Penny Arneson v. Gary Nordlund

The Court ofAppeals
of the DIVISION I
RICHARD D. JOHNSON, One Union Square
Court Administrator/Clerk
State of Washington 600 University Street
Seattle 98101-4170
(206) 464-7750
TDD: (206)587-5505
March 30, 2015
Richard Llewelyn Jones Richard B Sanders
Kovac & Jones, PLLC Goodstein Law Group
1750 112th Ave NE Ste D151 501 S G St
Bellevue, WA, 98004-3768 Tacoma, WA, 98405-4715
rlj@kovacandjones.com rsanders@goodsteinlaw.com
Brian Matthew King Gary Michael Abolofia
Davies Pearson PC Attorney at Law
920 Fawcett 3518 142nd PINE
PO Box 1657 Bellevue, WA, 98007-3232
Tacoma, WA, 98401-1657 gma_law@hotmail.com
bking@dpearson.com
Ingrid Linnea Daun McLeod
Davies Pearson, P.C.
PO Box 1657
Tacoma, WA, 98401-1657
imcleod@dpearson.com
CASE #: 71148-2-1
Penny Arneson. Appellant v. Gary Nordlund. Respondent
King County, Cause No. 12-2-01170-2.SEA
Counsel:
Enclosed is a copy of the opinion filed in the above-referenced appeal which states in part:
"Affirmed in part, reversed in part, and remanded."
Counsel may file a motion for reconsideration within 20 days of filing this opinion pursuant to
RAP 12.4(b). If counsel does not wish to file a motion for reconsideration but does wish to
seek review by the Supreme Court, RAP 13.4(a) provides that if no motion for reconsideration
is made, a petition for review must be filed in this court within 30 days. The Supreme Court
has determined that a filing fee of $200 is required.
In accordance with RAP 14.4(a), a claim for costs by the prevailing party must be supported by
a cost bill filed and served within ten days after the filing of this opinion, or claim for costs will
be deemed waived.
Page 1 of 2
Should counsel desire the opinion to be published by the Reporter of Decisions, a motion to
publish should be served and filed within 20 days of the date of filing the opinion, as provided
by RAP 12.3(e).
Sincerely,
Richard D. Johnson
Court Administrator/Clerk
jh
Enclosure
c: The Honorable Richard Eadie
71148-2-1
Page 2 of 2
in! i~ 119 Wn.2d 423, 428, 833 P.2d 375 (1992). These regulations were contrary to
the plain meaning of the statute as amended and, therefore, were invalid. Unsurprisingly, the
agency changed tack soon thereafter, and regulations that became effective in 2010 reflect the
general licensing requirement dictated by the 2008 legislative amendments.
In the 2009 regulations, the agency also improperly modified the CLA by limiting the
definition of "borrower" to "any natural person." See former WAC 208-620-010 (2009). However,
by defining "borrower" as "any person ..." and "person" to include "individuals, partnerships,
associations, . . . trusts, corporations, and all other legal entities," RCW 31.04.015, the legislature
had made the meaning of borrower plain. Accordingly, the agency was without authority to
interpret the statute to mean otherwise. Again, unsurprisingly, the agency has since changed this
definition and it is no longer limited to natural persons. See former WAC 208-620-011 (2014).
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Former RCW 31.04.025 (2008). There was also an exception for retail
installment contracts made under the authority of chapter 63.14 RCW. See
former RCW 31.04.025 (2008).
Thus, when the Aldente loan was made, anyone in the business of loaning
money who did not qualify for one of the exceptions listed in the statute was
required to hold a CLA license. Given that there is no dispute that Aldente did
not hold a license at the time it made the relevant loan to the Trust, the sole
remaining question is whether Aldente was engaged in the business of making
qualifying loans at the time.
The CLA was amended once again prior to the January 15, 2010
Nordlund loan. These amendments changed the statute in two material ways.
First, the interplay between RCW 31.04.025 and RCW 31.04.035 was made
explicit—specifically, that RCW 31.04.025 lists exceptions to the general
licensing requirement contained in RCW 31.04.035. The amended statute
provided:
No person may engage in the business of making secured or
unsecured loans of money, credit, or things in action withoutfirst
obtaining and maintaining a license in accordance with this chapter,
except those exempt under RCW 31.04.025.
Former RCW 31.04.035 (2009). Thus, the only entities exempted from the CLA
licensing requirement were those exempted by RCW 31.04.025.
RCW 31.04.025 was also amended. Those entities that had been exempt
under the previous iteration ofthe statute remained exempt and new exemptions
were added. These included an exemption for: "[a]ny person making loans
primarily for business, commercial, or agricultural purposes, or making loans
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No. 71148-2-1/10
made to government or government agencies or instrumentalities, or to
organizations as defined in the federal truth in lending act." Former RCW
31.04.025(e) (2009).
As with Aldente, there is no dispute that Nordlund did not hold a CLA
license. However, in his case, there are two relevant questions: first, whether
Nordlund was engaged in the business of making qualifying loans, and, second,
whether the loan at issue was a consumer transaction or, as contended by
Nordlund, a business transaction.
B
Unlike the CLA, the same provisions of the usury statute apply to both of
the loans made by Aldente and Nordlund, respectively.
Interest rates above 12 percent are generally usurious: "(1) Any rate of
interest shall be legal so long as the rate of interest does not exceed ...: (a)
Twelve percent per annum." RCW 19.52.020.6
The act includes an exception for loans to certain entities, including trusts.
However, the exception does not apply to consumer transactions.
Profit and nonprofit corporations, Massachusetts trusts,
associations, trusts, general partnerships, joint ventures, limited
partnerships, and governments and governmental subdivisions,
agencies, or instrumentalities may not plead the defense of usury
nor maintain any action thereon or therefor. ..: PROVIDED,
6To be more specific, the usury act permits any rate of interest so long as it does not
exceed the higher of 12 percent or
(b) four percentage points above the equivalent coupon issue yield (as published
by the Board of Governors of the Federal Reserve System) of the average bill
rate for twenty-six week treasury bills as determined at the first bill market
auction conducted during the calendar month immediately preceding the later of
(i) the establishment of the interest rate by written agreement of the parties to the
contract, or (ii) any adjustment in the interest rate in the case of a written
agreement permitting an adjustment in the interest rate.
RCW 19.52.020(1 )(b).
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No. 71148-2-1/11
HOWEVER, That this section shall not apply to a consumer
transaction of any amount.
RCW 19.52.080 (emphasis added). Consumer transactions are "transactions
primarily for personal, family, or household purposes." RCW 19.52.080. A
consumer transaction is contrasted with a transaction "primarily for agricultural,
commercial, investment, or business purposes." RCW 19.52.080.
The effective interest rate on each of the loans is not here at issue.
Neither Aldente nor Nordlund presently disputes that the interest rate on the
loans at issue exceeded the highest rate generally permitted. Instead, the
relevant concern for each loan is whether the loan was a consumer transaction
and, thus, subject to the provisions of the usury statute, or a business transaction
and, therefore, excepted therefrom.
Ill
Both defendants prevailed on summary judgment. We review a grant of
summary judgment de novo. Lokan & Assocs., Inc. v. Am. Beef Processing,
LLC, 177 Wn. App. 490, 495, 311 P.3d 1285(2013). Summary judgment is
appropriate if there is no genuine issue of material fact and the moving party is
entitled to judgment as a matter of law. Am. Express Centurion Bank v.
Stratman, 172 Wn. App. 667, 673, 292 P.3d 128 (2012). We consider the
evidence and the reasonable inferences therefrom in the light most favorable to
the nonmoving party. Stratman, 172 Wn. App. at 673. A genuine issue of
material fact exists where reasonable minds could differ regarding the facts
controlling the outcome of the litigation. Parks v. Fink, 173 Wn. App. 366, 374,
293P.3d 1275(2013).
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No. 71148-2-1/12
"A trial court's obligation to follow the law remains the same regardless of
the arguments raised by the parties before it." State v. Quismundo. 164 Wn.2d
499, 505-06, 192 P.3d 342 (2008). It is our duty to apply the correct version of a
statute, even if that version of the statute was not cited below. Chmela v. Dep't
of Motor Vehicles. 88 Wn.2d 385, 393, 561 P.2d 1085 (1977).
Courts should not be confined by the issues framed or theories
advanced by the parties if the parties ignore the mandate of a
statute or an established precedent. A case brought before this
court should be governed by the applicable law even though the
attorneys representing the parties are unable or unwilling to argue
it.
Mavnard Inv. Co. v. McCann. 77 Wn.2d 616, 623, 465 P.2d 657 (1970); accord
In re Dependency of G.C.B.. 73 Wn. App. 708, 717, 870 P.2d 1037 (1994)
("Although neither party brought this statute to our attention, it is the duty of an
appellate court to apply a dispositive statute to the undisputed facts of a case
notwithstanding the parties' failure to call the statute to the attention of the
court."). "This rule may be applied to reverse the trial court." Bitzan v. Parisi, 88
Wn.2d 116, 126, 558 P.2d 775 (1977).
A
Aldente contends that it was proper for the trial court to grant summary
judgment in its favor. This is so, it asserts, because the "loan transaction upon
which this complaint was brought was an exempt transaction under the [CLA]."
Specifically, relying on an inapplicable version of the CLA, Aldente contends that
its loan was exempt as a transaction with a business or commercial purpose.
However, as set forth above, there was no such exception to the CLA licensing
requirement at the time of the Aldente loan. Applying the correct version of the
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CLA, we hold that summary judgment in Aldente's favor was improperly granted.
As previously explained, the question here is whether Arneson presented
sufficient evidence that Aldente was "engage[d] in the business of making
[qualifying] loans," including secured or unsecured loans of money. There is
evidence in the record that Aldente made at least two secured cash loans during
this time, including the loan herein at issue.7 This evidence supports at least an
inference that Aldente was, in fact, in the business of making qualifying loans.
Thus, Arneson presented sufficient evidence to create an issue of material fact
and summary judgment in Aldente's favor was improper.89
B
As with Aldente, Nordlund contends that summary judgment was properly
granted in his favor. This is so, he asserts, because the loan was exempt from
both the CLA and the usury act because the transaction had a business purpose.
We disagree.
As set forth above, at the time the Nordlund loan was made, lenders
making loans for business or commercial purposes were exempt from the CLA.
7 The other was made in March 2009. Arneson does not allege any statutory violations
arising from that loan transaction.
8 As a violation of the CLA also constitutes a per se violation of the CPA, RCW
31.04.208, the trial court's dismissal of both the CLA claim and the CPA claim is reversed.
9Aldente correctly notes that Arneson's amended complaint did not plead a cause of
action againstAldente for violation of the usury act. Furthermore, although Arneson did plead a
CPA claim against Aldente, and a violation of the usury act can constitute a violation of the CPA,
RCW 19.52.036, Arneson's amended complaint did not assert such a connection. Similarly,
nothing in Arneson's pleadings submitted in opposition to Aldente's summary judgment motion
contended that Arneson's CPA claim against Aldente was predicated upon a claimed violation of
the usury act. Instead, the CLA was the focus of each party's briefing.
Thus, although the parties argue at length in their appellate briefing concerning whether
the Aldente loan at issue was (or was not) made for a business purpose, that issue is not properly
before us. Although thiswould be an appropriate inquiry had a usury act violation been alleged,
no such allegation was pleaded. Moreover, as we have discussed, an exemption for business or
commercial loans was not included in the version of the CLA in effect at the time the challenged
Aldente loan was made.
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Similarly, loans with a business or commercial purpose were exempt from the
usury statute. However, both the CLA and the usury act apply to loans made for
primarily personal, family, or household purposes (consumer transactions).
Thus, Arneson's CLA and usury act claims against Nordlund10 converge on a
single issue—whether the purpose of the loan was consumer or business.
Summary judgment in Nordlund's favor was proper only ifthere was no genuine
dispute as to whether the loan was for a business purpose.
A loan's purpose "is principally established by the representations the
borrower makes to the lender at the time the loan is procured." Brown v. Giqer,
111 Wn.2d 76, 82, 757 P.2d 523 (1988); accord Jansen v. Nu-West, Inc.. 102
Wn. App. 432, 439, 6 P.3d 98 (2000). "The issue is a factual one to be answered
after examining the circumstances surrounding the transaction." Castronuevo v.
Gen. Acceptance Corp., 79 Wn. App. 747, 751-52, 905 P.2d 387 (1995). "The
lender's purpose for the loan, which almost always is a business purpose, is
irrelevant." Aetna Fin. Co. v. Darwin. 38 Wn. App. 921, 928, 691 P.2d 581(1984). "[T]he burden is on the lender to show the business exception applies."
Marashi v. Lannen, 55 Wn. App. 820, 823, 780 P.2d 1341 (1989); see also
Soarkman & McLean Income Fund v. Wald, 10 Wn. App. 765, 768, 520 P.2d 173(1974).
"Washington cases consistently have noted the importance of objective
indications of purpose in determining the applicability of the 'business purpose'
exemption." Brown, 111 Wn.2d at 82. Courts "focus on the purpose the
10 Unlike Aldente, Nordlund does not dispute that both CLA and usury act claims were
asserted against him.
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No. 71148-2-1/15
borrower actually represented at the time, not what was written on the
application." Jansen. 102 Wn. App. at 439-40. "[W]hen other representations of
the borrowers are inconclusive, written statements in the loan documents may be
dispositive." Marashi. 55 Wn. App. at 824. However, other evidence may
contradict the written representations, thus creating a factual question for the trier
of fact. Jansen. 102 Wn. App. at 440. A direct conflict in the evidence on the
issue of the loan's purpose creates an issue for the trier of fact. Marashi. 55 Wn.
App. at 824.
"Determination of the purpose is for the jury, and the question of whether
that purpose constitutes a business purpose is a question of law to be decided by
the court." Marashi. 55 Wn. App. at 824 n.3. Put differently, while "[a] jury
decides the factual question of what the parties understood the funds were going
to be spent on," it is for the courtto "decide as a matter of law whetherthe[]
proposed expenditures constitute business purposes." Jansen. 102 Wn. App. at
441.
Moreover, the purpose of a given loan transaction is not determined by
what type of entity the borrower happens to be. Thus, in Paulman v. Filtercorp.
Inc., 127 Wn.2d 387, 899 P.2d 1259 (1995), our Supreme Court treated the
purpose of a loan to a for-profit corporate entity as presenting a fact question.
The court noted that the consumer loan exemption "represents a calculated
legislative decision not to afford the protection of the usury laws to either a
corporation or a natural person who borrows money for business purposes."
Paulman, 127 Wn.2d at 392. The court's analysis recognizes that non-natural
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No. 71148-2-1/16
"persons" may have a personal or consumer purpose in taking out a loan. Thus,
it is possible for a trust to do so. Additionally, the fact that entities other than
natural persons, by their nature, must engage in loan transactions through
representatives does not alter the inquiry. We look to objective indications of the
borrower's purpose, as manifested by those acting on the borrower's behalf.
Here, Nordlund presented evidence supporting his assertion that the loan
transaction had a business purpose. In particular, he points to the following
statement in the promissory note: "Maker represents and warrants to Holder that
the sums represented by this Note are being used for business, investment or
commercial purposes, and not for personal, family or household purposes." This
statement was separately initialed by Arneson and Sweet as co-trustees.
However, Arneson presented evidence to the contrary, supporting her
assertion that the loan had a consumer purpose. First, Arneson points to a
document entitled "Private Money Term Sheet," which was signed by Nordlund.
This document must have been created before the terms of the promissory note
were finalized, because it includes a notation to include the business purpose
term in the promissory note. The document also includes the following statement
indicating that Nordlund was aware of the family court proceedings going on at
the time: "Mr. Sweet is allowed to pull $65,000 in cash to him. Mrs. Sweet is
required by court order to sign the loan documents or the court will sign for her."
Additionally, it includes the following notes regarding how some of the loan
proceeds were to be distributed: "Other Items- Back taxes of approximately
$19,900 will be paid from proceeds."
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No. 71148-2-1/17
Second, Arneson points to the HUD-I settlement statement, which
demonstrates that a portion of the loan proceeds were to be used for consumer
purposes. The list of individuals to receive disbursements from the loan
proceeds included Sweet's attorneys from the ongoing family law and criminal
cases and the family law parenting evaluator. Arneson contends that the
settlement statement would have been completed by and present at the loan
closing. Additionally, Arneson asserts, Nordlund would have approved these
disbursements through escrow instructions. The private money term sheet and
the HUD-I settlement statement tend to prove that Nordlund had direct
knowledge of the consumer purpose of the loan.
Third, Arneson points to evidence that Nordlund's agent, Mark Flynn,11
knew of the consumer purpose of the loan. The fact that Flynn made a
declaration that was submitted in the family law case leads to an inference that
he was aware of the family court's involvement in the loans, including the court's
limitations on how the loan proceeds were to be used. As an agent's knowledge
is generally imputed to the principal if that knowledge is relevant to the agency
relationship, at least for the purpose of Nordlund's summary judgment motion,
Flynn's apparent knowledge of the purpose of the loan must be imputed to
Nordlund. See Kelsev Lane Homeowners Ass'n v. Kelsev Lane Co.. 125 Wn.
App. 227, 235, 103 P.3d 1256 (2005).
Because the burden of persuasion is ultimately on Nordlund to show that
the loan transaction had a business purpose and because there is a fact question
11 Nordlund does not dispute this relationship in his appellate briefing.
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No. 71148-2-1/18
as to whether this was the case, summary judgment should not have been
granted.
IV
Arneson contends that the trial court erred in concluding that she had no
standing to bring claims against Aldente and Nordlund on her own behalf and
thus dismissing her individual claims against them. This is so, Arneson asserts,
because she was the "true borrower" on both of the loans. We disagree.
It is undisputed that Arneson and Sweet chose to create the Trust during
their lifetimes and to use the Trust to hold title to various assets. It is undisputed
that third party sellers conveyed the Property directly into the Trust. It is
undisputed that, with the approval of the court in their dissolution matter and with
the apparent guidance of their legal counsel, the Trust entered into the loan
transactions with Aldente and Nordlund. It is undisputed that Arneson and Sweet
made the promissory notes to Aldente and Nordlund and supporting deeds of
trust solely in their capacities as co-trustees of the Trust. It is undisputed that
neither Arneson nor Sweet signed any loan document regarding the Trust's
transaction with Nordlund in their individual capacities. It is also undisputed that
Arneson and Sweet signed loan documents regarding the Trust's transaction with
Aldente in their individual capacities only as guarantors.
Nevertheless, Arneson urges us to conclude that she was the "true
borrower" on the loans. Arneson purports to find the "true borrower" concept in
McGovern v. Smith. 59 Wn. App. 721, 801 P.2d 250 (1990). In that case, the
borrower, Jack McGovern, signed a loan agreement that contained an express
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No. 71148-2-1/19
representation and warranty that he would use the loan proceeds "solely for
business or commercial purposes." McGovern. 59 Wn. App. at 726. McGovern's
aunts, the Marinos, signed a deed of trust securing his loan and, along with
McGovern, they signed a promissory note. But the Marinos did not sign the loan
agreement. McGovern. 59 Wn. App. at 726-27. After McGovern defaulted on
the loan and the lender initiated foreclosure proceedings on the deed of trust,
McGovern and the Marinos sought injunctive relief and asserted a claim of usury.
McGovern. 59 Wn. App. at 728. The lender responded by arguing that the loan
transaction was exempt from the usury statute, as it was for a business or
commercial purpose and not for a consumer or household purpose. McGovern.
59 Wn. App. at 729. The court held that the Marinos were not "borrowers" for
purposes of determining whether the business exemption from the usury statute
applied because "[t]hey were not liable for any cash payments, and [the lender's]
sole recourse against the Marinos was to foreclose upon the real estate."
McGovern. 59 Wn. App. at 735. Accordingly, the court only looked to
McGovern's purpose in determining whether the business exemption from the
usury statute applied. McGovern. 59 Wn. App. at 735.
Arneson contends that McGovern stands for one specific and one general
proposition relevant to this case. The specific proposition urged is that "one need
not sign the note to be [the] actual borrower." Appellant's Br. at 27. However,
the facts of McGovern do not sustain this proposition. The actual borrower
therein, McGovern, did, in fact, sign the note. Similarly, the actual borrower
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No. 71148-2-1/20
herein, the Trust—through its legal representatives, Arneson and Sweet—signed
the loan documents.
The general proposition urged is that courts "prefer[] substance over form"
when it comes to the usury statute. Appellant's Reply Br. at 12. The implication
of the proposition is that, even though Arneson and Sweet made the strategic
economic decision to hold certain property in trust, appointed themselves co
trustees of the trust they created, then, as co-trustees, engaged in loan
transactions on behalf of the Trust, using trust property as security on the loans,
we should hold that Arneson and Sweet—and not the Trust—were the true
borrowers on the loans. We will do no such thing. Having made the conscious
decision to place the 6708 Tolt Highlands property in trust, Arneson must live
with the economic impact of that decision—both when it is of benefit to her and
otherwise.
It is clear from both loan agreements that the Trust was the borrower, not
Arneson. Thus, the trial court did not err by dismissing Arneson's individual
claims based upon her lack of standing.
V
As he does not substantially prevail on appeal, Nordlund's request for an
award of attorney fees is denied.12
The trial court's orders on summary judgment in favor of Aldente and
Nordlund and against the Trust are reversed, as is the judgment entered in favor
12 The parties have not briefed the effect of Nordlund prevailing on appeal against only
Arneson. The trial court's award of attorney fees in favor of Nordlund cannot survive today's
decision. On remand, the parties may litigate whether Nordlund has any claim for an award of
attorney fees as against Arneson individually.
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No. 71148-2-1/21
of Nordlund, and the cause is remanded to the trial court for further proceedings
consistent with this opinion. The trial court's orders dismissing Arneson's
individual claims are affirmed.
Affirmed in part, reversed in part, and remanded.
We concur: ^=r^
21