Fidelity Federal Savings & Loan Association et al. v. De la Cuesta et al.
458 U.S. 141 (1982)
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Rule of Law:
A regulation promulgated by a federal agency preempts conflicting state law if the agency intended the regulation to have preemptive effect and acted within the scope of its congressionally delegated authority.
Facts:
- Fidelity Federal Savings and Loan Association (Fidelity), a federally-chartered savings and loan association, originated several loans in California secured by deeds of trust on real property.
- Each deed of trust contained a 'due-on-sale' clause, which allowed Fidelity to declare the entire loan balance immediately due and payable if the property was sold or transferred without its consent.
- Two of the deeds of trust also contained a choice-of-law clause stating the deed would be 'governed by the law of the jurisdiction in which the Property is located.'
- Appellees de la Cuesta, Moore, and Whitcombe each purchased one of these properties from the original borrowers, assuming the existing loans.
- The appellees did not notify Fidelity of the property transfers.
- Upon learning of the transfers, Fidelity notified the appellees of its intent to enforce the due-on-sale clauses.
- Fidelity offered to consent to the transfers if the appellees agreed to increase the loans' interest rates to the current market rate, which they refused to do.
- When the appellees refused the new terms, Fidelity began nonjudicial foreclosure proceedings.
Procedural Posture:
- Appellees de la Cuesta, Moore, and Whitcombe each filed suit against appellant Fidelity Federal Savings and Loan Association in the Superior Court of California for Orange County.
- The Superior Court (trial court) consolidated the actions and granted summary judgment in favor of Fidelity, holding that federal law preempted the California state rule.
- The appellees appealed to the California Court of Appeal for the Fourth Appellate District.
- The Court of Appeal reversed the trial court's judgment, finding that the federal regulation did not preempt California's law restricting due-on-sale clauses.
- Fidelity's petition for review to the California Supreme Court was denied.
- Fidelity then appealed to the U.S. Supreme Court, which noted probable jurisdiction.
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Issue:
Does a Federal Home Loan Bank Board regulation permitting federal savings and loan associations to enforce due-on-sale clauses in their mortgage contracts preempt a conflicting state law that limits the enforceability of such clauses?
Opinions:
Majority - Justice Blackmun
Yes, the Federal Home Loan Bank Board's regulation preempts California's law limiting the enforcement of due-on-sale clauses. Federal regulations have the same preemptive effect as federal statutes. The Court's inquiry is twofold: first, whether the Board intended to preempt state law, and second, whether that action was within the scope of its delegated authority. Here, the Board's intent to preempt California's law was unambiguous, as stated in the regulation's text and its accompanying preamble, which declared that the due-on-sale practices of federal associations are to be governed 'exclusively by Federal law.' Furthermore, the Board acted within its authority under the Home Owners' Loan Act of 1933 (HOLA), which granted it plenary power to regulate the 'operation' of federal savings and loans to ensure their financial stability. Because the enforcement of due-on-sale clauses is critical to the financial soundness and operation of these institutions, the regulation is a reasonable and authorized exercise of the Board's power.
Concurring - Justice O'Connor
Yes, the regulation preempts the state law in this instance. However, the authority of the Federal Home Loan Bank Board to preempt state laws is not limitless. The Home Owners' Loan Act does not permit the Board to displace all state and local laws, such as general tax statutes or zoning ordinances, that are not directly related to the specific practices and financial stability of savings and loan institutions. The Court's opinion should not be interpreted as granting federal agencies boundless preemptive power over areas traditionally governed by state law.
Dissenting - Justice Rehnquist
No, the Board's regulation should not preempt California's state law. Congress did not authorize the Board to override traditional state contract and property law by administrative fiat. While the Board has the authority to regulate the lending practices of federal savings and loans, it does not have the power to create a federal rule governing the enforceability of contractual provisions. The Board has entered a domain reserved for the states by regulating the operation of due-on-sale clauses themselves, rather than the operations of the savings and loan associations. Congress's intended remedy for unsound state laws was to allow the Board to limit the operation of federal institutions within that state, not to empower the Board to rewrite the state's substantive law.
Analysis:
This decision significantly strengthened the doctrine of administrative preemption, confirming that federal agency regulations can have the same preemptive force as federal statutes. It established that the key inquiries are the agency's intent to preempt and its statutory authority, rather than an express preemptive command from Congress in the underlying statute. This holding expanded the power of federal agencies to create uniform national rules in their designated fields, even in areas like contract and property law traditionally governed by the states. The case serves as a foundational precedent for analyzing the power of the administrative state to displace state law.
