Title: American Bankers Ins. Co. v. State of Oregon

State: oregon

Issuer: Oregon Supreme Court

Document:

FILED:  June 17, 2004
IN THE SUPREME COURT OF THE STATE OF OREGON
AMERICAN BANKERS INSURANCE COMPANY,
on behalf of Mortgage One, Inc.,
on behalf of Mortgage Broker Security Bond,
Plaintiffs,
v.
STATE OF OREGON;
STAUBER REAL ESTATE APPRAISAL, INC.;
APPRAISAL COMPANY; HANSON APPRAISALS;
JAMES C. LAND REAL ESTATE APPRAISER, INC.;
REINHART & ASSOCIATES;
CARL GOSCHIE & ASSOCIATES;
NATIONWIDE REAL ESTATE TAX SERVICES;
ON LINE DOCUMENTS;
KURT BENDER REAL ESTATE APPRAISER;
RAGER MOUNTAIN APPRAISALS;
and ANG ENGINEERING GROUP, INC.,
Defendants,
and
EXECUTIVE REPORTING SERVICES;
PRECISION APPRAISALS;
RICE DERSHAM, INC.;
OREGON APPRAISAL & ASSOCIATES;
APPRAISAL EXPRESS, INC.;
DAVID GRIFFITH REAL ESTATE APPRAISER;
PORTLAND RESIDENTIAL APPRAISALS;
BRATTON APPRAISAL GROUP;
GARROW APPRAISALS;
and LISA G. FARBER & ASSOC.,
Respondents on Review,
and
ROBERT GRAF
and SANDRA GRAF,
Petitioners on Review.
(CC 0006-05848; CA A115183, SC S50816)
En Banc
On review from the Court of Appeals.*
Argued and submitted May 3, 2004.
Joseph D. McDonald, of Smith & McDonald, LLP, Portland,
argued the cause and filed the petition for review for
petitioners on review. 
No appearance contra.
Ryan Kahn, Assistant Attorney General, Salem, filed the
brief for amicus curiae State of Oregon.  With him on the brief
were Hardy Myers, Attorney General, and Mary H. Williams,
Solicitor General.
Phil Goldsmith, Law Office of Phil Goldsmith, Portland,
filed the brief for amici curiae Oregon Trial Lawyers Association
and Oregon Consumer League.
BALMER, J.
The decision of the Court of Appeals is reversed.  The
judgment of the circuit court is reversed, and the case is
remanded to the circuit court for further proceedings.
*Appeal from Multnomah County Circuit Court, Jan Wyers, Judge. 188 Or App 606, 72 P3d 666 (2003).
BALMER, J.
In this interpleader action, we are asked to decide who
is entitled to assert a claim against a bond posted by a licensed
mortgage broker.  Robert and Sandra Graf loaned funds to Karl and
Linda Keener through an agreement with a mortgage broker,
Mortgage One, Inc.  Oregon law required Mortgage One to obtain a
bond, which American Bankers Insurance Company, Inc. supplied. 
After the Keeners defaulted on the loan, the Grafs alleged that
Mortgage One had made misrepresentations in connection with the
loan transaction and sought to recover on the bond.  Other
individuals and businesses with claims against Mortgage One also
sought to recover on the bond.  American Bankers filed an
interpleader action and deposited the amount of the bond with the
trial court so that the court could determine the validity of the
competing claims to the funds.  Ultimately, the trial court
determined that the Grafs could not recover against the bond
because they did not belong to the class of parties that the
legislature intended to protect through the bonding requirement. 
The Court of Appeals agreed.  American Bankers Ins. Co. v. State of Oregon,
188 Or App 606, 72 P3d 666 (2003).  We allowed review and now
reverse.
The facts relevant to the issue on review are not
disputed.  Mortgage One was licensed to do business as a mortgage
broker in Oregon.  The Grafs contend that one of Mortgage One's
agents negotiated with the Grafs for a $100,000 loan to a third
party, the Keeners.  To secure the Keeners' promise to repay the
loan, the Keeners provided the Grafs with deeds of trust on
residential properties.  The Keeners later defaulted on the loan,
and the Grafs maintain that as a consequence they have suffered a
loss of approximately $200,000.
Mortgage One and American Bankers had entered into an
agreement by which American Bankers provided Mortgage One with a
bond in the amount of $50,000, as ORS 59.850 requires.  As noted,
after American Bankers received multiple claims against the bond,
American Bankers initiated the present interpleader action and
deposited the amount of the bond with the trial court.  The total
amount of the claims exceeded the amount of the bond.
The Grafs filed a claim for the entire bond, alleging
that Mortgage One's agent had induced them to loan their funds
through misrepresentations.  Executive Reporting Services, Inc.,
and Precision Appraisals, which had provided credit information
and real estate appraisals, respectively, to Mortgage One and had
not been paid for their services, also filed claims against the
bond. (1)  The Grafs, who also had cross-claimed to prevent
other parties from recovering any of the bond proceeds, moved for
summary judgment, contending that they were the only proper
claimants to the bond.  Executive Reporting and Precision
Appraisals also moved for summary judgment in their favor, and
they opposed the Grafs' motion for summary judgment.  The trial
court concluded that Executive Reporting and Precision Appraisals
-- but not the Grafs -- were proper claimants to the bond. 
The Grafs appealed, and the Court of Appeals affirmed
in part and reversed in part.  The court analyzed the text and
context of the Oregon Mortgage Lender Law, ORS 59.840 to 59.980. 
In particular, the court examined ORS 59.925(2), which provides
that an action may be brought against a mortgage broker by "any
person who suffers any ascertainable loss of money or property,
real or personal, in a * * * mortgage broker transaction * * *." 
The court concluded that the text and context of ORS 59.925(2)
did not provide a definitive answer to the question of which
persons or parties are entitled to bring an action under that
statute, American Bankers, 188 Or App at 611-13, and therefore
turned to the legislative history of ORS 59.925 and of the
bonding requirement contained in ORS 59.850.  Based on that
history, the court determined that the legislature intended the
bonding requirement to protect consumers -- ordinarily, borrowers
-- who had paid mortgage brokers in advance for such services as
appraisals and credit reports that the brokers then had failed to
provide.  Id. at 615.  As a result, the Court of Appeals
concluded that, as private lenders, the Grafs were not within the
class of claimants who validly could claim against the bond.  Id. 
The Court of Appeals also concluded that Executive Reporting and
Precision Appraisals were simply unpaid creditors of the mortgage
broker.  It followed, the court held, that, like the Grafs,
Executive Reporting and Precision Appraisals were not within the
group of persons that the legislature had intended to protect by
imposing the bonding requirement and, therefore, they also could
not claim successfully against the bond.  Id.  The Court of
Appeals affirmed the part of the trial court judgment that denied
the Grafs' motion for summary judgment and reversed the part of
the judgment that granted the summary judgment motions of
Executive Reporting and Precision Appraisals.
Only the Grafs sought review in this court.  We allowed
review to determine who is entitled to make a claim against a
mortgage broker's bond.  As we will explain below, that inquiry
requires us first to determine who, in general, may bring an
action against an Oregon licensed mortgage broker under the
Oregon Mortgage Lender Law.
To answer those questions, we must interpret the
statutes that govern the liability of mortgage brokers and that
require mortgage brokers to obtain a bond.  We begin our
statutory inquiry with the principles set out in PGE v. Bureau of
Labor and Industries, 317 Or 606, 610-12, 859 P2d 1143 (1993). 
Pursuant to that methodology, we first examine the text and
context of the statute, giving words of common usage "their
plain, natural, and ordinary meaning."  Id. at 611.  If the
legislative intent is clear from the text and context of the
statute, then further analysis is unnecessary.  Id. 
We begin with the text of ORS 59.925.  ORS 59.925(6)
provides that "[a]ny person having a right of action against a
mortgage banker or mortgage broker shall under this section have
a right of action under the bond or irrevocable letter of credit
provided in ORS 59.850."  ORS 59.850 requires that an applicant
for a mortgage banker or mortgage broker license "file with the
[Director of the Department of Consumer and Business Services] a
corporate surety bond or irrevocable letter of credit" in an
amount of not less than $25,000 but not more than $50,000, with
the amount of the bond to be determined by the number of offices
that the mortgage banker or mortgage broker operates in the
state.  ORS 59.850(4), (5).  Because of the number of offices
that it operated, Mortgage One obtained and filed a surety bond
in the amount of $50,000.
Because ORS 59.925(6) plainly states that a person who
has a right of action under the bond is a person who has a right
of action against a mortgage banker or mortgage broker, we must
determine who has a right of action against a mortgage banker or
mortgage broker by examining ORS 59.925(1) to (3), which provide:
"(1) As used in this section, 'mortgage banker
transaction' and 'mortgage broker transaction' mean a
transaction in which a person, in order to engage in
the transaction, is required to be licensed as a
mortgage banker or a mortgage broker under ORS 59.840
to 59.980.
"(2) A mortgage banker or mortgage broker is
liable as provided in subsection (3) of this section to
any person who suffers any ascertainable loss of money
or property, real or personal, in a mortgage banker
transaction or a mortgage broker transaction if the
mortgage banker or mortgage broker:
"(a) Transacts business as a mortgage banker or
mortgage broker in violation of any provision of ORS
59.840 to 59.980; or 
"(b) Transacts business as a mortgage banker or
mortgage broker by means of an untrue statement of a
material fact or an omission to state a material fact
necessary in order to make the statements made, in
light of the circumstances under which they are made,
not misleading, and who does not sustain the burden of
proof that the person did not know, and in the exercise
of reasonable care could not have known, of the untruth
or omission.
"(3) The person suffering ascertainable loss may
recover damages in an amount equal to the ascertainable
loss."
The legislature has defined some of the terms that it
used in the foregoing subsections of ORS 59.925.  A person must
be licensed as a mortgage banker or mortgage broker to engage in
"residential mortgage transactions."  ORS 59.845(1).  A
residential mortgage transaction is "a transaction in which a
mortgage, deed of trust, purchase money security interest arising
under an installment sales contract, or equivalent consensual
security interest is created or retained in property upon which
four or fewer residential dwelling units are planned or
situated[.]"  ORS 59.840(9). 
Those definitions inform our understanding as to whom
the legislature intended to authorize to bring an action for
misrepresentation against a mortgage banker or mortgage broker
and what kind of transaction may be the basis for such an action. 
"[A]ny person" who suffers a loss in a certain kind of defined
transaction may bring an action against a mortgage banker or
mortgage broker.  ORS 59.925(2).  Specifically, the loss must
occur in a "mortgage banker transaction" or a "mortgage broker
transaction," which is a transaction in which the person handling
the transaction, in order to be engaged in the business of
handling such transactions, is required to be licensed as a
mortgage banker or mortgage broker.  ORS 59.925(1).  A person is
required to be licensed as a mortgage banker or mortgage broker
to engage in residential mortgage transactions, ORS 59.845(1),
and a residential mortgage transaction, in turn, is one that
involves the creation of a security interest in residential
property.  ORS 59.840(9).  Thus, a "mortgage banker transaction"
or a "mortgage broker transaction" under ORS 59.925(1) includes,
among other things, a transaction that creates a security
interest in residential property.  
Applying those critical statutory definitions, we
conclude that, under ORS 59.925(2), a mortgage banker or mortgage
broker is liable to any person who suffers an ascertainable loss
in a residential mortgage transaction (that is, a transaction
involving the creation of a security interest in residential
property) if the mortgage banker or mortgage broker violates the
provisions of ORS 59.840 to 59.980 or engages in
misrepresentation.  Put more simply, as it applies to the
allegations here, ORS 59.925(2) provides that, if a mortgage
broker engages in a misrepresentation in a residential mortgage
transaction, then the mortgage broker is liable to any person who
suffers a loss in that transaction as a result of that
misrepresentation.  
Our analysis of the text and context of ORS 59.925
leaves no doubt that the legislature intended persons who loan
money in a residential mortgage transaction to have a right of
action against a mortgage banker or mortgage broker, and, in any
event, nothing in the legislative history or the policy arguments
that the parties advance is inconsistent with that analysis.  The
legislature's use of the passive voice in ORS 59.925(2) somewhat
obscures the question of who has a right of action against a
mortgage banker or mortgage broker under that section.  However,
when we consider the relevant definitions, as we have here, the
legislative intent becomes evident.  Accordingly, we find no
reason to look beyond the text and context of ORS 59.925.
We now return to the facts of this case.  The Grafs
allege that they suffered a loss after a mortgage broker's
misrepresentations induced them to lend funds in a residential
mortgage transaction.  That claim fits squarely within the text
of ORS 59.925(2)(b), because the Grafs alleged a loss that
occurred in a transaction that created a security interest in
residential property and that was caused by a misrepresentation
on the part of a mortgage broker.  The Grafs thus have a right of
action against Mortgage One under ORS 59.925(3).  And, because
they are persons who "hav[e] a right of action against a * * *
mortgage broker" under ORS 59.925(3), they also have a right of
action under the bond.  ORS 59.925(6). (2)  It follows that the
contrary ruling of the trial court and decision of the Court of
Appeals are in error.
The decision of the Court of Appeals is reversed.  The
judgment of the circuit court is reversed, and the case is
remanded to the circuit court for further proceedings.
1. Approximately 20 other businesses with claims against
Mortgage One also sought to recover on the bond.  Of those, only
Executive Reporting and Precision Appraisals pursued their claims
in the Court of Appeals.  We limit our discussion of the
claimants to the Grafs, Executive Reporting, and Precision
Appraisals.
2. Our holding is limited to reversing the judgment that
the trial court entered against the Grafs and that the Court of
Appeals affirmed.  We express no opinion as to the merits of the
Grafs' misrepresentation allegations.