WEST VIRGINIA RECORD

 

CHARLESTON – The West Virginia Supreme Court has agreed with a trial court finding that Quicken Loans, Inc. committed fraud and violated various provisions of the West Virginia Consumer Credit and Protection Act in a mortgage loan with an Ohio County woman, but it sent the case back to the circuit court to adjust the approximately $2.8 million dollar award.

According to documents in the underlying case, plaintiff Lourie Brown responded in May 2006 to a “pop-up" advertisement on her computer and completed an on-line application in “an effort to consolidate her debt and lower her monthly payments.”

Quicken Loans contacted her and she began to deal with mortgage banker Heidi Johnson.

Quicken ordered an appraisal of the home that Brown was interested in refinancing and the appraisal request included an estimated value of the subject property of $262,500. The trial court would later conclude the value of the property was $46,000.

Appraiser Dewey Guida of Appraisals Unlimited, Inc. valued the property at $181,700 and after Brown backed out of the process for a few weeks because of her concern that she would be unable to afford the payments, Johnson was able to close her on a $144,800 loan.

Although Brown had initially received a written Good Faith Estimate for a loan in the amount of $112.850 with a 2.5 “loan discount points” and no balloon feature, this much larger loan actually charged her for 4.0 points, while only giving her 2.5, and had a balloon payment after 30 years of $107,015.71, the amount of which was not disclosed, according to court documents.

Brown would later testify regarding Johnson,“She told me that what they could do would be to refinance the loan in three to four months, and then that I could get it at a cheaper rate, but initially my credit scores weren’t high enough; and that, once that loan was in place and I got – everything started to be paid off, then I would be able to refinance my loan.”

After the loan finalized, Brown made two payments and then began calling Quicken to “begin the refinancing process” as she alleged she had been promised.  Quicken refused to refinance the loan, according to court documents.

In early 2007, after missing work due to health problems requiring multiple surgeries, Brown defaulted on the loan and was unable to work out a payment arrangement with Quicken. In August 2007, she provided statutory notice to Quicken of a claim but Quicken did not offer to “cure” her complaint and, instead, began foreclosure proceedings, court documents show.

Brown filed suit in the Circuit Court of Ohio County naming Quicken, Appraisals Unlimited, Inc. and Dewey Guida, alleging she was the victim of “a predatory lending scheme and consumer fraud relating to the loan at issue.”

Prior to trial, Brown settled with Guida and Appraisals Unlimited for $700,000. 

Ohio County Judge Arthur M. Recht found that Quicken "committed fraud and violated various provisions of the West Virginia Consumer Credit and Protection Act … regarding unconscionability … unfair and deceptive acts … and regarding illegal balloon notes."

The circuit court also found that Quicken had violated West Virginia law regarding illegal appraisals and concluded that the “Note and Deed of Trust were unenforceable as a matter of law, awarded restitution of payments made by Plaintiff to Quicken in the amount of $17,476.72 … and enjoined them from attempting to collect any further payments under the loan.”

Recht subsequently awarded Brown attorneys fees and litigation costs of $596,199.89 and punitive damages of $2,168,869.75. 

Quicken appealed on the finding that it fraudulently induced Brown to enter into the loan, the finding of unconscionability of the inducement and of the financial product itself, the cancellation of the loan obligation, the lack of a punitive damages analysis, the treatment of attorneys fees and costs as compensatory damages, and the failure of the circuit court to offset the award by the amount of the settlement from the appraisal company. 

Justice Thomas E. McHugh delivered the opinion of the Supreme Court on appeal. 

On the first issue the Court held, “Although we do not find that the elements of fraud were met with regard to the misrepresentation of the loan discount points, we otherwise affirm the circuit court’s rulings that the evidence relating to the concealment of the balloon payment and promise to refinance were acts of fraud and were proven by clear and convincing evidence. 

“Having already determined that Quicken acted fraudulently in inducing Plaintiff into entering into the loan, we therefore conclude that there is no merit to Quicken’s contention it did not violate [West Virginia Law] in this regard,” McHugh wrote regarding the unconscionability of the inducement.

After an analysis of all the evidence presented at trial, the Court concluded that, “given the particular facts involved in this case, the terms of the loan described above and the loan product, in and of itself, were unconscionable.”

The Court then moved to the “cancellation of the loan obligation” issue and found that the circuit court had overstepped its bounds when canceling the obligation of Brown to pay back the principal of the loan – “It is Quicken’s contention that the legislature has strictly limited the circumstances under which this remedy may be awarded under the West Virginia Consumer Credit and Protection Act and that those circumstances are absent in the case sub judice. We agree.”

Regarding punitive damages, “Quicken argues that the circuit court deprived it of procedural due process by failing to perform the required analysis of punitive damage pursuant to [Garnes v. Fleming Landfill, Inc]” and the Court again agreed with Quicken, ruling “Because the circuit court failed to conduct a proper analysis under Garnes, such an analysis must be conducted upon remand.”

Quicken next argued that the circuit court should not have included attorneys fees in the calculation of the punitive damages award.

Recht had added the compensatory damages together and then multiplied by three to determine the amount of punitive damages. Quicken argued that the attorneys fees should not have been part of the compensatory damages. If Quicken was right, then the punitive damages award would have been much lower according to Recht’s formulation.

The Court agreed with Recht – “[W]e hold that attorneys fees and costs awarded under West Virginia Code §46A-5-104 (1994) of the West Virginia Consumer Credit and Protection Act shall be included in the compensatory to punitive damages ratio in cases where punitive damages are available.”

Finally, Quicken argued that the amount of the compensatory damages awarded should have been offset by the $700,000 settlement made by the appraiser and the appraisal company to Plaintiff Brown. “According to Quicken,” wrote McHugh, “Plaintiff suffered a single indivisible loss and, thus, she is entitled to but one complete satisfaction for her injury.”

“Accordingly, given that Plaintiff does not seriously argue otherwise, it is clear that Plaintiff suffered a single indivisible loss arising from the actions of Quicken and the settling co-defendants. Quicken is therefore entitled to a credit for the settlement between Plaintiff and the appraisal defendants…”

However, the Court noted, “[T]he parties are in agreement that any credit for the settlement between Plaintiff and Quicken’s co-defendants is not to be applied to any punitive damages which may be awarded upon remand in this case.”

McHugh concluded, “For the reasons stated herein, the order of the Circuit Court of Ohio County entered May 2, 2011, is affirmed, in part; reversed, in part; and this matter is remanded for further proceedings consistent with this opinion.”

In a statement, Quicken officials said they were pleased with several aspects of the ruling, such as the decision to overrule several findings of the lower court.

"However, we are disappointed that the court failed to address other serious errors by the trial court and has sent those issues back to that same court for further proceedings," the company said in a statement. ".While Quicken Loans welcomes the continued opportunity to show the Circuit Court, the West Virginia Supreme Court of Appeals, and, potentially even the Supreme Court of the United States the many aspects of this case that are flawed and outright wrong, these steps are burdensome and unnecessary.

"The simple fact is that this plaintiff was wrongfully awarded nearly $3.7 million in damages in relation to a $145,000 mortgage on a single family home. We fully expect the Circuit Court’s continued review of the case to find that the irrational award to this plaintiff is out of line with any near reasonable review of the facts and the law surrounding this case."