Arrow Financial Services v. Patrick Morrisey, Attorney General ( 2015 )

STATE OF WEST VIRGINIA
SUPREME COURT OF APPEALS
Arrow Financial Services, LLC, FILED
Respondent Below, Petitioner May 15, 2015
RORY L. PERRY II, CLERK
SUPREME COURT OF APPEALS
vs) No. 14-0316 (Kanawha County 09-MISC-213) OF WEST VIRGINIA
Patrick Morrisey, Attorney General,
Petitioner Below, Respondent
MEMORANDUM DECISION
Petitioner Arrow Financial Services, LLC, by counsel Don C. A. Parker and Bruce M.
Jacobs, appeals the February 26, 2014, order of the Circuit Court of Kanawha County granting
respondent’s petition to enforce its investigative subpoena. Respondent Patrick Morrisey,
Attorney General, by counsel Norman Googel, filed his response to which petitioner submitted a
reply.
This Court has considered the parties’ briefs and the record on appeal. The facts and legal
arguments are adequately presented, and the decisional process would not be significantly aided
by oral argument. Upon consideration of the standard of review, the briefs, and the record
presented, the Court finds no substantial question of law and no prejudicial error. For these
reasons, a memorandum decision affirming the circuit court’s order is appropriate under Rule 21
of the Rules of Appellate Procedure.
The Attorney General filed a petition to enforce his investigative subpoena and for
related relief before the circuit court. The circuit court heard oral argument, and entered its
“Order Granting Petition to Inforce [sic] Investigative Subpoena” on February 26, 2014.
Petitioner appeals from that order.
In its order, the circuit court found that GA Financial Trust 2002-A (“GA Financial”) was
incorporated on October 25, 2002, as a “statutory trust” under Delaware law. On October 25,
2012, GA Financial purchased “a portfolio of charged-off credit card accounts for collection
from Providian National Bank, which included accounts allegedly owed by West Virginia
residents.” GA Financial; Arrow Financial Services, LLC, (“Arrow”) a third-party collection
agency located in Illinois; as well as an undisclosed party entered into a servicing agreement.
The servicing agreement provides that Arrow would be deemed a legal agent for GA Financial
whenever it pursues collection litigation using an in-house attorney and that certificate holders,
on behalf of GA Financial, appoint Arrow as the exclusive servicer for collection of the accounts
purchased by GA Financial. Arrow engaged in the collection of charged-off credit card accounts
for or on behalf of GA Financial at all relevant times, and Julie Novak was the vice president and
corporate counsel of Arrow at all relevant times. GA Financial did not have a license and surety
bond as a collection agency, as defined by the West Virginia Collection Agency Act
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(“WVCAA”), West Virginia Code § 47-16-2(b) (2003).
On February 8, 2008, the Attorney General received a complaint from a West Virginia
resident that GA Financial was collecting debts in West Virginia without a license and surety
bond. The Attorney General issued an investigative subpoena on March 15, 2009, seeking
production of documents and information pertaining to their collection activities in West
Virginia. The subpoena was served upon the West Virginia Secretary of State (“WVSOS”) on
March 19, 2010, for delivery to GA Financial via its registered agent and to Arrow to the
attention of Ms. Novak. The subpoena was sent by the WVSOS by certified mail, return receipt
requested, to GA Financial and Arrow/Ms. Novak on March 19, 2010. According to the circuit
court, there are no public records confirming delivery to GA Financial, but the subpoena was
delivered and signed for by “Willie Brown” at Arrow’s corporate office. On April 3, 2009, GA
Financial filed with the Attorney General its response to the subpoena to produce certain records;
its response indicates that it was made “by and through its duly appointed managing and
servicing agent.” That response contains nineteen general objections. In its response to Item 1 of
the Attorney General’s subpoena, GA Financial represented that it had appointed Arrow as its
managing and servicing agent and that Arrow maintains the computer system of record relating
to the accounts owned by GA Financial. GA Financial also stated that as a trust which merely
holds, but does not service accounts, it did not have documents responsive to twenty-three of the
requested items. GA Financial produced only the heavily redacted servicing agreement.
The only documents produced by Arrow on behalf of GA Financial in response to the
subpoena, other than the redacted servicing agreement, consist of Arrow’s West Virginia
collection agency license and surety bond. Arrow did, however, disclose some pertinent
information, including the following: (1) GA Financial’s acknowledgment that its agent and
trustee was the agent served by the WVSOS; (2) GA Financial appointed Arrow as its managing
and servicing agent and Arrow maintains the computer system of records relating to the accounts
GA Financial owns; (3) GA Financial’s admission that Arrow, as GA Financial’s managing and
servicing agent, may report appropriate information to the three major consumer reporting
agencies; and (4) GA Financial’s acknowledgment that it was a debt buyer but characterized
itself as a “passive entity” which it asserts would not be required to be licensed. The Attorney
General reportedly contacted all magistrate and circuit courts in West Virginia and learned that
GA Financial was a plaintiff in at least four debt collection suits in West Virginia. On June 11,
2009, the Attorney General filed his petition before the circuit court asking the court to issue an
order compelling GA Financial and Arrow to comply with the subpoena and enjoining GA
Financial from collecting debts in West Virginia until such time as it fully complies with the
subpoena and becomes licensed and bonded as required by law. On August 23, 2010, Arrow and
GA Financial responded to the petition. In their responses, GA Financial and Arrow argued that
they were not served with the subpoena, the State improperly included a request for injunctive
relief in its petition, the Attorney General has no statutory authority to investigate the alleged
violations of the WVCAA, GA Financial did not fail to comply with the subpoena, the Attorney
General cannot make GA Financial a party to this legal action because GA Financial is a trust
and only a trustee can be made a party, and the subpoena cannot be enforced because it fails to
meet the criteria set out by this Court in State ex rel. Hoover v. Berger, 199 W.Va. 12, 483
S.E.2d 12 (1996).
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In its order, the circuit court found that the records do not confirm that the subpoena was
delivered to GA Financial, but the records confirm that the subpoena was delivered and signed
for by “Willie Brown” on behalf of Arrow. It went on to find that even if GA Financial was not
formally served with the subpoena, the subpoena was still enforceable against GA Financial
because the servicing agreement confirmed that Arrow was designated by GA Financial as its
“paying agent, managing agent and servicer.” It further found that whether GA Financial was
properly served was a moot point because GA Financial fully responded to the subpoena prior to
the filing of the petition before the circuit court. The circuit court considered the statutory
definition, under Delaware law, of “statutory trust” and found that GA Financial is an entity that
can sue and be sued. Citing Cavalry SPV I v. Morrisey, Attorney General, 232 W.Va. 325, 752
S.E.2d 356 (2013), the circuit court determined that this Court recently rejected the assertion that
the Attorney General cannot enforce the WVCAA. The circuit court specifically found that the
Attorney General’s petition to enforce its investigative subpoena should be granted, and GA
Financial and Arrow were ordered to fully comply with the investigative subpoena within thirty
days after the entry of the order. Arrow appeals from that order.
Like in Cavalry, “[i]nterpreting a statute or an administrative rule or regulation presents a
purely legal question subject to de novo review.” Id. at 331, 752 S.E.2d at 362 (citing Syl. Pt. 1,
Appalachian Power Co. v. State Tax Dep’t of West Virginia, 195 W.Va. 573, 466 S.E.2d 424
(1995)). In addition,
[i]n reviewing challenges to the findings and conclusions of the circuit court, we
apply a two-prong deferential standard of review. We review the final order and
the ultimate disposition under an abuse of discretion standard, and we review the
circuit court’s underlying factual findings under a clearly erroneous standard.
Questions of law are subject to de novo review.
Cavalry, 232 W.Va. at 331, 752 S.E.2d at 362 (quoting Syl. Pt. 2, Walker v. West Virginia Ethics
Comm’n, 201 W.Va. 108, 492 S.E.2d 167 (1997)). We note at the outset that “[t]he Attorney
General’s investigatory powers include the power to issue investigative subpoenas pursuant to
W.Va. Code § 46A-7-104 (1974) (Repl. Vol. 2006).” Syl. Pt. 1, Cavalry, 232 W.Va. at 327, 752
S.E.2d at 358.
On appeal, petitioner asserts four assignments of error. First, petitioner argues that the
circuit court erred in directing GA Financial to comply with the investigative subpoena because
the subpoena was moot. Petitioner asserts that GA Financial was dissolved more than three years
before the circuit court entered its order and that prior to that ruling, Arrow advised the court that
GA Financial had been dissolved. It further argued that because the subpoena was only directed
to GA Financial, the petition to enforce the subpoena was moot. In response, the Attorney
General contends that the assertion of mootness is premature because full compliance with the
subpoena could supply the State with actionable information, which is consistent with the
statutory purpose of the subpoena. The Attorney General also argues that the harm to West
Virginia consumers from the alleged unlawful debt collection activities has not been alleviated
by the fact that GA Financial has ceased further collection activities.
This Court has held that a case is not moot “even though a party to the litigation has had a
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change in status such that he no longer has a legally cognizable interest in the litigation or the
issues have lost their adversarial vitality, if such issues are capable of repetition and yet will
evade review.” State Farm Mut. Auto Ins. Co. v. Schatken, 230 W.Va. 201, 210 n.6, 737 S.E.2d
229, 238 n.6 (2012) (quoting Syl. Pt. 1, State ex rel. M.C.H. v. Kinder, 173 W.Va. 387, 317
S.E.2d 150 (1984)). However, in addressing a similar issue, the Supreme Court of the United
States held that the Act must be read to apply to lawyers engaged in consumer debt-collection
litigation. See Heintz v. Jenkins, 514 U.S. 291 (1995). As of the filing of the petition before the
circuit court, there were several debt collection actions pending in West Virginia courts on behalf
of GA Financial against West Virginia consumers. Therefore, we find no error in the circuit
court’s direction to GA Financial to comply with the investigative subpoena despite petitioner’s
claim of mootness.
Second, petitioner contends that the circuit court erred by enforcing the investigative
subpoena against Arrow because Arrow was not specifically named in the style of the subpoena.
Petitioner argues that the circuit court failed to note that petitioner and GA Financial are legally
distinct entities and that petitioner is GA Financial’s agent for the limited purposes set forth in
the servicing agreement. It further argues that Arrow was not identified as an entity under
investigation by the Attorney General, and the subpoena was directed to GA Financial with a
copy addressed to Ms. Novak. Petitioner asserts that when an investigative subpoena for a grand
jury is unclear, it must be construed against the drafter pursuant to a decision from the United
States District Court for the District of Maryland. In re Grand Jury Subpoenas Duces Tecum,
August 1986, 658 F. Supp. 474, 481 (D.Md. 1987). While petitioner cites no West Virginia
authority for the proposition, it argues that the same standard should be applied to the Attorney
General’s subpoena power in this case. It contends that to the extent the Attorney General
mentioned petitioner in the instruction section in the subpoena, it does not validate the subpoena
as to petitioner.
This Court has reviewed the subpoena at issue. While the subpoena states it is “IN THE
MATTER OF THE INVESTIGATION OF: GA FINANCIAL TRUST 2002-A,” it is clearly
addressed to both GA Financial and “ATTN: JULIE NOVAK VICE PRESIDENT & GENERAL
COUNSEL ARROW FINANCIAL SERVICES, LLC.” The instructions in the subpoena support
the circuit court’s finding that petitioner was specifically named in the subpoena, as the
instructions specifically name petitioner as a party who must comply with those instructions. We
have previously noted that the rules of civil procedure are not applicable to subpoena
enforcement proceedings at the investigative stage. See State ex rel. McGraw v. Bloom, Appeal
35716 (W.Va. Supreme Court, February 17, 2011) (memorandum decision). On the face of the
subpoena, it is clearly applicable to petitioner. Therefore, we find no error in the circuit court’s
finding that Arrow was a proper party to this subpoena.
Petitioner’s third assignment of error is that the circuit court erred in finding that GA
Financial was properly served with the investigative subpoena. Petitioner argues that it was the
Attorney General’s burden to prove that the investigative subpoena was procedurally proper. The
circuit court acknowledged that there was no proof that the subpoena was delivered to GA
Financial. Petitioner, therefore, argues that the circuit court failed to take into account that
petitioner’s contractual obligations as “managing agent and servicer” under the servicing
agreement did not include acting as GA Financial’s agent for service of process, nor could the
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servicing agreement be construed in that manner. Petitioner contends that GA Financial did not
waive its defense of lack of process because there was no proceeding in which it could have
waived the same. Petitioner asserts that the Attorney General issued the subpoena outside the
context of a civil action or formal agency proceeding, and the defenses of waiver and estoppel
exist only in the context of civil actions, agency proceedings, and the like, where context has
made a person or entity aware of their rights and the need to either relinquish them or proceed at
their peril for fear that they may unknowingly forgo them. Petitioner claims both it and GA
Financial voluntarily provided the Attorney General with certain documents but that they had no
forum in which to waive any defense to enforcement.
The investigative subpoena was served upon the WVSOS on March 19, 2010, for
delivery to GA Financial through its registered agent, and the subpoena was sent by the WVSOS
by certified mail, return receipt requested, to GA Financial on that same date. While there is no
record that GA Financial received the subpoena mailed by the WVSOS, there is no dispute that
GA Financial’s counsel filed a response to the subpoena through its local counsel less than thirty
days after the subpoena was sent by the WVSOS. GA Financial’s response included general
objections to that subpoena and limited documents and information responsive to the same.
Therefore, it is clear that GA Financial promptly received the subpoena. Under the specific facts
of this case, we find that the service of the subpoena upon GA Financial, a non-party to this
appeal, is moot. Further, we note that petitioner and GA Financial could have challenged the
investigative subpoena in circuit court if they believed they had grounds to do so. See Feathers v.
W.Va. Bd. of Med., 211 W.Va. 96, 101, 562 S.E.2d 488, 493 (2001).1
Petitioner’s final assignment of error is that the circuit court erred in finding that the
Attorney General issued the investigative subpoena for a legislatively authorized purpose.
Petitioner argues that the claims alleged and relief sought in the petition exceeded the scope of
the request to enforce an investigative subpoena. It contends that when the Attorney General
filed his petition in this case, he had already concluded that GA Financial had violated the law.
Petitioner asserts that the Attorney General’s authority ended when he made the determination
that an act or a violation of the law had been committed. West Virginia Code § 46A-7-104
provides the Attorney General with the authority to issue investigative subpoenas. That statute
further permits the Attorney General to apply to the circuit court for an order compelling
compliance if a person, without lawful excuse to obey a subpoena, fails to obey a subpoena. Id.;
See Syl. Pt. 1, Cavalry, 232 W.Va. at 327, 752 S.E.2d at 358. We recently determined that
“[w]hen the Attorney General files a cause of action against a person or entity that is subject to
an investigative subpoena, the Attorney General’s subpoena authority ends as to those matters
that form the basis of the complaint’s allegations . . . .” Syl. Pt. 2, in part, id. However, no such
1
We made clear in State ex rel. Hoover v. Berger that an administrative subpoena
duces tecum is not self-executing, but is a direction to produce documents subject
to judicial review and enforcement. Thus, the subject or target of an
administrative subpoena duces tecum may challenge the subpoena before yielding
the information sought. . . .
Feathers, 211 W.Va. at 101, 562 S.E.2d at 493 (citing State ex rel. Hoover v. Berger, 199 W.Va.
12, 483 S.E.2d 12 (1996)).
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complaint has been filed in the instant case. The only action filed to date is the petition to the
circuit court seeking compliance with the investigative subpoena, as specifically permitted and
authorized by statute.2 Therefore, we find that the circuit court did not err in finding that the
investigative subpoena was issued for a legislative purpose.
For the foregoing reasons, we affirm.
Affirmed.
ISSUED: May 15, 2015
CONCURRED IN BY:
Chief Justice Margaret L. Workman
Justice Robin Jean Davis
Justice Brent D. Benjamin
Justice Menis E. Ketchum
Justice Allen H. Loughry II
2
While the request for relief included injunctive relief, the circuit court ordered that GA
Financial and petitioner fully comply with the Attorney General’s investigative subpoena within
thirty days of the entry of its order. The circuit court did not, however, enjoin petitioner or GA
Financial from debt collection activities. Therefore, we will not address that issue.
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