Federal Judge Refuses To Find That California “Can Have No Real Interest” In Loans Closed Out Of State

The geographic reach of California’s statutes continues to be tested in the courts.  In a recent class action lawsuit challenging the defendants’ mortgage marketing and sales practices, the plaintiffs sued under, among other statutes, California’s unfair competition law, Business & Professions Code Section 17200.   Interestingly, the plaintiffs are residents of South Carolina and their loan was secured by property in that state.  The lender, Countrywide Home Loans, Inc., was incorporated in New York.

The Defendants moved for summary judgment arguing:

  • California’s UCL does not protect non-California residents from conduct occurring outside of California;
  • Application of California’s statutes to non-California residents would violate due process; and
  • California’s choice of law principles require the application of South Carolina law.

In In re: Countrywide Financial Corp. Mortgage Marketing and Sales Practices Litigation, Judge Dana Sabraw rejected each of these arguments.  Judge Sabraw’s analysis of choice of law should be of particular interest to corporate lawyers.  In rejecting the argument that California “can have no real interest” in the application of its own law to the plaintiffs’ claims, Judge Sabraw pointed out that the lender had its principal place of business in California and the alleged scheme was developed and implemented from here.

Corporate practitioners will note that several provisions of the Corporations Code are expressly made applicable to foreign corporations.  These statutes include California’s director inspection statute (Corporations Code Section 1602).  Readers may recall that in Havlicek v. Coast-to-Coast Analytical Services, Inc., 39 Cal. App. 4th 1844 (1995) the Court of Appeal applied Section 1602 to a Delaware corporation.  In fact, Judge Sabraw cites Havlicek in support of his conclusion.  For more on Havlicek, see my article, Court of Appeal Applies California Inspection Rights to Delaware Corporation, 17 CEB Cal. Bus. L. Rptr. 168 (1996).

As much as Delaware counsel (and many California lawyers) would like for Vantagepoint Venture Partners v. Examen, Inc., 871 A.2d 1108 (Del. 2005) to be the last word on the internal affairs doctrine and California law, it isn’t.  For more on this subject, see The War Between the States – Delaware’s Supreme Court Ignores California’s Corporate “Outreach” Statute, 19 Insights 19 (July 2005); California Appellate Court Holds that the Internal Affairs Doctrine Does Not Trump California’s Insider Trading Law, 20 Insights 15 (Jan. 2006); and In Shareholder Derivative Suits Determining what Law Governs Isn’t Easy, Los Angeles Daily Journal (June 18, 2010).

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