State ex rel. McGraw v. Combs Services

• Citation: 206 W.Va. 512,526 S.E.2d 34
• Decision Date: 10 December 1999
• Docket Number: No. 26196.,26196.
• Court: Supreme Court of West Virginia
• Parties: STATE of West Virginia ex rel. Darrell V. McGRAW, Jr., Attorney General, Plaintiff Below, Appellant, v. COMBS SERVICES; Combs Services, Inc.; Combs Funeral Services, Inc., d/b/a Greenlief-Combs Funeral Home; Steven W. Combs, Individually; and Steven W. Combs, Funeral Director, Defendants Below, Appellees, and Mountain Valley Bank, N.A., Intervenor Below, Appellee.

526 S.E.2d 34

206 W.Va. 512

STATE of West Virginia ex rel. Darrell V. McGRAW, Jr., Attorney General, Plaintiff Below, Appellant, v. COMBS SERVICES; Combs Services, Inc.; Combs Funeral Services, Inc., d/b/a Greenlief-Combs Funeral Home; Steven W. Combs, Individually; and Steven W. Combs, Funeral Director, Defendants Below, Appellees, and Mountain Valley Bank, N.A., Intervenor Below, Appellee.

No. 26196.

Supreme Court of Appeals of West Virginia.

Submitted October 6, 1999.

Decided December 10, 1999.

Darrell V. McGraw, Jr., Attorney General, Jill L. Miles, Deputy Attorney General, Charleston, West Virginia, Attorneys for the Appellant.

Harry A. Smith, III, Jory & Smith, L.C., Elkins, West Virginia, Attorney for the Appellee, Mountain Valley Bank, N.A.

Roger Forman, Forman & Crane, Charleston, West Virginia, Deborah M. Zuckerman, AARP Foundation, Michael Schuster, AARP, Washington, District of Columbia, Attorneys for Amicus Curiae, American Association of Retired Persons.

Charles D. Dunbar, Jackson & Kelly, PLLC, Charleston, West Virginia, John J. Gill, Michael F. Crotty, L.H. Wilson, American Bankers Association, Washington, District of Columbia, Attorneys for Amicus Curiae, American Bankers Association.

Sandra M. Murphy, Julia A. Chincheck, Kenneth E. Webb, Jr., Bowles Rice McDavid Graff & Love, PLLC, Charleston, West Virginia, Attorneys for Amicus Curiae, West Virginia Bankers Association. DAVIS, Justice:

The plaintiff below, and appellant herein, Darrell V. McGraw, Jr., Attorney General of West Virginia [hereinafter "Attorney General"], appeals the November 9, 1998, order of the Circuit Court of Tucker County. In that order, the circuit court determined that the perfected security interests of the intervenor below and appellee herein, Mountain Valley Bank, N.A., were superior to the statutory liens which were claimed by the Attorney General and which arose pursuant to W. Va.Code § 47-14-11(d) (1995) (Repl.Vol.1999) as a result of the failure of the defendants below and appellees herein, Combs Services, et al., to place in trust monies they had received from the sale of preneed funeral contracts. Additionally, the court ruled that the claims of two preneed funeral contract buyers, who purchased their contracts prior to the creation of the intervenor's perfected security interests, did not constitute statutory liens in accordance with the then-applicable prior version of the priority statute, W. Va.Code § 47-14-11(d) (1983) (Repl.Vol. 1992). Upon a review of the parties' arguments, the appellate record, and the pertinent authorities, we find that, as between the preneed funeral contract claims and the intervenor's secured claims at issue herein, the contract claims arising before the perfection of the intervenor's security interests should receive first priority; the intervenor's secured claims are entitled to second priority; and the contract claims arising after the intervenor perfected its security interests should be paid third. Therefore, we affirm as modified the ruling of the Tucker County Circuit Court.

I. FACTUAL AND PROCEDURAL HISTORY

The facts of this case are largely undisputed by the parties. Beginning in June, 1983, Steven W. Combs and Greenlief-Combs Funeral Home [hereinafter collectively referred to as "Combs," "the defendants," or "the Combs defendants"] sold preneed funeral contracts.¹ W. Va.Code § 47-14-1, et seq., the Preneed Burial Contracts Act, regulates such contracts and charges the Consumer Protection Division of the West Virginia Attorney General's Office [hereinafter "the Division"] with the administration and enforcement of these provisions. Pursuant to W. Va.Code § 47-14-8(f) (1987) (Repl.Vol.1992) and W. Va.Code § 47-14-8(f) (1995) (Repl. Vol.1999), all sellers of preneed funeral contracts are required to record the contracts with the Division and to pay a recording fee therefor. In addition, W. Va.Code § 47-14-5(a)(3) (1987) (Repl.Vol.1992) and W. Va.Code § 47-14-5(a)(3) (1995) (Repl.Vol.1999) mandate sellers of preneed funeral contracts to deposit the sales proceeds in a separate trust account to ensure the continued availability of these funds for future burial expenses.

During a 1997 audit of Combs, the Division discovered that he had violated the terms of W. Va.Code § 47-14-8(f) by failing to record the contracts he had sold and by neglecting to pay the attendant recording fees. In January, 1998, the Division filed suit against Combs, in the Circuit Court of Tucker County, regarding these violations. This suit was settled, with Combs agreeing to record the unrecorded contracts and to tender the appropriate recording fees. Following this settlement, the Division learned that the Greenlief-Combs Funeral Home was no longer in business. The Division, recognizing that Combs had sold preneed funeral contracts to individuals who were still living, requested Combs to turn these files over to the Division. Combs eventually surrendered the files of fourteen contract buyers.

An audit of these accounts revealed that, contrary to W. Va.Code § 47-14-5(a)(3), Combs had failed to deposit the sales proceeds for these contracts, approximately $52,518.66, into a separate trust account.² Therefore, the Division again filed suit, in Tucker County Circuit Court, against Combs seeking, inter alia, to preliminarily enjoin him from engaging in the trade of funeral director and requesting the court to issue a prejudgment attachment on all property and assets held by all of the Combs defendants. By order entered July 21, 1998, the Circuit Court of Tucker County granted a preliminary injunction to enjoin Combs from practicing his trade as a funeral director in this State and attached several pieces of the Combs defendants' property.³ Thereafter, by order entered August 17, 1998, the circuit court entered default judgment against the Combs defendants and in favor of the Division upon the defendants' failure to answer the Division's complaint.

While the Division was seeking injunctive relief, the intervenor below and appellee herein, Mountain Valley Bank, N.A. [hereinafter "the Bank"], filed a motion to intervene in the proceedings, claiming to be an interested party because it holds two promissory notes secured by the previously-attached Combs defendants' property.⁴ In the course of its intervention, the Bank asserted that its security interests in the attached property gave it a superior right over the claims of the contract buyers. By order entered November 9, 1998, the circuit court agreed with the Bank's assertion, ruling that "the Plaintiff's [the Division's] statutory lien under West Virginia Code [§] 47-14-11(d) does not have priority over the properly perfected security interests of the Intervenor [the Bank]."⁵ The court also concluded that "[t]he Sarah Everly and Goldie Harbert pre-need funeral contracts are not statutory liens." From this order of the circuit court, the Division appeals to this Court.

II. STANDARD OF REVIEW

Prior to reaching the merits of the Division's assignments of error, we must consider the standard governing our review of the circuit court's rulings. Generally,

[i]n reviewing challenges to the findings and conclusions of the circuit court, we apply a two-prong deferential standard of review. We review the final order and the ultimate disposition under an abuse of discretion standard, and we review the circuit court's underlying factual findings under a clearly erroneous standard. Questions of law are subject to a de novo review.

Syl. pt. 2, Walker v. West Virginia Ethics Comm'n, 201 W.Va. 108, 492 S.E.2d 167 (1997). With specific regard to the legal issues presented for our determination, " `[w]here the issue on an appeal from the circuit court is clearly a question of law or involving an interpretation of a statute, we apply a de novo standard of review.' Syllabus point 1, Chrystal R.M. v. Charlie A.L., 194 W.Va. 138, 459 S.E.2d 415 (1995)." Syl. pt. 2, Webster County Comm'n v. Clayton, 206 W.Va. 107, 522 S.E.2d 201 (1999). See also Syl. pt. 1, in part, West Virginia Human Rights Comm'n v. Garretson, 196 W.Va. 118, 468 S.E.2d 733 (1996) ("Interpreting a statute presents a purely legal question subject to our de novo review ...."). Having enunciated these standards, we now turn to the parties' contentions.

III. DISCUSSION

On appeal to this Court, the Division challenges the circuit court's interpretation of the priority language contained in W. Va.Code § 47-14-11(d). Specifically, the Division contends that the circuit court erroneously determined that the Bank's properly perfected security interests in the defendants' property were superior to the priority afforded to the statutory liens of those individuals who had purchased preneed funeral contracts from the Combs defendants. The Bank rejects the Division's arguments and urges this Court to uphold the lower court's ruling.⁶

A review of the facts underlying this appeal suggests that there are three groups of claims competing for participation in the distribution of the defendants' attached assets: claims of contract buyers that arose before the Bank acquired its security interests [hereinafter "pre-Bank claims"]; the Bank's security interests [hereinafter "Bank claims"]; and claims of contract buyers that arose after the Bank acquired its security interests [hereinafter "post-Bank claims"]. Given the chronology of these claims, it appears that the statutory language governing this controversy is two-fold. The pre-Bank claims are the product of preneed funeral contracts entered into in 1990, by Everly, and on December 6, 1994, by Harbert. As these events occurred prior to the currentlyapplicable amendments to W. Va.Code § 47-14-11(d), see W. Va.Code § 47-14-11(d) (1995) (Repl.Vol.1999), they are governed by the statute then in effect, W. Va.Code § 47-14-11(d) (1983) (Repl.Vol.1992). This language provides that "[a]ll preneed funeral contract buyers have a priority in claims against the...