Opinion Analysis


Quicken Loans, Inc. v. Walters

Case Opinion Date Opinion Author Decision Vote
16-0298
06/15/2017 Justice Walker Affirmed in Part, Reversed in Part 3-2

Facts

In 2007, Respondent, Sue Walters, applied to refinance her home mortgage with Petitioner, Quicken Loans.  As part of the loan origination process, Quicken obtained an appraisal valuing Respondent’s home at $152,000.  Respondent alleged that, unbeknownst to her, the appraisal was substantially inflated and that the home had an actual market value of $64,000 at the time of the refinancing.   Quicken wrote a loan in the amount of $135,000.

Thereafter, Respondent sued Quicken along with the appraiser and the loan servicer.  Respondent alleged, inter alia, that Quicken had written a mortgage loan in excess of the home’s actual market value–a violation of W.Va. Code 31-17-8(m)(8).  Quicken, in turn, asserted as a defense that it had reasonably relied on the appraisal.  Settlements totaling $98,000 were reached with the remaining parties and the case went to trial against Quicken only.

The jury found that Quicken had, in fact, violated W.Va. Code 31-17-8(m)(8) and awarded $27,000 in damages.  Finding that there was a single, indivisible injury, the trial court offset the damages against the pretrial settlements.  The trial court also found that Respondent had prevailed on her statutory claim and was entitled to recovery attorney fees.  In all, the trial court awarded over $150,000 in fees.  The trial court offset the fee award also, but in doing so only used those portions of the pretrial settlement that were specifically designated as attorney fees.

Quicken appealed, arguing (1) that W.Va. Code 31-17-8(m)(8) only applied where there were two mortgages affecting the home and not, as here, where there was only a single mortgage, and (2) that the court erred in awarding fees.

Issues

Whether the trial court correctly applied W.Va. Code 31-17-8(m)(8) to an underwater loan involving a single, primary mortgage?

Whether the trial court acted appropriately in awarding, calculating and offsetting attorney fees in a consumer case?

Analysis

W.Va. Code 31-17-8(m)(8) reads, in relevant part:

In making any primary or subordinate mortgage loan, no licensee may, and no primary or subordinate mortgage lending transaction may, contain terms which: … (8) Secure a primary or subordinate mortgage loan in a principal amount that, when added to the aggregate total of the outstanding principal balances of all other primary or subordinate mortgage loans secured by the same property, exceeds the fair market value of the property on the date that the latest mortgage loan is made….

Quicken argued that the Legislature’s choice of language expressed an intent to deal only with underwater loans where there both a primary and a secondary mortgage covering the same property.  For support, Quicken cited a federal case, Skibbe v. Accredited Home Lenders, Inc., No. 2:08-CV­01393, 2014 WL 2117088, where Judge Goodwin reached that conclusion.

But the Supreme Court, in an opinion by Justice Walker, rejected Quicken’s argument.  Instead, the Court found that the plain intent of the Legislature was to provide protection in all situations involving underwater loans.  Indeed, the title itself confirmed the law’s broad reach:  “Maximum interest rate on subordinate loans; prepayment rebate; maximum points, fees and charges; overriding of federal limitations; limitations on lien documents; prohibitions on primary and subordinate mortgage loans; civil remedy.”  The Court continued:

“[C]onsistent with the tenor of this title language, all of the Section 8 provisions fall within one or both of two categories, restrictions on mortgage lenders, brokers and servicers, and protections for borrowers…. Section 8(m)(8) falls within the former category: it is a restriction on a lender’s ability to extend either a primary or subordinate loan which, in lay terms, puts the borrower ‘underwater’ on his or her mortgage indebtedness.”

Emphasizing the law’s broad sweep, the Court found that the Legislature’s intent was “to protect West Virginia homeowners from predatory lending in its various forms.”  The interpretation urged by Quicken was contrary to this express intent and to the language used by the drafters of the law:  “We cannot find, and indeed cannot envision, any basis for concluding that the Legislature intended the statutory prohibition to extend only to second or subsequent loans where, as here, it specifically included primary loans within the statute’s ambit.”

However, the Court did find that the trial court erred in its handling of the attorney fee issue.

As an initial matter, the Court confirmed that Respondent had “prevailed” on her statutory claim and was, therefore, entitled to a fee award.  Quicken argued that Respondent only prevailed on one of the two claims she advanced, that she recovered less than she was requesting and, in any event, that the $27,000 verdict was offset in its entirety by the pretrial settlements.  The Court, however, reaffirmed longstanding case law dealing with fee shifting.  The Court repeated the oft-cited rule that a party is not required to “prevail on a majority of her claims in order to receive attorney fees.”  Furthermore, the Court repeated that the trial court’s job is to examine all of the relevant facts, including the nature of the litigation itself and the history of settlement negotiations between the parties.  Here, the case was litigated for three years with substantial discovery, motion practice, and a jury trial.  Quicken’s one and only settlement offer came one week before trial began.  In light of these facts, the Court affirmed the finding that Respondent had prevailed.

Nevertheless, the Court did question aspects of the mechanics used by the trial court in arriving at its attorney fee figure.

First, the Court found that, having requested an evidentiary hearing on the fee issue, Quicken was legally entitled to one.  The Court remanded the case for purposes of conducting that hearing.

The Court also reaffirmed its holding in Quicken Loans v. Brown, 230 W.Va. 306, 737 S.E.2d 640 (2012) that attorney fees are compensatory in nature.  Because of this, any fees awarded by the trial court “shall be subject to offset by the amount of any good faith settlements previously made with the plaintiff by other jointly liable parties.”

In the final part of its opinion, the Court gave specific instructions for how the offset should be applied.  First, the trial court must determine the amount of fees attributable to other parties or to other, unsuccessful claims.  Second, the trial court must subtract these fees from the total.  Third, the trial court “will then offset the total amount of the prior settlements, $98,000, against the total compensatory damages, i.e., the sum of the jury’s award of damages and the court’s award of costs and fees.”

Justice Loughry, joined by Justice Ketchum, filed a lengthy dissenting opinion.

First, Justice Loughry insisted that the language of W.Va. Code 31-17-8(m)(8) only applies to secondary loans, and that the Legislature did not intend to address situations where primary loans were underwater.  Instead, Justice Loughry accused the Court of “ham-handedly render[ing] a perfectly lawful lending transaction ‘predatory’ in nature and, therefore, ‘illegal.’”

Second, the dissent took issue with the Court’s treatment of the attorney fee issues.  In fact, Justice Loughry argued that respondent did not prevail at all because, after offsets, “the final appealable judgment entered in this matter was zero.”  More than that, Justice Loughry rejected the proposition that attorney fees are compensatory in nature, suggesting instead that they are akin to punitive damages.

In his concluding paragraph, Justice Loughry asserted that legislative correction would be necessary to—in his words–stave off the “troubling,…serious, and far reaching implications” of the Court’s decision, and that it was up to the Court to “thoroughly revisit its attorney fee award precedent.”

Commentary

In many respects, this case is a win for consumers.  For one thing, it insures that W.Va. Code 31-17-8(m)(8) will be applied consistently with its broad, remedial purpose by providing protection to all borrowers who were victimized by underwater mortgages.  The Court also saw fit to reaffirm many of the principles that have guided the bench and bar for years in determining when, and how, attorney fees are to be awarded in consumer cases.

That said, there are concerns–especially with regard to the Court’s attorney fee methodology.  First, the Court indicated that fees could be recovered for the statutory claim, but not for the unsuccessful fraud claim.  This ruling appears to be a retreat from prior law.  Indeed, the Court has always acknowledged that there is often an overlap between claims, and that apportionment is only required where “a separate and distinct factual development was required to support the alternative theories of recovery.”  Heldreth v. Rahimian, 219 W.Va. 462, 467, 637 S.E.2d 359 (2006).  See also Hensley v. Eckerhart, 461 U.S. 424 (1983).  The Court’s treatment of the fee issue here is difficult to square with Heldreth.  Furthermore, the Court’s three-fold procedure for calculating the proper attorney fee award is problematic and could potentially result in undercompensating parties for their fees.

Share Button

Leave a Reply

Your email address will not be published. Required fields are marked *