Johnson v. Cash StoreJohnson v. Cash Store
Under Washington law, a company in the business of making small loans may advance up to $500 on the security of a postdated check, as long as the date of the postdated check is no more than 31 days after the date of the loan.
The Cash Store, also known as Cottonwood Financial, Ltd., loaned Angela Johnson $500. In exchange, Ms. Johnson gave Cash Store a check postdated two weeks later for $575, including a $75 “Finance Charge.” Clerk‘s Papers (CP) at 12. When Ms. Johnson was unable to pay the entire amount two weeks later, Cash Store offered to keep the $75 finance charge and to draw up a second loan agreement for $575 with a second postdated check due two weeks lаter. Ms. Johnson repeated this process 14 times over the next 7 months. Following a stop payment on the last postdated check, and alleged threats from Cash Store that it would bring criminal charges, Ms. Johnson finally paid off the loan. She then filed a complaint against Cash Store for unconscionability and violations of the Consumer Protection Act. Although the summons and complaint were served on the manager, Cash Store did not answer or appear. Consequently, Ms. Johnson obtained a default judgment. Cash Store‘s motion to vacate the judgment was denied.
On appeal, Cash Store contends vacation of the default judgment is appropriate under
FACTS
Cottonwood Financial, Ltd. is a Texas limited partnership licensed to do business in Washington as The Cash Store. Ms. Johnson was a single mother working as a manager for Jack in the Box in January 2000. Because she had paid a $300 veterinarian bill for treatment of her daughter‘s cat, she found that she needed additional money to pay bills that month. Ms. Johnson went to Cash Store on January 4 and requested a $250 loan. A Cash Store employee reportedly told her she would get a better finance rate for a $500 loan and she agreed to the greater amount. The “CONSUMER LOAN AGREEMENT” signed by Ms. Johnson set out the following disclosurеs: the amount paid to Ms. Johnson was $500; the annual percentage rate was 608.33 percent; the finance charge was $75; the amount financed was $500; and the total payment of $575 was due two weeks later. CP at 12. Ms. Johnson‘s postdated check for $575 was security for the loan. The agreement also informed her that if she paid the loan in full before the due date, she would be charged a prepayment penalty equal to the difference between the finance charge and the interest accrued through the prepayment date.
Ms. Johnson realized she wоuld not be able to pay $575 on the date it was due. The Cash Store employee reportedly told her to come in on the due date with $575 in cash and the store would roll the loan over. On January 13, Ms. Johnson went to Cash Store with $575 in cash, an employee took her money, gave her back the postdated check, and wrote a new consumer loan agreement. Ms. Johnson signed the new agreement, wrote a new check postdated two weeks later, and the Cash Store employee handed back the $500 in cash, keeping $75. This process was repeatеd 14 more times, with Ms. Johnson paying $75 each time.
By August 2000, Ms. Johnson had paid more than $1,100 in interest on a $500 loan that she still owed in its entirety. Although she had suffered from mild depression before receiving the loan, her symptoms had worsened as her financial situation became more hopeless. She stopped payment on the August postdated check to Cash Store. Subsequently,
On November 13, 2001, Ms. Johnson filed a summons and complaint against Cash Store alleging unconscionability and Consumer Protection Act (CPA) violations in the making and enforcing of the loan terms, including usurious interest rates against public policy and unfair business practices in the form of harassment. That same day, a process server personally served the summons and complaint on Laura Fish, manager of the North Pines Road Cash Store in Spokane. Ms. Fish sent the summons and complaint back to Ms. Johnson‘s counsel in separate envelopes on November 15. In each envelope she attached a note stating that Ms. Johnson‘s debts were paid off in November 2000.
When Cash Store failed to appear or respond, Ms. Johnson filed a notice of intent to file for default judgment оn December 19, 2001. This notice was mailed to the North Pines Road Cash Store and stated that the hearing on the motion for default judgment would be held on December 27, 2001 at 10 A.M. in the ex parte courtroom. The hearing was held and an order of default was entered on December 27. Cash Store did not appear.
Ms. Johnson‘s motion to set a hearing for damages was not sent to Cash Store.1 At the hearing on damages held January 25, 2002, Ms. Johnson requested treble damages for the total amount paid to Cash Store (3 × $1,740 = $5,220), plus $42,000 for emotional distress (twice the value of the foreclosure сosts), and attorney fees and costs. The trial court found the treble damages and attorney fees reasonable and awarded them, adjusted by a slightly lower rate. Noting that Ms. Johnson‘s depression was ongoing, the court limited her recovery for emotional distress to $15,000. The total judgment was $26,701.
On June 19, 2002, Ms. Johnson served a writ of garnishment on U.S. Bank to satisfy Cash Store‘s indebtedness, now equal to $27,739. Three weeks later, Cash Store filed a motion to vacate the default judgment. In the memorandum supporting the motion, Cash Store argued that its failure to respond was a mistake or excusable neglеct due to its manager‘s inattention. It also asserted that its short-term loan operation complies with Washington law and is approved by the State Department of Financial Institutions (DFI). Cash Store attached affidavits from Ms. Fish and from Trevor Ahlberg, Cottonwood‘s chief executive officer (CEO). Mr. Ahlberg stated that the Washington Cash Stores had been audited in August and September 2000 by the DFI, which found no significant violations of state law. He also asserted that Cash Store had no policy to harass its clients or to threaten criminal sanctions.
Finding that Cash Store failed to establish a prima faсie defense to the underlying action and further finding that its failure to appear was not due to excusable neglect or a mistake, the trial court denied Cash Store‘s motion to vacate the default judgment. The court also amended the order of judgment to add additional attorney fees for Ms. Johnson. Cash Store now appeals the order denying its motion to vacate judgment and the award of damages.
DEFAULT JUDGMENT
Any discussion of default judgments begins with the proposition that they are not favored in the law. Griggs v. Averbeck Realty, Inc., 92 Wash.2d 576, 581, 599 P.2d 1289 (1979). The overriding policy is that controversies should be determined on their merits, not by default. Id. (quoting Dlouhy v. Dlouhy, 55 Wash.2d 718, 721, 349 P.2d 1073 (1960)). On the other hand, the need for a responsive and responsible legal system mandates that parties comply with a judicial summons. Id.; Norton v. Brown, 99 Wash.App. 118, 123, 992 P.2d 1019 (1999), 3 P.3d 207 (Wash.App.2000). In determining whether a default judgment should be vacated, the court applies equitable principles to ensure that substantial rights are preserved and justice is done. Griggs, 92 Wash.2d at 581-82, 599 P.2d 1289; Norton, 99 Wash. App. at 123, 992 P.2d 1019. Justice is not done if hurried defaults are allowed, but neither is it done if continuing delays are permitted. Griggs, 92 Wash.2d at 582, 599 P.2d 1289.
A motion to vacate a default judgment pursuant to
The two secondаry factors addressed in a motion to vacate are met here. Cash Store filed a motion to vacate the default judgment less than a month after it received notice of the writ of garnishment. Assuming this notice was the first to reach upper administration, we find that Cash Store acted with due diligence after notice of the default judgment. Addressing the prejudice factor, Ms. Johnson argued only that vacation of the judgment would prolong her dependence on her family and would “unnecessarily ... draw out a very painful, humiliating and distressing experience.” CP at 75. While delay in the proceedings is one of the evils addressed by the motion for default judgment, Griggs, 92 Wash.2d at 582, 599 P.2d 1289 (quoting Widucus v. Southwestern Elec. Co-op., Inc., 26 Ill.App.2d 102, 109, 167 N.E.2d 799 (1960)), vacation of a default inequitably obtained cannot be said to substantially prejudice the nonmoving party merely because the resulting trial delays resolution on the merits. Ms. Johnson fails to establish that she will suffer substantial hardship if the default judgment is vacated.
Consequently, the dispositive factors in the trial court‘s decision to deny the motion to vacate are (1) the evidence to support at least a prima facie defense, and (2) whether Cash Store‘s failure to appear was due to excusable neglect. We will examine the propriety of the trial court‘s decision in both the order of default and the judgment awarding damages.
I. Order of default. Cash Store contends it presented substantial evidence of a strong defense to Ms. Johnson‘s claims. The first of these claims was a cause of action for unconscionability. Ms. Johnson alleged in her complaint that the consumer loan agreements she signed were so one-sided as to be unconscionable on their faces.
Ms. Johnson alleged in her first cause of action that the consumer loan agreements were so one-sided as to аmount to an absence of meaningful choice. She also alleged that the terms were unreasonably favorable to Cash Store, that she had absolutely no bargaining power, and that she did not understand the significance of the unconscionable terms. These allegations relate to procedural unconscionability. See Nelson, 127 Wash.2d at 131, 896 P.2d 1258. Additionally, Ms. Johnson‘s allegations of exorbitant percentage rates could also support a claim of procedural unconscionability. Id. at 132, 896 P.2d 1258 (courts have held that grossly excessive prices render contracts unconsciоnable). In its motion to vacate, Cash Store offered the following defenses to unconscionability: (1) its short-term loan operation has been specifically approved by the DFI; and (2) its loan procedures have been consistently upheld in other jurisdictions. Affidavits by Mr. Ahlberg, Cash Store‘s CEO, state that Cash Store has worked closely with the DFI to make sure that its loan procedures comply with the state‘s regulations and with chapter
Pursuant to
One of the criticisms aimed at the so-called payday loan business is that in requiring payment of the loan in full, without partial payments to reduce the principal, payday lenders trap consumers “in a vicious cycle of indebtedness.” Creola Johnson, Payday Loans: Shrewd Business or Predatory Lending? 87 MINN. L.REV. 1, 4 (2002). Typically, payday loan customers are unable to pay off the entire indebtedness by the loan‘s due date and have to “rollover” the loan. Id. at 56. To roll over a loan is “to refinance a maturing obligation ... by offering a new obligation of the same type in exchange.”
In Washington,
Mr. Ahlberg‘s affidavits and the report compiled by the DFI do not address Cash Store‘s policy of renewing Ms. Johnson‘s loan every two weeks for a 15 percent finance fee. In fact, this evidence does not specifically address Ms. Johnson‘s allegations that she lacked a meaningful choice in the terms of the contract and that she did not understand the true ramifications of entering into an agreement that required payment in full—or unlimited renewals of the debt—for a 15 percent fee every two weeks. Cash Store insists that the fact that the DFI found Cash Store‘s small loans compliant with the disclosure and interest rate requirements of chapter
Ms. Johnson‘s second cause of action was for violation of the Consumer Protection Act, chapter
Any violation of chapter
To establish a prima facie defense, the affidavits submitted to support vacation of a default judgment must precisely set out the facts or errors constituting a defense and cannot rely merely on allegations and conclusions. Shepard, 95 Wash. App. at 239, 974 P.2d 1275; see also
The trial court found that Cash Store had not presented a prima facie defense to Ms. Johnson‘s complaint. Considering the fact that Cash Store‘s consumer loan agreements appear to comply with
In her affidavit in support of the motion to vacate the default judgment, Ms. Fish stated that she received the summons and complaint on November 13, 2001. Because the only legal documents she had ever received were bankruptcy notices from customers, she claimed she was not familiar with the documents associated with lawsuits. After briefly reviewing the document headings, she assumed they related to a bankruptcy. She reported that she called Ms. Jоhnson‘s attorney‘s office, but could not remember whether she talked to anyone. She then sent back the summons and complaint in separate envelopes, each with a note attached explaining that Ms. Johnson was no longer a customer and had paid her balance in full. Because she thought the documents were irrelevant to Cash Store business, she explained, she never informed the company‘s administration or its legal counsel that she had received them. Ms. Fish failed to mention why she did not respond to the notice of the default hearing and the reсord does not indicate what she did with that notice.
Generally a default judgment is proper when the adversary process has been halted because of an essentially unresponsive party. Norton, 99 Wash.App. at 126, 992 P.2d 1019. If a company fails to respond to a complaint because someone other than general counsel accepted service of process and then neglected to forward the complaint, the company‘s failure to respond is deemed due to inexcusable neglect. Prest v. Am. Bankers Life Assurance Co., 79 Wash.App. 93, 100, 900 P.2d 595 (1995). Cash Store has never argued that service was impropеrly made on Ms. Fish, the store manager. See
Ms. Fish‘s failure to forward the summons and complaint to corporate counsel or to the Cottonwood administration—and her unexplained failure to forward the notice of a default hearing—constituted at least
II. Damages. We apply the same standard of review for the trial court‘s denial of the motion to vacate the damages award, and will not overturn the trial court‘s decision unless we find a clear abuse of discretion. Calhoun v. Merritt, 46 Wash.App. 616, 619-20, 731 P.2d 1094 (1986). The trial court awarded Ms. Johnson three times the amount she paid to Cash Store for her seven months of loan renewals, finding that these damages were appropriate under the CPA,
Damages for emotional distress are not recoverable for a violation of the CPA. White River Estates v. Hiltbruner, 134 Wash.2d 761, 765 n. 1, 953 P.2d 796 (1998); Wash. State Physicians Ins. Exch. & Ass‘n v. Fisons Corp., 122 Wash.2d 299, 318, 858 P.2d 1054 (1993). The plaintiff who is successful on a CPA claim is entitled to actual damages and to the attorney fees and costs related to the CPA claim.
For the first time on appeal, Cash Store contends there is no basis for the damages awarded for emotional distress. It contends the trial court improperly awarded emotional distress damages for the CPA violation. In its motion to vacate the default judgment, Cash Store merely argued that these damages were based on hearsay documents and that it needed discovery to determine what other circumstances might have caused Ms. Johnson‘s emotional distress. Even examined in the light most favorable to Cash Store, the arguments before the trial court did not rise above mere allegations and conclusions; they did not set out specific facts or errоrs constituting a prima facie defense. Shepard, 95 Wash.App. at 239, 974 P.2d 1275. Consequently, the trial court did not err in finding that Cash Store did not present a prima facie defense to the award of damages.
Moreover, the award is supported by the record. True, Ms. Johnson did not specifically include in her complaint a cause of action for an intentional tort. However, the findings of fact and conclusions of law supporting the default judgment include a finding that Ms. Johnson suffered emotional distress due to Cash Store‘s intentional and unconscionable conduct in threatening her with arrest, and a conclusiоn that Cash Store‘s intentional and unconscionable conduct aggravated her pre-existing depression and insomnia. In her memorandum in opposition to Cash Store‘s motion to vacate the default judgment, Ms. Johnson argued that Cash Store raised no defense to the damages incurred due to its intentional infliction of emotional distress. Because such damages are recoverable under a theory of intentional infliction of emotional distress, Rice v. Janovich, 109 Wash.2d 48, 61, 742 P.2d 1230 (1987), and because Cash Store raised no prima facie defense to this award, the trial court properly deniеd the motion to vacate the damages award.
ATTORNEY FEES
Ms. Johnson requests attorney fees on appeal pursuant to
Affirmed.
WE CONCUR: BROWN, C.J., and KURTZ, J.