Perkins v. CTX Mortg. Co., No. 64581-7

• Court: United States State Supreme Court of Washington
• Writing for the Court: DURHAM; MADSEN
• Citation: 969 P.2d 93,137 Wn.2d 93
• Docket Number: No. 64581-7
• Decision Date: 22 February 1999
• Parties: Ed and Jeanne PERKINS, husband and wife and the marital community composed thereof, on behalf of themselves and all similarly situated, Appellants, v. CTX MORTGAGE COMPANY, a Washington corporation, Respondent.

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137 Wn.2d 93 969 P.2d 93 Ed and Jeanne PERKINS, husband and wife and the marital
community composed thereof, on behalf of
themselves and all similarly situated, Appellants,
v.
CTX MORTGAGE COMPANY, a Washington corporation, Respondent. No. 64581-7. Supreme Court of Washington,
En Banc. Argued Jan. 14, 1998.
Decided Jan. 7, 1999.
Reconsideration Denied Feb. 22, 1999.

[969 P.2d 94]

Page 95

Mary E. Fairhurst, Charles K. Wiggins, and Kenneth W. Masters on behalf of the Washington State Bar Association, amicus curiae.

Hillis, Clark, Martin & Peterson, Louis D. Peterson, Lynne M. Cohee, Seattle, Amicus Curiae on Behalf of Washington Mortgage Lenders Association.

Leen & Moore, David A. Leen, Seattle, for Appellant.

Graham & Dunn, Edward W. Pettigrew, Larry J. Smith, Seattle, for Respondent.

DURHAM, C.J.

At issue is whether a mortgage lender engages in the unauthorized practice of law by charging a fee for the production and completion of residential home loan documents. The trial court dismissed the Plaintiffs' class action, concluding that charging a fee for the production of such documents is not the unauthorized practice of law where lay employees participating in such document preparation do not exercise any legal discretion. We agree and affirm.

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Ed and Jeanne Perkins borrowed money from CTX Mortgage Company (CTX) to purchase their home. CTX charged a $250 "document preparation" fee. The fee is not charged with respect to any particular document. ¹ Instead, it is charged to offset the overhead associated with the preparation of the extensive documentation necessary to process and complete loan transactions. CTX prepared various legal and nonlegal documents necessary to process and complete the Perkinses' loan. ² In preparing [969 P.2d 95] these documents, CTX attorneys performed all tasks requiring the exercise of legal judgment. For example, CTX attorneys selected the loan products, created the documents necessary for each loan product, and supervised the programming of CTX's central computer, which generates form templates in the branch offices. At the branch offices, lay employees entered customer information such as Social Security numbers, employer information, and bank account numbers in response to computer prompts depending on the type of loan the Perkinses had selected. Lay employees also entered the loan amount, interest rate, down payment,

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and other factual data. Attorneys prepared the other documents requiring the exercise of legal judgment. For example, the Perkinses' attorneys prepared the purchase and sale agreement, the earnest money agreement, the HUD-1, the excise tax affidavit, the warranty deed, and the escrow instructions.

The Perkinses filed a class action in King County Superior Court on behalf of CTX borrowers who were or would be charged a document preparation fee. They sought a declaratory judgment that CTX engaged in the unauthorized practice of law by charging such a fee for the preparation of loan documents. They further argued that such unauthorized practice of law violated the Consumer Protection Act, RCW 19.86(CPA). The trial court certified the class as consisting of CTX borrowers who had paid a fee for loan documents prepared by CTX and all such future borrowers. After discovery, both parties moved for summary judgment, which was granted in favor of CTX, dismissing the Perkinses' claims. The Perkinses moved for reconsideration, which was denied, before appealing to the Court of Appeals. CTX moved for direct review by this court, which was granted.

I

The Perkinses contend that CTX engaged in the practice of law by selecting and completing the various documents necessary to process the Perkinses' residential home loan. This cannot be seriously disputed. The practice of law includes the selection and completion of legal instruments by which legal rights and obligations are established. Washington State Bar Ass'n v. Great W. Union Fed. Sav. & Loan Ass'n, 91 Wash.2d 48, 54-55, 586 P.2d 870 (1978) (Great Western ); see also In re Discipline of Droker, 59 Wash.2d 707, 370 P.2d 242 (1962); Washington State Bar Ass'n v. Washington Ass'n of Realtors, 41 Wash.2d 697, 251 P.2d 619 (1952) (WSBA v. WAR ). It is established that the selection and preparation of promissory notes and deeds of trust is the practice of law. Great Western, 91 Wash.2d at 55, 586 P.2d 870. CTX

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and amicus Washington Mortgage Lenders Association would have us focus only on the data inputting tasks that lay employees perform. However, CTX's attorneys created the loan documents and helped program CTX's computer system to select the appropriate document templates. Regardless of how CTX allocates tasks between attorney employees and lay employees, CTX employees select and complete those legal documents incident to residential home financing. Thus, CTX engaged in the practice of law by selecting and preparing the various legal documents involved in this case. The question then [969 P.2d 96] becomes whether such activities are authorized. II

Both the Perkinses and the Washington State Bar Association (WSBA) contend that mortgage lenders are authorized to prepare the legal instruments necessary to complete loan transactions as long as they do so without charge. But they argue that CTX's otherwise permissible loan document preparation became unauthorized upon the charging of a fee. ³ This preoccupation with the fee is misplaced. We have firmly rejected the notion that a lay person's authority to prepare legal instruments turns on whether a fee is charged.

In Great Western, the unanimous court held that a bank, by selecting and completing legal documents, including promissory notes and deeds of trust, engaged in the unlawful practice of law where a lay employee filled out the documents and the bank charged a fee for the service. After resolving that the bank had engaged in the practice of law, the court considered whether such actions were unauthorized.

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[W]e have recognized that a party to a legal document may select, prepare or draft that document without fear of liability for unauthorized practice. This exception to our general prohibition against the practice of law by laypersons is analogous to the "pro se" exception for court proceedings. Both exceptions are founded upon the belief that a layperson may desire to act on his own behalf with respect to his legal rights and obligations without the benefit of counsel.

The "pro se" exceptions are quite limited and apply only if the layperson is acting solely on his own behalf. Moreover, a layperson who receives compensation for such legal services may not rely upon the "pro se" exception. The receipt of compensation is conclusive evidence that the layperson is not merely acting for himself but has assumed the additional burden of acting for another.

Great Western, 91 Wash.2d at 56-57, 586 P.2d 870 (citations omitted) (emphasis omitted). Thus, the court held that by charging a fee, Great Western "removed itself from the protection afforded by our 'pro se' exception to the general prohibition against the unauthorized practice of law." Great Western, 91 Wash.2d at 57-58, 586 P.2d 870. The Perkinses contend that Great Western is squarely on point. However, our next unauthorized practice of law case cogently explains how the fee issue in Great Western was irrelevant to the unauthorized practice of law question.

In Hagan & Van Camp, P.S. v. Kassler Escrow, Inc., 96 Wash.2d 443, 635 P.2d 730 (1981), a law firm sued to enjoin an escrow company from preparing earnest money agreements and other acts as the unauthorized practice of law. The unanimous court rejected the proposition that, by not charging a fee, the escrow company's actions were authorized under Great Western.

Petitioner relies heavily upon the fact that no additional charges were made for the services. Petitioner relies on the holding in Great Western to support this aspect of its argument. Such reliance is misplaced. Great Western did charge a fee so the court expressly limited its holding in the case to a situation where a fee is charged. The fact of compensation is

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irrelevant, however, except as to provide evidence of the fact that a lay person is acting for another. We have clearly held that it is the nature and character of the service rendered rather than the fact of compensation for it that governs.

Kassler Escrow, 96 Wash.2d at 451, 635 P.2d 730 (citations omitted) (emphasis added).

Notwithstanding this unambiguous language, both the Perkinses and amicus WSBA rely on our next and last unauthorized practice of law case, Cultum v. Heritage House Realtors, Inc., 103 Wash.2d 623, 694 P.2d 630 (1985), as further support for the proposition that charging a fee for the preparation of [969 P.2d 97] legal documents by lay persons is unauthorized.

In Cultum, a real estate agent prepared an earnest money agreement setting forth the buyer's offer to purchase a home. The buyer asked the agent to insert a structural inspection contingency clause. The agent inserted the standard clause used by her employer. Both the clause and the preprinted earnest money agreement were drafted by lawyers. After the inspection revealed some minor problems, the buyer sought to rescind the offer pursuant to the inspection contingency based on her subjective dissatisfaction. The seller refused to rescind and construed the inspection contingency to require major structural defects based on an objective standard before it could be invoked. The buyer finally recovered her earnest money and sued the real estate company, seeking among other things an injunction against their alleged unauthorized practice of law.

The court held that, although the real estate agent engaged in the practice of law, her actions were not unauthorized. The court was divided four to four, however, on the rationale. The lead opinion ruled narrowly:

It should be emphasized that the holding in this...