MARK GLUKOWSKY, PLAINTIFF-RESPONDENT, v. EQUITY ONE, INC., A DELAWARE CORPORATION, DEFENDANT-APPELLANT.
Supreme Court of New Jersey
Decided May 26, 2004
848 A.2d 747 | 180 N.J. 49
Argued February 3, 2004
Lastly, we take this opportunity to reaffirm our prior policy decision that a defendant convicted and sentenced in a municipal court may not be subjected to a greater sentence on appeal. State v. De Bonis, 58 N.J. 182, 188-89, 276 A.2d 137 (1971).
The judgment of the Appellate Division is affirmed.
For affirmance—Chief Justice PORITZ and Justices LONG, VERNIERO, LaVECCHIA, ZAZZALI, ALBIN and WALLACE—7.
Opposed—None.
Lewis G. Adler argued the cause for respondent (Mr. Adler, attorney; Mr. Adler, Roger C. Mattson and Louis D. Fletcher, on the briefs).
Dennis R. Casale argued the cause for amicus curiae Mortgage Bankers Association of New Jersey (Levy & Watkinson and Pepper Hamilton, attorneys; Mr. Casale and E. Robert Levy of counsel; Mr. Casale, Mr. Levy and Michael G. Petrone, on the brief).
David McMillin argued the cause for amicus curiae Legal Services of New Jersey (Melville D. Miller, Jr., President, attorney; Mr. McMillin, Carrie Ferraro, Gwen E. Orlowski and Rebecca Shore, on the brief).
William H. Hyatt, Jr. submitted a brief on behalf of amicus curiae National Home Equity Mortgage Association (Kirkpatrick & Lockhart, attorneys).
Michael M. Horn submitted a brief on behalf of amici curiae American Bankers Association, American Financial Services Association, America‘s Community Bankers, Consumer Bankers Association, Consumer Mortgage Coalition, Mortgage Bankers Association of America, New Jersey Financial Services Association and New Jersey League of Community Bankers (McCarter & English, attorneys; Mark D. Knoll, on the brief).
Justice ALBIN delivered the opinion of the Court.
In 1996, the federal Office of Thrift Supervision (OTS) issued a regulation authorizing state housing lenders to charge prepayment
I.
In 1999, plaintiff Mark Glukowsky secured a $72,000 mortgage loan from defendant Equity One to finance the purchase of a home in Mount Laurel. The financing arrangement provided a fixed-interest rate over a ten-year term at the end of which the loan, though not fully amortized, would mature. On the maturity date in 2009, plaintiff would owe $62,021.25 of the principal and have the choice to pay the entire principal or refinance the loan with Equity One or another lender. This method of financing a residential mortgage is commonly referred to as a “balloon loan” and constitutes an AMT under the Parity Act. An AMT is a loan with an interest rate or finance charge that may be adjusted or renegotiated; a loan with a fixed-interest rate that matures before it is fully amortized, thus implicitly permitting rate adjustments; or a loan with other variations “not common to traditional fixed-rate, fixed-term transactions.”
As part of the mortgage contract, plaintiff agreed to pay a prepayment fee to Equity One if he repaid the loan in full during the first three years of its term.1 The mortgage contract also contained a “due on sale” clause, providing that if the mortgaged
Plaintiff later filed a complaint alleging that Equity One had violated New Jersey‘s
Before the promulgation of
The Appellate Division reversed and held that OTS exceeded the scope of its authority under the Parity Act when it applied
We granted Equity One‘s petition for certification. 177 N.J. 575, 832 A.2d 325 (2003). We also granted the motions of the American Bankers Association, et al.,3 the National Home Equity Mortgage Association, the Mortgage Bankers Association of New Jersey, and Legal Services of New Jersey for leave to participate as amici curiae.
The central issue in this case is whether the Parity Act gave OTS the authority to adopt the challenged regulation. To determine whether
II.
A.
In the late 1970s and early 1980s, an increasingly volatile interest rate market seriously impaired the ability of housing creditors to provide consumers with fixed-term, fixed-rate mortgages secured by residential property. Nat‘l Home Equity Mortg. Ass‘n v. Face, 239 F.3d 633, 635 (4th Cir.), cert. denied, 534 U.S. 823, 122 S. Ct. 58, 151 L. Ed. 2d 26 (2001);
In response to the precarious state of the residential mortgage market, “Congress enacted the Garn St. Germain Depository Institutions Act of 1982 to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans.” Face, supra, 239 F.3d at 635 (internal quotation marks omitted). Title VIII of that legislation, the Parity Act, allowed state-chartered housing creditors to offer alternative mortgages if they agreed to operate in accordance with federal regulations. Ibid. (citing S. Conf. Rep. No. 97-641, at 94 (1982), reprinted in 1982 U.S.C.C.A.N. 3128, 3137). The ability of state lending institutions to issue AMTs was seen by Congress as essential to ensure the nation an adequate supply of housing credit.
The express legislative purpose of the Parity Act is
to eliminate the discriminatory impact that [federal] regulations [authorizing federally chartered housing creditors to engage in AMTs] have upon nonfederally chartered housing creditors and provide them with parity with federally chartered institutions by authorizing all housing creditors to make, purchase, and enforce alternative mortgage transactions so long as the transactions are in conformity with the regulations issued by the Federal agencies.
[
To achieve the goals of the Parity Act, Congress granted to the Federal Home Loan Bank Board (FHLBB), the predecessor to OTS, and two other federal agencies, the rulemaking authority “to prevent discrimination against” state-chartered lending institutions engaged in “making, purchasing, and enforcing alternative mortgage transactions.”4
States were not bound involuntarily to the Parity Act. Those states wishing to opt-out of the Act‘s preemption provisions only needed to certify an intention to do so within three years of its passage.
Congress directed OTS to “identify, describe, and publish those portions of [its] regulations that are inappropriate for (and thus inapplicable to) ... nonfederally chartered housing creditors.”6
Any prepayment on a real estate loan must be applied directly to reduce the principal balance on the loan unless the loan contract or the borrower specifies otherwise. Subject to the terms of the loan contract, a Federal savings association may impose a fee for any prepayment of a loan.
[
By applying
The adoption of
[i]f state housing creditors were required to follow the Wisconsin Statute when making variable-rate mortgage loans, they would clearly be disadvantaged vis-a-vis federal thrifts—the very result Congress intended to prevent. The Wisconsin Statute thus appears to fall within the scope of laws preempted by the Parity Act. Accordingly, state savings associations and state housing creditors that are not state banks or credit unions and that originate variable-rate loans in conformity with all applicable OTS regulations need not comply with the Wisconsin Statute.
[Ibid.]
In 2002, OTS proposed a rule change removing
Because the 1996 OTS regulation preempted state laws prohibiting prepayment penalties only as applied to AMTs, it also had the unintended consequence of creating an incentive for state lenders to favor AMTs over traditional fixed-interest mortgages that still were subject to state prepayment penalty laws. See 2002 Final Rule, supra, 67 Fed. Reg. at 60,546; 2002 Notice of Proposed Rulemaking, supra, 67 Fed. Reg. at 20,469. Last, OTS no longer accepted the “apparent rationale” for its 1996 rule that absent preemption of state prepayment laws “state housing creditors would be disadvantaged vis-a-vis federal thrifts.” Id. at 60,543. Based on this new reality, OTS reasoned that state laws regulating prepayment fees and late charges should “reflect each state legislature‘s judgment, after due consideration, about appropriate consumer protections applicable to state-chartered lenders.” Id. at 60,548. OTS would not “construe its authority under [the Parity Act] to frustrate these state efforts where another less intrusive construction of [the Parity Act] is permissible.” Ibid.
In its 2002 Final Rule, effective July 2003, OTS eliminated
B.
In light of that legislative and regulatory history, we return to the rationale provided by the Appellate Division for holding that
Although the Appellate Division acknowledged that an agency‘s interpretation of a statute falling within its regulatory authority is entitled to deference, it found that the 1996 version of
We disagree with the conclusion reached by the Appellate Division that OTS exceeded the authority Congress delegated to it in the Parity Act. Congress‘s intent is not entirely clear from the statutory language. We accept OTS‘s explanation that its 1996 rulemaking represented one permissible interpretation of the Parity Act. OTS is the agency responsible for enforcing the Parity Act and its interpretation of that Act is entitled to substantial deference. Moreover, the principle of comity instructs state courts to give due regard to a federal court‘s interpretation of a federal statute. Dewey v. R.J. Reynolds Tobacco Co., 121 N.J. 69, 80, 577 A.2d 1239 (1990). Federal courts uniformly have concluded that OTS in 1996 acted within the authority delegated to it by Congress by incorporating
III.
The power of a federal statute to preempt a state law is derived from the Supremacy Clause of the United States Constitu-
The regulations of a federal agency are given the same weight and afforded the same presumptions regarding preemption as federal statutes unless the regulations are “arbitrary, capricious, or manifestly contrary to the statute.” Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, 844, 104 S. Ct. 2778, 2782, 81 L. Ed. 2d 694, 703 (1984). A federal regulation will have preemptive effect provided the agency intended to preempt state law and acted within the scope of its authority. Fid. Fed., supra, 458 U.S. at 154, 102 S. Ct. at 3023, 73 L. Ed. 2d at 675; Turner v. First Union Nat‘l Bank, 162 N.J. 75, 88, 740 A.2d 1081 (1999).
A court generally must defer to a regulatory agency‘s decision, unless the agency acts outside the scope of its authority or arbitrarily. Fid. Fed., supra, 458 U.S. at 153-54, 102 S. Ct. at 3022-23, 73 L. Ed. 2d at 675. Deference is warranted
because the responsibilities for assessing the wisdom of such policy choices and resolving the struggle between competing views of the public interest are not judicial ones, and because of the agency‘s greater familiarity with the ever-changing facts and circumstances surrounding the subjects regulated.
[FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132, 120 S. Ct. 1291, 1300, 146 L. Ed. 2d 121, 134 (2000) (internal quotation marks and citations omitted).]
An agency‘s statutory interpretation is entitled to deference even when that agency has changed its interpretation over time. “An initial agency interpretation is not instantly carved in stone. On the contrary, the agency, to engage in informed rulemaking, must consider varying interpretations and the wisdom of its policy on a continuing basis.” Chevron, supra, 467 U.S. at 863-64, 104 S. Ct. at 2792, 81 L. Ed. 2d at 715-16; see also Motor Vehicle Mfrs. Ass‘n of United States v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 42, 103 S. Ct. 2856, 2866, 77 L. Ed. 2d 443, 457 (1983) (finding that agencies “must be given ample latitude to adapt their rules to the demands of changing circumstances“) (internal quotation marks and citation omitted); Brown & Williamson Tobacco Corp., supra, 529 U.S. at 156-57, 120 S. Ct. at 1313, 146 L. Ed. 2d at 149. However, when an agency changes its course, it must provide a “reasoned analysis.” Motor Vehicle Mfrs. Ass‘n, supra, 463 U.S. at 57, 103 S. Ct. at 2874, 77 L. Ed. 2d at 466. In those instances in which Congress has not spoken directly to the issue, but “the agency‘s interpretation is reasonable,” we must not reject “an agency‘s exercise of its generally conferred authority to resolve a particular statutory ambiguity simply because the agency‘s chosen resolution seems unwise.” United States v. Mead Corp., 533 U.S. 218, 229, 121 S. Ct. 2164, 2172, 150 L. Ed. 2d 292, 305 (2001).
Although due deference must be given to an agency‘s interpretation of a statute in an area over which it has regulatory power, “the final word on statutory interpretation is for the courts.” Grunbeck, supra, 74 F.3d at 341. Therefore, we must decide whether Congress conferred on OTS the authority to preempt states’ prepayment penalty laws as they apply to AMTs. There is no doubt that OTS intended its regulation to preempt states’ prepayment penalty laws. 1996 Final Rule, supra, 61 Fed. Reg. at 50,983. The only issue to be resolved is whether OTS was authorized pursuant to the Parity Act to apply
IV.
OTS currently takes the position that allowing the charging of prepayment penalties on an AMT is not intrinsic to the Parity Act‘s mandate. However, in 1996, construing parity to
Regulatory agencies do not establish rules of conduct to last forever; they are supposed, within the limits of the law and of fair and prudent administration, to adapt their rules and practices to the Nation‘s needs in a volatile, changing economy. They are neither required nor supposed to regulate the present and the future within the inflexible limits of yesterday.
See also In re PSE & G Co.‘s Rate Unbundling, 167 N.J. 377, 385, 771 A.2d 1163 (2001) (noting administrative agencies’ ability to be flexible and responsive to changing conditions); Heir v. Degnan, 82 N.J. 109, 121-22, 411 A.2d 194 (1980) (observing advantage of administrative regulations is flexibility to keep pace with current needs). A regulatory agency is charged with the responsibility of adapting its regulations to changing conditions when enforcing a statute under its authority. See, e.g., Bob Jones Univ. v. United States, 461 U.S. 574, 596, 103 S. Ct. 2017, 2031, 76 L. Ed. 2d 157, 176 (1983) (acknowledging IRS‘s administrative authority “to meet changing conditions and new problems“). In addressing rapidly changing and sometimes difficult to understand market conditions, a regulatory agency may experiment—within the scope of its authority—to meet the pressing needs of the moment. “One of the most significant advantages of the administrative process is its ability to adapt to new circumstances in a flexible manner....” FCC v. Nat‘l Citizens Comm. for Broad., 436 U.S. 775, 811, 98 S. Ct. 2096, 2120, 56 L. Ed. 2d, 697, 724 (1978).
In this final rule, OTS has selected between two permissible interpretations of [the Parity Act] based upon a reevaluation of the statute. OTS has, in no way, concluded that the 1996 rule changes reflected an impermissible construction of its statute. Accordingly, there is no basis for arguing that the final rule applies retroactively to transactions consummated before the effective date.
[2002 Final Rule, supra, 67 Fed. Reg. at 60,550.]
Further, the Appellate Division‘s reliance on the 2002 Notice of Proposed Rulemaking to the exclusion of the Final Rule fails to account for the preliminary nature of proposed rulemaking. See Dow Chem., USA v. Consumer Prod. Safety Comm‘n, 459 F. Supp. 378, 391 (W.D. La. 1978) (recognizing informal rulemaking process as channel for participation by public, experts, and other constituencies to provide information on effects of proposed rules and to suggest alternatives). Established principles of administrative law require that a reviewing court defer to an agency‘s own resolution of a conflict between that agency‘s decisions. See Smith v. Brown, 35 F.3d 1516, 1527 (Fed. Cir. 1994), superseded by statute on other grounds stated by Disabled Am. Veterans v. Gober, 234 F.3d 682 (Fed. Cir. 2000), rehearing denied (2001). The Appellate Division accorded greater weight to commentary in the Proposed Rule than to commentary in the Final Rule. Contra Christensen v. Harris County, 529 U.S. 576, 587, 120 S. Ct. 1655, 1662-63, 146 L. Ed. 2d 621, 631 (2000) (declining to accord Chevron
Unless there are compelling indications that OTS is wrong in concluding that there are two permissible interpretations of the Parity Act, we should exercise restraint before rushing to invalidate the 1996 regulation. N.J. Guild of Hearing Aid Dispensers v. Long, 75 N.J. 544, 575-76, 384 A.2d 795 (1978); see also Matturri v. Bd. of Trs. of the Judicial Ret. Sys., 173 N.J. 368, 382, 802 A.2d 496 (2002).
V.
In deciding whether OTS exceeded the scope of its authority in promulgating
In Shinn v. Encore Mortgage Services, Inc., supra, 96 F. Supp. 2d at 424, 426, the district court determined that Congress had granted OTS broad authority to regulate state-chartered lenders engaged in AMTs and that the 1996 version of
In National Home Equity Mortgage Ass‘n v. Face, supra, 239 F.3d at 639-40, the United States Court of Appeals for the Fourth Circuit also endorsed the view that Congress delegated broad authority to OTS to regulate state-chartered housing creditors that elected to have their AMTs governed by the Parity Act. Id. at 639. The court found that in exercising that rulemaking authority, OTS was permitted to preempt not only those state laws that prohibited AMTs, but also those laws that denied state-chartered housing creditors competitive parity with federally-chartered lenders. Id. at 640. Consequently, the Court of Appeals held that
In McCarthy v. Option One Mortgage Corp., supra, 362 F.3d at 1010-11, the Seventh Circuit Court of Appeals followed the analysis in Face and Shinn to hold that an Illinois law prohibiting prepayment penalties did not apply to an AMT paid off in 2001 under the Parity Act. Notably, McCarthy was decided after the rule change to
Last, in National Home Equity Mortgage Ass‘n v. OTS, 271 F. Supp. 2d 264, 268 (D.D.C. 2003), the plaintiff challenged not the 1996 incarnation of
Those federal court decisions, while not binding on New Jersey courts, are entitled to respectful consideration in the interests of judicial comity. Judicial comity helps to ensure uniformity and discourage forum shopping. Dewey, supra, 121 N.J. at 80, 577 A.2d 1239.
Finally, because OTS is the administrative agency charged with enforcement of the Parity Act, its opinion is entitled to great weight and is a substantial factor in our interpretation of the Act. N.J. Guild, supra, 75 N.J. at 575, 384 A.2d 795 (quoting Youakim v. Miller, 425 U.S. 231, 235, 96 S. Ct. 1399, 1402, 47 L. Ed. 2d 701, 706 (1976)). We cannot conclude, based on the language of the Parity Act or its legislative history, that Congress would not have sanctioned OTS‘s interpretation of the Act. See Fid. Fed., supra, 458 U.S. at 153-54, 102 S. Ct. at 3022, 73 L. Ed. 2d at 675 (citing United States v. Shimer, 367 U.S. 374, 381-82, 81 S. Ct. 1554, 1559-60, 6 L. Ed. 2d 908, 913-14 (1961)). Although the Appellate Division‘s view represents one reasonable interpretation of the authority granted to OTS under the statute, we find that it is not the only reasonable interpretation. We, therefore, cannot declare invalid OTS‘s decision to adopt the 1996 regulation.
VI.
This case has brought to our attention a gap in our court rules.
VII.
We hold that the New Jersey Prepayment Law was preempted by the 1996 version of
Justice ZAZZALI, dissenting.
The majority opinion represents a principled treatment of a complex problem. However, I do not believe that the preemption
I write further only to underscore the point that affording lenders protection under the 1996 regulation, which by now has been universally recognized as misguided, becomes especially unjust when viewed in conjunction with the sequence of events relating to the “opt-out” mechanism provided by Congress when it enacted the underlying legislation. Ante at 58-59, 848 A.2d at 752.
In passing the Parity Act, Congress afforded each state three years to assert its right not to be preempted by the federal regulatory scheme.
Finally, by virtue of the rule that a dismissal under
Justice VERNIERO and Justice WALLACE join in this opinion.
For reversal and reinstatement—Chief Justice PORITZ and Justices LONG, LaVECCHIA and ALBIN—4.
For affirmance—Justices VERNIERO, ZAZZALI and WALLACE—3.
Notes
[Lending and Investment, 61 Fed. Reg. 50,951, 50,983 (1996) (to be codified atPursuant to
12 U.S.C. 3803 , housing creditors that are not commercial banks, credit unions, or Federal savings associations may make alternative mortgage transactions as defined by that section and further defined and described by applicable regulations identified in this section, notwithstanding any state constitution, law, or regulation. In accordance with section 807(b) of Public Law 97-320,12 U.S.C. 3801 note , §§ 560.33, 560.34, 560.35, and 560.210 of this part are identified as appropriate and applicable to the exercise of this authority and all regulations not so identified are deemed inappropriate and inapplicable. Housing creditors engaged in credit sales should read the term “loan” as “credit sale” wherever applicable.