Federal Court Rejects Subject Matter Jurisdiction Challenges Based On A Consent Order Between The Servicer And The OCC, Primary Jurisdiction, And Preemption Under The National Bank Act

Ellis v. J.P Morgan Chase Co., 12 CV 03897 (N.D. Cal., June 13, 2013), involves a class action against a mortgage loan servicer raising claims of unfair or deceptive business practice, unjust enrichment, fraud and RICO. Plaintiffs alleged that the servicer marked-up fees that were charged by the servicers without disclosing them and falsely characterizing them on account statements and demand letters. The servicer moved to dismiss the complaint arguing in part that District Court did not have subject matter jurisdiction to hear the claims because: (i) the Court was divested from jurisdiction under 12 USC 1818(i), as the conduct alleged and relief sought were covered by a consent order entered between the servicer and its regulator, the OCC, and exercise of jurisdiction by the court would necessarily affect the OCC’s administration of the consent order; (ii) the court should abstain from exercising jurisdiction under the doctrine of primary jurisdiction and/or equitable abstention; and (iii) the claims were preempted by the National Bank Act. The district court was not impressed. It observed that the consent order covered some of the practices alleged but only in the context of foreclosures that were filed within a specific period of time, criteria that Plaintiffs claims did not meet. Importantly, the consent order prohibited the servicer from asking borrowers to waive any claim against the servicer as part of the claims resolution process described in the consent order, and allowed the servicer to offset any relief it paid borrowers under the consent order in any separate litigation. Therefore, the court’s exercise of jurisdiction will not necessarily affect the OCC’s administration of the consent order as an offset would preclude double recovery by the Plaintiffs in the class. The district court also rejected the argument based on the doctrine of primary jurisdiction, which allows a court to dismiss a complaint pending the resolution of any issue within the special competence of an administrative agency, or under the doctrine of equitable abstention, which gives the court discretion to abstain from employing equitable remedies, such as restitution and injunction, where, for example, federal regulator enforcement of the subject law would be more efficient. The court concluded that the claims were all within the conventional experience of the court and it was not persuaded that adjudicating the claims would threaten uniformity or consistency with the OCC’s administration of the consent order. Finally, the court rejected the servicer’s preemption argument under the National Bank Act reasoning that state consumer protection laws of general application apply to national banks when they don’t prevent or significantly interfere with the national bank’s exercise of its powers. The court held that the claims do not significantly interfere with the servicer’s (bank’s) ability to exercise powers granted to it under the National Bank Act.

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