BANK v. HART

• Decision Date: 14 April 2011
• Docket Number: CIV. NO. 10-cv-15
• Parties: FLAGSTAR BANK, FSB, Plaintiff, v. ANGELIQUE R. HART Defendant.
• Court: U.S. District Court — Virgin Islands

FLAGSTAR BANK, FSB, Plaintiff,

v.ANGELIQUE R. HART Defendant.

CIV. NO. 10-cv-15

DISTRICT COURT OF THE VIRGIN ISLANDS

DIVISION OF ST. CROIX

Dated: April 14, 2011

MEMORANDUM OPINION AND ORDER

Finch, Senior Judge

THIS MATTER is before the Court on the motions of plaintiff Flagstar Bank, FSB ("Flagstar") for summary judgment. In its first motion [Doc. #37], Flagstar contends that defendant Angelique Hart ("Hart") has defaulted on the terms of a promissory note secured by a mortgage on real property and, as holder of the note, seeks to foreclose on the subject property. Hart opposes the motion, asserting that Flagstar lacks capacity to bring suit because it failed to pay franchise taxes. Also under consideration is Flagstar's motion for summary judgment against Hart's counter-claims [Doc. #53]. Hart asserts that Flagstar has violated the Truth in Lending Act and breached its duty of good faith and fair dealing in transactions involving the subject debt of this lawsuit.

I. Background

On June 23, 2008, defendant Hart executed and delivered to Allied Home Mortgage Corporation a promissory note (the "Note") obligating her to pay the principal amount of $207,075.00, together with interest at the rate of 6.735 per annum. (PI. Statement of Undisputed Facts ¶ 3 (Doc. #39)). To secure payment of the Note, Hart granted to Allied and Mortgage Electronic Registration Systems, Inc., as a nominee for Allied ("MERS") a first priority mortgage dated June 23, 2008 over property to which she was a titleholder, described as:

Plot No. 508 (0.2974 U.S. acres) of Estate Work and Rest, Queen Quarter, St. Croix, U.S. Virgin Islands, as shown on OLG Drawing No. 4624 dated July 20, 1990.

(Id. ¶¶ 2, 6.)

Pursuant to the terms of the Note, payments were to be made by equal consecutive monthly installments of $1,291.88 beginning August 1, 2008 until all amounts are fully paid, but no later than July 1, 2038. (Id. ¶¶ 4.) On or about August 1, 2009, Hart defaulted under the terms and conditions of the Note, in that monthly installments of principal and interest became due and were unpaid. (Id. ¶ 7.)¹ Flagstar gave notice of default to Hart by correspondence dated September 18, 2009 and addressed to Hart at the addresses last given to Flagstar, advising her that failure to cure the default would result in acceleration of the debt and foreclosure of the mortgage lien. (Id. ¶ 9; Decl. of Debts Due, ¶ 9; Compl. Ex. D.)² On or about March 3, 2010, MERS assigned its entire interest in the subject property to Flagstar. (Id. ¶ 10.) To date, the default has not been cured and Hart remains in default under the terms of the Note and Mortgage. (Id. ¶¶ 11-12.) Pursuant to the terms of the Note, Flagstar has elected that the whole principal sum with all unpaid accrued interest shall be immediately due and payable. (Id. } 13.) As of February 1, 2011, there is due and owing to Flagstar from Hart the principal sum of $204,692.82, plus accrued interest from July 1, 2009 to February 1, 2011 and related costs and fees. (Id. \ 14; Def. Counterstatement of Facts ¶ 14.)

Hart acknowledges that she is in default under the terms of the Note and Mortgage, but contends that Flagstar lacks capacity to maintain this foreclosure action because it has failed to pay franchise taxes in the Virgin Islands as required by 13 V.I.C. § 533(a). Hart also brings two counterclaims against Flagstar. The first alleges that Flagstar violated the Truth in Lending Act ("TILA") by improperly disclosing finance charges, the amount financed and the applicable percentage rate. The second alleges that Flagstar breached its duty of good faith and fair dealing by refusing to accept partial payments from Hart and for making the loan with the intent to foreclose, in violation of 9 V.I.C. § 374(a)(6).

II. Standard of Review

"Summary judgment is proper where the pleadings, depositions, answers to interrogatories, admissions, and affidavits show there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Nicini v. Morra, 212 F.3d 798, 805-806 (3d Cir. 2000) (citing Fed.R.Civ.P. 56(c)). A factual dispute is deemed genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In reviewing a motion for summary judgment, the Court must view the record in the light most favorable to the nonmoving party and draw all reasonable inferences in that party's favor. Nicini, 212 F.3d at 806. "A plaintiff, however, cannot avert summary judgment by resting on the allegations in his pleadings, but rather must present evidence from which a jury could find in his favor." Sheridan v. NGK Metals Corp., 609 F.3d 239, 251, n.12 (3d Cir. 2010) (citing Ridgewood Bd. of Educ. v. N.E. ex. rel. M.E, 172 F.3d 238, 252 (3d Cir.1999)). Neither can the nonmoving party defeat summary judgment with "evidence [that] is merely colorable or not significantly probative." Monroe v. Beard, 536 F.3d 198, 207 (3d Cir. 2008) (citation omitted). See also Acumed LLC v. Advanced Surgical Services, Inc., 561 F.3d 199, 228 (3d Cir. 2009) ("speculation and conjecture may not defeat a motion for summary judgment") (citation omitted).

III. Discussion

a. Applicability of 13 V.I.C. § 533(a) to Flagstar

Section 533(a) of Title 13 of the Virgin Islands Code provides that"[n]o corporation may commence or maintain any action in any court if it has not paid its annual franchise tax last due." It is undisputed that Flagstar has not paid franchise taxes in the Virgin Islands. However, the parties disagree as to whether that fact precludes the instant lawsuit. Flagstar argues that it is exempt under § 535 of title 13 from paying a franchise tax. Section 535 provides as follows:

This chapter shall not apply to banks, foreign banks which have branches established in the United States Virgin Islands, and national banking associations, as those institutions are defined by section 1 of Title 9, and to domestic corporations organized for religious, fraternal, scientific, benevolent, social, charitable, or educational purposes, or to foreign corporations organized for like purposes, when not engaged in the United States Virgin Islands in the loaning of money or the conducting of any other business pursuits for profit.

13 V.I.C. § 535.

Plaintiff's position is that § 535 exempts all banks, foreign banks with branches in the USVI and national banking associations from paying a franchise tax in the Virgin Islands. As a Michigan-based domestic corporation, Flagstar contends that it meets the definition of a "foreign bank" under title 9, § 1 of the Virgin Islands Code. Section 1 defines a foreign bank as "a corporation organized for the purpose of engaging in banking business under the laws of another territory or state, or of a foreign country, operating a bank at the place of its incorporation." Hart does not dispute that Flagstar is a foreign bank but insists, focusing on the last portion of § 535, that the statute only exempts such institutions when they are "not engaged in the United States Virgin Islands in the loaning of money or the conducting of any other business pursuits for profit."

When interpreting a statute, the Court looks first to the statute's plain language. In re Visteon Corp., 612 F.3d 210, 219 (3d Cir. 2010). However, "[t]he construction of statutory language often turns on context." FCC v. AT & T Inc., 131 S.Ct. 1177, 1182 (2011). In this case, context is key because there is some ambiguity as to whether the phrase "not engaged in the United States Virgin Islands in the loaning of money or the conducting of any other business pursuits for profit" modifies a portion of the text, or the entire text that comes before it. Indeed, grammatically speaking, it is possible to read the statute either way.³ In Hart's reading, the phrase applies to the "banks" as well as the domestic and foreign corporations delineated in § 535. Flagstar contends that the phrase beginning "not engaged" applies only to the items following the conjunction "and," i.e., domestic and foreign corporations.

The issue is resolved by calling on another principle of statutory interpretation—the principle that counsels the Court to avoid "statutory interpretations 'which would produce absurd results . . . if alternative interpretations consistent with the legislative purpose are available.'" United States v. Abbott, 574 F.3d 203, 210-11 (3d Cir. 2009) (quoting 211 First Merchants Acceptance Corp. v. J.C. Bradford & Co, 198 F.3d 394, 403 (3d Cir.1999)).

According to Hart's reading of § 535, the legislators in the Virgin Islands intended to exempt banks and national banking associations from the franchise tax, when those entities are "not engaged in the United States Virgin Islands in the loaning of money or the conducting of any other business pursuits for profit." However, the Court cannot conceive of a situation in which the tax could apply to any of the banks mentioned in § 535 if they were not conducting some business for profit in the Virgin Islands. In other words, the exemption would be completely meaningless, as it would apply only to those who were not subject to the tax in the first instance. Moreover, the Court cannot imagine a scenario where a bank would be operating in the Virgin Islands as a nonprofit organization, i.e., they were not engaged in money-lending or pursuing profit of any kind.⁴ On the other hand, common sense counsels that domestic or foreign corporations "organized for religious, fraternal, scientific, benevolent, social, charitable, or educational purposes," ordinarily function as nonprofit entities but also might become involved in business pursuits that would render the exemption void. The legislative history, though limited, also supports this reading of the statute. Prior to 1959, § 535 contained no reference to banks, but the remaining text was identical,...