Nationscapital Mortg. Corp. v. State Dfi

Decision Date20 June 2006
Docket NumberNo. 32851-8-II.,32851-8-II.
Citation133 Wn. App. 723,137 P.3d 78
CourtWashington Court of Appeals
PartiesNATIONSCAPITAL MORTGAGE CORP., Jamie Chisick; Michael Buff; Kevin Kraus and Darin Williams, Appellants, v. STATE of Washington DEPARTMENT OF FINANCIAL INSTITUTIONS and Scott Johnson, Respondents.

Scott Johnson, Kirkland, WA, pro se.

Mario James Madden, Russillo Schwabe Williamson & Wyatt PC, Jennifer Lynn Campbell, Schwabe Williamson & Wyatt PC, Seattle, WA, Craig Gerard, Gary Roberts, Schwabe Williamson & Wyatt PC, Portland, OR, for Appellants.

Charles Edward Clark, Office of the Attorney General, Olympia, WA, for Respondent.

PART PUBLISHED OPINION

HOUGHTON, J.

¶ 1 Following a 10-month investigation of consumer complaints that Nationscapital Corporation, a mortgage broker, misrepresented loan terms and conditions, the Department of Financial Institutions (DFI)1 brought an enforcement action against Nationscapital Corporation and certain of its officers and employees, alleging numerous violations of the Mortgage Broker Practices Act (Act), chapter 19.146 RCW. An administrative law judge (ALJ) found that Nationscapital Corporation committed most of the alleged violations. The ALJ also found the Nationscapital Corporation president personally liable for some violations. With some revisions, a reviewing officer adopted the ALJ's findings and conclusions and issued a final order assessing fines totaling $457,575 and restitution of $712,527 to 120 borrowers.

¶ 2 Nationscapital Corporation and its president and officers (Nationscapital) appeal arguing that DFI (1) exceeded its statutory authority by investigating Nationscapital and bringing an enforcement action beyond that necessary to resolve the specific consumer complaints filed with DFI; (2) erroneously ordered restitution to 120 borrowers who did not initiate a complaint; (3) violated the appearance of fairness doctrine and/or its due process rights by permitting a biased agency head to appoint the reviewing officer; (4) erred in holding the corporation's president, Jamie Chisick, personally liable for fines and restitution; (5) acted arbitrarily and capriciously in banning one of its officers, Michael Buff, from the mortgage broker business for five years; and (6) entered findings unsupported by substantial evidence. Finding no error, we affirm.2

FACTS
FACTS RELEVANT TO INVESTIGATIVE AUTHORITY

¶ 3 DFI granted Nationscapital a mortgage broker's license in May 1995. During the next two years, DFI received seven consumer complaints about Nationscapital's loan terms and conditions. Following DFI's procedures, DFI asked Nationscapital to provide a written response to the consumer complaints. In each instance, Nationscapital stated that it had fully disclosed the loan terms and conditions and that the consumers could have, but did not, choose to rescind the loan. Again, following its procedures, DFI closed the first five complaints after consumers failed to indicate their dissatisfaction with Nationscapital's response.

¶ 4 In April 1997, John and Carol Salick filed a complaint with DFI, alleging that Nationscapital misrepresented their loan terms and conditions. In May 1997, Nevada Prater also filed a complaint, alleging that Nationscapital misrepresented her loan terms and conditions. In addition, Prater filed a class action lawsuit in federal district court.

¶ 5 The Salicks claimed that Nationscapital told them their loan costs would not exceed $1,500 for an $88,000 refinancing loan, but their actual costs were over $13,000. DFI reviewed copies of the loan documents the Salicks provided. The Truth in Lending Disclosure Statement (TIL) stated: "These are FEES NOT paid by the Borrower . . . BROKERS FEE . . . $8,805.00." Ex. 67 at 2. Under that statement is a line-item broker-origination fee of $8,805. Based on the TIL and verbal representations Nationscapital employees made, the Salicks incorrectly believed they were not responsible for the $8,805 broker-origination fee.

¶ 6 Alarmed by the Salick loan documents, DFI investigators suspected that the documents typified a broader practice of misrepresenting loan terms and conditions. In June 1997, DFI began investigating the consumer complaints. On June 23, 1997, DFI issued a demand for production of records for "All files for loans originated in the State of Washington as requested by the Director's agents" and "All trust account records for the client's trust account (specific records and documents to be identified by the Directors agents)." Ex. 15.

¶ 7 Three DFI employees, including Chuck Cross, appeared unannounced at the Bellevue office and served the demand. Two Nationscapital employees were present, Steve Willis and Scott Johnson. Willis is a licensed broker who managed the Bellevue office. When the investigators asked to see Nationscapital's business records, Willis told them that all records were maintained at the corporate headquarters in California. The Act requires a mortgage broker to maintain its records in Washington.

¶ 8 Cross asked Willis to explain Nationscapital's process for soliciting loans in Washington. Willis said Nationscapital used a "predictive dialer" from a location in California, which leaves a recorded message on a consumer's answering machine. Ex. 16 at 4. Also, Nationscapital relied on calls placed by California telemarketers. And Nationscapital received referrals from the First Alliance Mortgage Corporation (FAMC), a consumer loan company owed by Jamie Chisick's father. Willis further stated that the corporate headquarters would send a package of documents to the Bellevue office and that he or another Nationscapital employee would visit the consumer's home to obtain signatures on loan application documents. The Bellevue office then forwarded the documents to California for processing, including the preparation of closing documents by an escrow company Jamie Chisick owned. Finally, a Bellevue office employee would visit the consumer's home again to obtain signatures on the closing documents. The Act prohibits loan solicitation and processing by unlicensed out-of-state mortgage brokers.

¶ 9 Willis also told Cross he relied on Nationscapital's training manuals, which instructed him how to behave when he visited consumers' homes to obtain signatures on loan documents. Cross asked to see the manuals. After some resistance, Willis gave the investigators three manuals from an office shelf. These manuals instructed Nationscapital employees to avoid answering direct questions about loan terms and conditions, trained them in evasive techniques, and advised them to make false representations to consumers. The Act prohibits mortgage brokers from misleading consumers about loan terms and conditions.

¶ 10 Cross then asked Willis whether Nationscapital had a trust account in Washington. Willis said he did not know. The Act requires mortgage brokers to comply with detailed trust account regulations.

¶ 11 Cross also questioned Willis and Johnson about the Salicks' allegations. In particular, he showed Willis the Salicks' loan disclosure documents. Willis and Johnson appeared confused by the apparently inconsistent disclosure statements. Cross asked Willis whether the Salick transaction was typical. Willis said that it was. Willis also said that the Bellevue office handled about 200 loan transactions annually.

¶ 12 In August 1997, DFI ordered Nationscapital to cease and desist business as a Washington mortgage broker. Additionally, DFI ordered Nationscapital to return its business records to Washington and to make them available for DFI's review. Nationscapital sought and obtained a temporary order to stay the agency action, which permitted Nationscapital to continue doing business but ordered it to refrain from specific unlawful behaviors, including making false and misleading statements, falsely notarizing documents, failing to make timely disclosure of lending information, and maintaining its records outside of Washington. The court also ordered Nationscapital to make its records available for DFI's review and to file required documents with DFI documenting compliance with trust account regulations.

¶ 13 On September 25, 1997, DFI issued a third demand to Nationscapital for records production. In addition to the information previously requested, the demand requested records of General Acceptance Mortgage Corporation (GAMC),3 which conducted business as a mortgage broker in Washington for a year before changing its name to Nationscapital. DFI also requested a list of Washington consumers solicited by either GAMC or Nationscapital; a list of all borrowers for whom either company originated a loan in Washington; and details of any disputes with consumers, together with associated correspondence and settlement agreements.

FACTS RELATED TO JAMIE CHISICK

¶ 14 Jamie Chisick owned Nationscapital and served as its president and secretary. He oversaw Nationscapital's operations, including telemarketing and loan processing activities conducted out of the California headquarters. Chisick, together with Buff, prepared the telemarketing and document signer manuals used to solicit Washington consumers. He also supervised training activities at the California headquarters. And Chisick hired and supervised Willis, who ran the Washington office. In several instances, he personally dealt with consumer complaints about loans originated in Washington.

FACTS RELEVANT TO APPOINTMENT OF REVIEWING OFFICER

¶ 15 During the investigation period, John Bley served as DFI's director and Mark Thomson served as deputy director. Thomson participated in all major decisions concerning the investigation of Nationscapital. He also participated in defining the scope of the investigation and in preparing the statement of charges against Nationscapital. Nationscapital deposed him and called him as a witness during the...

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