Burris v. First Financial Corp.

• Decision Date: 20 March 1991
• Docket Number: No. 90-1677EA,90-1677EA
• Citation: 928 F.2d 797
• Parties: Mark BURRIS, Louise Grider, and Lilla Smythe, Appellants, v. FIRST FINANCIAL CORPORATION, and Home Owners Funding Corporation of America, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 797

928 F.2d 797

Mark BURRIS, Louise Grider, and Lilla Smythe, Appellants, v. FIRST FINANCIAL CORPORATION, and Home Owners Funding Corporation of America, Appellees.

No. 90-1677EA.

United States Court of Appeals Eighth Circuit.

Submitted Jan. 10, 1991.

Decided March 20, 1991.

Herman Ivester, Little Rock, Ark., for appellants.

F. John Istre, III, Waco, Tex., for appellees.

Before MAGILL, Circuit Judge, ROSS, Senior Circuit Judge and HUNTER, ^* Senior District Judge.

ELMO B. HUNTER, Senior District Judge.

This is a class action suit filed by Mark Burris, who alleged that First Financial Corporation ("FFC") and Home Owners Funding Corporation of America ("HOFCA") had charged and were charging Burris and other members of the putative class of mobile home purchasers, finance charges in excess of those permitted by Arkansas law. The Complaint was then amended to add Louise Grider and Lilla Smythe, who also purchased mobile homes and entered into retail installment contracts on form contracts prepared by FFC. Jurisdiction of the district court ¹ was invoked under 28 U.S.C. Sec. 1332 and under 28 U.S.C. Sec. 1331 for claims arising under 18 U.S.C. Sec. 1961, et seq. Jurisdiction of this Court is invoked under 28 U.S.C. Sec. 1291.

Plaintiff Mark Burris purchased a mobile home from and entered into a retail installment sales contract with Smoot Mobile Home Sales of Marmaduke, Arkansas, on May 23, 1984. The installment sales contract was on a form contract prepared by and assigned to FFC. The contract was guaranteed by the Veteran's Administration ("VA") and was subsequently transferred to HOFCA for servicing and other purposes. The contract provided for an interest rate in excess of the Arkansas usury limit.

Grider entered into a purchase agreement and retail installment sales contract with Lochridge Homes, Inc., of North Little Rock, Arkansas, on June 17, 1985. Smythe entered into a manufactured home retail installment sales contract with Crews Mobile Homes of Jacksonville, Arkansas, on September 16, 1985. These contracts were assigned to FFC, but were not guaranteed by the VA nor the Federal Housing Authority ("FHA") and were not transferred to HOFCA.

Defendants moved for summary judgment based on federal preemption and failure to state a claim. The district court granted the motions to dismiss Burris based on determinations that the Arkansas usury limit was preempted by provisions of federal law applicable to VA guaranteed loans; that such preemption had not been overridden by Arkansas' adoption of Amendment 60 to its Constitution; and that the VA guaranteed contract was not required to comply with Depository Institutions Deregulation and Monetary Control Act ("DIDMCA") provisions to qualify for federal preemption. The court dismissed the claims of Grider and Smythe as to HOFCA because HOFCA did not hold or service their contracts. The court dismissed the claims of Grider and Smythe against FFC based on a finding that the contracts complied with the provisions of DIDMCA and therefore qualified for federal preemption. 733 F.Supp. 1270. From that judgment, plaintiffs appeal. The judgment of the district court is AFFIRMED.

I.

Plaintiff Burris asserts that the district court erred in holding that Arkansas' adoption of Amendment 60 ² in 1982 did not override FHA/VA preemption provisions. The district court correctly held that Arkansas' adoption of Amendment 60 in 1982 did not override FHA/VA preemption provisions. ³ State usury laws limiting the rate of interest which may be charged on FHA insured loans are preempted by 12 U.S.C.A. Sec. 1735f-7. State usury laws limiting the rate of interest which may be charged on VA guaranteed loans are preempted by 38 U.S.C.A. Sec. 1828. ⁴ In 1980, shortly after the enactment of the FHA and VA preemption statutes, DIDMCA was enacted and codified as amended at 12 U.S.C.A. Sec. 1735f-7. DIDMCA preempts state usury laws limiting the rate of interest which may be charged on not only FHA insured and VA guaranteed loans, but also conventional loans which are "federally related." 12 C.F.R. Sec. 590.2(b).

The FHA and VA preemptions apply "to loans, mortgages, or advances made or executed in any State until the effective date (after December 21, 1979) of a provision of law of that State limiting the rate or amount of interest, discount points or other charges on any such loan, mortgage or advance." 12 U.S.C.A. Sec. 1735f-7(b). This is precisely what happened with the adoption of Amendment 60 in 1982:

The maximum lawful rate of interest on any contract entered into after the effective date hereof shall not exceed five percent (5%) per annum above the Federal Reserve Discount Rate at the time of the contract.

Ark. Const., Art. 19, Sec. 13(a)(i). Plaintiff argues that Amendment 60 says it is applicable to "any contract," but, plaintiff, in essence, ignores the remainder of Amendment 60, which states that its provisions "are not intended and shall not be deemed to supersede or otherwise invalidate any provisions of federal law applicable to loans or interest rates including loans secured by residential real property." Ark. Const., Art. 19, Sec. 13(d)(ii).

"The Court determines, given Congress' deference to states' rights to fix their own usury law, * * * that when a state reacts or raises its usury limit on a particular class of loans, it overrides the FHA and VA preemptions for that type of loan in the absence of a contrary statement." Doyle v. Southern Guaranty Corporation, 795 F.2d 907, 914 (11th Cir.1986), cert. denied, 484 U.S. 926, 108 S.Ct. 289, 98 L.Ed.2d 249 (1987). The phrase "in the absence of a contrary statement" is not contrary to the FHA preemption statutes as plaintiff contends. Arkansas specifically stated that its Amendment 60 was not intended to "supersede or otherwise invalidate any provisions of federal law applicable to loans." This provision of Amendment 60 is contrary to an intent to override FHA and VA preemptions.

In In re Lawson Square, Inc., 816 F.2d 1236, 1240 (8th Cir.1987), the court held that Amendment 60 did not override the federal preemption of interest rate limits contained in DIDMCA. The court stated that the legislature and voters of Arkansas had the opportunity to override DIDMCA when they considered Amendment 60 in 1982, but instead of reasserting a State usury limit on mortgage interest rates, that amendment included a section which specifically endorsed the federal preemption. Id. The Eighth Circuit's reasoning in this DIDMCA case is equally applicable to FHA and VA preemption statutes. Amendment 60 expressly contains a statement "contrary" to the overriding of the FHA and VA preemptions, thus Arkansas' adoption of Amendment 60 did not override the FHA/VA preemption provisions.

II.

Plaintiff Burris contends that the district court erred in holding that creditors need not comply with all of DIDMCA's provisions in order to avail themselves of any of the federal preemption provisions. Plaintiff cites 12 U.S.C. Secs. 1735f-7 and 1735f-5(b) for the proposition that DIDMCA applies to any federally related mortgage loan, and from that plaintiff concludes that it is applicable to FHA and VA loans. ⁵

The district court correctly followed Doyle, 795 F.2d 907, which plaintiff argues was incorrectly decided, and held that a lender entitled to preemption under the FHA or VA preemption statutes need not comply with DIDMCA regulations. The court noted that the FHA and VA preemption statutes and DIDMCA were enacted in a six month time span, and at the time the FHA and VA preemption statutes were enacted, DIDMCA was "well through the congressional committee process. It simply defies reason that Congress would enact one preemption if it were considering a second preemption which would render the first meaningless." "This court holds that a lender entitled to preemption under the FHA or VA preemption statute need not comply with the DIDMCA regulations." Id.

The Eleventh Circuit traced the legislative history leading up to and following passage of each of the preemption statutes and concluded that:

although the DIDMCA statute encompasses the "federally related" mobile home loans involved in this case and therefore overlaps with the FHA and VA preemptions, this dual coverage does not nullify the FHA and VA preemptions as applied to mobile home loans. FHA or VA lenders may obtain federal preemption under the respective FHA or VA preemption without also satisfying the DIDMCA requirements * * * * It is unreasonable to believe that Congress, in addressing the more immediate concern of FHA and VA loan availability to individual borrowers, would require the lender to comply with the additional DIDMCA regulations in order to obtain federal preemption * * * * [The Eleventh Circuit noted several following points supporting its holding.] First, Section 529 of DIDMCA repealed certain existing laws but made no mention of the FHA or VA preemption statutes. Second, Section 528 of DIDMCA demonstrates that Congress intended to retain independent vitality in the respective statutory schemes. Finally, a HUD opinion letter supports this interpretation.

Id. at 911-12. The HUD opinion letter referred to in Doyle, id. at 912, is an April 1, 1985, letter from Shirley Wiseman, General Deputy Assistant Secretary of Housing, stating "[i]t was then, and is now, this Department's interpretation of the two preemption laws that they are separate and independent of each other, and that if a manufactured home lender can charge a preemptive interest rate pursuant to 529 of the National Housing Act it need not rely upon Section 501 of the Deregulation Act [DIDMCA], and thus need not comply with 12 C.F.R. 590.4." The holding of the Eleventh Circuit in Doyle with respect to this issue is sound and applicable to this case. A lender entitled to preemption under the FHA or VA statutes need not comply with DIDMCA regulations.

III.

Plaintiffs Smythe and Grider contend that the...