account for the purpose of assuring payment of taxes, insurance premiums, and other charges with respect to the property, the servicer shall make payments from the escrow account for such taxes, insurance premiums, and other charges in a timely manner as such payments become due.
  Section 2609(a)(2) governs the amount that the lender may require that the borrower place into escrow. It provides:

  A lender, in connection with a federally related mortgage loan, may not require the borrower or prospective borrower . . . to deposit in any such escrow account in any month beginning with the first full Page 20 installment payment under the mortgage a sum (for the purpose of assuring payment of taxes, insurance premiums and other charges with respect to the property) in excess of the sum of (A) one-twelfth of the total amount of the estimated taxes, insurance premiums and other charges which are reasonably anticipated to be paid on dates during the ensuing twelve months which dates are in accordance with the normal lending practice of the lender and local custom, provided that the selection of each such date constitutes prudent lending practice, plus (B) such amount as is necessary to maintain an additional balance in such escrow account not to exceed one-sixth of the estimated total amount of such taxes, insurance premiums and other charges to be paid on dates, as provided above, during the ensuing twelve-month period: Provided, however, That in the event the lender determines there will be or is a deficiency he shall not be prohibited from requiring additional monthly deposits in such escrow account to avoid or eliminate such deficiency.

 12 U.S.C. § 2609(a)(2).

  We begin by noting that, in a relatively recent opinion, the Ninth Circuit has approved Greenwald's temporal "at or before settlement" approach to the scope of RESPA's applicability in the context of whether a lender is required to disclose the possibility that demand and reconveyance fees will be assessed in the future. See Bloom v. Martin, 77 F.3d 318, 321 (9th Cir. 1996). We, conclude, however, that the Greenwald temporal analysis lacks continuing viability in the context of escrow accounts because §§ 2605 and 2609 impose obligations on lenders that extend beyond the date of the closing. Indeed, an Illinois federal district court has noted that "RESPA applies not only to the actual settlement process, however, but also to the servicing of federally regulated mortgage loans." MorEquity, Inc. v. Naeem, 118 F. Supp.2d 885, 900 (N.D. Ill. 2000). Nevertheless, we also conclude that the payment of interest on escrow accounts remains beyond the scope of RESPA, which therefore lends no support for plaintiffs' claim. Page 21

  Congress enacted RESPA to require lenders to provide better information and disclosure to consumers, thereby protecting them from abusive practices such as, inter alia, unnecessarily high closing and escrow charges. See 12 U.S.C. § 2601; MorEquity, 118 F. Supp.2d at 900. Put differently, the scope of RESPA ends with the prevention of potentially abusive charges against consumers; it is intended to protect consumers' present capital.*fn16 Accordingly, a lender's obligation to pay interest falls outside the scope of RESPA and into the deregulated ambit of the mortgage agreement's terms.*fn17 We, therefore, conclude that the HOLA Regulations are not inconsistent with RESPA and that they preempt the New York escrow account interest statutes.*fn18 Accordingly, we Page 22 grant defendant's motion, deny plaintiffs' cross motion, and dismiss the First Cause of Action in the Complaint seeking a declaration that federal law does not preempt or preclude the applicability of the New York escrow account interest statutes. We also grant defendant's motion, deny plaintiffs' cross motion, and dismiss the Second, Third and Fifth Causes of Action, as they are based on the preempted state statutes.*fn19 Page 23

 III. Whether the Mortgage Agreement Requires the Payment of Escrow Interest

  Defendant, relying on de la Cuesta, next contends that the mortgage agreement's interest and choice of law clauses did not require it to pay interest on escrow accounts because federal law is the only applicable "law" with respect to whether defendant is required to make such payments. Accordingly, defendant requests dismissal of the Fourth Cause of Action in the Complaint. (Def. Mem. Supp. Mot. Dismiss at 13-14, 19.) Plaintiffs argue in response that, as an ambiguous contract of adhesion, the mortgage agreement should be construed against the lender that drafted it and interpreted as expressly incorporating the New York escrow statutes. (Pls. Mem. Supp. Summ. J. at 18-21.)

  As stated previously, the interest provision provides in relevant part:

Lender will not be required to pay me any interest or earnings on the funds unless either (i) Lender and I agree in writing, at the time I sign this Security Instrument, that Lender will pay interest on the Funds; or (ii) the law requires Lender to pay interest on the Funds.
(Pls. Rule 56.1 Stmt. ¶ 3 (emphasis added).) With respect to the governing law, the mortgage agreement states in relevant part that "this Security Instrument is governed by federal law and the law that applies in the place where the Property is located." (Id. (emphasis added).)

  Defendant's contentions present an issue of contract interpretation under New York state law. Contract interpretation presents a question of law for the court if the contract is clear and unambiguous. See, e.g., United States ex rel. AWL Indus., Inc. v. Site Remediation Servs. Corp., 92 F. Supp.2d 132, 135 (E.D.N.Y. 2000) (citing Briarwood Towers 85th Co. v. Guterman, 136 A.D.2d 456, 458, 523 N.Y.S.2d 98 (1st Dep't 1988)). Moreover, "[w]hether or not a writing is ambiguous is a question of law to be resolved by the courts." W. W. W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, Page 24 162, 566 N.E.2d 639, 565 N.Y.S.2d 440 (1990). "Where the terms of a contract are ambiguous and susceptible to more than one meaning, the court may consider evidence outside of the contract as an aid to interpret the meaning of the language that the parties chose." United States ex rel. AWL Indus., 92 F. Supp.2d at 135. "The language at issue will be deemed ambiguous if it is capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement." Id. (internal quotation marks omitted).

  Residential mortgage agreements such as the contract at issue in the present case frequently are preprinted form contracts of adhesion that are offered by lenders on a "take it or leave it" basis that deprives prospective borrowers the opportunity to negotiate terms effectively. Jamaica Sav. Bank, 390 F. Supp. at 1362; see also In re Parker, 269 B.R. 522, 530 (D. Vt. 2001). Plaintiffs assert, and defendant does not deny, that the mortgage in the present case is such a contract. Accordingly, we will interpret the terms of the agreement in accordance with the standards applicable to contracts of adhesion, and construe it against defendant in case of "doubt or ambiguity." See, e.g., Jacobson v. Sassower, 66 N.Y.2d 991, 993, 489 N.E.2d 1283, 499 N.Y.S.2d 381 ("In cases of doubt or ambiguity, a contract must be construed most strongly against the party who prepared it, and favorably to a party who had no voice in the selection of its language."). Thus, as in the analogous insurance policy context, defendant as drafter has the burden of "establish[ing] that the words and expressions used not only are susceptible of the construction sought by [the drafter] but that it is the only construction which may fairly be placed on them." Lacks v. Fid. & Cas. Co., 306 N.Y. 357, 365, 118 N.E.2d 555 (1954) (construing airline trip insurance policy purchased from vending machine). Page 25

  New York contract law permits parties to incorporate by reference statutes as terms of their contracts. See, e.g., Walter H. Poppe Gen. Contracting, Inc. v. Town of Ramapo, 280 A.D.2d 667, 668, 721 N.Y.S.2d 248 (2d Dep't 2001). Indeed, although the preemption doctrine prohibits parties to a contract from electing to have state law govern over federal law, they nevertheless remain free to include as terms of their agreement state law directives that otherwise would be preempted by federal law. See, e.g., Wells v. Chevy Chase Bank F.S.B., 377 Md. 197, 224, 231, 832 A.2d 812 (2003) (construing credit card contract referring to state commercial law that had otherwise been preempted by HOLA and noting that "[w]hether the appellants' claims are preempted and whether the appellees contracted to comply with Subtitle 9 are separate and different questions, requiring differing analyses."), petition for cert. filed, 72 U.S.L.W. 3451 (U.S. Dec. 22, 2003) (No. 03-918). State laws that become terms of the agreement between the contracting parties are enforceable by a breach of contract action, unless federal law has specifically preempted the breach of contract action as well. See Am. Airlines, Inc. v. Wolens, 513 U.S. 219, 233 (1995) (concluding that the preemption provision of the Airline Deregulation Act of 1978 barred state consumer fraud statutory claims against airline, but permitted breach of contract actions based on ticket agreements). State law provisions may be included as contract terms either explicitly as text or incorporated by reference. Wells, 377 Md. at 228-29.

  A general choice-of-law clause is, however, insufficient as a matter of law to incorporate by reference preempted state laws as the terms of a contract. Holding that "the `law of the jurisdiction' includes federal as well as state law," the United States Supreme Court has concluded that parties did not agree to be bound by state or local law with respect to due-on-sale clauses when their agreement contained a provision stating that a "deed is to be governed by the `law of the jurisdiction' Page 26 in which the property is located." de la Cuesta, 458 U.S. at 158 n.12. The cases following de la Cuesta demonstrate that, in order to be considered more than just a general choice-of-law clause, a contract provision purporting to incorporate state law as a contract term must actually cite the relevant state laws to that effect. Compare Gavey Props. 1762 v. First Fin. Sav. & Loan Ass'n, 845 F.2d 519, 523 (5th Cir. 1988) (concluding that the parties did not "contract out of the federal provision by specifically choosing Texas law in their loan agreements" when clause stated that "`[i]t is the intention of the parties hereto to conform strictly to the applicable laws of the state of Texas and the United States of America and judicial and/or administrative interpretations thereof regarding the contracting for, charging and receiving of interest for the use of detention of money.'"), and MorEquity, 118 F. Supp.2d at 898 n.5 (concluding that preempted Illinois usury laws did not apply, despite mortgages' choice-of-law provision "indicating that the security interest will be governed by federal law and the law of the jurisdiction in which the property is located"), with Wells, 377 Md. at 201, 231 — 32 (concluding that the parties incorporated by reference state statutes as contract terms when credit card agreement's governing law provision provided that "[t]his Agreement is made in Maryland. It is governed by Subtitle 9 of Title 12 of the Commercial Law Article of the Maryland Annotated Code and applicable federal laws.").*fn20 Page 27

  Construing the choice-of-law provision in the present case against defendant, we conclude that, as a matter of law, that clause is unambiguous and does not in any way evince either party's intent to incorporate the New York escrow statutes into the agreement.*fn21 A clause providing that the agreement is "governed by federal law and the law that applies in the place where the Property is located," (Pls. Rule 56.1 Stmt. ¶ 3 (emphasis added)), does not have the specificity required as a matter of law to incorporate otherwise preempted state statutes into the mortgage agreement, particularly when the Supremacy Clause implications are taken into account. Permitting such a broad choice-of-law clause to incorporate preempted state statutes as contract terms would defy the reality that the constitutional doctrine of preemption is as meaningful in New York as it is in the other forty-nine states.*fn22 Accordingly, we grant defendant's motion, deny plaintiffs' cross motion, and dismiss plaintiffs' Fourth Cause of Action. Page 28

 IV. Plaintiffs' Fifth Amendment Claim

  Defendant contends that plaintiffs' alternative Fifth Amendment claim should be dismissed because its compliance with federal regulations rendering the payment of interest a matter of private choice does not constitute the state action requisite for a viable Takings Clause claim. (Def. Mem. Supp. Mot. Dismiss at 21-23.) Plaintiffs contend in response that it is the OTS Regulations themselves that are the unconstitutional state action because they take plaintiffs' escrow interest and give it to defendant, and that the taking of interest from the owner of the principal constitutes a taking under the Fifth Amendment. (Pls. Mem. Supp. Summ. J. at 24-25.) We conclude that defendant's failure to pay interest on plaintiffs' escrow account did not violate the Fifth Amendment Takings Clause.

  The Takings Clause of the Fifth Amendment to the United State Constitution prohibits a taking of private property for "public use, without just compensation." U.S. CONST., amend. V. It is beyond cavil that governmental action is required to trigger the application of this clause; it does not apply to private parties who are not state or governmental actors. See, e.g., Fid. Fin. Corp. v. Fed. Home Loan Bank of S.F., 792 F.2d 1432, 1435 (9th Cir. 1986) (acknowledging issue, but not deciding whether federal home loan bank was a governmental actor for Fifth Amendment purposes), cert. denied, 479 U.S. 1064 (1987); N.Y., N. H. & H.R. Co., First Mortgage 4% Bondholders' Comm. v. United States, 305 F. Supp. 1049, 1055 (S.D.N.Y. 1969), vacated on other grounds sub. nom., New Haven Inclusion Cases, 399 U.S. 392 (1970). The state or governmental action requirement is satisfied if the complained-of conduct is "fairly attributable" to the state. Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40, 50 (1999). In Cranley v. Nat'l Life Ins. Co. of Vt., Page 29 318 F.3d 105 (2d Cir. 2003), the Second Circuit described the close public-private nexus required for conduct to be "fairly attributable" to the government:

For the conduct of a private entity to be "fairly attributable" to the state, there must be "such a `close nexus between the State and the challenged action' that seemingly private behavior `may be fairly treated as that of the State itself.'" . . . "The purpose of [the close-nexus] requirement is to assure that constitutional standards are invoked only when it can be said that the State is responsible for the specific conduct of which the plaintiff complains." . . .
The determination of whether the specific conduct of which the plaintiff complains constitutes state action is a "necessarily fact-bound inquiry." . . . A challenged activity by a private entity may be deemed state action when the state exercises "coercive power," is "entwined in [the] management or control" of the private actor, or provides the private actor with "significant encouragement, either overt or covert," or when the private actor "operates as a willful participant in joint activity with the State or its agents," is "controlled by an agency of the State," has been delegated a "public function" by the state, or is "entwined with governmental policies." . . .
Id. at 111-12 (citations omitted) (quoting, inter alia, Brentwood Academy v. Tenn. Secondary Sch. Athletic Ass'n, 531 U.S. 288, 295 (2001) and Blum v. Yaretsky, 457 U.S. 991, 1004 (1982)). A private entity is not, however, "a state actor where its conduct is not compelled by the state but is merely permitted by state law." Cranley, 318 F.3d at 112. Indeed, that a corporate entity is chartered by the government does not make it a government actor because "[a]ll corporations act under charters granted by a government" and "[e]ven extensive regulation by the government does not transform the actions of the regulated entity into those of the government." S.F. Arts & Athletics, Inc. v. United States Olympic Comm., 483 U.S. 522, 543-44 (1987).

  Indeed, compliance with applicable laws and regulations during the course of corporate conduct does not render a corporation a state actor, even if that conduct causes other parties to suffer some financial or other deprivation. For example, in San Francisco Arts & Athletics, the plaintiffs, Page 30 promoters of the "Gay Olympic Games," claimed that the United States Olympic Committee (the "USOC") enforced the Amateur Sports Act granting it exclusive use of the word "Olympics" and associated symbols in a discriminatory manner that violated the Fifth Amendment's Due Process Clause. 483 U.S. at 543. The Supreme Court held that the USOC was not a governmental actor, despite the fact that it was chartered and partially funded by Congress, and subject to other congressional requirements. Id. The Court concluded that the:

USOC's choice of how to enforce its exclusive right to use the word "Olympic" simply is not a governmental decision. There is no evidence that the Federal Government coerced or encouraged the USOC in the exercise of its right. At most, the Federal Government, by failing to supervise the USOC's use of its rights, can be said to exercise "[m]ere approval of or acquiescence in the initiatives" of the USOC.
Id. at 547 (alteration in original).

  Similarly, in Cranley, the Second Circuit held that the reorganization of a domestic mutual insurance company into a stock insurance company, made in accordance with Vermont state insurance laws that required the approval of the insurance commissioner, did not constitute the state action necessary for the plaintiffs to state a claim under the Takings and Contract Clauses.*fn23 318 F.3d at 109-10, 112. The court noted that "the State did not instigate the reorganization" and that the commissioner's role was limited to ensuring that the insurance company complied with disclosure requirements and that the reorganization would not prejudice insurance policyholders financially. Id. at 112. The Second Circuit stated that the reorganization "plan itself was voluntarily Page 31 conceived, approved and executed by the management and membership of a private company." Id. at 112-13.

  We conclude that defendant's failure to pay plaintiffs interest on their mortgage escrow accounts did not constitute a taking in violation of the Fifth Amendment because defendant, although a federally chartered savings and loan, was not a governmental actor. In the present case, defendant's actions constituted a permissible exercise of the options available to it under the applicable federal lending regulations. Indeed, plaintiffs have not submitted any evidence of governmental coercion or encouragement of defendant's conduct in drafting the escrow account interest clause of the mortgage loan agreement.*fn24 Accordingly, we dismiss plaintiffs' Sixth Cause of Action. Page 32

  CONCLUSION

  For all of the foregoing reasons, defendant's Rule 12(b)(6) motion to dismiss the Complaint is granted in its entirety without leave to replead and plaintiffs' cross motion for summary judgment pursuant to Rule 56 is denied as moot.*fn25

  SO ORDERED.


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