Opinion ID: 1796802
Heading Depth: 1
Heading Rank: 9

Heading: the dangerous precedent

Text: Before the release of the first opinion in this case on September 29, 1995, potentially huge lawsuits were already filed against companies that have conducted thousands of transactions that as of September 29, 1995, all members of the finance and insurance industries thought were perfectly legal. The opinion of this Court is made worse by the fact that the decision will not apply prospectively only, but retroactively. Therefore, the lawsuit floodgates have been opened wide. The potential damage to the Alabama economy is beyond estimate. A constitutional case might rise from this opinion over the implications attendant to exposing business to massive liability for actions taken in reliance on the regulations and statutory interpretations of state agencies. This new construction of § 5-19-20(a)a complete departure from the long-standing administrative construction of this provision of the Mini-Codeshould be applied prospectively only. The result of retroactivity will be massive litigation and massive liabilityliability so great that it could destroy much of the consumer credit and insurance industry in Alabama. If this opinion is allowed retroactive application as to already-filed cases, then any consumer who has obtained a precomputed interest credit life insurance loanand there could be literally hundreds of thousands of potential litigantscould join a class action lawsuit and sue his or her consumer lender, retailer, and insurance company, despite those companies' strict compliance with every statute, rule, or policy governing these transactions for approximately 25 years. Such class actions have already been filed throughout the State of Alabama, and more will be filed after the release of today's opinion. The potential exposure of these consumer lenders, retailers, and insurance companiesevery bank, every thrift, every life insurer, every automobile or appliance dealer, every furniture storeis virtually limitless. Small lenders could be wiped out. Customers that have used such small lenders would have to turn to pawn brokers or possibly even underworld figures, rather than the licensed and regulated small lenders who have served these people for so long. These are precisely the predictable consequencesthe impairment of existing contractual and property rights entered in reasonable reliance on an established statutory constructionthat the doctrine of prospectivity is intended to prevent. The principle of prospective application of judicial decisions was extended to judicial construction of statutes in Farrior v. New England Mortgage Security Co., 92 Ala. 176, 9 So. 532 (1891). Because the judicial construction of a statute effectively becomes part of the statute, the Court held that a change in statutory construction should affect existing contractual rights in the same manner as do statutory amendmentsby prospective application only. Farrior, 92 Ala. at 179-80, 9 So. at 532-33. In State v. Morrison Cafeterias Consol., Inc., 487 So.2d 898 (Ala.1985), this Court determined that the decision should act prospectively only, even with respect to the appellee: The determination of retroactive or prospective application of a decision overruling a former decision is a matter of judicial discretion which must be exercised on a case by case basis. [Citations omitted.] As stated in Cooper v. Hawkins, 234 Ala. 636, 638, 176 So. 329, 331 (1937), `where parties have acted upon the law as clearly declared by judicial decision, they will be protected, although such decisions are thereafter overruled. Farrior v. New England Mortgage Security Co., 92 Ala. 176, 9 So. 532 [(1891)]....' In fairness to all, including the appellee, who had justifiably relied upon this Court's previous holding in Hamm v. Windham, 254 Ala. 356, 48 So.2d 310 (1950), that food withdrawn from inventory and consumed by employees is not subject to sales tax, we hold that our decision in the instant case shall be given prospective application only. 487 So.2d at 903 (emphasis added). This Court has, from the 1800's until today, repeatedly held that a statutory construction that departs from a previous construction should be applied prospectively only. See Burke v. State, 385 So.2d 648, 652 (Ala.1980). The rule of prospectivity has been applied without exception when rules governing contractual or property rights that have become vested in reliance upon a settled construction are later overturned. The legislature itself has expressed its opinion on the matter of prospectivity. In findings expressed in 1994 Ala. Acts, Act No. 94-115, § 1, the legislature stated that changes in interpretations of the Mini-Code must be carefully considered because it appl[ies] to substantially all consumer credit transactions in Alabama involving many millions of dollars ..., because the public interest requires certainty in laws relating to consumer credit transactions, and because uncertainty could result in a significant reduction in the amount of consumer credit available to Alabama residents and thereby have a detrimental effect upon Alabama residents and businesses. The legislature further said that it is essential that ... [changes in the Mini-Code] ... be carefully considered, specifically stated, and prospective in application. 1994 Ala. Acts, No. 94-115, § 1(5). All of the factors that have impelled prospective application of new rules, whether in Alabama or in other jurisdictions, are present here. The new rule in this case has not yet been applied to the litigants in this or in other cases. A long line of Alabama precedent favors prospective application in circumstances such as those here, when an entire industry has based its practices on an existing statutory interpretation, when vested contractual rights are pervasive, and when retroactive application will create staggering losses that, in equity, need not occur. The cases cited by the appellant as supporting retroactive application of a judicial decision refer only to cases where it appears reasonably certain that the administrative agency has erroneously interpreted the statute in question. Sand Mountain Bank v. Albertville National Bank, 442 So.2d 13 (Ala.1983); Penrod v. Lapere, 367 So.2d 1381 (Ala.1979) (latest administrative interpretation even agreed with this Court's holding); Boswell v. Abex Corp., 294 Ala. 334, 317 So.2d 317, 318 (1975); Britnell v. Alabama State Board of Education, 386 So.2d 1148, 1150 (Ala.Civ. App.1980); Director, Dep't of Ind. Rel. v. Winston County Comm'n, 468 So.2d 177, 181 (Ala.Civ.App.1985). It is not reasonably certain that such an erroneous interpretation is present in this case. As for the United States Supreme Court cases cited by McCullar, they do not support retroactive application of the new rule in this case. The United States Supreme Court's rules on this issue are the rules for that Court. They do not bind Alabama unless Alabama is deciding a federal question. Those cases do support the proposition that if the new rule is applied retroactively to some parties, it should be applied retroactively to all parties. James B. Beam Distilling Co. v. Georgia, 501 U.S. 529, 111 S.Ct. 2439, 115 L.Ed.2d 481 (1991); Harper v. Virginia Dep't of Taxation, 509 U.S. 86, 113 S.Ct. 2510, 125 L.Ed.2d 74 (1993). A careful reading of these two cases shows that prospectivity was not eliminated in every case heard by the United States Supreme Court. What about other types of credit insurance? This ruling will affect credit accident and health insurance, involuntary unemployment insurance, and credit property insurance. All these types of insurance call for the insurer to step into the buyer's shoes and take over the car payments if the buyer gets hurt in an accident, gets sick, or loses a job. Property insurance covers the property used as collateral for a loan. Often, the value of the property pledged exceeds the amount of the debt. If the property is destroyed or lost and the insurance covers only the principal amount of the loan obligation, then the insured is assured of a financial loss. Therefore, interpreting § 5-19-20's phrase approximate amount ... of credit as referring only to the principal ensures that purchasers of several types of insurance will not be receiving coverage of the entire amount needed. Are there other indirect effects of this decision? The law must have predictability so that individuals and corporations may have confidence in the law's reasonable certainty, stability, and consistency. Stallworth, supra, 434 So.2d at 230 (quoting Bibb v. Bibb, 79 Ala. 437, 444 (1885)). What does today's decision say to the people of Alabama? It says, You can be liable for fraud no matter what you do in your business. It is irrelevant that you are utilizing an acceptable business practice, one that has been used for decades, one that has been used around the country, one that everyone else in your line of business has used. It may even be a practice that has been approved by the state agencies charged with administering the type of business you are involved in. None of that matters. You may still be liable for fraud. This is a frightening proposition. Beyond the effects of this one case on the credit life insurance industry, such a precedent as this destroys the people's ability to rely on any law, regulation, or branch of state government. The effects are insidious. Like termites eating away at the foundation and structure of a house, one never sees the effects of their work until it manifests in damage to the support and foundation of the house. This decision eats away at the house of justice of Alabama, the destruction being hidden from view until it manifests in bankrupt businesses, lost opportunities and jobs, and the lawless distrust bred by inconsistent and unpredictable decisions of those appointed by the people to guard the justice system. Then, everyone asks, Why is there so little opportunity in Alabama? Why is there so much fraud? Why is there so much mistrust of the judicial system? This case will help a limited number of fortunate lawyers get rich; it will not stop any fraud in the State of Alabama. It only allows for predatory attacks on legitimate businesses. Class actions are already forming across the state. The termites are swarming.