Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-97-07211/USCOURTS-caDC-97-07211-0/pdf.json

Nature of Suit Code: 371
Nature of Suit: Truth in Lending
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 11, 1998 Decided March 26, 1999

No. 97-7211

Lillie May DeBerry,

Appellant

v.

First Government Mortgage and Investors Corporation,

Appellee

Appeal from the United States District Court

for the District of Columbia

(No. 96cv00708)

Mark L. Hessel argued the cause for appellant. With him

on the briefs was Mark L. Leemon.

Nathan I. Finkelstein argued the cause for appellee. With

him on the brief was Laurie B. Horvitz.

Before: Wald, Tatel and Garland, Circuit Judges.

Opinion for the Court filed by Circuit Judge Wald.

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Wald, Circuit Judge: Lillie May DeBerry appeals the

order and judgment of the district court granting summary

judgment to First Government Mortgage and Investors Corporation ("First Government"). Ms. DeBerry brought an

action alleging that First Government had violated the District of Columbia Consumer Protection Procedures Act

("CPPA"), D.C. Code s 28-3904(r), by financing and refinancing her home with four mortgage loans containing unconscionable terms or provisions.1 The district court granted summary judgment to First Government based solely on its

finding that D.C. Code s 28-3904(r) did not apply to real

estate mortgage finance transactions. Ms. DeBerry contests

this finding, arguing that D.C. Code s 28-3904(r) does in fact

apply to these transactions. Although neither of the parties

requested certification of this issue of statutory interpretation

to the District of Columbia Court of Appeals, see D.C. Code

s 11-723, because of its importance to local commerce and

because there is no decision by the highest court in the

District of Columbia precisely on point, we have decided to

certify it to that court. Ms. DeBerry also challenges the

district court's dismissal--as barred by the statute of limitations--of two of her claims based on loans made in 1991 and

1992. We agree that such dismissal was improper and reinstate these two claims contingent on a positive response by

the District of Columbia Court of Appeals to the question

certified here. Ms. DeBerry also challenges the grant of

summary judgment to First Government with respect to her

claim for common law infliction of emotional distress. Again,

we agree with Ms. DeBerry that this grant was improper and

accordingly reinstate the claim. Lastly, Ms. DeBerry argues

that the district court improperly denied as moot her motion

for attorneys' fees ordered by a magistrate judge to compensate Ms. DeBerry for the necessity of filing a motion to

compel discovery. We agree that the district court erred in

__________

1 The district court had jurisdiction over this diversity action

based on 28 U.S.C. s 1332. Ms. DeBerry is a citizen of the District

of Columbia; First Government is a Virginia corporation with its

principal place of business in Maryland; and the amount in controversy exceeds $75,000.

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failing to rule on the question of attorneys' fees before

disposing of the case and accordingly remand for further

consideration.

I. Background

Ms. DeBerry inherited her home in 1981. In April of 1991,

she borrowed $10,000 from First Government, secured by a

deed of trust on her home. In August of 1992, First Government refinanced the debt on Ms. DeBerry's home, loaning her

$16,500. On April 13, 1995, Ms. DeBerry again refinanced

her home by borrowing $21,000 from First Government. On

April 27, 1995, Ms. DeBerry borrowed $27,500 from another

lender, Bankers First Mortgage Company, Inc. ("Bankers

First").2 On May 31, 1995, Ms. DeBerry entered into still

another loan transaction with Bankers First for $39,000. In

December of 1995, First Government made a final loan to Ms.

DeBerry for $45,000.

On April 15, 1996, Ms. DeBerry filed this action against

First Government.3 Ms. DeBerry alleged that in financing

the four loans, First Government had violated the Consumer

Protection Procedures Act, D.C. Code ss 28-3901 to -3909.

Specifically, Ms. DeBerry alleged a violation of D.C. Code

s 28-3904(r)(1) and s 28-3904(r)(5). D.C. Code s 28-3904

is entitled "Unlawful trade practices." D.C. Code

s 28-3904(r)(1) and s 28-3904(r)(5) provide that it is a violation of the chapter to

(r) make or enforce unconscionable terms or provisions

of sales or leases; in applying this subsection, consideration shall be given to the following, and other factors:

(1) knowledge by the person at the time credit sales

are consummated that there was no reasonable proba-

__________

2 Bankers First was also a defendant below, but was dismissed

from the suit pursuant to a settlement agreement.

3 Ms. DeBerry also sued six other defendants. Five of these

defendants were dismissed from the suit pursuant to settlement

agreements; one was dismissed on substantive grounds.

bility of payment in full of the obligation by the

consumer;

...

(5) that the person has knowingly taken advantage of

the inability of the consumer reasonably to protect his

interests by reasons of age, physical or mental infirmities, ignorance, illiteracy, or inability to understand the

language of the agreement....

Ms. DeBerry claims that for each of these loans, she was

charged a large percentage of the amount borrowed in points

and other fees. For example, with respect to the 1991 loan,

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Ms. DeBerry claims that she was charged $2,540 to borrow

$10,000. Ms. DeBerry alleges that the loans made by First

Government were unconscionable in that they constituted a

pattern and practice of reverse redlining which she defines as

"a predatory lending practice of making high cost loans to

unsophisticated homeowners who have little money but do

have substantial equity in their homes." Appellant's Br. at 3.

On July 1, 1996, First Government filed a motion to dismiss. After hearing arguments on the motion, the district

court dismissed Ms. DeBerry's claims relating to the loans

made by First Government in 1991 and 1992 because the

loans were made more than three years before she filed her

complaint and, hence, were barred by the relevant statute of

limitations. The court declined to dismiss the rest of the

case.

On July 9, 1997, the court assigned discovery matters to a

magistrate judge. On July 31, 1997, Ms. DeBerry filed a

motion to compel discovery and to grant sanctions. After a

hearing on September 5, 1997, the magistrate judge issued an

order directing First Government to respond to certain discovery requests and to pay attorneys' fees and expenses

associated with Ms. DeBerry's motion to compel. On September 23, 1997, First Government filed objections to the

magistrate's order. Ms. DeBerry opposed the objections and

subsequently filed a motion to set attorneys' fees.

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On October 29, 1997, the district court held a hearing on a

summary judgment motion filed by First Government. The

court thereafter issued an order granting summary judgment

to First Government with respect to Ms. DeBerry's claim

under the CPPA and dismissing all other pending motions as

moot. The court also granted summary judgment to First

Government with respect to Ms. DeBerry's claim for common

law infliction of emotional distress, finding that the claim was

dependent on the CPPA claims.

The district court's decision to grant summary judgment

with respect to Ms. DeBerry's CPPA claims was based solely

on its finding that the CPPA did not apply to real estate

mortgage finance transactions, which in turn relied heavily on

a decision by the District of Columbia Court of Appeals,

Owens v. Curtis, 432 A.2d 737 (D.C. 1981), where the court

held that the CPPA did not apply to the sale of real estate.

The district court found that Owens controlled this case and

reasoned that if the CPPA did not apply to the sale of real

estate, a fortiori it did not apply to real estate mortgage

finance transactions. In granting summary judgment, the

district court made clear that the sole and exclusive basis for

its ruling was that the CPPA did not apply and that otherwise

there were a number of disputed facts deserving of a trial.4

II. Discussion

A.Applicability of D.C. Code s 28-3904(r)

The issue of whether D.C. Code s 28-3904(r) applies to

mortgage finance transactions has not been the subject of a

ruling by the District of Columbia Court of Appeals, to whom

we would ordinarily look for guidance on its construction.

See Schleier v. Kaiser Found. Health Plan of the MidAtlantic States, Inc., 876 F.2d 174, 180 (D.C. Cir. 1989) (per

curiam). That court has, however, applied without comment

__________

4 Because the district court specifically found that the case would

be deserving of trial if the CPPA did in fact apply to mortgage

finance transactions, we do not address First Government's efforts

on appeal to argue the merits of Ms. DeBerry's claims.

another subsection of D.C. Code s 28-3904, (e), to a mortgage finance transaction and in the same case rejected a

claim under D.C. Code s 28-3904(r) on the sole ground that

the facts in the case did not support the claim (or, in other

words, not because D.C. Code s 28-3904(r) did not apply).

See Osbourne v. Capital City Mortgage Corp., 667 A.2d 1321,

1330 & 1331 n.13 (D.C. 1995). However, First Government

argues that while real estate mortgage finance transactions

may be covered under D.C. Code s 28-3904(e), which provides that it is an unlawful trade practice to "misrepresent as

to a material fact which has a tendency to mislead," they are

not covered under D.C. Code s 28-3904(r), which provides

that it is an unlawful trade practice to "make or enforce

unconscionable terms or provisions of sales or leases...."

First Government makes this argument on the basis of the

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"sales or leases" language which appears in D.C. Code

s 28-3904(r). Specifically, First Government argues that one

cannot sell or lease a mortgage finance and, accordingly, that

such transactions are not contemplated under D.C. Code

s 28-3904(r).

To assess the quality of this argument, we look to the text

and structure of the CPPA as a whole. The CPPA is, as the

District of Columbia Court of Appeals has noted, "to say the

least, an ambitious piece of legislation which seeks to prohibit

a long list of 'unlawful trade practices.' " Howard v. Riggs

National Bank, 432 A.2d 701, 708 (D.C. 1981). Two sections

of the CPPA, in particular, are relevant to our inquiry. The

first is entitled "Definitions and purposes." D.C. Code

s 28-3901. This section indicates that it applies to the entire

CPPA, see D.C. Code s 28-3901(a), and provides, inter alia,

the following. A "trade practice" is defined as "any act which

does or would create, alter, repair, furnish, make available,

provide information about, or, directly or indirectly, solicit or

offer for or effectuate a sale, lease or transfer, of consumer

goods or services." D.C. Code s 28-3901(a)(6). "Goods and

services" is defined as "any and all parts of the economic

output of society, at any stage or related or necessary point in

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es, business opportunities, real estate transactions, and consumer services of all types." D.C. Code s 28-3901(a)(7).

The second section relevant to our inquiry is entitled

"Unlawful trade practices." D.C. Code s 28-3904. Under

this section are listed a number of occurrences that constitute

unlawful trade practices. For example, it is an unlawful

trade practice to represent that goods are original or new if

in fact they are used, see D.C. Code s 28-3904(c); to falsely

state the reasons for offering or supplying goods or services

at sale or discount prices, see D.C. Code s 28-3904(l ); to

harass or threaten a consumer with any act other than legal

process, see D.C. Code s 28-3904(m); to misrepresent the

authority of a salesman, representative or agent to negotiate

the final terms of a transaction, see D.C. Code s 28-3904(v);

and so forth. As mentioned above, two other unlawful trade

practices listed under D.C. Code s 28-3904 are to misrepresent as to a material fact which has a tendency to mislead, see

D.C. Code s 28-3904(e), and to make or enforce unconscionable terms or provisions of sales or leases, see D.C. Code

s 28-3904(r). First Government would have us draw a distinction between the unlawful trade practice listed in D.C.

Code s 28-3904(e), which the District of Columbia Court of

Appeals has applied to a real estate mortgage transaction,

and the unlawful trade practice listed in D.C. Code

s 28-3904(r), as to which it has not yet ruled regarding real

estate mortgage transactions, solely because of the "sales or

leases" language that appears in D.C. Code s 28-3904(r).

Of course, the reason given by the district court for concluding that D.C. Code s 28-3904(r) did not apply to real

estate mortgage finance transactions was that the local courts

had construed D.C. Code s 28-3904 as not applying to sale of

real estate and that a fortiori it did not apply to mortgage

finance transactions. However, the district court was mistaken as to the state of local law with respect to real estate. In

Owens v. Curtis, 432 A.2d 737, 739 (D.C. 1981), the court held

that the CPPA did not apply to the sale of real estate. In

response to this decision, the Council of the District of

Columbia ("D.C. Council") amended the definitional section of

the CPPA explicitly to include "real estate transactions" as an

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example of a "good or service." See Report of the Council of

the District of Columbia, Committee on Consumer and Regulatory Affairs, on Bill 8-111 and Bill 8-271, at 3-4 (1990)

("1990 Report") (noting that the Committee was expanding

the definition of " 'goods and services' to cover the holding in

the matter of Owen[s]"); see also Schiff v. American Ass'n of

Retired Persons, 697 A.2d 1193, 1197 & n.10 (1997) (noting

that the 1990 Amendment was "adopted with the express

purpose of reversing the holding" of Owens).

The district court below was under the misapprehension

that Owens was still good law; its denial of Ms. DeBerry's

claim on that basis is accordingly unpersuasive. Despite the

foregoing, however, First Government argues that while D.C.

Code s 28-3904(r) may now--post-Owens--apply to the sale

of real estate, it still does not apply to a real estate mortgage

finance transaction because one cannot "sell" or "lease" a

mortgage refinance and D.C. Code s 28-3904(r) specifically

mentions "sales or leases."

Ms. DeBerry in turn argues that a careful reading of the

statute reveals serious impediments to the success of First

Government's argument. D.C. Code s 28-3904(r) provides

that it is an unlawful trade practice to "make or enforce

unconscionable terms or provisions of sales or leases." To

determine whether real estate mortgages are covered under

this provision, a reader asks, "sale or lease of what?" D.C.

Code s 28-3904(r) does not itself provide the answer to this

question, but the reader may go back to the definitional

section--which applies to all of the subsections in D.C. Code

s 28-3904--to seek guidance. Under the definition of a

"trade practice," it provides that a trade practice is any act

relating to the "sale, lease or transfer, of consumer goods or

services." D.C. Code s 28-3901(a)(6) (emphasis added); see

also id. s 28-3901(a)(2) (defining "consumer" to include a

"person who does or would purchase, lease (from), or receive

consumer goods or services" (emphasis added); id.

s 28-3901(a)(3) (defining a "merchant" as a "person who does

or would sell, lease (to), or transfer, either directly or indirectly, consumer goods or services, or a person who does or

would supply the goods or services which are or would be the

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subject matter of a trade practice" (emphasis added). The

reader may ask, "well, what does goods and services include?"

"Goods and services" is defined in the very next subsection:

"goods and services" means "any and all parts of the economic output of society, at any stage or related or necessary point

in the economic process, and includes consumer credit, franchises, business opportunities, real estate transactions, and

consumer services of all types." D.C. Code s 28-3901(a)(7)

(emphases added).5 Considering that a mortgage finance

constitutes a sale of consumer credit and consumer services

as well as qualifying as a real estate transaction, the reader,

turning back to D.C. Code s 28-3904(r), may conclude that it

is an unlawful trade practice to make or enforce unconscionable terms or provisions of sales or leases of goods and

services, including consumer credit, consumer services, and

real estate transactions; or, in other words, that D.C. Code

s 28-3904(r) applies to real estate mortgage transactions.6

__________

5 This interpretive approach is consistent with that employed by

the District of Columbia Court of Appeals. In Owens v. Curtis, 432

A.2d 737 (D.C. 1981), the court interpreted the applicable scope of

D.C. Code ss 28-3904(e) and (f). Although neither section mentioned the words "trade practice" or "goods and services"--just as

D.C. Code s 28-3904(r) does not use those words--the Court

nonetheless determined the applicable scope of those provisions

with reference to the definitions of those terms found in D.C. Code

s 28-3901. In particular, it read the definitions contained D.C.

Code ss 28-3901(a)(6) and (7) in tandem. See id. at 738-39 & n.2.

(As previously noted, Owens was overruled by statute for other

reasons).

6 Apart from the text and structure of the CPPA, the legislative

history provides only general background for interpretation of D.C.

Code s 28-3904(r). There is nothing in the general history to

suggest that D.C. Code s 28-3904(r) was intended to operate any

differently than any other unfair trade practice under D.C. Code

s 28-3904, and the specific history of (r) indicates only that its

purpose was to ensure that "all merchants do not ... (r) make

contracts so unfair as to be 'unconscionable.' " Report of the

Council of the District of Columbia, Committee on Public Services

and Consumer Affairs, on Bill 1-253, at 14, 17-18 (1976) ("1976

Report") (emphasis added).

However, First Government would limit "sale," as it appears in D.C. Code s 28-3904(r), to its most narrow and

traditional of senses, that is, X pays Y a certain amount to

purchase a certain good. First Government thus argues that

because it did not sell the property which was the basis of the

mortgage refinance, it did not in fact "sell" anything to Ms.

DeBerry at all. Ms. DeBerry replies that such is an oversimplification, as consumer transactions are often more complex

than X paying Y for a certain good. Take as an example the

common situation where X buys a good from Y but ultimately

pays Z who has financed the deal and has security in the

chattel in case of default. Has Z "sold" anything to X in this

scenario? Ms. DeBerry argues that the CPPA assumes that

Z has sold a good or service to X by extending consumer

credit and hence that the transaction between Z and X would

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be covered by D.C. Code s 28-3904(r).7 See Jackson v.

Culinary School of Washington, 788 F. Supp. 1233, 1253

(D.D.C. 1992) (applying D.C. Code s 28-3904(r) to extension

of consumer credit, holding that a "merchant includes one

who sells consumer credit as well as those entities which take

an assignment of the credit account and continue the extension of credit to the consumer"); rev'd on other grounds 27

F.3d 573 (D.C. Cir. 1994); Lawson v. Nationwide Mortgage

Corp., 628 F. Supp. 804, 807 (D.D.C. 1986) (holding that

mortgage refinancing transaction was covered by the CPPA

__________

7 The legislative history of the 1990 Amendment bears out this

thesis.

The definition of "goods and services" is amended to include all

residential real estate transactions. This amendment was expanded to address problems that have arisen in recent years.

Given their complexity, it is hard to discern when a real estate

transaction may be considered a sale. It is the Committee's

belief that the inclusion of the term "transaction" will give the

court sufficient range to discern whether a transaction is a sale

or a lease arrangement. Furthermore, as the statute presently

prohibits application to landlord-tenant issues, it is felt that the

use of the term "transaction" has been given specific parameters for court interpretation.

1990 Report, at 3.

because the CPPA "specifically encompasses such 'consumer

credit' transactions").8

Ms. DeBerry's interpretation of D.C. Code s 28-3904(r), in

light of the text and structure of the CPPA as a whole, does

not lack persuasive force, but because the local courts have

not ruled directly on this issue and because the answer will

have significant effects on District of Columbia mortgage

finance practice, we have decided to save the issue for the

District of Columbia Court of Appeals. According, we certify

the following question pursuant to D.C. Code s 11-723:

Does D.C. Code s 28-3904(r) apply to real estate

mortgage finance transactions?

Appended to this certification are the briefs and portions of

the trial court record provided by the parties to this appeal.

In addition, we shall provide the District of Columbia Court

of Appeals with any other portion of the trial court record it

might desire to have in order to answer the certified question.

B.Statute of Limitations

Ms. DeBerry argues that the district court erred in dismissing her claims relating to loans made in 1991 and 1992.

Ms. DeBerry filed her complaint in 1996 and, hence, these

loans, if considered separately, are on their faces barred by

the relevant statute of limitations. See D.C. Code

s 12-301(8) (limitation is three years where not otherwise

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specifically prescribed). However, Ms. DeBerry argues that

the district court ought not to have dismissed these claims

based solely on the pleadings, that is, before she had an

opportunity to conduct discovery. While it might be difficult

for Ms. DeBerry to demonstrate that the 1991 and 1992 loans

are not to be viewed as separate incidents vulnerable to the

statute of limitations, she should have been afforded an

__________

8 See also 1976 Report, at 13-14 (defining "goods and services" as

"the subject matter of any trade practice, including any action

normally considered only incidental to the supply of goods and

services to consumers") (emphasis added).

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opportunity to do so.9 Accordingly, we find that the district

court erred in dismissing the claims before appropriate discovery could be conducted. The reinstatement of these

claims will of course be held in abeyance until the question of

whether D.C. Code s 28-3904(r) applies to real estate mortgage transactions has been resolved by the District of Columbia Court of Appeals.

C. Claim for Infliction of Emotional Distress

Ms. DeBerry challenges the grant of summary judgment

for First Government with respect to her claim for common

law infliction of emotional distress. The only reason the

district court gave for its dismissal was that the claim was

dependent on the CPPA claims and that the dismissal of the

latter therefore required the dismissal of the former. Dismissal on this ground was incorrect. See Saunders v. Nemati, 580 A.2d 660, 661 (D.C. 1990). Accordingly, we reinstate

Ms. DeBerry's claim for common law infliction of emotional

distress and remand it for reconsideration by the district

court.

__________

9 For example, Ms. DeBerry may be able to demonstrate that she

only realized First Government's alleged scheme to strip equity

from her home after a number of the loans had been made and

hence that the 1991 and 1992 loans were not barred pursuant to the

"discovery rule." See Farris v. Compton, 652 A.2d 49 (D.C. 1994).

However, a second argument against dismissal based on a "continuing tort" theory appears to be unavailable. Ms. DeBerry relied on

this court's decision in Page v. United States, 729 F.2d 818, 821

(D.C. Cir. 1984) ("It is well-settled that '[w]hen a tort involves

continuing injury, the cause of action accrues ... at the time the

tortious conduct ceases' ") (footnote omitted), to argue that First

Government's actions constituted a continuing tort and hence that

the 1991 and 1992 loans were not untimely. However, the District

of Columbia Court of Appeals has specifically rejected the reasoning in Page, see National R.R. Passenger Corp. v. Krouse, 627 A.2d

489, 497-98 (D.C. 1993), and has held that "the policy disfavoring

stale claims makes application of the 'continuous tort' doctrine

inappropriate." Wallace v. Skadden, Arps, Slate, Meagher & Flom,

715 A.2d 873, 883 (D.C. 1998). Accordingly, the "continuing tort"

argument appears to be unavailable under District of Columbia law.

D.Attorneys' Fees

Finally, Ms. DeBerry argues that a court order to pay

attorneys' fees with respect to discovery issues is independent

of the merits of the underlying case and, hence, that the

district court erred in failing to rule on the magistrate's order

of fees before disposing of the case. We agree and, accordingly, remand the issue of attorneys' fees with instructions

that the district court rule on the issue irrespective of the

outcome of the case on the merits.

III. Conclusion

For the foregoing reasons, we reverse the district court's

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dismissal of Ms. DeBerry's claim for common law infliction of

emotional distress and remand for further consideration; we

reinstate Ms. DeBerry's claims relating to loans made in 1991

and 1992, contingent on the District of Columbia Court of

Appeals' affirmative response to the question certified; and

we reverse the district court's dismissal of the order of

attorneys' fees and remand with instructions to rule on the

order irrespective of the outcome of the case on the merits.

Finally, we certify the question of whether D.C. Code

s 28-3904(r) applies to real estate mortgage finance transactions to the District of Columbia Court of Appeals for resolution.

So ordered.

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