Court Opinion

ID: 9518096
Source: CourtListenerOpinion
Date Created: 2023-08-07 00:43:22.575133+00
Date Added: 2024-06-11T12:27:22.535735
License: Public Domain

DISSENTING OPINION BY
Senior Judge FRIEDMAN.
I respectfully dissent. The majority concludes that the Court of Common Pleas of Berks County (trial court) had reasonable grounds to grant the preliminary injunction sought by the Commonwealth of Pennsylvania, Acting By Attorney General Thomas W. Corbett, Jr. (Commonwealth), and to enjoin Kenneth Bennetch, Julie Ann Musser, Jacquelyne Hepford-Rennie and Susan Louise Hunt (together, Consultants) from receiving payments for, or entering into contracts for, the provision of mortgage financing and/or investment products services. I cannot agree that the trial court had reasonable grounds where the Commonwealth failed to meet its burden of establishing all of the prerequisites for a preliminary injunction.1
*51Consultants were employed as mortgage consultants by business entities engaged in the provision of mortgage financing and investment products services. As such, Consultants advised potential customers of the availability of two alternative forms of financing: (1) a conventional loan secured by a mortgage from an outside lending institution; and (2) a conventional loan secured by a mortgage from an outside lending institution, coupled with a wrap-around mortgage (Wrap Mortgage) offered by Image Masters, Inc. (Image Masters), one of the business entities.
The Wrap Mortgage option provided the customer with a lower interest rate and lower monthly mortgage payments. In exchange, the customer was required to obtain a conventional loan for an amount in excess of his or her need and pay the excess money to Image Masters to invest for the customer.2 If the customer chose a Wrap Mortgage, there were two closings. The first closing was held on the conventional loan before a title insurance company representative. The second closing was held approximately one week later, usually at the customer’s home, at which time the customer executed the Wrap Mortgage with Image Masters and turned over the excess funds received from the conventional loan. Thereafter, the customer made a single mortgage payment to Image Masters at the reduced interest rate, and Image Masters used that payment, plus a portion of the money earned from investment of the excess funds, to make the larger conventional loan payment, leaving Image Masters with a profit consisting of the money remaining from the investment of the excess funds.
In September 2007, the business entities became the subject of a federal bankruptcy proceeding. Subsequently, Wesley Alvin Snyder, the President and sole shareholder of the business entities, was arrested and charged with numerous federal offenses arising from the sale of Wrap Mortgages. In November 2007, Snyder pled guilty to one count of mail fraud. At a later date, Snyder received a sentence of no less than twelve years and two months in federal prison.
On May 23, 2008, the Commonwealth filed a complaint and motion for preliminary injunction against Consultants and others, alleging that Consultants were engaged in the operation of a “Ponzi Scheme” in connection with the sale of Wrap Mortgages.3 The Commonwealth also alleged that Consultants had violated various provisions of section 2(4) of the Unfair Trade Practices and Consumer Protection Law (CPL),4 which, generally speaking, makes it unlawful to engage in deceptive conduct that creates a likelihood of confusion or misunderstanding with respect to the sale of goods or services.
After a preliminary injunction hearing, the trial court concluded that, because *52Consultants functioned as “mortgage brokers” as defined in section 2 of the Mortgage Bankers and Brokers and Consumer Equity Protection Act (Brokers Act),5 Consultants owed a fiduciary duty to their customers. The trial court then concluded that Consultants breached the fiduciary duty of candor, honesty and loyalty by failing to disclose material information about the Wrap Mortgages so that the customers could make an informed decision. As a result, the trial court preliminarily enjoined Consultants from receiving payments for, or entering into contracts for, the provision of any mortgage financing and/or investment products services. Consultants now appeal to this court.6
I. Right to Relief
Consultants argue that the Commonwealth failed to establish that its right to relief is clear. I agree that the Commonwealth failed to establish that its right to equitable relief in the form of a permanent injunction is clear.
Our supreme court has stated that, where injunctive relief is sought, the initial focus is whether equity jurisdiction is proper.7 Department of Public Welfare v. Eisenberg, 499 Pa. 530, 454 A.2d 513 (1982). Where a statutorily prescribed remedy at law is available, equity will not intervene without a clear showing that the remedy is inadequate. Id.
One of the Commonwealth’s witnesses testified that the legislature enacted a new law, effective November 5, 2008, that would require loan originators to be licensed, to meet preliminary and continuing education requirements and to pass a test. (N.T. at 819-20, R.R. at 896a.) The witness testified that Consultants would be considered loan originators under the new law. Id. Thus, today, Consultants could not work as loan originators unless they were to meet new education requirements, pass a test and obtain a license.8
Section 6102 of the act known as the Mortgage Loan Industry Licensing and Consumer Protection Act (Mortgage Originator Act), the new law, defines the term “mortgage originator,” in pertinent part, as follows:
An individual not licensed as a ... mortgage broker ... who solicits, accepts or offers to accept mortgage loan applications, or negotiates mortgage loan terms, in other than a clerical or ministerial capacity and who is personally in *53direct contact, in writing, including electronic messaging, or by voice communication, with consumers with regard to the solicitations, acceptances, offers or negotiations.
7 Pa.C.S. § 6102. Section 6131(g) of the Mortgage Originator Act requires that mortgage originators meet certain educational requirements, pass a test prior to licensing and meet additional educational requirements after licensing. 7 Pa.C.S. § 6131(g).
Upon receipt of an application for a mortgage originator license, the Department of Banking may conduct an investigation of the applicant. Section 6133(a.l) of the Mortgage Originator Act, 7 Pa.C.S. § 6133(a.l). The Department of Banking may deny a license, or otherwise restrict a license, if it finds that the applicant does not possess the character, reputation, integrity and general fitness to command the confidence of the public and to warrant the belief that the mortgage loan business will be operated lawfully, honestly, fairly and in accordance with the law. Section 6133(e)(4) of the Mortgage Originator Act, 7 Pa.C.S. § 6133(e)(4).
The Mortgage Originator Act is now in effect, providing various means for controlling individuals who, like Consultants, provide information to consumers regarding mortgage loan products. The Commonwealth, in order to establish a clear right to equitable relief in the form of a permanent injunction, would have to prove that the new measures will be ineffective in preventing Consultants from harming consumers in the manner alleged in this case. Given the requirements of the new law, especially the authority of the Department of Banking over the licensing of mortgage originators, I would conclude that the Commonwealth failed to establish a clear right to a permanent injunction here.9
II. Status Quo
Consultants argue that the Commonwealth failed to establish that the injunction properly restores them to their status as it existed immediately prior to the alleged wrongful conduct. I agree.
The alleged wrongful conduct is failing to disclose material information about Wrap Mortgages, a failure that initially occurred after Consultants were hired to explain to customers two financing options, a conventional mortgage and a Wrap Mortgage. The fact that Consultants gave customers information about conventional mortgages as well as Wrap Mortgages is significant because the Commonwealth did not establish any -wrongdoing relating to the conventional mortgages. Indeed, the Commonwealth’s own witness, a Department of Banking investigator, testified that “there were no problems with Mr. Snyder’s conventional mortgages.” (N.T. at 814, R.R. at 895a.)
Thus, the injunction should have restored Consultants to their status as employees in the mortgage financing field, the status they held immediately prior to making any representations to any customers about Wrap Mortgages. In that status, Consultants could have continued to earn a living by providing conventional mortgage products and services, but not Wrap Mortgages. However, the injunction here places Consultants in a status that pre-dates their employment in the mortgage financing field. Thus, the injunction does not properly restore Con*54sultants to their status as it existed immediately prior to the alleged wrongful conduct.
III. Reasonably Suited to Abate Offending Activity
Consultants argue that the Commonwealth failed to establish that the injunction is reasonably suited to abate the offending activity, i.e., the failure to disclose material information about Wrap Mortgages to customers. I agree.
In Armstrong School District v. Armstrong Education Association, 5 Pa. Cmwlth. 387, 291 A.2d 125, 127 (1972) (footnote omitted) (citations omitted), this court stated:
The history of equity jurisdiction in Pennsylvania is different from that in other states. Courts of Chancery existed here in colonial times, but public prejudice was so strong against them that they were abolished after the Revolution. Courts of Common Pleas thereafter exercised only common law powers, and possessed none of the powers of a Court of Chancery. [In 1886], some power to grant relief in equity was again given to the courts of Philadelphia County, and, through subsequent legislation and Constitutional provisions, these powers were later expanded and granted to all common pleas courts in the Commonwealth. These powers are still limited, however, and the extent to which they may be exercised lies within the control of the Legislature.
A Pennsylvania court’s equity jurisdiction, therefore, is limited and well defined .... “The courts of equity of Pennsylvania do not possess the general powers of a court of equity, but only such as have been conferred upon them by statute.... ”
Here, section 4 of the CPL states that whenever the Attorney General has reason to believe that any person is using any method, act or practice declared unlawful by the statute, the Attorney General “may bring an action ... against such person to restrain by temporary or permanent injunction the use of such method, act or practice.” 73 P.S. § 201-4 (emphasis added). Section 4 of the CPL does not give courts statutory authority to restrain lawful activity.
To abate the offending activity here, the trial court needed only to enjoin Consultants from providing Wrap Mortgage products and/or services to consumers. Such an injunction would have protected future customers from losing money in any Wrap Mortgage “Ponzi Scheme” and would have allowed Consultants to continue working in the mortgage financing field. By enjoining Consultants from providing any mortgage financing and/or investment products and services, the trial court abated activity that was legal and harmed no one. In issuing such an injunction, the trial court exceeded the equitable powers given under the CPL, and, because the injunction unnecessarily enjoined the continuation of legal activity, the injunction was not reasonably suited to abate the offending activity.
Accordingly, I would vacate the preliminary injunction.

. A party seeking a preliminary injunction must show that: (1) an injunction is necessary to prevent immediate and irreparable harm that cannot be adequately compensated by damages; (2) greater injury would result from refusing an injunction than from granting it; (3) an injunction will properly restore the parties to their status as it existed immediately prior to the alleged wrongful conduct; (4) the right to relief is clear; (5) the injunction it seeks is reasonably suited to abate the offending activity; and (6) an injunction will *51not adversely affect the public interest. Summit Towne Centre, Inc. v. Shoe Show of Rocky Mount, Inc., 573 Pa. 637, 828 A.2d 995 (2003). For a preliminary injunction to issue, a petitioner must establish every one of these prerequisites; if the petitioner fails to establish any one of them, there is no need to address the others. Id.

.Thus, in order to qualify for a Wrap Mortgage, the customer was required to have sufficient equity in his or her home.

. At some point, Image Masters was unable to get sufficient investment returns to cover the conventional loans of Wrap Mortgage customers. Thus, Image Masters stopped investing the excess funds, instead using the excess funds from one Wrap Mortgage customer to pay money owing on the conventional loans of other Wrap Mortgage customers.

. Act of December 17, 1968, P.L. 1224, as amended, 73 P.S. § 201-2(4).

. Act of December 22, 1989, P.L. 687, repealed by section 3(b)(1) of the Act of July 8, 2008, P.L. 796, formerly 63 P.S. § 456.302. The subject matter is now covered in the statute codified at 7 Pa. C.S. § 6102. "Mortgage broker” was defined in the Brokers Act as a "person who directly or indirectly negotiates or places mortgage loans for others in the primary market for consideration.” 63 P.S. § 456.302.

. In reviewing a trial court order granting a preliminary injunction, this court examines the record to determine if there were any apparently reasonable grounds for the action. Summit Towne Centre.

. The Attorney General may seek an injunction under the CPL, but that statutory authority does not excuse the Attorney General from establishing all of the prerequisites for a preliminary injunction, including a clear right to equitable relief.

.Although the Mortgage Originator Act was not in effect on August 29, 2008, when the trial court issued the preliminary injunction, the trial court was aware of its enactment through the testimony of the Commonwealth's witness. Thus, the trial court knew that the law would affect whether the Commonwealth had a clear right to a permanent injunction after November 5, 2008. Assuming, for the sake of argument, that the Commonwealth established all other prerequisites for a preliminary injunction, the trial court should have issued a temporary injunction that ended as of November 5, 2008.

. Indeed, if the Department of Banking, which provided a witness for the Commonwealth in this case, were to determine that Consultants are not fit to work as mortgage originators, the Department of Banking would not issue licenses to them.