State v. WWJ Corp.

• Decision Date: 29 July 1999
• Docket Number: No. 66469-2,66469-2
• Citation: 980 P.2d 1257,138 Wn.2d 595
• Court: Washington Supreme Court
• Parties: STATE of Washington, Respondent, v. WWJ CORPORATION, a Washington corporation, d/b/a/ Mountain Pacific Mortgage; William W. Johnson and Jane Doe Johnson, husband and wife; Petitioners, and DMG Mortgage # 13, Inc., a Washington corporation; DMG # 16, Inc., a Washington corporation; Diversified Mortgage, Inc., a Washington corporation; and DMG Mortgage, Inc., an Indiana corporation; Defendants.

Page 1257

138 Wn.2d 595

980 P.2d 1257

STATE of Washington, Respondent, v. WWJ CORPORATION, a Washington corporation, d/b/a/ Mountain

Pacific Mortgage; William W. Johnson and Jane Doe

Johnson, husband and wife; Petitioners,

and

DMG Mortgage # 13, Inc., a Washington corporation; DMG #

16, Inc., a Washington corporation; Diversified Mortgage,

Inc., a Washington corporation; and DMG Mortgage, Inc., an

Indiana corporation; Defendants.

No. 66469-2.

Supreme Court of Washington,

En Banc.

Argued Jan. 14, 1999.

Decided July 29, 1999.

Carney, Badley, Smith & Spellman, James E. Lobsenz, Seattle, for Petitioners.

Christine Gregoire, Attorney General, David M. Horn, Asst. Atty. Gen., Sally R. Gustafson, Senior Asst. Atty. Gen., Seattle, for Respondent.

IRELAND, J.

WWJ Corporation and William and Rosemary Johnson were fined $500,000 for violating the Mortgage Broker Practices Act and the Consumer Protection Act 250 times. On appeal they argued the fine violates the Excessive Fines Clause of the Eighth Amendment and the Due Process Clause of the Fourteenth Amendment. The Court of Appeals declined to address the newly raised constitutional issues. We find the Court of Appeals applied the incorrect standard in rejecting review of the constitutional claims, but we affirm nonetheless, finding the newly raised constitutional issues do not merit review under RAP 2.5(a)(3).

FACTS

William Johnson was the sole owner of WWJ Corporation (WWJ), a mortgage broker business. Johnson operated WWJ from 1991 until July 1992, when he closed the business and sold WWJ's assets to DMG Mortgage, Inc. (DMG), a multistate mortgage brokerage organized under the laws of the State of Indiana. Johnson became the Northwest regional manager of DMG and continued working as a mortgage broker in Washington State until the summer of 1994, when DMG closed its Washington offices.

The Attorney General began investigating Johnson's business after an appraiser complained about not being paid for its services. ¹ In August 1992, the State brought this action against WWJ and the Johnsons, alleging violations of the Mortgage Broker Practices Act (MBPA), RCW 19.146, and the Consumer Protection Act (CPA), RCW 19.86. DMG was later added as a party. In September 1994, the State moved for summary judgment. One attorney represented all defendants, but filed no response to the summary judgment motion. Finding no contested facts, the trial court granted the State's motion A brief summary of the violations and the trial court's award is necessary. Any violation of any section of the MBPA is a per se "unfair or deceptive act or practice ... in violation of RCW 19.86.020." RCW 19.146.100. The Consumer Protection Act, RCW 19.86, provides for civil penalties not exceeding $2,000 for every violation of RCW 19.86.020. RCW 19.86.140. The trial court found the State's calculations, totaling 250 violations of the MBPA and CPA by Johnson, were conservative. The State requested, and the court granted, $32,254 in restitution, the State's attorney fees and costs, and the maximum $2,000 penalty per violation totaling a $500,000 penalty.

and found against all defendants. ² Hereinafter the Johnsons and WWJ will collectively be referred to as Johnson.

Of the 250 violations, one involved Johnson's failure to maintain business records in accordance with RCW 19.146.060, and the other 249 involved the following statute:

A mortgage broker shall deposit, prior to the end of the next business day, all moneys received from borrowers for third-party provider services in a trust account of a federally insured financial institution located in this state. The trust account shall be designated and maintained for the benefit of borrowers. Moneys maintained in the trust account shall be exempt from execution, attachment, or garnishment. A mortgage broker shall not in any way encumber the corpus of the trust account or commingle any other operating funds with trust account funds. Withdrawals from the trust account shall be only for the payment of bona fide services rendered by a third-party provider or for refunds to borrowers. Any interest earned on the trust account shall be refunded or credited to the borrowers at closing.

Former RCW 19.146.050 (1994). ³

The State presented, and the trial court found, 182 instances where Johnson charged borrowers a deposit for third party services and placed such deposits in non-trust accounts where they were commingled with other operating funds. ⁴ From these commingled accounts, Johnson wrote 67 checks which were not for third party services or customer refunds. Besides these 249 violations of RCW 19.146.050, the State did not count as violations the number of customers whose deposits were not refunded, or the number of third party providers who were not paid for their services. ⁵ Additionally, the State did not include all of the repetitive trust account violations, all of the transactions where operating funds were improperly deposited into accounts containing client funds, and all instances where clients' checks were not deposited in the bank prior to the end of the next business day after the checks were received.

The trial court found Johnson manifested an extreme lack of good faith and a pattern of disregard for the law. Johnson committed huge numbers of repetitive violations, and he continued doing so even after the State filed its action against him. Given the extensive documentation submitted to the trial court, the State could have proven far more than the 250 violations listed in its summary judgment motion. Additionally, Johnson's illegal conduct occurred at a time when there was a high market demand for refinancing, giving Defendants appealed the judgment. Among other issues raised, Johnson challenged, for the first time, the amount of the civil penalty as violating both the Excessive Fines Clause of the Eighth Amendment and the Due Process Clause of the Fourteenth Amendment. The Court of Appeals declined to reach the constitutional issues, holding they could not be raised for the first time on appeal. State v. WWJ Corp., 88 Wash.App. 167, 173-74, 941 P.2d 717 (1997). Johnson petitioned for review. He urges this court to reach the constitutional issues and reverse the $500,000 civil penalty as violating the Eighth and Fourteenth Amendments.

him further rein to abuse his customers' fiduciary trust with impunity. The trial court found Johnson's conduct caused substantial injury to the public, and the court imposed the maximum civil penalty per violation, in part to eliminate the benefits derived by Johnson from his violations.

ANALYSIS

A. The Court of Appeals Decision

In dismissing review of the constitutional issues, the Court of Appeals held newly raised constitutional issues are not considered on appeal in civil cases unless they involve the court's jurisdiction. WWJ Corp., 88 Wash.App. at 173-74 & n. 9, 941 P.2d 717 (citing Rismon v. State, 75 Wash.App. 289, 294, 877 P.2d 697 (1994) (citing Aripa v. Department of Soc. & Health Servs., 91 Wash.2d 135, 141, 588 P.2d 185 (1978))). The appellate decision relies upon outdated common law, whereas we rely upon RAP 2.5(a) to decide the issue.

At common law, constitutional issues not raised in the trial court were not considered on appeal, with just two exceptions. Robinson v. Peterson, 87 Wash.2d 665, 675, 555 P.2d 1348 (1976). If a defendant's constitutional rights in a criminal trial were violated, such issue could be raised for the first time on appeal. Id. (citing State v. Lampshire, 74 Wash.2d 888, 447 P.2d 727 (1968)). Secondly, where a party raised a constitutional challenge affecting the jurisdiction of the trial court, an appellate court could also reach the issue. Id. (citing Kueckelhan v. Federal Old Line Ins. Co. (Mut.), 69 Wash.2d 392, 418 P.2d 443 (1966)).

When this court adopted the Rules of Appellate Procedure in 1976, RAP 2.5(a) replaced the common law rule for newly raised issues on appeal. RAP 2.5(a) states:

The appellate court may refuse to review any claim of error which was not raised in the trial court. However, a party may raise the following claimed errors for the first time in the appellate court: ... (3) manifest error affecting a constitutional right.

This rule makes no distinction between civil and criminal cases. The plain language of subsection three states a party may challenge for the first time on appeal a manifest error that affects a constitutional right. We have recognized that civil parties may raise constitutional issues on appeal if they satisfy the criteria listed in RAP 2.5(a)(3). See Richmond v. Thompson, 130 Wash.2d 368, 385, 922 P.2d 1343 (1996) (citing Haueter v. Cowles Publ'g Co., 61 Wash.App. 572, 577 n. 4, 811 P.2d 231 (1991)). Subsection three is not restricted to constitutional claims affecting the jurisdiction of the court. In fact, a challenge to the court's jurisdiction is addressed by an entirely different subsection-RAP 2.5(a)(1).

Some cases decided after adoption of the RAP, including WWJ Corp., have erroneously adhered to the outdated common-law rule regarding newly raised issues on appeal. See, e.g., Aripa v. Department of Soc. & Health Servs., 91 Wash.2d 135, 141, 588 P.2d 185 (1978) (civil parties may raise a new constitutional issue on appeal only if the issue affects the jurisdiction of the court); Jones v. Industrial Elec.-Seattle, Inc., 53 Wash.App. 536, 539, 768 P.2d 520 (1989); Department of Labor & Indus. v. Wendt, 47 Wash.App. 427, 431, 735 P.2d 1334 (1987). These cases are overruled insofar as they are inconsistent with the plain language of RAP 2.5(a), which makes no distinction between civil and criminal cases.

B. Applying RAP 2.5(a)(3) to the Excessive Fines Claim

We now review whether Johnson's claimed constitutional errors warrant review under RAP 2.5(a)(3). Because RAP 2.5(a)(3) is an exception to the general rule that parties cannot raise new arguments on appeal, we construe the exception narrowly by...