AFRCT Obtains Summary Judgment For Wells Fargo Bank On Putative Nationwide Class Action Over ARM Index Volatility
AFRCT obtained summary judgment for Wells Fargo Bank, N.A., in Haggarty et al, v. Wells Fargo Bank, N.A., 2012 U.S. Dist. LEXIS 143405 (N.D. Cal. Oct. 3, 2012), a putative nationwide class action. Borrowers on the Eleventh District Cost of Funds Index (“COFI”) alleged that Wells Fargo breached the implied covenant of good faith and fair dealing and committed unfair business practices by refusing to determine that the COFI had been substantially recalculated in November of 2009 and switching them to a lower-rate alternative index. The portfolio of COFI loans was originated by World Savings Bank, FSB, which was taken over by Wachovia in 2006, which in turn was subsequently acquired by Wells Fargo.The COFI is compiled by the Federal Home Loan Bank of San Francisco using the deposit and borrowing expenses of member federal savings banks headquartered in the Eleventh District, comprising of California, Arizona and Nevada, or so-called Reporting Members. The borrowers alleged that Wachovia’s merger with Wells Fargo caused an unprecedented increase of 83.5 basis points (0.835% or 66% by value) of the COFI and that the COFI had been permanently increased. Wells Fargo Bank, N.A., did not meet the Federal Home Loan Bank’s definition of a “Reporting Member” and its deposit and borrowing expenses were not included in calculating the COFI.
The borrowers had sought a nationwide class comprised of tens of thousands of borrowers and sought significant past and future damages for Wells Fargo’s alleged failure to switch them to a lower-rate index.
The Northern District of California, the Honorable Judge Charles R. Breyer presiding, held that Wells Fargo’s decision over its lending operations, such as adjusting interest rates and index substitution, could not be challenged by state-law claims, as such claims were preempted by federal law and regulations governing federally chartered institutions. The Court also held that the express terms of the contract gave Wells Fargo “sole discretion” to determine if the COFI had been substantially recalculated and, if so, which alternative index to substitute. Prior to AFRCT’s involvement as counsel for Wells Fargo in this case, the lawsuit had been pending for approximately (2) years. Wells Fargo’s summary judgment was secured on the eve of the hearing for class certification and only two (2) months before trial was scheduled to start. AFRCT attorneys representing Wells Fargo Bank included Mark Flewelling and Gene Wu.