Fin. Comm'n of Tex. v. Norwood

• Decision Date: 24 January 2014
• Docket Number: No. 10–0121.,10–0121.
• Citation: 57 Tex. Sup. Ct. J. 222,418 S.W.3d 566,56 Tex. Sup. Ct. J. 696
• Parties: The FINANCE COMMISSION OF TEXAS, The Credit Union Commission of Texas, and Texas Bankers Association, Petitioners, v. Valerie NORWOOD, Elise Shows, Maryann Robles–Valdez, Bobby Martin, Pamela Cooper, and Carlos Rivas, Respondents.
• Court: Texas Supreme Court

418 S.W.3d 566

56 Tex. Sup. Ct. J. 696

57 Tex. Sup. Ct. J. 222

The FINANCE COMMISSION OF TEXAS, The Credit Union Commission of Texas, and Texas Bankers Association, Petitioners,

v.Valerie NORWOOD, Elise Shows, Maryann Robles–Valdez, Bobby Martin, Pamela Cooper, and Carlos Rivas, Respondents.

No. 10–0121.

Supreme Court of Texas.

Argued Sept. 13, 2011.

Decided June 21, 2013.

Supplemental Opinion on Overruling of Rehearing Jan. 24, 2014.

Held Invalid

7 Tex. Admin. Code §§ 153.1(11), 153.15(2), (3).

Ron Beal, Professor & Attorney at Law, Waco, TX, for Amicus Curiae.

Ann Hartley, David S. Morales, Evan S. Greene, William J. “Bill” Cobb III, Office of Attorney General of Texas, Arthur Cleveland D'Andrea, Assistant Solicitor General, Clarence Andrew Weber, Kelly Hart & Hallman LLP, Daniel Tekstar Hodge, First Asst. Attorney General, David C. Mattax, Director of Defense Litigation, Office of the Attorney General, Greg W. Abbott, Attorney General of Texas, Jack Hohengarten, Attny General Ofc. Finance Div., Jonathan F. Mitchell, Solicitor General Office of the Attorney General, Austin, TX, James C. Ho, Gibson Dunn & Crutcher LLP, Dallas, TX, for Petitioner 1, The Finance Commission of Texas and The Credit Union Commission of Texas.

Alex S. Valdes, Brian T. Morris, Michael Kent O'Neal, Winstead PC, Austin, Melissa Prentice Lorber, Craig T. Enoch, Enoch Kever PLLC, Austin, for Petitioners 2, Texas Bankers Association.

Bruce Everett Priddy, Law Offices of Bruce Priddy, Dallas, Jean Constance Davis, AARP Foundation, Washington, John Paul Salmon, Nelson H. Mock, Texas RioGrande Legal Aid, Austin, Laurie E. Ratliff, Ikard Golden Jones, P.C., Austin, Robert L. Wharton, East Texas Legal Services, Nacogdoches, Robert W. Doggett, Attorney General, for Respondents Assoc'n of Community Orgnizations for Reform Now (ACORN), Valerie Norwood, Elise Shows, Maryann Robles–Valdez, Bobby Martin, Pamela Cooper, and Carlos Rivas.

Justice HECHT delivered the opinion of the Court, in which Chief Justice JEFFERSON, Justice GREEN, Justice WILLETT, Justice GUZMAN, Justice LEHRMANN, Justice BOYD, and Justice DEVINE joined, and in Parts I and II of which Justice JOHNSON joined.

The separation of the powers of government into three distinct, rival branches—legislative, executive, and judicial—is “the absolutely central guarantee of a just Government.” ¹ Checks and balances among the branches protect the individual. It is the separation of powers, for example, that establishes bills of rights as rules of law rather than merely hollow words, which is all they are in most countries where power is vested in a few. ² As James Madison famously declared in Federalist No. 47: “No political truth is certainly of greater intrinsic value, or is stamped with the authority of more enlightened patrons of liberty, than [this:] The accumulation of all powers, legislative, executive, and judiciary, in the same hands ... may justly be pronounced the very definition of tyranny.” ³

The principle of separation of powers is foundational for federal and state governments in this country and firmly embedded in our nation's history. The Texas Constitution mandates:

The powers of the Government of the State of Texas shall be divided into three distinct departments, each of which shall be confided to a separate body of magistracy, to wit: Those which are Legislative to one; those which are Executive to another, and those which are Judicial to another; and no person, or collection of persons, being of one of these departments, shall exercise any power properly attached to either of the others, except in the instances herein expressly permitted.⁴

Exceptions to the constitutionally mandated separation of powers are never to be implied in the least; they must be “expressly permitted” by the Constitution itself.⁵

A 2003 amendment to the Constitution authorized the Legislature to delegate to a state agency the power to interpret certain provisions of the Texas Constitution governing home equity lending, a power that the Constitution's separation-of-powers provision unquestionably allocates to the Judiciary. ⁶ We must determine in this case the extent of this exception and specifically, whether agency interpretations made under this authority are beyond judicial review. We conclude they are not.

Of the several agency interpretations challenged in this case, the court of appeals decided that some are valid and others invalid.⁷ We agree in part and disagree in part, and render judgment.

I

In the State of Texas, the homestead has always been protected from forced sale, not merely by statute as inmost states, but by the Constitution. ⁸ The 1869 and 1876 Constitutions allowed three exceptions,⁹ and others have been added by amendments.¹⁰ Exceptions for certain home equity loans and for reverse mortgages, finally adopted by constitutional amendment in 1997, effective January 1, 1998,¹¹ were extremely controversial, in part because of age-old concerns that lenders would be unfair and borrowers unwise, eroding the protection the homestead is intended to afford.¹² So long leery of any impairment to the homestead, Texas was the fiftieth state in the Union to permit home equity lending.¹³

To assure that the compromises finally struck would withstand future political pressures on the Legislature, lengthy, elaborate, detailed provisions, remarkable even for our State's Constitution, were included in Article XVI, Section 50¹⁴ and made nonseverable.¹⁵ A homestead may be subject to forced sale to repay a home equity loan only if the loan meets the requirements of Section 50, alterable only by a vote of the people.¹⁶ The constitutional amendment did not provide for implementing legislation or for administrative interpretation or rule-making. Loan terms and conditions, notices to borrowers, and all applicable regulations were set out in Section 50 itself.¹⁷

But not, of course, with perfect clarity. And for lenders, Section 50 prescribed a Draconian consequence of noncompliance, whether intentional or inadvertent: not merely the loss of the right of forced sale of the homestead, but forfeiture of all principal and interest.¹⁸ On October 7, 1998, several months after the amendment to Section 50 took effect, four state regulatory agencies with authority over lenders jointly issued a Regulatory Commentary on Equity Lending Procedures.¹⁹ Noting that the details “[i]nherent in an issue as complex as home equity” lending had not been and could not be “fully addressed within the text of the amendment” to Section 50, the agencies sought to “provide guidance to lenders and consumers concerning the regulatory views of the meaning and effect” of the amendment. ²⁰ But the agencies warned that “a court may or may not defer to this interpretation.” ²¹

A few weeks later, the Attorney General wrote in an opinion that “the amendment has given rise to numerous questions regarding its construction” and

does not authorize the legislature to enact general implementing legislation or empower a state agency to adopt interpretive rules. Consequently, the state is faced with an environment of uncertainty as to how lenders, builders, insurers, borrowers, and others may properly negotiate enforceable home equity loans.²²

Furthermore, the Attorney General continued,

[t]he Legislature has no authority to interpret or declare a matter of constitutional construction, nor may it delegate such authority to an administrative agency. To do so, absent express constitutional authorization, would be to usurp the powers of the judiciary in violation of the separation of powers principles set out in article II, section 1 of the Texas Constitution.... [A]s section 50 now stands, neither the legislature nor any state agency has the power to declare definitively what it means. The ultimate power to construe constitutionalprovisions lies solely with the courts.²³

“As a rule, court decisions apply retrospectively,” ²⁴ and thus a lender faced the prospect that its loans could be forfeited long after they were made, based on judicial decisions in cases in which it was not even involved. The risk was understandably viewed as having a dampening effect on the home equity lending market.

To solve the problem, the Attorney General advised that “the constitution could be amended to give to an executive agency judicial-type interpretive powers with respect to the home equity amendment.” ²⁵ Consequently, in 2003 the Legislature proposed, and the people adopted, Section 50(u), which states:

The legislature may by statute delegate one or more state agencies the power to interpret Subsections (a)(5)–(a)(7), (e)–(p), and (t), of this section. An act or omission does not violate a provision included in those subsections if the act or omission conforms to an interpretation of the provision that is:

(1) in effect at the time of the act or omission; and

(2) made by a state agency to which the power of interpretation is delegated as provided by this subsection or by an appellate court of this state or the United States.²⁶

The referenced subsections which the legislatively designated state agencies are empowered to interpret contain essentially all the provisions governing home equity lending. Thus, the first sentence addresses the perceived need for a less cumbersome interpretative process than that afforded by litigation. The second sentence creates a safe harbor for lenders, relieving them of liability for any constitutional violations as long as agency interpretations are followed.²⁷ But importantly, it does so not merely by excusing a violation; it states that no violation even occurs. A lender's compliance with an agency interpretation of Section 50, even a wrong interpretation, is compliance with Section 50 itself.

In anticipation of the people's adoption of the 2003 amendments, the Legislature delegated interpretative authority under Section 50(u) to the Finance Commission and the Credit Union Commission (“the Commissions”), subject to the ...