Walter C. MADSEN, Superintendent of Banks, and State of Arizona, ex rel. Robert K. Corbin, Attorney General, Plaintiffs-Appellants, v. WESTERN AMERICAN MORTGAGE COMPANY, an Arizona corporation; John Does 1-10 and Jane Does 1-10, husbands and wives; ABC Corporations; and XYZ Partnerships, Defendants-Appellees.
No. 1 CA-CIV 6305.
Court of Appeals of Arizona, Division 1, Department D.
Jan. 15, 1985.
694 P.2d 1228
Cook & Newman, Ltd. by Donald J. Newman, Phoenix, for defendants-appellees.
OPINION
CONTRERAS, Judge.
The state appeals from summary judgment that was granted to Western American Mortgage Company (Western American). The trial court held, as a matter of law, that Western American‘s conduct, including the use of a “conditional” loan commitment letter in mortgage loan transactions, did not amount to a deceptive or misleading act or practice, or fraud, false pretense, false promise or misrepresentation under either the Arizona Consumer Fraud Act,
Western American is a state-licensed mortgage broker that offers individual home buyers loans insured by the Federal Housing Authority (FHA) or guaranteed by the Veterans Administration (VA). In the normal course of its business, Western American sells these loans to institutional investors in what is termed the secondary market. At times, the sale of these loans can become difficult because both the FHA and VA set maximum loan interest rates that are lower than the rates on conventional loans. To ensure the availability of FHA and VA loans, lenders have developed a “discount point” system1 whereby cash
The loans that give rise to the present action were negotiated in 1979 when interest rates were rising at an unprecedented rate. Although the FHA and VA raised their interest ceilings several times, their maximum rates lagged far behind the market rates for conventional loans. The discount points were increasing, contrary to historical precedent, at the same time the interest rates were adjusted upward. Between September 27, 1979, and October 24, 1979, the discount went from 4.75 percent to 11.5 percent. From January 1, 1979, until November 27, 1979, Western American used a written discount point commitment form in its FHA and VA loan transactions whereby it agreed to close, for a set number of days, an FHA-insured or VA-guaranteed mortgage loan at interest and discount rates specified in the agreement. The commitment form provided as follows:
DATE: __________________ RE: BUYER __________________
TO: ____________________ PROPERTY ___________________WESTERN AMERICAN MORTGAGE COMPANY hereby agrees to close an FHA or VA mortgage loan on the subject property at an interest rate of ____% subject to a discount of ____ points based on the final approved mortgage amount. This quotation is conditioned upon the mortgagor meeting all credit requirements and the inspection and approval of the property.
This commitment is valid for a period of ____ days from the date of this letter and the loan must close at the title company on or before __________________.
In the event of an interest rate change the above to be renegotiated.
WESTERN AMERICAN MORTGAGE COMPANY AGREED AND ACCEPTED:
BY: ____________________ __________________ Seller
__________________ SellerPlease return one executed copy to Western American Mortgage Company.
The state filed a civil action on May 12, 1981, under the Arizona Consumer Fraud Act and under the Arizona Mortgage Brokers Act, alleging that during the period in question, Western American processed a substantial number of loans wherein the sellers were charged points higher than those that were expressly set forth in the
- repeatedly refused to honor the commitment agreements, increasing the discount rate paid by the sellers without their knowledge or consent;
- made loan commitment agreements that were misleading and deceptive representations of the points the sellers actually would be charged; and
- concealed, suppressed or omitted material facts regarding the discount rates with the intent that this concealment, suppression or omission would be relied upon.
The state sought injunctive relief, civil penalties and restitution to the sellers who had experienced losses as a result of the alleged violations of the acts.
Western American moved for dismissal, contending that it was entitled to judgment as a matter of law because no issues of material fact existed.3 It also contended that the attorney general lacked standing to sue under the Consumer Fraud Act since such actions are preempted under People ex rel. Babbitt v. Green Acres Trust, 127 Ariz. 160, 618 P.2d 1086 (App.1980), because of the comprehensive consumer protection provided by the Mortgage Brokers Act.4 Additionally, Western American claimed the statute of limitations had run on the state‘s claims for restitution for individuals affected by Western American‘s conduct. Finally, Western American contended that the complaint should be dismissed because the attorney general had engaged in unethical and illegal conduct by publicizing the filing of this action. The state responded to Western American‘s motion and moved for partial summary judgment.
The trial court denied the state‘s motion for partial summary judgment and granted summary judgment for Western American, stating that as a matter of law, Western American‘s conduct, including its utilization of the so-called conditional commitment letter, did not constitute “... a deceptive or misleading act or practice, or fraud, false pretense, false promise or misrepresentation under either
The trial court did not reach the issue of whether maintenance of such action under the Consumer Fraud Act was preempted under Green Acres Trust because of the potential for action under the Mortgage Brokers Act. It also did not reach Western American‘s contentions that the statute of limitations had run or that the attorney general had acted improperly.
The first issue on appeal is whether the trial court was correct in ruling, as a matter of law, that Western American‘s conduct did not constitute fraud or misrepresentation under the Consumer Fraud Act or the Mortgage Brokers Act. The state argues that the court erred because Western American‘s practice of using the loan commitment agreements in question violated the Consumer Fraud and Mortgage Brokers acts by deceiving or misleading sellers into believing they were protected for a designated period of time from fluctuations
The Consumer Fraud Act is a broadly drafted remedial provision designed to eliminate unlawful practices in merchant-consumer transactions. Green Acres Trust, 127 Ariz. at 164, 618 P.2d at 1090. An unlawful practice is defined as follows:
The act, use, or employment by any person of any deception, deceptive act or practice, fraud, false pretense, false promise, misrepresentation, or concealment, suppression or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise whether or not any person has in fact been misled, deceived, or damaged thereby...
The Mortgage Brokers Act provides sanctions for those engaged in the mortgage broker business who commit any of the following:
- Making any false promise likely to influence, persuade, or induce, or pursuing a course of misrepresentation or false promises through agents, employees, advertising or otherwise.
- Substantial misrepresentation, circumvention, or concealment of any of the material particulars or the nature thereof, regarding a mortgage transaction to which he is a party...
If Western American‘s loan commitment letter or practices had the capacity to mislead an ordinary person, then the trial court erred in ruling that, as a matter of law, Western American‘s use of a conditional commitment letter did not constitute actionable conduct under
Before reviewing the record, however, this court must address Western American‘s argument that the state failed to show the existence of material questions of fact because it failed to attach to its pleadings affidavits in the form required by Rule 56(e) of the Arizona Rules of Civil Procedure. The rule states that all affidavits must be made on personal knowledge,
In reviewing these affidavits, it becomes clear that questions of fact exist as to whether Western American raised the discount rate it charged without contacting the sellers or their agents. We cite to and discuss two specific instances. The affidavits the state presented include one by Ray Fix, a real estate agent who stated that although he represented Mr. and Mrs. Rick D. Moody, sellers in a transaction financed by Western American, he was not notified of an increase in points. In fact, according to his affidavit, Mr. Fix did not learn of the change until he reviewed the disbursement letter after the close of escrow. He further stated that he immediately contacted Mike Vance, a Western American escrow officer, and was told that Western American did not have to contact anyone because the commitment letter gave Western American authority to raise points automatically. Mr. Fix stated that Mr. Vance later told him that nothing could be done about the extra $700 the Moodys were charged. Virginia Reichard, who operated the firm where Mr. Fix worked, stated in her affidavit that Mr. Fix had no notice of any point change in the Moody transaction. She, too, contacted Western American to protest and states that she was told Western American had the right to raise the points. She further stated that no renegotiation took place. In an affidavit presented by Western American, Mr. Vance states that he notified the agent for the buyers of the Moodys’ home, who also worked for Reichard‘s firm, and asked her to notify the sellers. Mr. Vance did not learn until after the close of escrow that Mr. Fix and Mr. Moody had not been notified.
In another set of affidavits offered by the state, real estate agent Jerry Kruetter and his client, Michael Morgan, state that they never received notice that the discount points would double on the sale of the Morgan home. Both Mr. Kruetter and Mr. Morgan state that they learned of the increase after escrow closed. Western American presented an affidavit of Suzanne Saunders, one of its loan processors, who states that she contacted Mr. Kruetter on October 26, 1979, to tell him Western American would be charging eight points on the Morgan transaction. Ms. Saunders states that Mr. Kruetter became verbally abusive and hung up after she told him eight points was the best Western American could do. In his affidavit, Mr. Kruetter specifically denies that he was contacted by “Suzi” or anyone else about this point change. Additionally, he and Mr. Morgan state that Western American did not attempt to negotiate the change.
As our review of the affidavits shows, it clearly appears that the state demonstrated that factual disputes existed as to whether Western American actually notified sellers or their agents about changes in discount rates. Under Arizona law, litigants are entitled to a trial where there is the slightest doubt as to the facts. Mid-Century Insurance Co. v. Duzykowski, 131 Ariz. 428, 641 P.2d 1272 (1982); Peterson v. Valley National Bank of Phoenix, 90 Ariz. 361, 368 P.2d 317 (1962). Furthermore, affidavits of the sellers and their agents in the Moody and Morgan transactions indicate the parties were surprised by the discount increases. Viewing
Since this matter must be remanded, we will, for guidance of the trial court, proceed to discuss some of the other issues presented. The next issue is whether Western American could be sued under the Consumer Fraud Act, the Mortgage Brokers Act or both. Western American‘s actions, viewed in a light most favorable to the state, seem to fit squarely within the parameters of conduct proscribed by the Consumer Fraud Act.
Western American argues, however, that action under the Consumer Fraud Act is preempted under Green Acres Trust, supra, which states that the attorney general does not have jurisdiction to seek relief under the Consumer Fraud Act where other “particularized and comprehensive legislation pervades a specialized field of consumer protection.” 127 Ariz. at 168, 618 P.2d at 1094. Here, the specialized protection to which Western American alludes would be from the Mortgage Brokers Act.
The state argues that by amending the Consumer Fraud Act immediately after the Green Acres Trust decision to ensure the act is considered a cumulative remedy, the legislature told the court that its conclusion of preemption was wrong. Therefore, it concludes, the court should overrule Green Acres Trust. We disagree with the state‘s argument and its conclusion.
The Arizona Supreme Court, in State ex rel. Corbin v. Pickrell, 136 Ariz. 589, 667 P.2d 1304 (1983), did state that the amendment to the Consumer Fraud Act mandated the conclusion that the act was intended as an additional source of relief. 136 Ariz. at 592, 667 P.2d at 1307. The court refused, however, to permit retrospective application of the amendment. 136 Ariz. at 593-94, 667 P.2d at 1308-09. It reaffirmed the general rule that absent a plain indication that a statute was intended to operate retroactively, only prospective operation will be given. Id. The court stated that it had found nothing to support a retrospective application. Id. This is consistent with
Although Green Acres Trust does control here (see footnote 4), it does not in our opinion preclude the attorney general from maintaining an action under the Consumer Fraud Act. In Green Acres Trust, the court found that the Securities Act preempted action under the Consumer Fraud Act because the Securities Act,
The Securities Act that was considered in Green Acres Trust controls what securities may be sold, see e.g.
By stark contrast, the Mortgage Brokers Act,
Resort to one $25,000 bond is hardly the comprehensive and detailed consumer protection provided by the Securities Act. Because the Mortgage Brokers Act is not comprehensive and detailed legislation designed to provide omnibus consumer protection, the action against Western American based on the Consumer Fraud Act is not preempted by the Mortgage Brokers Act. Furthermore, Green Acres Trust does not preclude action under the Consumer Fraud Act merely because the regulated industry falls within the purview of an administrative agency. 127 Ariz. at 165, 618 P.2d at 1091. In fact, case-by-case analysis is required to determine whether the powers and responsibilities of the administrative body are sufficient to permit an inference that preemption would be appropriate. Id. We conclude that this action can be maintained under both the Consumer Fraud Act and the Mortgage Brokers Act.
We do not at this time reach Western American‘s arguments that the statute of limitations had run on the state‘s claims for restitution for individuals affected by Western American‘s conduct or the argument that the complaint should be dismissed because of unethical and illegal conduct by the attorney general in publicizing the filing of this action. The trial court did not reach these issues in granting summary judgment for Western American. In view of our decision, these issues should first be considered by the trial court after the parties have been afforded the opportunity to fully address such issues. Furthermore, in light of our decision, the trial court‘s award of attorney‘s fees is reversed.
Based on the foregoing discussion, the judgment for Western American is reversed and the case remanded for further proceedings consistent with this decision.
CORCORAN, P.J., concurs.
MEYERSON, Judge, specially concurring:
I agree with the disposition reached by the majority. I disagree with the analytical approach taken by the majority with respect to the applicability of the Consumer Fraud Act.
The difficulty then becomes applying the supreme court‘s decision in State ex rel. Corbin v. Pickrell. The supreme court held that the amendment to the Consumer Fraud Act providing that its provisions “are in addition to all other causes of action, remedies and penalties available to this state,” should be given only prospective effect. The supreme court relied upon the general rule that a statute will be given prospective operation only absent a plain indication of legislative intent that it operate retrospectively. 136 Ariz. at 593-94, 667 P.2d at 1308-09. I respectfully disagree with the application of this principle to the Consumer Fraud Act amendment because in my opinion, it is clear that the legislature intended the amendment to apply retroactively.
The supreme court correctly recognized that the legislative action stripped the holding in Green Acres Trust of its “foundation.” 136 Ariz. at 592, 667 P.2d at 1307. Thus, the amendment was “curative” in nature in that it was designed to remedy the effect of the Green Acres Trust decision. If the legislative action is viewed in this light, it is apparent that the intent of the legislature was to restore to the Consumer Fraud Act its broad remedial purpose and to “repeal” the limiting effect of Green Acres Trust. Curative legislation of this nature is generally given a retroactive effect. See generally 2 C. Sands, Statutes and Statutory Construction § 41.01-.22 (4th ed. 1973).
In my opinion, the legislature decreed that Green Acres Trust was incorrect. Therefore, at the time of the acts in question herein, the Consumer Fraud Act constituted a supplemental remedy which the state could legitimately utilize. Because the retroactivity of the Consumer Fraud Act amendment may be important in other pending cases, I urge the supreme court to reconsider its decision in State ex rel. Corbin v. Pickrell.