Case Name: Ellis W. McINNIS et ux v. COOPER COMMUNITIES, INC.
Court: Arkansas Supreme Court
Jurisdiction: Arkansas
Decision Date: 1981-02-23
Citations: 271 Ark. 503
Docket Number: 80-254
Parties: Ellis W. McINNIS et ux v. COOPER COMMUNITIES, INC.
Judges: Smith, Hickman and Purtle, JJ., dissent.
Reporter: Arkansas Reports
Volume: 271
Pages: 503–508

Head Matter:
Ellis W. McINNIS et ux v. COOPER COMMUNITIES, INC.
80-254
611 S.W. 2d 767
Supreme Court of Arkansas
Substituted Opinion on Rehearing delivered February 23, 1981
Cockrill & McGhee, for appellants.
Richard H. Smith and Catlett cfc Henderson, for appellees.

Opinion:
Frank Holt, Justice.
Appellants brought suit to have a note and mortgage declared usurious and void, in violation of Art. 19, § 13 of the Constitution of Arkansas (1874), which restricts the charge of interest to 10% annually. Appellee responded that the loan, bearing 12% interest, was valid, because it came within the preemptive provisions of the Depository Institutions Deregulation & Monetary Control Act of 1980, 94 Stat. 132. Both parties filed a motion for summary judgment, which the chancellor granted in favor of appellee, holding that the note and mortgage were valid under the provisions of that congressional act. In reversing we held that § 501 (a) (1) of the act was an invalid legislative exercise of congressional power pursuant to the commerce clause. Succinctly, the issue on rehearing is the validity of this congressional act which suspends the state's usury laws and, also, reserves to a state the right to veto by overriding the act. Further, if valid, is appellee's loan to appellant usurious? We hold the act valid and appellee's loan to appellants is not usurious.
Appellants purchased a residential lot in Hot Springs Village, Garland County, from appelee on July 31, 1980. They paid $650 down on the $6,500 purchase price, executing a note for the $5,850 balance with interest of 12% per annum, payable in 120 monthly installments of $84.94, beginning September 16, 1980. To secure the payment of this note, appellants executed a first mortgage to appellee on this lot. The parties stipulated that all lots sold by appellee at Hot Springs Village and Bella Vista Village in Arkansas are restricted to residential use by a recorded Declaration of Covenants and Restrictions. Furthermore, appellee, in its motion for summary judgment, included an uncontroverted affidavit showing it qualifies as a creditor as defined by 15 U.S.C. § 1602 (f) and stating it regularly, extends credit in connection with its sales of residential real property, secured by a mortgage on the propery; the property is real estate improved or to be improved by a dwelling structure or structures; appellee from April 1979 to August 31, 1980, made residential real property loans aggregating $35,778,000, and based upon its history, will annually make residential real estate loans aggreagating more than one million dollars.
Under § 501 (a) (1), the 10% urusy limit in our state would not apply to any loan, mortgage, credit sale, or advance which is secured by a first lien on residential real property, among other things, that is made after March 31, 1980. That section further sets out the requirement that such loan or mortgage must meet the description in § 527 (b) of the National Housing Act (12 U.S.C. 1735f-5 (b) [1976]) of a "federally related mortgage loan". That section defines such a loan as one which is secured by residential real property designed principally for the occupancy of one to four families (this occupancy requirement being deleted for purposes of this legislation, see § 501[a] [1] [C] [i]), and meets certain other criteria, as pertinent here being made by a "creditor", as defined in § 1602 (f) of Title 15 (15 U.S.C. § 1602 (f) [1976]), and who makes or invests in residential real estate loans aggregating more than one million dollars per year. Section 1602 (f) defines "creditor" as one who regularly extends, or arranges for the extension of, credit "which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required, whether in connection with loans, sales of property or services, or otherwise." This applies "to any such creditor, irrespective of his or its status as a natural person or any type of organization." As indicated, we are of the view appellee has sufficiently met the requirements of the act.
We now consider whether this congresional act preempts our usury Jaws as to those areas covered by the act. Congress has power to do this by virtue of the Supremacy Clause, Art. 6, Cl. 2, Constitution of the United States. Congress has broad powers to legislate under the Commerce Clause of our Federal Constitution, Art. 1, § 8, Cl. 3, this power to legislate falling into, inter alia, the category concerning the regulation of activities affecting commerce. Perez v. United States, 402 U.S. 146 (1971). The U.S. Supreme Court has often noted the broad scope that Congress has to regulate economic affairs which have an impact on several states. In American Power Co. v. S.E.C., 239 U.S. 90 (1946), the court stated:
. we reaffirm once more the constitutional authority resident in Congress by virtue of the commerce clause to undertake to solve national problems directly and realistically, giving due recognition to the scope of state power. That follows from the fact that the federal commerce power is as broad as the economic needs of the nation.
Certainly, it cannot be disputed that congressional regulation of ;the availability and flow of money between the various states comes within the scope of the Commerce Clause.
The power of Congress to thus regulate under the Commerce Clause extends even to wholly intrastate activities which, standing alone or combined with like conduct of others similarly situated, might be a restraint of commerce or which might interfere with or injure interstate commerce. Fry v. United States, 421 U.S. 542 (1975). See also NLRB v. Fainblatt, 306 U.S. 601 (1939) (strike as affecting the movement of manufactured goods in interstate commerce.) This power includes intrastate activities which so affect interstate commerce as to make regulation an appropriate means to the attainment of a legitimate end, the regulation of interstate commerce. Katzenbach v. McClung, 379 U.S. 294 (1964). In Katzenbach the court noted the volume of goods purchased out-of-state by the family restaurant was insignificant in comparison with the total foodstuffs moving in commerce, but its contribution combined with that of many others similarly situated was far from trivial. See also United States v. Wrightwood Dairy Co., 315 U.S. 110 (1942), (regulation of price of intrastate milk, as it was sold in competition with interstate milk and thus affected the price of the latter); and Wickard v. Filburn, 317 U.S. 111 (1943), (regulation of wheat grown for home consumption as the need would otherwise be satisfied on the open market; thus, it competes with wheat in commerce). Recently, in Neikirk v. State, 260 Ark. 526, 542 S.W. 2d 282 (1976), we held that a 55 m.p.h. speed regulation, established by Congress, subject to rejection by the states, was not violative of the Commerce Clause, nor the guarantee of due process, or equal protection.
If the class of activities is within the power of Congress to regulate under the Commerce Clause, the courts cannot "excise, as trivial, individual instances of this class." Maryland v. Wirtz, 392 U.S. 183 (1968); Perez v. United States, supra; see also Katzenbach v. McClung, supra, that it is enough if the class of activities affects commerce, a case-by-case .determination not being required. Thus, proof that this particular loan had a significant impact on interstate commerce is not necessary. The purpose of the Commerce Clause is to ensure a national economy free from unjustifiable local entanglements. National Bellas Hess, Inc. v. Department of Revenue of the State of Illinois, 386 U.S. 753 (1967). A court should not substitute its judgment for that of Congress that the particular class of intrastate activities affects interstate commerce unless the relation and its effect are clearly nonexistent. See Stafford v. Wallace, 258 U.S. 495 (1922). There is a strong presumption of validity of an act of Congress. United States v. National Dairy Products Corp., et al, 372 U.S. 29 (1963). We have recognized that the character of regulations of commerce is left to the discretion of Congress, and it is "the duty of the courts to resolve all doubts in favor of the legislative action." St. Louis & San Francisco R.R. v. Heyser, 95 Ark. 412, 130 S.W. 541 (1910). This discretion is limited only by the fact that the means chosen to regulate must be reasonably adapted to the regulation of interstate commerce. Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241 (1964).
We now note that the testimony during the congressional hearings was that state usury laws have a signifi cant impact on the econony by diverting credit out-of-state, stagnating the housing industry and resulting in the inability of the farmers and small businessmen to borrow, all of which distorts and adversely affects local and national economy. See 126 Cong. Rec. H. 2273-2275 (daily ed. March 27, 1980); 126 Cong. Rec. S. 3170 - 3176 (daily ed. March 27, 1980). The legislative history of an act, as reflected by congressional hearings, is most significant.
In Stephens Security Bank v. Eppivic Corp, 411 F. Supp. 61 (W.D. Ark. 1976) (affirmed 553 F. 2d 102 [8th Cir. 1977]), the court had before it the question of whether the "Brock Bill," Title II of P.L. 93-501, October 29, 1974 (predecessor to the Monetary Control Act here), preempted the Arkansas 10% constitutional usury limitation as to loan of $25,000 or more made by national banks, FDIC-insured state banks and FSLIC-insured savings and loan associations for business and agricultural purposes. The court found the bill preemptive. The court's observations there are applicable here:
The legislative history reflects findings that the financial community in the affected states has suffered because of the high price it must pay for money as opposed to the limitation on the interest it may earn . . .
Testimony indicated that the usury ceilings were impacting heavily on the construction, small business and agricultural areas of the economies of the states, with a likelihood of severe shortgage or unavailability of credit to these classes in the economy. The report states, '. . . the evidence before the committee indicates that . . .[u]nless remedial action is taken in the very near future, these states could suffer from unemployment and business failures.
These are not local problems. It was found that there were substantial effects on interstate commerce by reason of outflow from the states of capital, unemployment and consequent direct and indirect effects on the Treasury through benefits to the unemployed, and a reduction in interstate trade and agricultural production. . .
Here, the Committee report with respect to the Monetary Control Act states:
The Committee finds that where state usury laws require mortgage rates below market levels of interest, mortgage funds in those states will not be readily available and those funds will flow to other states where market yields are available. This artificial disruption of funds availability not only is harmful to potential homebuyers in states with such usury laws, it also frustrates national housing policies and programs.
S. Rep. No. 368, 96th Cong., 1st Session.
The "Brock Bill" also had a provision, as does this legislation, allowing the state legislature to reassert the state's usury provision and, thus, override the federal legislation. The court in Stephens quoted the committee report that this provision reflected "a congressional policy of. permitting a state the primary opportunity to determine its usury statutes . . . ." This same language appears in the committee report with respect to the act under consideration here.
An override provision has been a part of other acts including the Taft-Hartliey Act, see 29 U.S.C. § 164 (b); the Federal Bankruptcy Code, 11 U.S.C. 522 (b); and the Housing and Rent Act of 1947 as amended, 50 U.S.C. App. § 1881 et seq. This provision in the Taft-Hartley Act was upheld in Retail Clerks International Association v. Schermerhorn, 375 U.S. 96 (1963), in which the court noted any resulting conflict between state and federal law would be "conflict sanctioned by Congress with directions to give the right of way to state laws barring the execution and enforcement of union-security agreements." See also Neikirk v. State, supra. Thus, the override provision, here, merely reflects a desire or accommodation by Congress to allow the states to continue to assert their usury limits if they so wish and does not reflect a lack of authority to legislate in this area. The methods which Congress employs to carry out its power are within its discretion. See Carolene Products v. United States, 323 U.S. 18 (1944). It is unquestioned that Congress may allow states to legislate in a field of commerce in which it has only partially exercised its power to legislate. Cloverleaf Butter Co. v. Patterson, 315 U.S. 148 (1942). Of course, Congress may exercise its authority to legislate in whole or in part or it may refrain from exercising it at all. However, when it does choose to exercise its authority in an area previously deferred to the states, its actions preempt conflicting state legislation. Cloverleaf Butter Co. v. Patterson, supra; Bus Employees v. Wisconsin Board, 340 U.S. 383 (1951); and Burbank v. Lockheed Air Terminal, 411 U.S. 624 (1973). Consequently, the veto power reserved to the states, as here, does not invalidate the congressional act. The act is effective until our legislature deems it necessary to reinstate our 10% usury ceiling. So far, it has not seen fit to do so. Parenthetically, we note that our legislature adopted a resolution urging a reenactment of the "Brock Bill", a predecessor to the Monetary Control Act here. Senate Concurrent Resolution 44 (March 8, 1979).
The dissents assail the act as being a denial of due process and equal protection of the laws under our federal constitution because of its application only to those who make loans in excess of one million dollars. This particular issue was never presented to the trial court nor is it actually argued by appellant on appeal. Even constitutional issues, if raised for the first time on appeal, will not be considered. Wilson v. Wilson, 270 Ark. 485, 606 S.W. 2d 56 (1980); Gross v. Gross, 266 Ark. 186, 585 S.W. 2d 14 (1979); Williams v. Edmondson & Ward, 257 Ark. 837, 520 S.W. 2d 260 (1975); and Kroha v. Kroha, 265 Ark. 170, 578 S.W. 2d 10 (1979). See also Dixon v. State, 260 Ark. 857, 545 S.W. 2d 606 (1977). Here, suffice it to say, the dissents inject a gratuitous argument on an issue that was not before the trial court and, therefore, we do not consider it.
We hold the Monetary Control Act a valid exercise of congressional authority pursuant to the Commerce Clause and that the loan in question is not usurious. Therefore, the chancellor correctly awarded summary judgment in favor of appellee.
Affirmed.
Smith, Hickman and Purtle, JJ., dissent.