Award Against Quicken Loans Reversed, But Finding of Unconscionable Loan Upheld
Quicken Loans Inc. v. Brown, W.Va., No. 11-0910, 11/21/12
- Key Holding: West Virginia Supreme Court reverses punitive damages award, principal forfeiture ruling against Quicken Loans.
- Potential Impact: Case goes back to trial court for more analysis, because appeals court agreed loan is unconscionable.
By Chris Bruce
The West Virginia Supreme Court has reversed a $2.1 million punitive damages award and a principal forfeiture ruling against Quicken Loans Inc., but upheld a trial court holding that a mortgage loan was unconscionable under the West Virginia Consumer Credit and Protection Act (Quicken Loans Inc. v. Brown, W.Va., No. 11-0910, 11/21/12).
The Nov. 21 decision, which marks a major test of whether West Virginia courts can void unconscionable loans, arose after a trial court held Quicken Loans misrepresented the terms, fees, and rates of a $144,800 loan to Lourie Brown, a single mother of three who had medical problems, a poor credit history, and earned $14.36 an hour.
Among other points, the loan–which also was made on the basis of flawed disclosures and an inflated appraisal–featured a $107,000 balloon payment due at the end of the loan period. The balloon payment was almost twice the fair market value of Brown’s property.
The trial court held the loan was unconscionable. It ordered restitution of $17,476 in payments by Brown, barred Quicken Loans from collecting any future payments, and did not order Brown to repay the loan principal, which had the effect of canceling Brown’s loan obligation.
Later, the trial court awarded Brown $596,199 in legal fees and litigation costs, and punitive damages in the amount of $2,168,868.75.
‘Not a Close Case,’ Court Says
Quicken Loans did not appeal the trial court’s holding that it engaged in unfair methods of competition and unfair or deceptive acts or practices, but did appeal on other grounds.
Although Quicken Loans argued the loan was not unconscionable because Brown took a sizeable cash-out, bought a car and paid off other debt, the West Virginia Supreme Court disagreed and affirmed.
“This is not a close case,” Judge Thomas H. McHugh said in a 68-page decision.
However, the court reversed key portions of the trial court ruling. Although trial courts can refuse to enforce certain loans, the court said it lacked authority to cancel Brown’s loan obligation. The court also said forfeiture of loan principal is not a remedy available in equity under the West Virginia Consumer Credit and Protection Act.
The West Virginia Supreme Court also reversed the punitive damages award, saying the trial court violated due process by failing to analyze the award under a set of factors set out in Garnes v. Fleming Landfill Inc., 186 W.Va. 656, 413 S.E.2d 897 (1991).
“Because the circuit court failed to conduct a proper analysis under Garnes, such an analysis must be conducted upon remand,” the West Virginia Supreme Court said.
The court also upheld the trial court’s ruling that legal fees can be considered as compensatory damages for the purposes of calculating punitive damages.
The court also allowed Quicken Loans to credit part of a settlement with an appraiser toward the compensatory damages award.
More Analysis Ahead on Remand
Quicken Loans was represented by Thomas R. Goodwin and Johnny M. Knisely, II, of Goodwin & Goodwin, Charleston, W. Va. Goodwin & Goodwin attorneys did not immediately respond to a request for comment.
Brown was represented by James G. Bordas Jr. and Jason E. Causey of Bordas & Bordas, Wheeling, W.Va. In a Nov. 26 statement to BNA, Bordas, who argued the case before the West Virginia Supreme Court, noted the portions of the trial court ruling that were upheld on appeal, saying the forthcoming analysis of the punitive award is the next step.
“We are pleased that the Supreme Court has agreed that it was proven by clear and convincing evidence at trial that Quicken committed fraud with respect to the loan that it issued to the Brown family. We also consider it to be a significant victory for the Browns and consumers throughout the State of West Virginia that the Supreme Court found that the attorneys fees that the Browns were awarded as a result of the tremendous amount of work done by their attorneys can be considered as part of the ratio when analyzing the appropriate amount of punitive damages to be awarded. We look forward to the Circuit Court providing a more detailed Order that sets forth the analysis that was used to award over $2 million in punitive damages,” Bordas said.
Key Case, Consumer Advocates Say
West Virginia Attorney General Darrell McGraw and consumer advocates filed a brief in the case, urging the court to affirm the trial court’s holding that the loan is void.
According to the brief, thousands of West Virginia consumers will be affected by the case.
“Without voidance as a remedy, these victimized West Virginians would not be able to seek relief from the foreclosures that result from predatory lenders’ illegal activities,” said the brief by the West Virginia Attorney General’s Office, Mountain State Justice Inc., the West Virginia Association of Justice, and the National Association of Consumer Advocates.
A spokesman for Intuit Inc., which uses the Quicken trademark for several financial products, told BNA Nov. 26 that the firm sold Quicken Loans in 2002. Quicken Loans licenses the Quicken Loans trademark. BNA was unable to reach Quicken Loans for a comment on the ruling.
By Chris Bruce
The ruling can be viewed at http://about.bloomberg.com/blaw2/files/2013/01/bquicken.pdf.