In the case of Quicken Loans, Inc. v. Walters, all five justices of the Supreme Court of Appeals of West Virginia agreed that West Virginia’s “illegal loan” statute was unambiguous. While one might think that agreement on that point would be followed by a unanimous ruling in favor of one of the parties to the dispute, the ruling actually could not have been any closer. Three members of the five member court concluded that the unambiguous statute meant one thing. The other two members of the court vociferously concluded that it meant exactly the opposite.
In the summer of 2007, Sue Walters applied to Quicken Loans for a mortgage loan to refinance the existing $136,000 mortgage on her residence. Quicken Loans hired Kirk Riffe, a licensed West Virginia appraiser, to appraise her residence. Riffe concluded that Ms. Walters’ residence was worth $152,000. Quicken made a 30 year mortgage loan to Ms. Walters to refinance her existing loan. When Quicken made its loan to Ms. Walters, it held the only mortgage on her residence. Quicken then sold Ms. Walters’ loan to Countrywide Financial which, in turn, sold it to Bank of America.
Ms. Walters made payments on her loan for 20 months, but then encountered financial difficulties. She attempted without success to negotiate a mortgage modification with Bank of America. When that failed, Ms. Walters sued Quicken Loans, Riffe, and Bank of America, alleging that they had violated West Virginia’s illegal loan statute. That statute provides, in pertinent part, that:
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….
Riffe and Bank of America settled with Ms. Walters. Riffe paid her $75,000. Bank of America paid her $23,000. Of the total amount paid by Riffe and Bank of America, $32,500 was allocated to Ms. Walters’ attorneys’ fees.
Quicken Loans, however, did not settle. Quicken argued that the illegal loan statute did not apply to its loan to Ms. Walters at all because the reference in the statute to “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 statute” made it clear that it only applied when there were multiple liens on a residence and it had been Ms. Walters’ only lender when its loan was made. “Quicken also argued that even if the statute did apply, it was protected by a provision that “a broker or lender may rely upon a bona fide written appraisal of the property made by an independent third-party appraiser, duly licensed or certified by the West Virginia Real Estate Appraiser Licensing and Certification Board and prepared in compliance with the uniform standards of professional appraisal practice.”
After more than three years of contentious litigation and a five day trial, a jury determined that Quicken had negligently, but not intentionally, violated the illegal loan statute and that Riffe’s appraisal had not been prepared in accordance with uniform standards of professional appraisal practice. The jury awarded Ms. Walters $27,000 in damages. After the jury verdict, the trial court awarded Ms. Walters $189,000 in attorneys’ fees as the “prevailing party” under the illegal loan statute. However, as Ms. Walters had already recovered more than $27,000 for the same injury from Riffe and Bank of America, who were jointly liable with Quicken Loans, the court offset what she had already been paid to eliminate the jury’s $27,000 damages award entirely. It reduced the attorney’s fee award by the $32,500 from the settlements with Riffe and Bank of America that had been allocated to attorneys’ fees, leaving Ms. Walters with approximately $156,000 in attorneys’ fees that she could recover from Quicken Loans. Quicken appealed to the Supreme Court of Appeals of West Virginia.
The opinion of the three justices who comprised the majority of the court said, “In short, we are presented with an interesting situation in which both parties contend that West Virginia Code §31-17-8(m)(8) is clear and unambiguous – and then reasonably argue, utilizing the same rule of statutory construction, that the statutory provision has two entirely irreconcilable clear and unambiguous meanings.” While noting that, “on this basis alone it might be tempting for this Court to conclude that the statute is ambiguous,” the three justice majority said, “our precedents counsel against a rush to such conclusion.” Looking only to the language of the statute as is required in the absence of ambiguity, the majority said that Quicken Loans’ interpretation of the statute could not be correct because the statute expressly applied to “primary loans” and there would only be one lien on the property when a lender made a primary loan. Accordingly, the majority held that “the provisions of West Virginia Code § 31-178(m)(8) apply to any primary or subordinate mortgage loan that exceeds the fair market value of the property at the time the loan is made, either singly, in the case of a first or consolidation mortgage loan, or in combination with any outstanding balances of any other existing loans.”
Justice Ketchum wrote a dissenting opinion. In Justice Ketchum’s view:
By its plain terms, this statute pertains to additional mortgage loans, which when added to all other primary or subordinate loans secured by the same property, exceeds the fair market value of that property. Clearly, the existence of other mortgage loans is required for Section 31-17-8(m)(8) to apply.
Justice Ketchum also joined in a dissenting opinion written by Chief Justice Loughry. According to Chief Justice Loughry, “The majority’s illogical and legally unsound opinion takes a perfectly straightforward statute and, despite declaring it to be unambiguous, badly misconstrues it, making a perfectly lawful banking transaction illegal.” In a dig at his fellow Justices, the Chief Justice said:
Without necessity of interpretation or construction of the statute, even the most casual reader can ascertain that the statute forbids only making a loan (whether primary or subordinate) which “when added to the aggregate total . . . of all other . . . loans secured by the same property” exceeds the property’s fair market value. This clear and simplistic language plainly proscribes making a loan that, when aggregated with other loans, exceeds the property’s fair market value.
In addition to disagreeing with the majority’s opinion that the illegal loan statute applied to Ms. Walters’ loan, Chief Justice Loughry opined that the majority was also incorrect in its conclusion that Ms. Walters was entitled to attorneys’ fees as a prevailing party. In the words of the Chief Justice:
Having previously settled with the other co-defendants in the total amount of $98,000.00 ($65,500.00 in compensatory damages and $32,500.00 for attorney’s fees), after offset, the respondent received nothing from the petitioner. This perceived “moral victory” is wholly insufficient to substantiate an award of attorney’s fees.
How the case will end remains unknown. While agreeing that the illegal loan statute applied and that Ms. Walters was a prevailing party entitled to attorneys’ fees, the majority said that the trial court improperly awarded fees without an evidentiary hearing requested by Quicken Loans and remanded the case to the trial court to hold such a hearing. In his dissenting opinion, Chief Justice Loughry said that the fact that $32,500 had been allocated to attorney’s fees in the settlements with Riffe and Bank of America did not mean that Quicken Loans was only entitled to a $32,500 offset against attorneys’ fees awarded. According to Chief Justice Loughry, Quicken Loans was entitled to offset the entire $98,000 paid by its joint tortfeasors against the $27,000 jury award plus whatever Ms. Walters ended up being awarded in attorney’s fees. If the trial court accepts that reasoning, Quicken Loans could end up better off by $38,500 even if the trial court awards Ms. Walters the same amount of fees awarded the first time. But opinions may differ as to what “better off” really means.