Gillman v. Department of Financial Institutions of State of Utah

• Decision Date: 25 October 1989
• Docket Number: No. 20515,20515
• Citation: 782 P.2d 506
• Parties: Duane H. GILLMAN, Trustee of the Estate of West America Credit Corporation and West America Thrift and Loan, Plaintiff and Appellant, v. DEPARTMENT OF FINANCIAL INSTITUTIONS OF the STATE OF UTAH, Defendant and Appellee.
• Court: Utah Supreme Court

Page 506

782 P.2d 506

Duane H. GILLMAN, Trustee of the Estate of West America Credit Corporation and West America Thrift and Loan, Plaintiff and Appellant, v. DEPARTMENT OF FINANCIAL INSTITUTIONS OF the STATE OF UTAH Defendant and Appellee.

No. 20515.

Supreme Court of Utah.

Oct. 25, 1989.

Duane H. Gillman, Lisa M.J. Lindblad, Salt Lake City, for plaintiff and appellant.

David L. Wilkinson, Paul M. Warner, Stephen J. Sorenson, Salt Lake City, for defendant and appellee.

ZIMMERMAN, Justice:

Appellant Duane H. Gillman is the trustee of the bankruptcy estate of West America Credit Corporation and West America Thrift and Loan (cumulatively "West America"). Gillman brought a negligence action against the Department of Financial Institutions of the State of Utah ("the Department"), claiming that by reason of the Department's failure to properly regulate West America, the investors lost their investments in the two West America corporations. The district court granted the Department's motion for summary judgment, holding that the governmental immunity provisions of the Code barred the suit. Utah Code Ann. § 63-30-10 (1978) (amended 1982 & 1985). Gillman challenges the district court's ruling, contending that the court misconstrued the governmental immunity laws. We affirm.

West America Credit Corporation ("Credit") was incorporated in March of 1975. In May of 1975, the Department licensed Credit as a supervised lender under the provisions of the Utah Uniform Consumer Credit Code. Utah Code Ann. §§ 70B-3-502, -503 (1981) (repealed 1985). As a supervised lender, Credit was authorized to make or take assignments of "supervised loans." Utah Code Ann. § 70B-3-501(4) (1981) (repealed 1985). A supervised loan includes consumer loans on which the finance charge rate exceeds 18 percent per year. Utah Code Ann. § 70B-3-501(3) (1981). Jay L. Watson was the principal stockholder and the president of Credit.

In 1977, West America Thrift and Loan ("Thrift") was incorporated. Watson was also its president. In September of that year, Watson filed an application with the Department for Thrift to be licensed as an industrial loan corporation with authority to issue thrift certificates to raise funds for loans. See generally Utah Code Ann. §§ 7-8-1, -3, -12, 7-1-26 (1971). ¹ In response to the application, the Department conducted a market analysis of the area proposed to be served, an examination into the financial responsibility and character of Watson, and a balance sheet examination of Thrift. In March of 1978, the Department concluded that although a market existed for the services to be offered by Thrift and that Watson was of good character, inadequacies in Thrift's corporate structure and capitalization precluded an unconditional approval of its application. ² Therefore, the Department imposed several preconditions upon its grant of permission for Thrift to operate as an industrial loan corporation. Specifically, before any thrift certificates could be issued, Thrift had to change the character of its assets and initial capital structure to conform with the generally accepted standards in the thrift industry and to amend its articles of incorporation to prohibit it from investing in ventures not appropriate for a thrift company and from issuing common stock that could be converted to bonds.

By April of 1979, Thrift had not complied with these preconditions. The Department then revoked its approval of Thrift's license application because under section 7-1-26(5) of the Code, a financial institution must be opened and operating within one year of the time its application is approved. Utah Code Ann. § 7-1-26(5) (1971).

In July of 1980, the Department took possession of Grove Finance Company ("Grove"), a supervised lender that had become insolvent. As a result of the Grove investigation, the Department learned that Watson was a former employee of Grove. It then conducted a balance sheet investigation of Credit, the supervised lender. This examination disclosed that Credit was beset by problems, including poor bookkeeping, under-capitalization, large operating losses, and expenses that greatly exceeded income. As a result of this discovery, the Department sent Credit a letter ordering it to cease operating as a supervised lender. It took possession of Credit in August of 1980.

In February of 1981, both Credit and Thrift filed chapter 11 bankruptcy petitions. The United States Bankruptcy Court for the District of Utah appointed Gillman trustee for the estate of both bankrupt corporations in July of that year. After obtaining an uncollectible judgment against Watson for the amount of the investors' losses, Gillman initiated this negligence action against the Department in March of 1983. He prayed for damages of some $887,000, which represented the entire amount invested in Credit. Gillman's theory is that the Department breached a duty to the investors in the two West America entities by improperly regulating both corporations.

Because Gillman chose to sue the state, he had to contend with legislatively imposed sovereign immunity that protects the state and its employees from liability under a variety of circumstances. Gillman apparently framed his negligence action in an attempt to take advantage of the waiver of immunity for certain injuries "proximately caused by a negligent act or omission of an employee committed within the scope of his [or her] employment...." Utah Code Ann. § 63-30-10 (1978) (amended 1982 & 1985). But while the legislature, in section 63-30-10, did generally waive immunity for negligent acts, it restored immunity in sections 63-30-10(1) through 63-30-10(11) for injuries arising out of a number of specific types of negligent acts. The immunized negligent acts or omissions include those involving, inter alia, discretionary functions, inspections, and licensing decisions. See Utah Code Ann. § 63-30-10 (1978). ³ Gillman attempted to fashion his complaint to bring the action within the scope of section 63-30-10's immunity waiver while avoiding having the Department's alleged conduct fall within any of the exceptions to the immunity waiver listed in subsections (1) through (11) of section 63-30-10. Both Gillman and the Department filed motions for summary judgment. The district court concluded that Gillman's claim fell within the exceptions to the immunity waiver and found the suit barred. It therefore granted the Department's motion and dismissed the action.

On appeal, Gillman has recast his arguments slightly, but in each still contends that the Department's conduct is not protected from suit. In summary, he claims (i) that the exception to the waiver of immunity found in section 63-30-10(1) for an injury arising from negligent discretionary decision making is inapplicable to his action because the injury arose not from the discretionary decisions made with regard to the licenses of Credit and Thrift, but from (a) the Department's breach of a nondiscretionary duty, and/or (b) the Department's negligent nondiscretionary implementation of its discretionary decision-making authority to license Credit and Thrift; (ii) that the exception to the waiver of immunity found in section 63-30-10(3) for an injury arising from a negligent licensing decision is inapplicable because the injury arose not from the licensing decisions made or not made with regard to Credit and Thrift, but from a breach of an independent common law duty of care owed to the public; and (iii) that the exception to the waiver of immunity found in section 63-30-10(4) for an injury arising from a negligent inspection or failure to inspect is inapplicable because the injury arose not from any faulty inspections or inspection decisions, but from a failure to act on information regarding the improper activities of Credit and Thrift that was acquired from proper inspections or from third persons. An examination of Gillman's arguments in detail demonstrates that, at their heart, all are futile attempts to obscure the fact that the claims asserted are for injuries arising out of licensing decisions allegedly made in a negligent fashion. As such, they are all immune from suit under section 63-30-10(3).

Before addressing Gillman's arguments, we note that summary judgment is appropriate only when no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. E.g., Ron Case Roofing & Asphalt Paving, Inc. v. Blomquist, 773 P.2d 1382, 1385 (Utah 1989); Geneva Pipe Co. v. S & H Ins. Co., 714 P.2d 648, 649 (Utah 1986). In deciding whether the district court properly granted judgment as a matter of law to the prevailing party, we review the district court's decision on legal questions for correctness. E.g., Ron Case, 773 P.2d at 1385; Atlas Corp. v. Clovis Nat'l Bank, 737 P.2d 225, 229 (Utah 1987); Kimball v. Campbell, 699 P.2d 714, 716 (Utah 1985); see also Scharf v. BMG Corp., 700 P.2d 1068, 1070 (Utah 1985).

Gillman first casts his claim as an attempt to avoid the exception to the immunity waiver found in section 63-30-10(1) for an injury arising out of the performance of a discretionary function by claiming that the Department breached a nondiscretionary duty to the investors in Credit that was clearly mandated by the Code. He purports to find this duty in section 7-1-8 of the Code, which imposes specific statutory duties upon the Department to periodically examine certain financial institutions. ⁴ Gillman contends that the Department was required by section 7-1-8 to annually visit and comprehensively examine Credit, a supervised lender. He claims that by not doing so, the Department failed to become aware of the fact that Credit was being mismanaged and failed to take steps to rectify that mismanagement, which resulted in injury to Credit's investors.

Gillman acknowledges that supervised lenders are not among the financial institutions specifically listed in section 7-1-8 for visits and examinations...