Goldome Credit Corp. v. Burke

• Citation: 923 So.2d 282
• Decision Date: 02 September 2005
• Docket Number: 1021072.
• Parties: GOLDOME CREDIT CORPORATION v. Selena BURKE.
• Court: Alabama Supreme Court

923 So.2d 282

GOLDOME CREDIT CORPORATION v. Selena BURKE.

1021072.

Supreme Court of Alabama.

September 2, 2005.

Thomas E. Walker, Anne P. Wheeler, William D. Jones III, and Susan T. Spence of Johnston Barton Proctor & Powell, LLP, Birmingham, for appellant.

George C. Douglas, Jr., of Campbell & Douglas, Sylacauga; and Jerry L. Thornton, Hayneville, for appellee.

SMITH, Justice.¹

The defendant below, Goldome Credit Corporation, appeals from a summary judgment entered in favor of Selena Burke, the plaintiff/class representative in this class action alleging that Goldome imposed excessive charges on mortgage loans. We reverse and remand.

Facts and Procedural History

On August 24, 1988, Selena Burke and her daughter, Diane Burke,² executed a simple-interest note ("the note") in the amount of $14,101, payable to Horizon Funding, Inc. The note was secured by a mortgage on property owned by Selena. The note bore interest at a yearly rate of 15.5% and was payable in monthly installments of $202.21 over a nearly 15-year term. It further provided that the borrowers had the right to prepay the principal of the loan in whole or part at any time, without penalty.

A document entitled "itemization of amount financed," which Selena and Diane signed at the closing of the loan, reflected that $560 of the $14,101 was a "prepaid finance charge" paid to Horizon. Additionally, the document reflected in a portion entitled "amount paid to others on your behalf" that $500 was paid to "Martha Chestnut, Broker." Other amounts were also paid to various third parties, including payments for an appraisal, title insurance, a credit report, a "mortgage payoff," and filing fees to "public officials."

Several days after the note was executed, Horizon sold the note to Goldome.³ Goldome in turn paid Horizon the face amount of the note plus an additional sum of $530.44 (hereinafter referred to as the "yield spread premium"). According to the record, the yield spread premium due Horizon actually totaled $707.26. However, Goldome deducted a "25% reserve," and Horizon apparently received a reduced amount of $530.44 as the yield spread premium.⁴

Diane made payments on the note and ultimately prepaid the note in full before the end of its term. It is undisputed that Selena never made a payment on the note.

On October 13, 1994, after the note had been paid in full, Selena sued Horizon, Goldome, and fictitiously named defendants, alleging causes of action based on fraud, suppression, conspiracy, breach of fiduciary duty, and violations of Alabama's "Mini-Code," Ala.Code 1975, § 5-19-1 et seq.⁵ The complaint states, in part:

"1. On or about August 24, 1988 the plaintiff obtained a second mortgage loan on certain property in Lowndes County, Alabama through the defendant Horizon Funding, Inc. (`Horizon'). In arranging this loan, Horizon was acting as the agent of defendant Goldome Credit Corporation (`Goldome'), which was the actual lender. Goldome reviewed and approved the plaintiff's loan documents before making the loan. . . .

"2. In connection with the loan the plaintiff was required to pay $500.00 for a broker's fee, which was included in the principal amount of the loan as shown in the attached Exhibit A. . . .

"3. In fact, the broker's fee was an additional finance charge in the nature of points or other front-end charge, which was a material fact that the defendants misrepresented and/or suppressed in connection with the loan. . . .

"4. As a result of the defendants' misrepresentation and/or suppression of the nature of the brokers' fee, the defendants also misrepresented the true interest rate and finance charge on the plaintiff's loan.

"5. In reliance upon the misrepresentation and/or suppression of the defendants, the plaintiff entered into the loan. As a result the plaintiff has been injured and damaged by paying more in interest and finance charges than she was told by the defendants."

Additionally, the complaint sought certification of the action as a class action.

After initial discovery, Selena amended the complaint on November 7, 1995, to add a claim specifically alleging that Horizon and Goldome had violated Ala. Code 1975, § 5-19-4(g).⁶ The amendment alleged that the yield spread premium, the $560 "prepaid finance charge," and the $500 fee to Chestnut were actually "points" and that they exceeded the limitation on points found at the time in Ala.Code 1975, § 5-19-4(g).

Selena later moved the trial court to certify the action as a class action. In an order dated May 6, 1998, the trial court certified the action under Rule 23(b)(3), Ala. R. Civ. P., as a class action with three subclasses. The first two subclasses were based on the fraud and suppression claims; however, the trial court later vacated its certification of those two subclasses, leaving one remaining class, which the trial court described in its certification order as follows:

"The total of the $500.00 broker fee and $560.00 `Prepaid Finance Charge' stated on Exhibit A, and the $707.26 [yield spread premium] to the broker shown on Exhibits B and C, Plaintiff's Brief Supporting Class Certification, is $1,767.60 [sic]. Plaintiff alleges that these charges are `points' within the meaning of, and subject to the limitation of, Sec. 5-19-4(g), Code of Alabama.

"....

"In Ms. Burke's case, the $1,767.60 total of yield spread premium, broker fee, and prepaid finance charge equals 13.05%, of the stated Amount Financed ($13,541.00)....

"The second amendment to the complaint alleges that the total broker's fee, [yield spread premium,] and prepaid finance charge exceed the 5% maximum on points allowed by Sec. 5-19-4(g), Code of Alabama, and that all these payments are `finance charges' under Sec. 5-19-1(1) which says:

"`(1) Finance charge. The sum of all charges, payable directly or indirectly by the person to whom credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit. . . .'

"The Alabama Supreme Court has held that a yield spread premium is a prepaid finance charge, and that all such charges are `points' within the 5% cap of Sec. 5-19-4(g). In Smith v. First Family Financial Services, Inc., 626 So.2d 1266 (Ala.1993) the Court said[:]

"`The Mini-Code (Sec.15-19-1(1)) defines "finance charge" as including all charges "imposed directly or indirectly," including points or other charges, "however denominated."

"`. . . Alabama Code 1975, Sec. 5-19-4(g), provides:

"`"(g) Notwithstanding the provisions of this or any other section of this chapter, a creditor may, pursuant to contract, in a consumer loan or consumer credit sale secured by an interest in real property, charge and collect points in an amount not to exceed five percent of the original principal balance in the case of a closed-end loan or credit sale, . . ."

"`... 5-19-1(1) defines "finance charge" as including every charge imposed on the consumer whether "directly or indirectly," by whatever designation. Section 5-19-4(g) merely states that, for purposes of computing a finance charge refund, points, being fully earned on the date of the loan, may be excluded.

"`That this is so does not change the nature of the spread yield [sic] premium. It is a part of the origination loan fee paid to the mortgage broker on the front end of the loan. It is a cost of borrowing money, defined as a "finance charge" under the Mini-Code.'

"626 So.2d at 1271 (emphasis added).

"....

"Plaintiff alleges that Smith ... hold[s] any up-front fees to a lender or broker are `points,' and that Goldome's `yield spread premiums' to brokers were `prepaid finance charges' and `points,' which along with broker fees were subject to the 5% limit of Sec. 5-19-4(g).

"Plaintiff's revised motion for class certification requests certification of the following subclass No. 3:

"3. All Alabama residents who received any loan from Goldome Credit Corporation after June 30, 1988, which was arranged through any loan broker, and in which the total of broker's fees, yield spread premium, and/or other prepaid finance charges paid to the broker by Goldome exceeded 5% (five percent) of the original principal balance of the loan."

On May 15, 1998, Selena, as class representative, filed a motion for a partial summary judgment on her claim that Goldome had violated the five percent limitation on points found in § 5-19-4(g). Goldome filed its own motion for a summary judgment on November 16, 1998. On October 19, 1999, the trial court entered a partial summary judgment in favor of the class. Specifically, the trial court held:

"(a) Summary judgment on the issue of liability is hereby entered in favor of the class and against [Goldome] ... as to each loan in the class having prepaid finance charges, broker fees and/or yield spread premiums totaling more than 5% of the original principal balance. The Court finds that each such loan was made in violation of [Ala.Code 1975, § 5-19-4(g)].

"(b) Pursuant to the applicable provisions of [§ 5-19-19], and United Companies Lending Corp. v. Autrey, 723 So.2d 617 (Ala.1998), each member of the plaintiff class whose loan carries prepaid finance charges, broker fees and/or yield spread premiums totaling more than 5% of the original principal balance is entitled to recover from Goldome Credit Corporation ... the total finance charge on each such loan....

"2. As to Goldome's motion for summary judgment: Summary judgment is granted in favor of Goldome solely on the issue of whether its violation of Sec. 5-19-4(g) was `. . . in deliberate violation of or in reckless disregard' of the law, and Goldome's motion is denied in all other respects."

Goldome filed a motion asking the trial court to certify an interlocutory appeal pursuant to Rule 5, Ala. R.App. P. The trial court denied the motion. Goldome then filed a petition for writ of mandamus with this Court, seeking a writ directing the trial court to vacate its October 19, 1999, summary judgment, and to...