Carpenter v. Countrywide Home Loans, Inc.

• Court: Missouri Supreme Court
• Writing for the Court: William Ray Price, Jr.
• Citation: Carpenter v. Countrywide Home Loans, Inc., 250 S.W.3d 697 (Mo. 2008)
• Decision Date: 18 March 2008
• Docket Number: No. SC 88367.,SC 88367.
• Parties: Cynthia CARPENTER, et al., Respondents, v. COUNTRYWIDE HOME LOANS, INC., Appellant.

250 S.W.3d 697

Cynthia CARPENTER, et al., Respondents, v. COUNTRYWIDE HOME LOANS, INC., Appellant.

No. SC 88367.

Supreme Court of Missouri, En Banc.

March 18, 2008.

Rehearing Denied May 20, 2008.

Richard A. Ahrens, John M. Hessel, Nathan E. Ross, St. Louis, Thomas M. Hefferon, Goodwin Procter LLP, Washington, DC, James W. McGarry, Goodwin Procter, LLP, Boston, MA, for Appellant.

Joe D. Jacobson, Jonathan M. Andres, Martin M. Green, Allen P. Press, David T. Butsch, St. Louis, Thomas A. Federer, St. Charles, for Respondents.

WILLIAM RAY PRICE, JR., Judge.

Countrywide Home Loans, a mortgage company, prepares legal documents to complete mortgage loan transactions and charges its customers a document preparation fee for this service. Because of this activity, Countrywide was a named defendant in a class action lawsuit against several mortgage lending institutions alleging that these companies were practicing law business without a license. The lawsuit was severed into subclasses against each respective lender.

The trial court found that this activity was the unauthorized practice of "law business"¹ and awarded plaintiffs damages. This Court, in Eisel v. Midwest BankCentre, 230 S.W.3d 335 (Mo. banc 2007), a case severed from the original action, confirmed that charging a fee for legal document preparation was the practice of law business and companies who did so were liable for treble damages pursuant to section 484.020.2.²

In this appeal, Countrywide argues that the provision awarding treble damages in section 484.020.2 is unconstitutional on due process grounds. Further, Countrywide argues that the trial court had no authority to award prejudgment interest or actual damages to the plaintiffs who did not meet the requirements of the statute.

The provision for awarding treble damages in section 484.020.2 is constitutional. The trial court judgment of treble damages to plaintiffs who paid the fee within two years of suit and actual damages and prejudgment interest to plaintiffs who paid three to five years prior to suit is affirmed. The award of prejudgment interest for plaintiffs who recovered treble damages is reversed.

I.

Countrywide Home Loans is a mortgage company engaged in the business of making or brokering home loans in the state of Missouri. Each of these loans is secured by a deed of trust on the borrower's residence and is effected by various instruments and documents, including a promissory note and a deed of trust, executed by Countrywide employees. Countrywide charges its borrowers a fee for the completion of these documents, known as the "document preparation fee." The practice of completing the documents and charging a document preparation fee became the basis for this class action lawsuit filed in March 2002 against Countrywide Home Loans as well as several other mortgage lending institutions in the St. Louis area. The plaintiffs alleged that this activity constituted the unauthorized practice of law business prohibited by section 484.010 et seq. because the documents were not prepared by lawyers.

The court severed the class into subclasses against the respective lenders. The trial court, applying the five-year statute of limitations in section 516.120(4), defined the plaintiff subclass against Countrywide Home Loans as "all persons who paid a document preparation fee to Countrywide Home Loans, Inc., in connection with a real estate financing transaction in the State of Missouri from April 18, 1997 to the present." The court appointed three plaintiffs as class representatives: Cynthia Carpenter and Andrew Cole, who paid the document preparation fee in 2002, and Cheryl Held, who paid the document preparation fee in 2001.

Plaintiffs, relying on the third amended petition filed in March 2003, argued that Countrywide's preparation of the documents was the unauthorized practice of law business pursuant to 484.010 et seq. and the activities were an unfair and deceptive practice under the merchandising practices act, section 407.010 et seq. Plaintiffs asked for treble damages pursuant to section 484.020.2 as well as actual damages and prejudgment interest under both counts. Countrywide filed an answer to the third amended petition in April 2003. In March 2006, Countrywide amended its answer to include the defense that the treble damage provision in section 484.020.2 was unconstitutional as it violates the due process clauses of the 14th Amendment and article I, section 10 of the Missouri Constitution.

A bench trial took place in May 2006. The trial court issued judgment in December 2006, finding that Countrywide engaged in the unauthorized law business and was liable for treble damages under the statute.³ The court awarded actual damages, amounting to the recovery of the document preparation fee, to all class members who paid the fee between three and five years prior to suit. The court awarded treble damages pursuant to the statute to the class members who paid the fee within two years of the lawsuit. The trial court also awarded prejudgment interest on the actual damages for all class members.

Countrywide appealed the judgment to this Court. While Countrywide's appeal was pending, this Court decided Eisel v. Midwest BankCentre, 230 S.W.3d 335 (Mo. banc 2007). Eisel held that the preparation of the documents for a fee by nonlawyers was the unauthorized practice of law business and upheld the award of treble damages under section 484.020.2. Because Countrywide challenges the validity of the treble damages provision in section 484.020.2, this Court has exclusive jurisdiction pursuant to article V, section 3, of the Missouri Constitution.

II

Countrywide argues that section 484.020.2 violates the due process clauses of the 14th Amendment and article I, section 10 of the Missouri Constitution because the provision mandates an award of treble damages without proof of a culpable mental state.

a.

As a preliminary matter, plaintiffs argue that Countrywide's constitutional claim was waived because it was not timely raised. The rule has long been established that to preserve constitutional questions for review on appeal, the constitutional issue must be raised in the trial court at the earliest opportunity, consistent with good pleading and orderly procedure. See Call v. Heard, 925 S.W.2d 840, 847 (Mo. banc 1996). This rule is necessary to prevent surprise to the opposing party and to allow the trial court the opportunity to identify and rule on the issue. Id. The rule allows parties to have a full and fair opportunity to litigate significant issues as early and as inexpensively in the litigation process as possible. The purpose of the rule is not to prevent parties from litigating issues that arise during the course of a lawsuit if there is no prejudice to the opposing party.

It is within the trial court's discretion to grant leave to amend pleadings, and this Court will not disturb the decision to grant leave to amend absent a showing the trial court obviously and palpably abused its discretion. See Dye v. Div. of Child Support Enforcement, Dept. of Social Servs., 811 S.W.2d 355, 358 (Mo. banc 1991). Amendments should be liberally allowed and constitutional claims can be asserted by amendment to the initial pleadings. See Anheuser-Busch Employees' Credit Union v. Davis, 899 S.W.2d 868, 869 (Mo. banc 1995).

The plaintiffs alleged a violation of section 484.010 and asked for treble damages when the lawsuit was first filed in 2002. Countrywide did not challenge the constitutionality of the statute until March 2006 in an amendment to its answer. However, the issue was raised prior to trial; plaintiffs had a full opportunity to respond; and the trial court had the opportunity to address the issue. There was no showing of prejudice. Although this defense should have been raised at an earlier date, the purposes of the rule were met, and the trial court did not abuse its discretion in considering this issue.

b.

Section 484.010 et seq. specifies certain activities as the unauthorized practice of law or law business and prohibits those without a license to engage in those activities. Section 484.020.2 provides the penalty for persons who violate the statute, providing that such persons

... shall be subject to be sued for treble the amount which shall have been paid him or it for any service rendered in violation hereof by the person, firm, association, partnership, limited liability company or corporation paying the same within two years from the date the same shall have been paid ...

A statute is presumed to be constitutional and will not be invalidated unless it "clearly and undoubtedly violates some constitutional provision and palpably affronts fundamental law embodied in the constitution." Bd. of Educ. of City of St. Louis v. State, 47 S.W.3d 366, 368-69 (Mo. banc 2001). Countrywide argues that section 484.020.2 is unconstitutional on due process grounds because treble damages are penal similar to punitive damages and, thus, to satisfy the requirements of due process, there must be a finding of a culpable mental state.

An award of treble damages, although penal in nature, does not require a finding of a culpable mental state. See Greeson v. Ace Pipe Cleaning, Inc., 830 S.W.2d 444, 448-49 (Mo.App.1992). The purpose of requiring a culpable mental state to award punitive damages is to ensure that defendants have fair notice that their conduct will subject them to a penalty as well as the severity of the penalty. See BMW of North America, Inc. v. Gore, 517 U.S. 559, 574, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996); Werremeyer v. K.C. Auto Salvage Co., 134 S.W.3d 633, 635 (Mo. banc 2004). A statutory imposition of penal damages is different from jury imposed punitive damages to the extent that the statute defines the prohibited conduct and sets out the legislative prescribed penalty. Countrywide has not established that sections 484.010 and 484.020 were vague and did not provide it fair notice of the...