Fidelity Fed. S. & L. v. De La Cuesta, 458 U.S. 141 (1982)

Fidelity Federal Savings & Loan Association v. De la Cuesta

No. 81-750

Argued April 28, 1982
Decided June 28, 1982
458 U.S. 141

APPEAL FROM THE COURT OF APPEAL OF CALIFORNIA,

FOURTH APPELLATE DISTRICT

Syllabus

Section 5(a) of the Home Owners’ Loan Act of 1933 (HOLA) empowers the Federal Home Loan Bank Board (Board), under such regulations as it may prescribe, to provide for the organization, operation, and regulation of federal savings and loan associations. Pursuant to this authorization, the Board issued a regulation providing that a federal savings and loan association "continues to have the power to include . . . in its loan instrument" a "due-on-sale" clause, i.e., a provision that permits the association to declare the entire balance of the loan immediately due and payable if the property securing the loan is sold or otherwise transferred without the association’s prior written consent. A preamble to the regulation stated that the due-on-sale practices of federal savings and loan associations shall be governed "exclusively by Federal law," and that the association "shall not be bound by or subject to any conflicting State law which imposes different . . . due-on-sale requirements." Appellees each purchased California real property from one who had borrowed money from appellant Fidelity Federal Savings and Loan Association (Fidelity). The borrowers had given Fidelity deeds of trust on the property; each deed contained a due-on-sale clause. Fidelity, not having received prior notice of the purchases, proceeded to enforce the due-on-sale clauses to accelerate payment of the loans, and when they were not paid, instituted nonjudicial foreclosure proceedings. Each appellee then filed suit against Fidelity in California Superior Court, asserting that Fidelity’s exercise of the due-on-sale clauses violated the principles announced in Wellenkamp v. Bank of America, 21 Cal.3d 943, 582 P.2d 970, which limited a lender’s right to exercise such a clause to cases where the lender can demonstrate that the transfer of the property has impaired its security. The Superior Court consolidated the actions and granted Fidelity’s motion for summary judgment on the ground that the Federal Government had totally occupied the regulation of federal savings and loan associations. The California Court of Appeal reversed, holding that Wellenkamp was controlling, and that federal law had not expressly or impliedly preempted state due-on-sale law.

Held: The Board’s due-on-sale regulation preempts conflicting state limitations on the due-on-sale practices of federal savings and loan associations, and thus bars application of the Wellenkamp rule to such associations. Pp. 152-170.

(a) The general principles governing preemption of state law that conflicts with federal law are not inapplicable here simply because real property is a matter of special concern to the States. And federal regulations have no less preemptive effect than federal statutes. Where Congress has empowered an administrator to promulgate regulations, regulations intended to preempt state law have that effect unless the administrator exceeded his statutory authority or acted arbitrarily. Pp. 152-154.

(b) The language of the Board’s regulation, and especially the preamble thereto, clearly show the Board’s intent to preempt the Wellenkamp doctrine. The conflict between that doctrine and the regulation does not evaporate because the regulation simply permits, but does not compel, federal savings and loan associations to include a due-on-sale clause in their contracts and to enforce that clause when the security property is transferred. While compliance with both the regulation and the Wellenkamp rule may not be a physical impossibility, that rule forbids a federal savings and loan association to enforce a due-on-sale clause at its option, and deprives the association of the flexibility given it by the Board. The rule therefore creates an obstacle to the accomplishment of the regulation’s purpose. Pp. 154-159.

(c) The Board acted within its statutory authority in issuing the preemptive due-on-sale regulation. Both the language and legislative history of the HOLA indicate that the Board was authorized to regulate the lending practices of federal savings and loan associations. Congress delegated power to the Board expressly for the purpose of creating and regulating these associations so as to ensure that they would remain financially sound and able to supply financing for home construction and purchase. Consistent with that purpose, the Board reasonably exercised its authority in promulgating the due-on-sale regulation. Pp. 159-170.

121 Cal.App.3d 328, 175 Cal.Rptr. 467, reversed.

BLACKMUN, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, WHITE, MARSHALL, and O’CONNOR, JJ., joined. O’CONNOR, J., filed a concurring opinion, post, p. 171. REHNQUIST, J., filed a dissenting opinion, in which STEVENS, J., joined, post, p. 172. POWELL, J., took no part in the consideration or decision of the case.