Opinion ID: 787570
Heading Depth: 2
Heading Rank: 1

Heading: Summary Judgment in Favor of Loan Originating Defendants

Text: 19 The primary issue with respect to the loans in these cases is whether Union and AMP were lenders or were simply acting as brokers for TMS, Empire, and FirstPlus. A lender is one who puts money at risk. The touchstone for decision here is whether licensed or unlicensed parties were placing their own money at risk at any time during the transactions. The distinction is crucial because Union and AMP were not licensed under the Washington CLA at the time of the transactions at issue. If they were lenders, with their own money at risk of Borrowers' default, then their loans would be in violation of the usury statute. However, if they were acting merely as brokers, placing only their licensed principals' money at risk, no such violation occurred. 20 In its August 7, 2002 order granting summary judgment in favor of Union and TMS, the district court relied on Washington case law to apply a three-part test to determine whether a loan originator who closes a loan in its own name is a broker or a lender. Citing National Bank of Commerce of Seattle v. Thomsen, 80 Wash.2d 406, 495 P.2d 332 (1972), the district court found the following criteria to be determinative of a loan originator's status as a broker, rather than a lender: (1) whether the originator had a pre-existing relationship with the lender, such as a credit line; (2) whether the originator received funds from the lender before or after it dispersed them to the borrower; and (3) whether the borrower was apprized of the type of agreement into which he entered. We hold that the district court correctly interpreted Washington law to conclude that a broker who table-funds a loan for the actual lender is not a lender in the transaction and need not be licensed under the CLA's licensing requirement. 21 1. Washington Courts Look To The Substance, Not The Form, Of A Transaction To Determine Whether It Is Usurious 22 Washington courts consistently look to the substance, not the form, of an allegedly usurious transaction. For example, in Simpson v. C.P. Cox Corp., 167 Wash. 34, 8 P.2d 424 (1932), the Washington Supreme Court affirmed a judgment in favor of the lender plaintiff and held that a note was not usurious where the defendants had agreed to repay $3,000 at 7% interest and grant the plaintiff a guaranteed profit of $500. The plaintiff had advanced $3,000 to the defendants for a business venture and received in return a 90-day promissory note for $3,500 (principal plus the $500 guaranteed profit) payable at 7%. The defendants contended that the $500 should be included in the calculation of the interest, which would render the rate on the note greater than the maximum allowable rate of 12%. 23 The trial court granted judgment for the plaintiff, holding that the transaction was a joint venture and the $500 was a guaranteed profit, not hidden interest. In affirming, the Washington Supreme Court stated: Since usury laws are quasi-penal, the courts will not hold a contract to be in violation of the usury laws unless upon a fair and reasonable construction of all of its terms, in view of the dealings of the parties, it is manifest that the intent of the parties was to engage in such a transaction as is forbidden by those laws.... In short ... the contract is not usurious when it may be explained on any other hypothesis. 24 Id. at 425 (internal quotation marks and citation omitted). 25 Again, in Clausing v. Virginia Lee Homes, Inc., 62 Wash.2d 771, 384 P.2d 644, 646 (1963), the Washington Supreme Court examined the substance not the form of the transaction to find that the loan was usurious. There, the defendants had contracted for a residential mortgage loan and signed a promissory note in the amount of $67,500 at 5% interest. Id. at 646. The plaintiff provided the defendants with a cash payment of $56,200 after deducting expenditures. Id. Thereafter, the parties signed an agreement changing the repayment terms and a promissory note backdated to the date of the original note, but extending the repayment period. Id. 26 After the defendants defaulted, the plaintiff sued on the note. Id. at 645. The defendants contended the original note was usurious. Id. The trial court entered judgment for the plaintiffs, but found the note usurious and calculated damages according to the principles set forth in the usury statute. Id. 27 The Washington Supreme Court affirmed, applying the principle that in cases involving alleged usury the law ... searches for the real transaction between the parties.... Id. at 646. It found that the loan was actually for the amount of the cash payment and that the difference between the amount received and the face value of the note was hidden interest, which rendered the actual rate on the note in excess of 12%. Id. at 647. The superceding note with its extended repayment period was insufficient to purge the usury of the first note. Id. at 646-47. 28 The district court derived the three-part test noted above from National Bank of Commerce and McCall v. Smith, 184 Wash. 615, 52 P.2d 338 (1935). In National Bank of Commerce, the plaintiff, National Bank, sued to recover installment payments owed on a new car. Defendant had purchased a new car with a down payment of approximately half the purchase price and agreed with the car dealer to pay a time price differential on the amount financed. He later refused to make further payments. Nat'l Bank of Commerce, 495 P.2d at 334-35. 29 Plaintiff asserted that the credit sale was pursuant to a conditional sales contract, which was exempt from the usury statute. Defendant asserted that the contract was usurious because the time price differential on the sale amounted to 14.61% interest, in excess of the 12% statutory maximum. Id. The trial court held that the contract was an exempt conditional sales contract, not a loan. Id. at 335. The Washington Supreme Court reversed the trial court finding that the contract was actually a loan, and therefore subject to the usury statute. Id. at 339. 30 The car dealer and National Bank had a preexisting relationship, the contract stated that the obligation was to National Bank, and the car dealer assigned the contract to National Bank two days after Thomsen executed it (because Thomsen executed the contract on a Saturday, so the intervening day was a Sunday). Id. at 334. Therefore, the court held that the contract was a loan from the bank, not a sale on credit by the car dealer. Id. at 337. The party who furnished the money with which the purchase is made and to whom the purchaser obligates himself to repay that money is a lender. Id. 31 In McCall, plaintiff sued to recover on a promissory note and foreclose on the real estate mortgage securing it. Defendant asserted a usury defense. According to the Washington Supreme Court, the principal question in dispute is whether [the broker] agreed to loan, and eventually did loan, its own money to appellants, or whether it acted as a broker for appellants in securing the loan from a third party. McCall, 52 P.2d at 339. Although the note at issue was in the name of the broker, the broker assigned it to the lender on the day it was executed and the borrower knew that it was for the account of the lender, not the broker. Id. 32 The borrower contended that the broker was the lender and therefore the amount of the commission should be considered hidden interest. Id. at 341. The Washington Supreme Court affirmed the trial court's determination that the note was not usurious because the broker had not acted as the lender. Id. Once the amount of the broker's commission was deducted from the calculation of interest on the loan, the rate was not usurious. 33 Washington usury law with respect to determining the identity of a lender shows that the party that provides the funds is the lender. Where a broker who is not licensed under Washington's CLA closes a loan in its own name, but the loan is actually funded by a licensed lender, the broker does not violate Washington's usury statute. 34 2. There Are Genuine Issues Of Material Fact As To Whether Some Of These Loans Were Table-funded. 35 Although the district court properly interpreted Washington state law, it erred in its application of the National Bank of Commerce three-part test to the loans in question made to the Zachers, the Stones, and the Browns. Genuine issues of material fact remain with respect to the source of funding for the Zachers' loan, and with respect to whether the Stones and the Browns were apprised that their loans would be assigned or discounted, thereby effecting a transfer of the obligation to a creditor other than the originating broker. 36
37 The district court properly granted summary judgment on Zoro's claims. There is no dispute that TMS and Union had a pre-existing relationship. Union did not send Zoro his checks until August 13, 1997, a day after it received money from TMS on August 12, 1997. Zoro received a letter dated the same day that he signed the promissory note which informed him that his loan was being assigned to TMS. Thus, all the elements of the test are met with respect to Zoro's loan, and summary judgment in favor of defendants-appellees was proper. 38 However, there is a genuine issue of material fact as to whether Union used its own funds to deliver the money on the Zachers' loan before it received the transfer from Empire. The district court therefore erred in granting summary judgment on the Zachers' claims. Union paid the Zachers' $40,000 loan with checks drawn on Union's account, dated September 8, 1997. Union received a $40,000 wire transfer from Empire on September 10, 1997, two days after the checks to the borrowers were dated. There is no evidence in the record of when Union actually delivered the checks to the Zachers other than the checks themselves. 39 Thus, the evidence is susceptible to the inference that Union paid the Zachers with Union's own money before Union received the transfer from Empire. Summary judgment cannot be granted where contrary inferences may be drawn from the evidence as to material issues. Sherman Oaks, 680 F.2d at 598. 40
41 AMP's president presented undisputed deposition testimony that established AMP had a preexisting relationship with FirstPlus. Thus, this element of the district court's test is met for all Borrowers suing AMP. Similarly, the undisputed affidavit of AMP's president established that AMP assigned each loan to FirstPlus shortly after its execution and contemporaneously with loan funding. The checks payable to the Stones and the Mayfields are dated after AMP assigned their loans to FirstPlus. Thus, there is no issue of fact as to whether AMP used its own money; it did not. 42 However, there is no evidence to show that either the Stones or the Browns were apprised that their loans would be assigned from AMP to FirstPlus. Thus, AMP failed to establish this element of the test, and there is a genuine issue of material fact as to whether the Stones and the Browns were apprised of the assignment at the time that they executed their loan documents. The district court thus erred in granting summary judgment on their claims. 43 The district court correctly granted summary judgment on the Mayfields' claims. Mayfield testified in deposition that he knew his loan was being assigned; he did not object. Thus all elements of the test are met and there is no genuine issue of material fact as to whether AMP table-funded the Mayfields' loan. 44