Burris v. First Financial Corp.
| Decision Date | 22 March 1990 |
| Docket Number | No. LR-C-88-446.,LR-C-88-446. |
| Citation | 733 F. Supp. 1270 |
| Parties | Mark BURRIS, Louise Grider and Lilla Smythe, Plaintiffs, v. FIRST FINANCIAL CORPORATION and Home Owners Funding Corporation of America, Defendants. |
| Court | U.S. District Court — Eastern District of Arkansas |
Ken Cook, Ivester, Skinner & Camp, P.A., Little Rock, Ark., and Gus Camp, Piggott, Ark., for plaintiffs.
George Pike, Friday, Eldredge & Clark, Little Rock, Ark., for defendant First Financial Corp.
Peter Kumpe and Philip S. Anderson, Wright, Lindsey and Jennings, Little Rock, Ark., for defendant Home Owners Funding Corp. of America.
Before the Court are the Motion to Dismiss of defendant First Financial Corporation ("First Financial") and the Motion to Dismiss or in the Alternative for Summary Judgment of defendant Home Owners Funding Corporation of America ("HOFCA"), to both of which plaintiffs have responded. The Court will dispose of both motions and any supplements thereto in this Order.
Plaintiffs are persons who have entered into mobile home retail installment sales contracts in which one or both of the defendants allegedly have an interest. In their complaint, Plaintiffs contend that under the law of the State of Arkansas, which they assert is controlling herein, the rate of interest charged by defendants on these sales contracts is usurious. Plaintiffs seek money damages from defendants and certain other declaratory relief on behalf of themselves and all others similarly situated.
Defendants deny that Arkansas law governs the rate of interest which may be lawfully charged on the installment sales contracts in question. They contend that with respect to these contracts Arkansas law is preempted by the Veterans Administration ("VA") and Farmers Home Administration ("FHA") preemption statutes, 38 U.S.C. § 1828 and 12 U.S.C. § 1735f-7, and section 501 of the Depository Institutions Deregulation and Monetary Control Act of 1980 ("DIDMCA"), Public Law 96-221, March 31, 1980 and 12 C.F.R. 590.4 et seq., one or more of which defendants claim apply herein. Plaintiff Burris has a VA guaranteed loan, while plaintiffs Grider and Smythe have conventional loans. On account of the difference in the character of these loans, the Court must address them separately in determining the merits of defendants' motions.
On May 23, 1984, Burris entered into a mobile home retail installment sales contract with Smoot Mobile Home Sales. The contract was apparently prepared by and later assigned to defendant First Financial, who subsequently assigned it to Government National Mortgage Association ("GNMA"). Still later, GNMA contracted with defendant HOFCA to service the contract.
The rate of interest chargeable on VA loans is governed by certain federal laws related thereto, among them 38 U.S.C. § 1828, which in essence provides that if loans insured under Title I and Title II of the National Housing Act are exempt from state usury limits, then loans guaranteed under 38 U.S.C. §§ 1801 et seq. are also exempt from such provisions. As reflected in 12 U.S.C. § 1703, Title I of the National Housing Act includes mobile home loans within the class of insurable loans. Thus, pursuant to § 1828, defendants are at first blush entitled to invoke federal preemption of Arkansas' usury limits with respect to the interest charged on Burris' loan. The Court must look further to ascertain if any other federal or state law, or a combination thereof, strips the cloak of federal preemption from Burris' loan.
The legislative history reveals that Congress passed the VA and FHA preemption statutes cited above in late 1979 to address problems with the availability of government insured loans brought on by high market interest rates and low state usury limits. See S.Rep. No. 260, 96th Cong., 1st Sess. 30, reprinted in 1979 U.S.Code Cong. & Ad.News 1894, 1916. However, under both the VA and the FHA exemption provisions, "the State's right to set an interest-rate limitation that overrides the Federal exemption would be preserved." S.Rep. No. 260, supra, at 31, 1979 U.S.Code Cong. & Ad.News at 1917. To address the desire for a coordinated Federal policy in this area, the VA statutory scheme provides that any state override of the exemption for FHA loans will also override the exemption for VA loans. Under the FHA provision, the federal exemption "shall 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. § 1735f-7(b).
Within four months of the passage of the VA and FHA exemptions, Congress enacted section 501 of DIDMCA (), yet another federal preemption provision. This statute is of a much broader scope than the VA and FHA provisions, applying not only to federally insured loans but to all home loans, including conventional loans, which are in some manner "federally related," as that term is broadly defined in section 501. In order for the DIDMCA exemption to apply to mobile home financing, with which we are concerned here, the financing contract must contain certain consumer protection provisions specified in Federal Home Loan Bank Board ("FHLBB") regulations.1
In 1982, the State of Arkansas adopted Amendment 60 to the Arkansas Constitution (now found at Ark. Const. Art. 19, § 13), which provides that "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, § 13(a)(i). However, the amendment also states that "the provisions hereof 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, § 13(d)(ii).
Plaintiff Burris contends that none of the federal preemption provisions are available to defendants with respect to his loan. Burris claims that the VA exemption provision does not apply to his financing contract because of Arkansas' adoption of Amendment 60, which limits the maximum lawful rate of interest which may be charged on any contract, subsequent to the enactment of 12 U.S.C. § 1735f-7(b). Burris argues that override of the exemption is automatic upon a state's passage of any law limiting interest rates and that the provision in Amendment 60 that no federal provisions should be deemed invalidated by the amendment is, thus, without any legal significance as to the issues herein. Burris also contends that in light of the enactment of the DIDMCA exemption subsequent to the FHA and VA provisions, defendants must have complied with all of the DIDMCA requirements with respect to his financing contract in order for any of the federal exemptions to apply.
In response, defendants correctly assert that by its express terms Amendment 60 does not override or invalidate the FHA or VA preemption provisions. Defendants cite the case of Doyle v. Southern Guaranty Corporation, 795 F.2d 907 (11th Cir. 1986), cert. denied, 484 U.S. 926, 108 S.Ct. 289, 98 L.Ed.2d 249 (1987), in support of their position. In Doyle, the court heard consolidated actions in which FHA and VA-insured mobile home agreements were challenged as usurious. In finding that the FHA and VA exemptions were overridden by the State of Georgia's amendment of its usury limits on mobile home transactions, the Eleventh Circuit stated that "given Congress' deference to states' rights to fix their own usury law, ... when a state reenacts 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, 795 F.2d at 914.
In reliance upon Doyle, defendants argue that a different result should obtain here because of the inclusion of the express provision in Amendment 60 that no federal law applicable to loans or interest rates should be deemed superseded or invalidated by any other provision therein. Although noting that there is some overlap among DIDMCA and the FHA and VA preemptions, the Eleventh Circuit also found that "FHA or VA lenders may obtain federal preemption under the respective FHA or VA preemption without also satisfying the DIDMCA requirements." Doyle, 795 F.2d at 911.
After careful consideration, the Court finds that the FHA and VA exemptions were not overridden by Arkansas' adoption of Amendment 60 in 1982. By its express terms, the amendment was not intended to "supersede or otherwise invalidate any provisions of federal law applicable to loans or interest rates including loans secured by residential real property." Thus, Arkansas chose not to reassert a limit on the rate or amount of interest which could lawfully be charged on the class of loans and mortgages covered by the FHA and VA exemptions. The automatic override urged by Burris simply did not occur. This Court is not going to engage in a strained, mechanical and, in the Court's view, flawed interpretation of...
To continue reading
Request your trial
-
Burris v. First Financial Corp.
...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 cou......