Morgan Drexen, Inc. v. Wisconsin Department of Financial Institutions
862 N.W.2d 329
Wis. Ct. App.2015Background
- Morgan Drexen, Inc. operated a debt-settlement program in Wisconsin that counseled debtors to stop paying creditors, collected debtors’ funds into Morgan Drexen–controlled accounts, paid itself fees from those funds, and later negotiated settlements with creditors.
- By January 2012 Morgan Drexen had collected over $8 million from Wisconsin debtors, of which $4,253,081.93 were fees.
- The Wisconsin Department of Financial Institutions (Division) charged Morgan Drexen with operating as an unlicensed "adjustment service company" in violation of Wis. Stat. § 218.02(2)(a)1 and related administrative rules, sought disgorgement and forfeiture.
- A hearing examiner found Morgan Drexen acted as an adjustment service company, ordered disgorgement of fees ($4,253,081.93) and a $1.89 million forfeiture; the circuit court affirmed.
- On appeal Morgan Drexen argued the hearing examiner misinterpreted the statutory term "prorating" (claiming it requires formulaic allocation) and misapplied the phrase "engaged as principal," and challenged the disgorgement as improper restitution.
Issues
| Issue | Plaintiff's Argument (Morgan Drexen) | Defendant's Argument (Division) | Held |
|---|---|---|---|
| Whether Morgan Drexen fell within the statutory definition of an "adjustment service company" ("prorating" income) | "Prorating" requires proportional/formulaic allocation among creditors; advocating/negotiating for debtors is too broad | "Prorating" includes negotiating reductions/extended payments on behalf of debtors; the statute should be read broadly to protect debtors | Court upheld hearing examiner: negotiating settlements constitutes "prorating," and the interpretation was not unreasonable |
| Whether the phrase "engaged as principal" requires the company to own or assume debtor debts | The phrase means the entity must act as owner/principal of the debt (i.e., buy or assume accounts) | Phrase modifies only "individual," distinguishing sole proprietors from employees; corporations/LLCs need not own debt to be covered | Court affirmed: "engaged as principal" was reasonably read to modify only "individual," not to require ownership of debts by corporate actors |
| Whether disgorgement of all fees collected was an improper measure of restitution | Disgorgement should account for value of services (net loss), not total fees (invoking restitution/unjust enrichment principles) | Hearing examiner had statutory discretion to "correct conditions resulting from the violation" by ordering return of fees taken by an unlicensed actor; disgorgement of fees collected is consistent with agency practice | Court affirmed: disgorgement of the total fees collected from Wisconsin debtors was a lawful, reasonable exercise of discretion |
| Standard of review—whether agency interpretation was unreasonable | Agency interpretation unreasonable because it expands an "arcane" statute beyond historic meaning | Agency interpretation entitled to great weight; reverse only if unreasonable or contrary to statute/legislative intent | Court applied great weight deference and found the hearing examiner’s statutory interpretation reasonable and supported by substantial evidence |
Key Cases Cited
- JK Harris Fin. Recovery Sys., LLC v. DFI, 293 Wis. 2d 753 (Wis. Ct. App.) (interpreting "prorating" to include negotiating reductions/extended payments on debtor’s behalf)
- Hilton ex rel. Pages Homeowners' Ass'n v. DNR, 293 Wis. 2d 1 (Wis. 2006) (clarifying review of hearing examiner decisions)
- DOR v. River City Refuse Removal, Inc., 299 Wis. 2d 561 (Wis. 2007) (standard for reversing agency statutory interpretation as unreasonable)
- Racine Harley-Davidson, Inc. v. Division of Hearings & Appeals, 292 Wis. 2d 549 (Wis. 2006) (interpretation unreasonable if contrary to statute or without rational basis)
- Galang v. Medical Examining Bd., 168 Wis. 2d 695 (Ct. App. 1992) (review of agency discretionary decisions)
- del Junco v. Conover, 682 F.2d 1338 (9th Cir. 1982) (authorizing affirmative corrective relief, including reimbursement, to remedy violations of banking laws)
- Ide v. LIRC, 224 Wis. 2d 159 (Ct. App. 1999) (deference to hearing examiner on credibility and evidentiary weight)