JPMorgan Chase Bank v. Daniel Johnson

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 12-2370
___________________________
JPMorgan Chase Bank, N.A.
lllllllllllllllllllllAppellee
v.
Daniel L. Johnson; Susan D. Johnson
lllllllllllllllllllllAppellants
------------------------------
JPMorgan Chase Bank, N.A.
lllllllllllllllllllllAppellee
v.
Tracy Lea Estes
lllllllllllllllllllllAppellant
------------------------------
JPMorgan Chase Bank, N.A.
lllllllllllllllllllllAppellee
v.
Tammy Renae Peeks
lllllllllllllllllllllAppellant
___________________________
No. 12-2686
___________________________
Jere T. Jones; Teri Jones
lllllllllllllllllllll Plaintiffs - Appellants
v.
JPMorgan Chase Bank, N.A.
lllllllllllllllllllll Defendant - Appellee
___________________________
No. 12-3049
___________________________
Karen Rivera
lllllllllllllllllllll Plaintiff - Appellant
v.
JPMorgan Chase Bank, N.A.
lllllllllllllllllllll Defendant - Appellee
____________
Appeal from United States District Court
for the Eastern District of Arkansas - Jonesboro
-2-
____________
Submitted: January 15, 2013
Filed: July 9, 2013
____________
Before BYE, MELLOY, and SMITH, Circuit Judges.
____________
BYE, Circuit Judge.
In these consolidated cases, we consider whether a national banking association
chartered by the Office of the Comptroller of the Currency but not registered to do
business with the Arkansas Secretary of State or the Arkansas Bank Department may
use the non-judicial foreclosure procedure provided by the Arkansas Statutory
Foreclosure Act. Ark. Code Ann. §§ 18-50-101–18-50-117. We conclude it may and
affirm the dismissal1 of the five cases before us.
I
In Arkansas, a mortgagee ("bank") may foreclose on real property by using one
of two methods. First, it may file a complaint in Arkansas court alleging the
mortgagor ("borrower") is in default on a promissory note. If it is successful, the bank
may obtain a judgment allowing the borrower's property interest to be foreclosed and
the property sold to satisfy the borrower's debt. See Ark. Code Ann. § 18-49-103(b).
Second, the bank may use the Arkansas Statutory Foreclosure Act ("SFA"). Id. §§ 18-
50-101–18-50-117. The SFA authorizes foreclosure proceedings without judicial
supervision if, among other things, the bank properly notifies the borrower that he or
she is in default and the bank intends to foreclose on and sell the property. Id. §§ 18-
1
The Honorable J. Leon Holmes, United States District Judge for the Eastern
District of Arkansas.
-3-
50-103, 104; see Union Nat'l Bank of Ark. v. Nichols, 807 S.W.2d 36, 38 (Ark. 1991)
("The [SFA] procedure is designed to be effectuated without resorting to the state's
court system . . . .").
The Arkansas General Assembly amended the SFA in 2003. Responding to an
"emergency," it found
foreign entities not authorized to do business in the State of Arkansas are
availing themselves to [sic] the provisions of the Statutory Foreclosure
Act of 1987; that often times it is to the detriment of Arkansas citizens;
and that this act is immediately necessary because these entities should
be authorized to do business in the State of Arkansas before being able
to use the Statutory Foreclosure Act of 1987.
2003 Ark. Acts 1303 (S.B. 879). The bill added to Arkansas law the provision at issue
in this case:
No person, firm, company, association, fiduciary, or partnership, either
domestic or foreign shall avail themselves of the procedures under this
chapter unless authorized to do business in this state.
Ark. Code Ann. § 18-50-117. The provision applies if the mortgagee is a bank,
savings and loan, or mortgage company. Id. §§ 18-50-116(c), 101(5) (defining
"mortgage company").
In each of these consolidated cases, JPMorgan Chase Bank ("JPMorgan")
attempted to use the SFA to foreclose on the borrower's home. Daniel and Susan
Johnson, Tracy Estes, and Tammy Renae Peeks each filed a petition for relief under
Chapter 13 of the Bankruptcy Code to halt the statutory foreclosure. See 11 U.S.C.
§ 362. Each debtor's repayment plan listed JPMorgan as a long-term secured creditor
which was owed an arrearage of a stated figure. A debtor in a Chapter 13 case may
cure a default on a debt for the debtor's home mortgage through the plan. Id.§ 1322(b)(3). To confirm the plan and cure the default, the debtor must repay the
-4-
arrearage, the amount of which is "determined in accordance with the underlying
agreement and applicable nonbankruptcy law." Id. § 1322(e). JPMorgan filed a plan
confirmation objection in each case, arguing the debtors failed to include in their plans
the fees and costs JPMorgan had incurred in pursuing the foreclosures, and as a result,
the arrearage figure listed in the debtors' respective confirmation plans was too low.
Thus, to calculate the proper arrearage amount, the bankruptcy court had to determine
whether JPMorgan was entitled to use the SFA and claim the foreclosure fees from
its use.
The bankruptcy court held a consolidated hearing regarding JPMorgan's
objections. The parties stipulated that JPMorgan was not registered with the Arkansas
Secretary of State as an entity authorized to conduct business in Arkansas, see Ark.
Code Ann. § 4-27-1501, and was not registered with the Arkansas Bank Department
as an out-of-state bank doing business in Arkansas. See id. § 23-48-1001. The
bankruptcy court concluded this stipulation established JPMorgan was not "authorized
to do business" in Arkansas. In re Johnson, 460 B.R. 234, 238-39 (Bankr. E.D. Ark.
2011). It found JPMorgan was not in compliance with the SFA, the debtors did not
owe JPMorgan foreclosure fees and costs, and those fees and costs need not be
included in the debtors' repayment plans for their plans to be confirmed. JPMorgan
appealed.
In the fourth consolidated case, Jere T. Jones and Teri Jones filed a civil action
against JPMorgan in Arkansas court. They requested a declaratory judgment
JPMorgan was not in compliance with the SFA, as well as a temporary restraining
order (TRO) enjoining the foreclosure of their property. The Arkansas court issued
the TRO. JPMorgan then removed the case to federal court and moved for judgment
on the pleadings pursuant to Federal Rule of Civil Procedure 12(c).
In the final case, Karen Rivera sought to recover damages and restitution on
behalf of a class of persons subject to non-judicial foreclosure by JPMorgan. Her
-5-
complaint alleged, among other things, that JPMorgan's unauthorized use of the SFA
violated the Arkansas Deceptive Trade Practices Act. Ark. Code Ann. § 4-88-101 et
seq. JPMorgan moved to dismiss pursuant to Federal Rule of Civil Procedure
12(b)(6).
Because the five cases turned on the same legal issue, the district court
consolidated the three bankruptcy cases, Jones, and Rivera. After holding a hearing,
the district court issued a memorandum opinion, accompanied by separate judgments,
which reversed the bankruptcy court's decision, granted JPMorgan's motion for
judgment on the pleadings in Jones, and granted JPMorgan's motion to dismiss in
Rivera. First, the district court noted JPMorgan's stipulation was more limited than
the bankruptcy court recognized. JPMorgan stipulated only that it was not registered
to do business in Arkansas with the Secretary of State or the Bank Department. It did
not stipulate it was not authorized to do business in Arkansas as § 18-50-117 required.
Second, it reasoned a plain reading of § 18-50-117 allowed JPMorgan to acquire
authorization to do business in Arkansas pursuant to state or federal law, rather than
exclusively by state law. Third, and finally, it determined federal law authorized
JPMorgan to do business in Arkansas. Therefore, the district court concluded
JPMorgan met § 18-50-117's authorized-to-do-business requirement and could
lawfully use the non-judicial foreclosure procedure the SFA provided. The
homeowners appealed.
II
Our analysis proceeds in two parts: (1) whether an entity seeking to use the
SFA may be "authorized to do business" in Arkansas only by virtue of state
registration, or whether federal law may provide such authorization; and (2) if federal
law may provide such authorization, whether the National Bank Act ("NBA") does,
in fact, authorize JPMorgan to do business in Arkansas.
-6-
"As the second court of review in a bankruptcy appeal, we apply the same
standard of review as the District Court, reviewing the Bankruptcy Court's legal
conclusions de novo and its factual findings for clear error." In re Usery, 123 F.3d
1089, 1093 (8th Cir. 1997).2 We review a district court's grant of a motion for
judgment on the pleadings and grant of a motion to dismiss for failure to state a claim
de novo as well. Faibisch v. Univ. of Minn., 304 F.3d 797, 803 (8th Cir. 2002)
(quotation and citation omitted) (judgment on the pleadings); Detroit Gen. Retirement
Sys. v. Medtronic, Inc., 621 F.3d 800, 804 (8th Cir. 2010) (failure to state a claim).
We look to Arkansas law to decide the merits of this diversity case. See Erie
R.R. v. Tompkins, 304 U.S. 64, 78 (1938). Because the case presents a matter of first
impression in Arkansas, we must predict, as best we can, how the Arkansas Supreme
Court would decide it. See Sloan v. Motorists Mut. Ins. Co., 368 F.3d 853, 856 (8th
Cir. 2004) (citation omitted). To do so, we consider "relevant state precedent,
analogous decisions, considered dicta, and any other reliable data." HOK Sport, Inc.
v. FC Des Moines, L.C., 495 F.3d 927, 935 (8th Cir. 2007) (internal quotation and
citation omitted). "[W]e are bound by [Arkansas's] rules of statutory construction" in
our analysis. Gershman v. Am. Cas. Co. of Reading, PA, 251 F.3d 1159, 1162 (8th
Cir. 2001). In Arkansas,
[t]he basic rule of statutory construction is to give effect to the intent of
the General Assembly. In determining the meaning of a statute, the first
rule is to construe it just as it reads, giving the words their ordinary and
usually accepted meaning in common language. This court construes the
2
Each party states the district court's opinion may provide "some persuasive
weight" regarding the proper outcome. See United States v. Foust (In re Foust), 52
F.3d 766, 768 (8th Cir. 1995). This may be true when a district court reviews a
bankruptcy court's interpretation of the bankruptcy code, a federal law. Here, though,
the district court interpreted a disputed provision of state law. The Supreme Court has
made clear appellate courts must review district court interpretations of state law de
novo. Salve Regina Coll. v. Russell, 499 U.S. 225, 239 (1991).
-7-
statute so that no word is left void, superfluous, or insignificant, and
meaning and effect are given to every word in the statute if possible.
When the language of a statute is plain and unambiguous and conveys
a clear and definite meaning, there is no need to resort to rules of
statutory construction. However, this court will not give statutes a literal
interpretation if it leads to absurd consequences that are contrary to
legislative intent. This court seeks to reconcile statutory provisions to
make them consistent, harmonious, and sensible.
Mamo Transp., Inc. v. Williams, 289 S.W.3d 79, 83 (Ark. 2008) (citations omitted).
We first ask whether Ark. Code Ann. § 18-50-117 is ambiguous, for if it is not,
our analysis need go no further. Burcham v. City of Van Buren, 954 S.W.2d 266, 269
(Ark. 1997). "A statute is ambiguous where it is open to two or more constructions,
or where it is of such obscure or doubtful meaning that reasonable minds might
disagree or be uncertain as to its meaning." Yamaha Motor Corp., U.S.A. v. Richard's
Honda Yamaha, 38 S.W.3d 356, 360 (Ark. 2001). Construing Ark. Code Ann. § 18-
50-117 "just as it reads," Williams, 289 S.W.3d at 83, we initially observe the statute
means exactly what it says—an entity must be "authorized to do business" in Arkansas
to avail itself of the SFA. A requirement a bank register with a state official or state
entity is not present in the statutory language. But neither is an explicit
acknowledgment that federal law may authorize national banks to use the SFA. In
short, the statute simply does not explain what a person or organization must do to
become "authorized to do business" in Arkansas. This absence leaves reasonable
minds to speculate regarding the meaning of the statute. This uncertainty renders
§ 18-50-117 ambiguous.
When, as here, a statute is ambiguous, and again seeking to determine
legislative intent, Arkansas courts examine the whole act of which the statute is a part.
Cent. & S. Cos. v. Weiss, 3 S.W.3d 294, 298 (Ark. 1999). They also consider
"legislative history, the language, and the subject matter involved." Id. "[S]tatutes
relating to the same subject are said to be in pari materia and should be read in a
-8-
harmonious manner, if possible." Rose v. Ark. State Plant Bd., 213 S.W.3d 607, 614
(Ark. 2005). Accordingly, we examine related provisions of the SFA and other
Arkansas banking statutes to ascertain the General Assembly's intent.
Section 18-50-102(a) determines who may serve as a trustee in a non-judicial
foreclosure proceeding. As initially enacted,3 it allowed any "[b]ank or savings and
loan authorized to do business under the laws of Arkansas or those of the United
States" to be a trustee. Ark. Code Ann. § 18-50-102(a)(2) (2003) (emphasis added).
Construing § 18-50-117 to allow only state law to authorize banks to do business in
Arkansas would mean a national bank could be a trustee in a non-judicial foreclosure
without prior registration, but simultaneously could not avail itself of the benefits of
the SFA. The homeowners see no inconsistency here. We believe the homeowners
misread the statute. Section 18-50-117 requires authorization for an entity to avail
itself of "the procedures under this chapter," not just initiating a non-judicial
foreclosure. Because the appointment of a trustee is part of the "procedures"
contained in the SFA, the two provisions are inconsistent. Reading the statute in the
manner JPMorgan suggests—in other words, an entity may initiate a non-judicial
foreclosure pursuant to Arkansas law or the laws of the United States—produces this
consistency because the phrase "authorized to do business" means the same thing in
different parts of the statute. It is therefore a preferable interpretation. See Williams,
289 S.W.3d at 83.
Other Arkansas banking statutes lead to a similar conclusion. The Wingo Act
provides a foreign corporation may become authorized to transact business in
Arkansas by obtaining a certificate of authority from the Secretary of State. Ark.
Code Ann. § 4-27-1501(a). Elsewhere, the Branching Act requires an out-of-state
bank to file an application with the Arkansas Bank Commissioner before it may open
3
The General Assembly amended § 18-50-102 effective July 27, 2011, but the
amendment does not affect the outcome here.
-9-
a branch in Arkansas. Id. § 23-48-1001(a). These statutes, which contain express
state certification requirements, demonstrate the General Assembly is capable of
articulating a certification requirement when it desires one. Yet the SFA contains
none. Arkansas courts presume the General Assembly has in mind previous statutes
relating to the same subject matter when it enacts a new statute. See Cousins v.
Dennis, 767 S.W.2d 296, 298 (Ark. 1989). And when the General Assembly has
demonstrated the ability to include qualifying statutory language in a statute, but
chooses not to do so in a particular statute, Arkansas courts infer the omission was
deliberate and evidences a different legislative intent. See Bush v. State, 2 S.W.3d
761, 764 (Ark. 1999) (holding the legislature's approval of granting a defendant credit
against his sentence in a statute governing post-sentence electronic monitoring by the
Department of Corrections, but omission of that approval in a separate statute relating
to pre-trial electronic monitoring, "is evidence that the legislature did not intend for
credit to be given for electronic monitoring while a defendant is awaiting trial");
Chatelain v. Kelley, 910 S.W.2d 215, 219 (Ark. 1995) ("[T]he General Assembly
knows how to include proper terminology or exclude it in accordance with its intent
. . . ."), overruled on other grounds by Aka v. Jefferson Hosp. Ass'n, 42 S.W.3d 508(Ark. 2001); Hales v. State, 771 S.W.2d 285, 286 (Ark. 1989). Applying these
principles to the present matter, we must presume the General Assembly did not
intend to include in § 18-50-117 the exclusive state registration it has insisted upon
in other statutes.4
4
The homeowners claim, "[w]hen it passed the 2003 amendment [to the SFA],
the legislature knew what a certificate of authority meant." Appellants' Br. at 15.
Assuming this statement is true, it is of little moment. Awareness of a statutory
provision in a past statute does not suffice to require it in a present one. We also reject
the homeowners' argument the district court improperly used a more general statute,
the Wingo Act, to interpret a more specific statute, the SFA. See Ozark Gas Pipeline
Corp. v. Ark. Pub. Serv. Comm'n, 29 S.W.3d 730, 736 (Ark. 2000) ("The rule is well
settled that a general statute must yield when there is a more specific statute involving
the particular matter."). The district court did no such thing. Rather, it used the
Wingo Act simply as an example of the General Assembly's ability to communicate
its intent.
-10-
We conclude that, if it were to rule on the matter, the Arkansas Supreme Court
would hold registration with a state entity is not the exclusive means by which an
entity may be authorized to do business in Arkansas. We now consider whether
federal law authorizes JPMorgan to do business in Arkansas.
III
The district court concluded the National Bank Act ("NBA"), 12 U.S.C. § 21et seq., authorizes JPMorgan to conduct the business of banking in Arkansas. It
further determined foreclosure constitutes a banking activity. The homeowners
disagree. The NBA may allow JPMorgan to judicially foreclose in Arkansas, they
argue, but it does not permit JPMorgan to statutorily foreclose.
The NBA regulates the activities of national banks. Congress has given the
Office of the Comptroller of the Currency ("OCC") the responsibility of enforcing the
NBA and overseeing national banks' operations. Id. §§ 24, 93(a). The parties agree
JPMorgan is a national bank subject to the OCC's regulations. The NBA vests in
nationally chartered banks enumerated powers and "all such incidental powers as shall
be necessary to carry on the business of banking." Id. § 24 Seventh. The Supreme
Court has repeatedly held "federal control shields national banking from unduly
burdensome and duplicative state regulation." Watters v. Wachovia Bank, N.A., 550
U.S. 1, 11 (2007) (citing Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 10 (2003)).
Although national banks are subject to state laws of general application that do not
conflict with the NBA, Davis v. Elmira Savings Bank, 161 U.S. 275, 290 (1896), the
grants of enumerated and incidental powers are not limited by—and in fact
preempt—contrary state law. Barnett Bank of Marion Cnty., N.A. v. Nelson, 517 U.S.
25, 32 (1996).
One of the enumerated powers the NBA authorizes banks to engage in, subject
to OCC regulation, is mortgage lending. 12 U.S.C. § 371(a); see Watters, 550 U.S.
at 12. This provision, as part of an act of Congress related to the national banks,
-11-
applies to the states. 12 U.S.C. § 42. Accordingly, the NBA authorizes JPMorgan to
conduct the business of banking, including mortgage lending, in Arkansas,
notwithstanding any contrary Arkansas law.
It is also clear that the power to foreclose is incidental to the express power to
make mortgage loans. An "incidental power" is one that is "closely related to an
express power and is useful in carrying out the business of banking." First Nat'l Bank
of E. Ark. v. Taylor, 907 F.2d 775, 777 (8th Cir. 1990). Incidental powers are not
confined to activities deemed "essential" to the operations of national banks. Id.There is little doubt the power to foreclose is closely related to and useful in carrying
out the business of banking. As the district court recognized, "[t]he power to engage
in real estate lending would be rendered a nullity if national banks could not also
foreclose when the borrower defaulted." JPMorgan Chase Bank, N.A. v. Johnson, 470
B.R. 829, 835 n.4 (E.D. Ark. 2012).
The homeowners acknowledge this fact, but nevertheless argue the power to
statutorily foreclose is not incidental to the enumerated power to make mortgage
loans. This is so, they claim, because "[t]he Comptroller has never promulgated a
regulation that specifically includes the authority to use a state's statutory foreclosure
statute as an incidental power to banking business." Appellants' Br. at 25 (emphasis
removed). We cannot agree with this reasoning, for treating promulgation as a
prerequisite converts incidental powers into enumerated ones and, as such, flatly
contradicts the terms of the NBA. See 12 U.S.C. § 24 Seventh.
Finally, an OCC regulation identifies certain substantive bodies of law as "not
inconsistent with the real estate lending powers of national banks." 12 C.F.R.
§§ 34.4(b)(1) (contracts), (b)(5) (right to collect debts), (b)(6) (acquisition and transfer
of property). The homeowners contend this regulation "exclud[es] these activities as
incidental powers." Appellants' Br. at 26. Because the excluded powers of contracts,
debt collection, and property transfer are at the core of the SFA, they argue, federal
law does not allow national banks to statutorily foreclose. Again, we disagree because
-12-
the homeowners read the regulation incorrectly. Section 34.4(b) lists bodies of state
law that are not preempted by federal law, to the extent they are not inconsistent with
federal law as interpreted by the Supreme Court. The regulation does not say these
bodies of law represent powers which are not incidental to the enumerated powers
given to national banks. The homeowners confuse the two. To accept their position
would mean national banks have the express power to make mortgage loans, but in
doing so, may not enter into contracts, collect debts, or acquire and transfer property.
These severe limitations would substantially interfere with a national bank's ability to
execute an express power. Congress could hardly have intended such a result. See
Barnett Bank of Marion Cnty., 517 U.S. at 33 ("Congress would not want States to
forbid, or to impair significantly, the exercise of a power that Congress explicitly
granted.").
IV
An entity may be authorized to do business in Arkansas for SFA purposes
pursuant to either state or federal law. In JPMorgan's case, federal law provides such
authorization. The district court correctly concluded JPMorgan is authorized to do
business in Arkansas and may avail itself of the benefit of the SFA. The judgment of
the district court is affirmed.5
______________________________
5
JPMorgan also argues that § 18-50-117 violates the Dormant Commerce
Clause and is preempted by the NBA. Because we resolve the case in JPMorgan's
favor based on the statutory language itself, we do not consider these arguments.
-13-