United States District Court, S.D. Illinois
May 5, 2005.
KATHERINE LEE HENDERSON, individually and on behalf of others similarly situated, Plaintiff,
WELLS FARGO HOME MORTGAGE, INC., Defendant.
The opinion of the court was delivered by: DAVID HERNDON, District Judge
MEMORANDUM AND ORDER
On December 30, 2004, Plaintiff Katherine Lee Henderson
("Henderson") filed a putative class action*fn1 against
Wells Fargo Home Mortgage, Inc. ("Wells Fargo") in the Circuit
Court for the Third Judicial Circuit, Madison County, Illinois
(Doc. 2). Henderson challenges Wells Fargo's, her home mortgage
loan lender, alleged practice of charging "loan discount fees" on
home mortgage loans without actually reducing the interest rate
on the borrower's loan. Henderson brings state law claims against
Wells Fargo for breach of contract (Count I), violation of the
Illinois Consumer Fraud and Deceptive Business Practices Act
("ICFA") (Count II), and unjust enrichment (Count III). On February 10, 2005, Wells Fargo removed the case based on the
Court's federal question jurisdiction, 28 U.S.C. §§ 1331,
1441(b), arguing that Henderson's claims were completely
preempted by §§ 85 and 86 of the National Bank Act (Doc. 1). Now
before the Court is Henderson's Motion to Remand (Doc. 11) and
Wells Fargo's Motion to Dismiss Plaintiff's Complaint (Doc. 6).
For the reasons set forth below, the Court grants Henderson's
Motion to Remand and denies without prejudice Wells Fargo's
Motion to Dismiss Plaintiff's Complaint.
On July 26, 2001, Henderson obtained a loan from Wells Fargo to
purchase her home at 1816 Central, Alton, Illinois (Doc. 2,
Compl. at ¶ 12). In this connection, Wells Fargo charged
Henderson a "loan discount fee" or "discount" of $1,102.50 (Id.
at ¶ 15). According to Henderson, Wells Fargo did not reduce the
interest rate in exchange for her payment of the loan discount
fee (Id. at ¶¶ 18, 19).
In Count I of the Complaint, Henderson alleges that by charging
a loan discount fee Wells Fargo made a contractual promise to
lower her interest rate in exchange for payment of the discount
fee (Id. at ¶ 28). Henderson alleges Wells Fargo breached the
contract by not discounting Henderson's interest rate in exchange
for her payment of the loan discount fee (Id. at ¶ 29). In
Count II of the Complaint, Henderson alleges that Wells Fargo
engaged in deceptive practices in violation of the ICFA by
concealing that fact that it did not reduce borrowers' interest
rates in exchange for the loan discount fees it charged (Id. at
¶ 36). In Count III of the Complaint, Henderson alleges that
Wells Fargo unjustly retained the discount fees as profit for itself rather than reducing the interest rates
charged to Henderson and the other Class members (Id. at ¶ 54).
Henderson's Complaint expressly disclaims federal court
jurisdiction, stating: "Federal jurisdiction does not exist
because no federal question is asserted and Plaintiff's
individual claims are worth less than $75,000, inclusive of
damages and fees" (Id. at ¶ 9). The Complaint also expressly
disclaims any claims for usury, stating: "Plaintiff does not make
any usury claim and expressly disclaims any such claim. Plaintiff
does not challenge the interest rate Defendant can charge, but
only challenges Defendant's practice of charging a loan discount
fee and then failing to reduce the interest rate in exchange for
that fee" (Id. at ¶ 9).
Wells Fargo does not contend that Henderson's cause of action
presents diversity jurisdiction and Henderson specifically
disclaims individual recovery in excess of $75,000, inclusive of
damages and fees. Therefore, the sole issue before the Court is
whether the complaint presents a federal question removable
pursuant to 28 U.S.C. § 1441(b). A civil action filed in a
state court may be removed to federal court if the claim is one
"arising under" federal law. § 1441(b). The party seeking
removal has the burden of establishing jurisdiction of the
district court. Wellness Community National v. Wellness House,
70 F.3d 46, 49 (7th Cir. 1995).
To determine whether the claim arises under federal law, the
court examines the "well pleaded" allegations of the complaint and
ignores potential defenses: "`a suit arises under the
Constitution and laws of the United States only when the
plaintiff's statement of his own cause of action shows that it is
based upon those laws or that Constitution. It is not enough that
the plaintiff alleges some anticipated defense to his cause of
action and asserts that the defense is invalidated by some
provision of the Constitution of the United States.'" Beneficial
National Bank v. Anderson, 539 U.S. 1, 6 (2003) (quoting
Louisville & Nashville R. Co. v. Mottley, 211 U.S. 149, 152
(1908)). Thus as a general rule, absent diversity jurisdiction,
a case will not be removable if the complaint does not
affirmatively allege a federal claim. Id.
However, a state claim may be removed to federal court in two
circumstances when Congress expressly so provides or when a
federal statute wholly displaces the state-law cause of action
through complete pre-emption. Id. at 8. When the federal
statute completely pre-empts the state-law cause of action, a
claim which comes within the scope of that cause of action, even
if pleaded in terms of state law, is in reality based on federal
law. Id. This claim is then removable under
28 U.S.C. § 1441(b), which authorizes any claim that "arises under" federal
law to be removed to federal court.
Wells Fargo argues that because the Complaint challenges the
amount of interest Henderson collected on her loan, the Complaint
is completely preempted by the National Bank Act,
12 U.S.C. § 21, et seq., under the Supreme Court's holding in Beneficial National Bank v. Anderson, 539 U.S. 1
(2003). Henderson does not challenge Wells Fargo's assertion
that the loan discount fee is interest, but asserts she is not
bring a usury claim preempted by §§ 85 and 86 of the National
Bank Act. Henderson distinguishes between usury claims which
challenge the interest rate a lender may charge as mandated by
statutes such as the National Bank Act, and the claims she brings
here which challenge Wells Fargo's alleged practice of failing to
provide the interest rate contractually promised in return for
payment of the loan discount fee, and using false pretenses to
induce borrowers to pay the loan discount fee without providing a
reduction in the interest rate.
In Beneficial National Bank the Supreme Court addressed
whether plaintiff's state law usury claims were completely
preempted by §§ 85*fn2 and 86*fn3 of the National Bank Act. The Supreme Court found "[i]n actions against
national banks for usury, [§§ 85 and 86] supercede both the
substantive and remedial provisions of state usury laws and
create a federal remedy for overcharges that is exclusive, even
when a state complainant . . . relies entirely on state law.
Because §§ 85 and 86 provide the exclusive cause of action for
such claims, there is, in short, no such thing as a state-law
claim of usury against a national bank." Id. at 11.
In asserting that the Supreme Court's holding in Beneficial
National Bank governs the claims at bar, Wells Fargo relies
primarily on two district court cases. In Phipps v. Guaranty
National Bank of Tallahassee, the district court examined
whether the plaintiffs' claims that their lender charged them
unlawful and excessive fees (including a loan discount fee) in
conjunction with their second mortgage loan in violation of Missouri's Second Mortgage Loan Act
(which according to the court says that an interest rate must be
unlawful in order for the statute to apply) were completely
preempted by §§ 85 and 86 of the National Bank Act. 2003 WL
22149646, *1 (W.D. Mo. Sept. 17, 2003) (Fenner, J.). Unlike
Henderson, the Phipps plaintiffs argued that their claims were
not for interest but for fees and thus not preempted. Id. at
*5. The court disagreed finding that plaintiffs' claims were for
unlawful interest and thus completely preempted under Beneficial
National Bank. Id. at *6. Similarly, in Budnick v. Bank of
America, Mortgage, the district court found that plaintiffs'
claim challenging extra per diem interest retained by their
lender after the mortgage loan was fully paid was completely
preempted by §§ 85 and 86 of the National Bank Act.*fn4
2003 WL 2296372, at *1 (N.D. Ill. Dec. 16, 2003) (Manning, J.).
The Court finds neither of these decisions persuasive as to the
issue at hand. Henderson does allege that Wells Fargo charged her
interest that exceeded any limit imposed by any state or federal
lending statute or regulation. Instead, the Complaint alleges
breach of contract, violation of the ICFA, and unjust enrichment
based on Wells Fargo's failure to reduce her interest rate in
exchange for her payment of the loan discount fee. The Court
finds that these allegations do not fall within the ambit of §§
85 and 86 of the National Bank Act. Thus, the Court finds it does
not have jurisdiction over Henderson's state law claims for
breach of contract, violation of the ICFA, and unjust enrichment.
Because the Court lacks subject matter jurisdiction, the Court
GRANTS Henderson's Motion to Remand (Doc. 11) and DENIES
without prejudice Wells Fargo's Motion to Dismiss Plaintiff's
Complaint (Doc. 6). This cause of action is REMANDED to the
Madison County, Illinois Circuit Court. Henderson is not
entitled to fees and costs pursuant to 28 U.S.C. § 1447(c).
IT IS SO ORDERED.