Frost v. Comm'r, N.H. Banking Dep't

• Decision Date: 16 March 2012
• Docket Number: No. 2011–121.,2011–121.
• Citation: 163 N.H. 365,42 A.3d 738
• Parties: Jeffrey FROST and another, v. COMMISSIONER, NEW HAMPSHIRE BANKING DEPARTMENT and another.
• Court: New Hampshire Supreme Court

163 N.H. 365
42 A.3d 738

Jeffrey FROST and another,
v.
COMMISSIONER, NEW HAMPSHIRE BANKING DEPARTMENT and another.

No. 2011–121.

Supreme Court of New Hampshire.

Argued: Nov. 10, 2011.
Opinion Issued: March 16, 2012.

[42 A.3d 740]

Devine, Millimet & Branch, P.A., of Manchester (Alexander J. Walker and Joshua M. Wyatt on the brief, and Mr. Walker orally), for the petitioners.

Michael A. Delaney, attorney general (Danielle L. Pacik, assistant attorney general, on the brief, and Lisa M. English, assistant attorney general, orally), for the respondents.

CONBOY, J.

[163 N.H. 367]The respondents, the Commissioner of the New Hampshire Banking Department and the New Hampshire Banking Department (collectively, the Department), appeal an order of the Superior Court ( McNamara, J.) permanently enjoining the Department from pursuing an administrative proceeding against Jeffrey Frost on the ground that the [163 N.H. 368]Department lacked subject matter jurisdiction. The petitioners, Frost, Chretien/Tillinghast, LLC, and Frost Family, LLC, cross-appeal, arguing that the trial court erred by denying their request for attorney's fees. We affirm.

The statutory backdrop to this case is as follows. RSA chapter 397–A (2006) (amended 2009, 2011) governs the licensing of nondepository first mortgage bankers and brokers. In response to the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the SAFE Act), 12 U.S.C. § 5101, which enhanced consumer protection by requiring states to pass legislation establishing minimum standards for licensing and registration of state-licensed mortgage loan originators, the New Hampshire legislature amended RSA chapter 397–A (Supp.2009). Accordingly, effective April 1, 2009, it became unlawful for any individual to transact business in New Hampshire as a mortgage loan originator unless such individual obtains a license from the Department. SeeRSA 397–A:3, I. In addition, effective July 31, 2009, the statute authorizes license suspension and revocation, as well as penalties for violation of the provisions of the chapter.

The following facts are drawn from the record. Frost is a member and designated manager of Chretien/Tillinghast, LLC (Chretien), and a member of Frost Family, LLC (Frost Family). Chretien and Frost

[42 A.3d 741]

Family (collectively, the LLCs) are New Hampshire limited liability companies organized for the purpose of real estate acquisition, holding, and development. The underlying dispute arose as the result of two seller-financed real estate transactions, one conducted by Frost Family and the other by Chretien.

In September 2008, Frost Family sold a condominium to Cheryl Cayer for $137,000. In lieu of third-party financing, Cayer requested $32,000 in seller financing from Frost Family. At closing, Cayer executed a promissory note to Frost Family, secured by a mortgage, for the financed amount. Cayer paid the remaining purchase price in cash. This transaction is the only mortgage loan that Frost Family has ever made.

The second transaction involved a property owned by Chretien. In September 2008, Robert Recio expressed interest in leasing one of Chretien's properties with an option to purchase. The parties agreed on a purchase price of $475,000. After further discussions, Recio and William Secor signed a long–term lease with Chretien. At the time of the lease execution, the parties also executed an option to purchase the property, which, if exercised, obligated Chretien to provide a first mortgage loan for $425,000 at 6.25% interest, which was “fully due and payable on the third anniversary date of the real estate closing and the transfer of title.”

In December 2008, Recio and Secor decided to exercise the option to purchase the property. Recio rejected Chretien's suggestions to look for [163 N.H. 369]long–term financing, and instead opted to refinance after closing. In addition, Recio represented to Chretien that he was expecting a large insurance settlement, which would help pay down or satisfy the mortgage.

On March 13, 2009, Recio and Secor executed a promissory note secured by a mortgage to Chretien. Under the terms of the note, Recio and Secor promised to pay $425,000 at 6.25% interest, in monthly payments of $300, plus interest, until March 2012, when the remaining balance was fully due and payable. This transaction is the only mortgage loan Chretien has ever made.

In late 2009, Frost, as manager of Chretien, initiated foreclosure proceedings on the property Chretien sold to Recio and Secor. In response, Recio filed for bankruptcy. In the bankruptcy court, Chretien sought and was granted relief from the automatic stay based on fraudulent misrepresentations by Recio that he had not previously filed for bankruptcy protection. Shortly thereafter, Recio filed a complaint with the Consumer Protection Bureau of the Attorney General's Office alleging, among other things, that Frost and Chretien fraudulently induced him to enter into the sale for an inflated price. Subsequently, Frost was charged with four class A misdemeanors alleging criminal violations of RSA chapter 397–A (prohibiting, among other things, unlicensed mortgage banking). The complaint was also forwarded to the Department. Upon receipt of Recio's complaint, the Department initiated an investigation, which disclosed the two seller-financed transactions by the LLCs.

In March 2009, after both instances of seller-financing, Frost submitted a loan originator license application to the Department. On April 1, 2009, Frost became a licensed mortgage loan originator, seeRSA 397–A:1, XVII (Supp.2009) (amended 2011) (defining “Originator”), sponsored by Academy Mortgage, a licensed mortgage banker, seeRSA 397–A:1, XII (2006) (defining “Mortgage banker”).

In 2010, the Department initiated administrative proceedings against Frost through an “Order to Show Cause with

[42 A.3d 742]

Immediate Emergency Suspension and Cease and Desist Order,” as well as a “Staff Petition.” In these initiating documents, the Department alleged that although Frost disclosed on his mortgage loan originator's license application that “he was and still is self-employed through” Frost Family, he failed to disclose that Frost Family was a “financial services-related employment.” It alleged that “[i]n fact Frost Family served as either the mortgage broker or mortgage banker for [the Cayer] mortgage loan,” and that Frost Family was “servicing [the Cayer] mortgage loan without a New Hampshire mortgage servicer registration.” SeeRSA 397–B:4, I (Supp.2009) (describing registration requirements for mortgage servicing companies). The Department alleged further that “Frost failed to include [on his application] ... that he [163 N.H. 370]is also part owner of [Chretien],” which conducted a mortgage loan transaction with Recio and Secor, and that Chretien “ continues to actively service this ... residential mortgage loan” without a valid mortgage servicer registration or a valid mortgage banker license. See id. Finally, the Department alleged that “Frost, by continuing his employment with both [LLCs] while employed by mortgage banker licensee, Academy Mortgage, as a licensed Mortgage Loan Originator, work[ed] for more than one mortgage banker or mortgage broker and mortgage servicer and [was] therefore in violation of RSA 397–A:1, XVII(a), RSA 397–A:3, III, and/or RSA 397–B:1, IV-c.”

At the time the administrative proceedings were initiated, the Department notified Frost that he could request a hearing with the Department under RSA chapter 541–A (2007). Frost did not file such a request. Instead, the petitioners initiated a declaratory judgment proceeding in superior court, which included a request for a temporary restraining order. The petitioners contended that the respondents lacked subject matter jurisdiction to proceed against Frost and violated the State Constitution's prohibition against retrospective laws by seeking to impose a $25,000 fine for each alleged violation.

After a hearing, the trial court granted the preliminary injunction, concluding that “[w]hile the [Department] may have jurisdiction over Frost because he is now a loan originator, it [could] take no action against him based on the September 2008 or the March 2009 transactions.” Further, the trial court concluded that since the Department “may not impose any penalties on Frost,” it did not need to consider the issue of the retrospective nature of the sanctions.

Subsequently, the parties agreed to treat the preliminary injunction order as a final order. See Super. Ct. R. 161(b)(2). Prior to entry of the final order, however, the trial court allowed the petitioners to file a motion for attorney's fees. The petitioners filed such a motion, which the trial court denied.

I. The Department's Appeal

The Department first argues that the petitioners “should not have been permitted to bypass the statutory administrative procedures by seeking a preliminary and permanent injunction in the superior court.” The Department maintains that under the doctrine of primary jurisdiction, the trial court should have abstained from intervening and required the petitioners to exhaust their administrative remedies.

Conversely, the petitioners maintain that the trial court properly exercised its authority to grant both a preliminary and permanent injunction [163 N.H. 371]because the Department lacks subject matter jurisdiction under RSA chapter 397–A to regulate the LLCs. Specifically, they argue that because resolution of this issue requires statutory

[42 A.3d 743]

interpretation, and the superior court has authority to issue declaratory findings on issues of law, the trial court did not err.

The doctrine of primary jurisdiction “provides that a court will refrain from exercising its concurrent jurisdiction to decide a question until it has first been decided by the specialized administrative agency that also has jurisdiction to decide it.” Wisniewski v. Gemmill, 123 N.H. 701, 706, 465 A.2d 875 (1983).

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