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Olsen v. Financial Fed. Sav. & Loan Ass'n

OPINION FILED MARCH 29, 1982.

LEE T. OLSEN ET AL., PLAINTIFFS-APPELLANTS,

v.

FINANCIAL FEDERAL SAVINGS AND LOAN ASSOCIATION, DEFENDANT-APPELLEE.



APPEAL from the Circuit Court of Cook County; the Hon. JOSEPH M. WOSIK, Judge, presiding.

PRESIDING JUSTICE CAMPBELL DELIVERED THE OPINION OF THE COURT:

Plaintiffs Lee and Nancy Olsen bring the instant appeal from an order of the circuit court of Cook County dismissing their complaint brought under the Illinois Mortgage Escrow Account Act (Ill. Rev. Stat. 1975, ch. 95, par. 101 et seq.) for injunctive relief and money damages for the nonpayment of interest on sums placed with defendant, Financial Federal Savings and Loan (hereinafter Financial). The action was filed by plaintiffs personally and as representatives of the class of persons who obtained mortgages with defendant for the purchase of owner-occupied single-family residences after January 1, 1976, the effective date of the Illinois Mortgage Escrow Account Act, and were required to secure the payment of real estate taxes on their residences. The trial court dismissed the complaint. The pivotal issue raised in this appeal is whether a federally chartered savings and loan association may be required to comply with the provisions of a State statute concerning escrow accounts.

For the reasons stated herein, we affirm.

In their complaint, plaintiffs allege that in November 1978, they applied to Financial for a first mortgage loan in order to purchase a single-family residence which would serve as their principal residence. Pursuant to their application, Financial lent plaintiffs $94,880 for the purchase of the residence and a promissory note, mortgage and assignment of rents were executed to secure the loan. At the real estate closing, Financial required plaintiffs to deposit the sum of $1,661.15 into an escrow account to secure the payment of the general real estate taxes. Plaintiffs were also required to make monthly payments of one-twelth of the estimated general real estate taxes which would be deposited by Financial into the escrow account. Financial denied plaintiffs' request to place the money in the escrow account into an interest-bearing savings account. The complaint also alleges that Financial did not make the requisite disclosures required by the Mortgage Escrow Account Act at the plaintiffs' closing.

As to the alleged "class," it was contended that Financial has failed to provide notices to any individuals who, like plaintiffs, obtained loans from it for the purchase of single-family owner occupied residences secured by first mortgages as required by the Mortgage Escrow Account Act. Nor did Financial allow these individuals to establish interest bearing accounts, in lieu of escrow accounts, as provided under the Act to secure the payment of real estate taxes on the mortgaged properties.

Plaintiffs' complaint sought inter alia an injunction requiring Financial to comply with the notice provisions of the Mortgage Escrow Account Act, an accounting on all money held in escrow by defendant after January 1, 1976, damages based on the amount of interest which the escrow funds could have earned calculated at the rate of interest Financial paid on its regular savings accounts during this period, and attorney fees and costs.

Financial filed a motion to dismiss plaintiffs' complaint alleging three separate bases. It was first contended that plaintiffs' complaint failed to sufficiently allege the grounds for a class action. It was next alleged that the provisions of the Mortgage Escrow Account Act were preempted because the defendant was subject to the provisions of the Federal Home Loan Bank Act of 1932 (12 U.S.C. § 1421 et seq. (1976)) and the Homeowners Loan Act of 1933 (12 U.S.C. § 1461 et seq. (1976)) (hereinafter HOLA). Financial's final argument was that the complaint failed to sufficiently allege certain preconditions for the applicability of the Mortgage Escrow Account Act and that, therefore, the complaint failed to allege a cause of action under that Act. After extensive briefing, the trial court entered an order on March 4, 1980, dismissing the complaint upon two specific findings: (1) that the provisions of the Mortgage Escrow Account Act were not applicable to Financial by reason of the doctrine of Federal preemption as a matter of law; and (2) that the cause of action was not properly certifiable as a class action as a matter of law. It is from this order that plaintiffs now appeal.

Because we believe that the result we reach on the preemption question will control the issue of whether the cause of action was certifiable as a class, we address it first. The supremacy clause of the United States Constitution (U.S. Const., art. VI) provides:

"This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme law of the Land; and the Judges in every State shall be bound thereby, any thing in the Constitution or Laws of any State to the Contrary notwithstanding."

This clause has been interpreted in a number of United States Supreme Court decisions as well as a number of Federal and State decisions. (Ridgway v. Ridgway (1981), 451 U.S. 905, 70 L.Ed.2d 39, 102 S.Ct. 49; Ray v. Atlantic Richfield Co. (1978), 435 U.S. 151, 55 L.Ed.2d 179, 98 S.Ct. 988; First Federal Savings & Loan Association v. Greenwald (1st Cir. 1979), 591 F.2d 417; Glen Ellyn Savings & Loan Association v. Tsoumas (1978), 71 Ill.2d 493, 377 N.E.2d 1.) These decisions clearly establish the power of Congress to preempt any legislative field over which it has jurisdiction. (De Canas v. Bica (1976), 424 U.S. 351, 47 L.Ed.2d 43, 96 S.Ct. 933; Campbell v. Hussey (1961), 368 U.S. 297, 7 L.Ed.2d 299, 82 S.Ct. 327; Parker v. Brown (1942), 317 U.S. 341, 87 L.Ed. 315, 63 S.Ct. 307.) However, preemption is established only where a "clear and manifest Purpose of Congress" exists to foreclose a particular field to State legislations. (Ray v. Atlantic Richfield Co.; Jones v. Rath Packing Co. (1977), 430 U.S. 519, 51 L.Ed.2d 604, 97 S.Ct. 1305; Rice v. Santa Fe Elevator Corp. (1947), 331 U.S. 218, 91 L.Ed. 1447, 67 S.Ct. 1146.) In Rice v. Santa Fe Elevator Corp. (1947), 331 U.S. 218, 230, 91 L.Ed. 1447, 1459, 67 S.Ct. 1146, 1152, the Supreme Court explained that congressional purpose:

"* * * may be evidenced in several ways. The scheme of federal regulation may be so persuasive as to make reasonable the inference that Congress left no room for the States to supplement it. [Citations.] Or the Act of Congress may touch a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws of the same subject. [Citation.] Likewise, the object sought to be obtained by the federal law and the character of obligations imposed by it may reveal the same purpose. [Citations.]"

Where Congress has not entirely "occupied a field" to foreclose State legislation on a particular field, the supremacy clause may also preempt State regulation if the State statute is in actual conflict with Federal legislation. An actual conflict between a Federal statute and a State statute exists where compliance with both is a physical impossibility (Florida Lime & Avocado Growers, Inc. v. Paul (1963), 373 U.S. 132, 10 L.Ed.2d 248, 83 S.Ct. 1210), or where compliance with the State statute would act as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. Ray v. Atlantic Richfield Co.; Jones v. Rath Packing Co.; Hines v. Davidowitz (1941), 312 U.S. 52, 85 L.Ed. 581, 61 S.Ct. 399.

The parties to the present appeal do not refute the general principles enunciated by these decisions; rather they argue whether Congress has evidenced its intent to totally occupy the field of Federal savings and loan associations by enacting the Home Owners' Loan Act of 1933 or in the alternative whether the provisions of the Mortgage Escrow Account Act are in actual conflict with Federal regulations. In that we conclude that certain of the provisions of the Mortgage Escrow Account Act do actually conflict with Federal legislation passed concerning this area, we find it unnecessary to determine whether Congress has totally occupied the field of Federal savings and loan association regulation so that any State legislation in this field would be deemed preempted.

Plaintiffs argue that adoption of section 545.8-3(c) by the Federal Homeowners Bank Board (hereinafter Board) evidenced a Congressional intent to permit States to regulate in the area of Federal savings and loan association and that there is no conflict between ...


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