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Montgomery v. GCFS, Inc.

California Court of Appeals, First District, Fifth Division

June 12, 2015

KHALEMA M. MONTGOMERY, Cross-complainant and Appellant,
v.
GCFS, INC., et al., Cross-defendants and Respondents.

[CERTIFIED FOR PARTIAL PUBLICATION[*]]

Superior Court of Alameda County, No. HG-12-640018, Hon. Delbert C. Gee, Judge.

Page 725

[Copyrighted Material Omitted]

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COUNSEL

Consumer Law Center, Fred W. Schwinn and Raeon R. Roulston, for Cross-complainant and Appellant.

Brighton Hushing-Kline, for Cross-defendants and Respondents GCFS, Inc. and Nancy Edrington.

Dennis Scott Carruthers, in pro. per., and for Cross-defendants and Respondents Mountain Lion Acquisitions, Inc., Andy Maxwell, and Mountain Lion Acquisitions, LLC.

Alto Litigation, Bahram Seyedin-Noor and Bryan Ketroser for Sunlan Corporation as Amicus Curiae on behalf of Cross-defendants and Respondents.

Page 727

OPINION

SIMONS, J.

Financial Code section 22340, subdivision (a) (section 22340(a))[1] provides that “A licensee may sell promissory notes evidencing the obligation to repay loans made by the licensee pursuant to this division or evidencing the obligation to repay loans purchased from and made by another licensee pursuant to this division to institutional investors, and may make agreements with institutional investors for the collection of payments or the performance of services with respect to those notes.”[2] After being sued for an unpaid consumer debt, Khalema M. Montgomery (appellant) filed a cross-complaint challenging the validity of her debt. She contends the sale of her debt from a licensed finance lender to an entity that was neither licensed nor an institutional investor violated section 22340(a). We reject appellant’s interpretation of this provision and affirm.

BACKGROUND

In 2004, CashCall, Inc. (CashCall) issued a consumer credit account to appellant.[3] CashCall was a licensed finance lender pursuant to the California Finance Lenders Law (§ 22000 et seq.; Finance Lenders Law). The debt appellant incurred from the credit account is governed by the Finance Lenders Law.

In 2011, CashCall sold appellant’s debt to GCFS, Inc. (GCFS) for collection. In 2012, GCFS sold appellant’s debt to Mountain Lion Acquisitions, LLC (Mountain Lion LLC). Mountain Lion LLC then sold or assigned the debt to Mountain Lion Acquisitions, Inc. (Mountain Lion). None of the following—GCFS, Mountain Lion LLC, or Mountain Lion is a licensed finance lender pursuant to the Finance Lenders Law. These entities are also not institutional investors within the meaning of section 22340.[4]

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Mountain Lion subsequently sued appellant for payment on the debt. Appellant filed a cross-complaint against Mountain Lion, Mountain Lion LLC, GCFS, and certain individuals alleged to be officers, directors, employees, or agents of these entities (collectively, respondents), alleging violations of the Finance Lenders Law, the Rosenthal Fair Debt Collection Practices Act (Civ. Code, § 1788 et seq.), and the federal Fair Debt Collection Practices Act (15 U.S.C. § 1692 et seq.). Appellant alleged that the sale or transfer of her debt to entities that were neither licensed finance lenders nor institutional investors violated section 22340(a) and rendered the debt void pursuant to section 22750, subdivision (b).

GCFS and an affiliated individual respondent filed demurrers to appellant’s cross-complaint. Mountain Lion, Mountain Lion LLC, and affiliated individual respondents filed a motion for judgment on the pleadings. The trial court granted the respondents’ motions, finding the sale of appellant’s debt to unlicensed, non-institutional investor entities was not in violation of section 22340(a). This appeal followed.

Page 729

DISCUSSION

I. Appealability[*]

II. Section 22340(a)

Appellant argues the sale of her consumer debt to entities that were neither licensed finance lenders nor institutional investors violated section 22340(a). We disagree.

The Finance Lenders Law requires all persons “engaged in the business of making consumer loans” be licensed. (§ 22009; see § 22100, subd. (a).) Section 22340(a) provides: “A licensee may sell promissory notes evidencing the obligation to repay loans made by the licensee pursuant to this division or evidencing the obligation to repay loans purchased from and made by another licensee pursuant to this division to institutional investors, and may make agreements with institutional investors for the collection of payments or the performance of services with respect to those notes.” Appellant argues this languageĀ—stating a licensee “may” sell notes to institutional investorsĀ—means that licensees may not sell notes to anyone else, apart from other licensees. Respondents contend the statute’s grant of permission to sell to institutional investors does not preclude sale to any other party.

The starting point for determining an issue of statutory interpretation is the statutory language. (Tarrant Bell Property, LLC v. Superior Court (2011) 51 Cal.4th 538, 542 [121 Cal.Rptr.3d 312, 247 P.3d 542] (Tarrant Bell).) (3) As respondents argue, “[u]nder ‘well-settled principle[s] of statutory construction, ’ we ‘ordinarily’ construe the word ‘may’ as permissive and the word ‘shall’ as mandatory. . . ." (Ibid.) However, we find this principle of limited utility in the present case. No party is contending section 22340(a) requires licensees to sell their notes to institutional investors. The issue is whether it permits licensees to sell their notes to institutional investors and other parties, or whether it permits licensees to sell their notes only to institutional investors.

Respondents also argue that neither section 22340(a) nor any other provision of the Finance Lenders Law expressly prohibits a licensee from selling debt to a non-institutional investor. We are not persuaded to end the inquiry there, however. If the Finance Lenders Law permits licensees to sell

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debt to anyone, as respondents contend, section 22340(a) appears on its face to be unnecessary. Such an interpretation would contravene the principle of statutory construction directing us to “assume[] that every part of a statute serves a purpose and that nothing is superfluous.” (In re J.W. (2002) 29 Cal.4th 200, 209 [126 Cal.Rptr.2d 897, 57 P.3d 363).) Moreover, as appellant argues, another principle of statutory interpretation, “commonly known under the Latin name of expressio unius est exclusio alterius, is that the expression of one thing in a statute ordinarily implies the exclusion of other things.” (Ibid.)

These principles appear to weigh in favor of appellant’s interpretation. However, “neither of these principles of statutory construction is applied invariably and without regard to other indicia of legislative intent. Thus, we have explained that the rule against interpretations that make some parts of a statute surplusage is only a guide and will not be applied if it would defeat legislative intent or produce an absurd result. [Citation.] And we have said that courts do not apply the expressio unius est exclusio alterius principle ‘if its operation would contradict a discernible and contrary legislative intent.’ ” (In re J.W., supra, 29 Cal.4th at p. 209.)

Because the statutory language is ambiguous, “we may properly consider other indicia of legislative intent, including relevant legislative history.” (Tarrant Bell, supra, 51 Cal.4th at p. 542.) Section 22340(a) was enacted, under a different section number, in 1985. (Stats. 1985, ch. 187, § 1, p. 1145 [enacting § 22476].)[5] The legislative history reveals a very specific purpose: to permit licensees under the Finance Lenders Law to sell notes secured by real property to institutional investors without having to also be licensed as a real estate broker. An Assembly floor analysis explains: “Present law regulating [finance lenders] is silent concerning the authority of these lenders to sell and service promissory notes. The Real Estate Law[6], however, requires any person engaged in assigning notes ‘to the public’ to be licensed under that law.[7] [Finance lenders] are exempt from the Real Estate

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law when acting within the scope of their respective licenses.[8] [¶] This bill would authorize [finance lenders] to sell and service promissory notes to institutional investors within the scope of their licenses. These businesses will consequently be exempt from licensing requirements under the Real Estate Law when engaged in these activities.” (Assem. Cone. Sen. Amends., to Assem. Bill No. 346 (1985–1986 Reg. Sess.) as amended June 6, 1985, p. 2.) As explained in a statement of legislative intent printed with unanimous consent in the Assembly Journal, the bill “authorizes finance companies... to sell real estate loans they have made to specified classes of institutional investors, and to make agreements to service those loans. [¶] In accordance with the finance companies’ exemption from the real estate law, this authority eliminates the possibility that they could be required to be licensed and regulated as real estate brokers when selling or servicing real estate loans they have made.” (2 Assem. J. (1985–1986 Reg. Sess.) p. 3298.)

This legislative history makes clear that section 22340(a) was intended to clarify Business and Professions Code section 10133.1, subdivision (a)(6): the sale of any debt, including debt secured by real estate, by a licensed finance lender to an institutional investor was within the authority of that lender’s license. That history also makes clear that the Legislature did not intend the provision to prohibit the sale of debt to non-institutional investors. Instead, the Legislature left the statute silent as to other sales, leaving open the possibility that other statutory schemes could regulate those sales. For example, section 22340(a) does not prohibit a licensed finance lender from selling debt to a party other than an institutional investor, but the provision also does not alter the Real Estate Law’s requirement that, if the debt is secured by real property, the finance lender must obtain a broker’s license prior to any sale to the non-institutional investor. (Bus. & Prof. Code, §§ 10130, 10131.1; see ante, fn. 7.)[9] We conclude section 22340(a) does not prohibit a finance lender from selling consumer debt to a party other than an institutional investor or another finance lender.

Appellant argues this interpretation contravenes the overall purpose of the Finance Lenders Law. We disagree. The law focuses on the formation and terms of covered loans.[10] A “finance lender” is defined to include “any person who is engaged in the business of making consumer loans.” (§ 22009, italics

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added.) In accord with this definition, most of the regulatory provisions govern the terms of the loan when made, including permissible interest rates and fees and various impermissible terms. (See §§ 22300–22307, 22311–22312.)[11] The sale or assignment of the loan does not alter these terms.

We are similarly unpersuaded by appellant’s contention that our conclusion would contravene the purpose of restrictions on usury. Usury restrictions do not restrict the assignment of loans. (See WRI Opportunity Loans II LLC v. Cooper (2007) 154 Cal.App.4th 525, 533 [65 Cal.Rptr.3d 205] ["To be usurious, a contract ‘must in its inception require a payment of usury’; subsequent events do not render a legal contract usurious.”].) The California Constitution exempts from its usury restrictions “persons authorized by statute”-such as finance lenders (§ 22002)-and “any successor in interest to any loan or forbearance exempted under this article.” (Cal. Const. art. XV, § 1, subd. (2).) The Constitution does not require successors in interest to be independently exempt from usury restrictions. Moreover, in Strike v. Trans-West Discount Corp. (1979) 92 Cal.App.3d 735, 745 [155 Cal.Rptr. 132], the Court of Appeal rejected an argument that “the [non-exempt] assignee of an exempt lender becomes thereby a usurer unable to collect any interest, ” noting such a rule would be “not conformable to the public policy exempting [certain entities] in the first instance.”

Section 22340(a) provides that the authority conferred by a finance lenders license includes the sale of debts only to institutional investors, but the statute does not prohibit the sale of debts to other parties. Because appellant’s claims hinge on finding a violation of section 22340(a) in the sale of her loan to unlicensed, non-institutional investor parties, her claims fail.[12]

III. Attorney Fees[*]

DISPOSITION

The judgment against appellant on her cross-complaint with respect to cross-defendants GCFS, Nancy Edrington, Mountain Lion LLC, Andy Maxwell, and Dennis Scott Carruthers is affirmed. The appeal of the order

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dismissing appellant’s cross-complaint with respect to plaintiff and cross-defendant Mountain Lion Acquisitions, Inc., is dismissed. The order awarding attorney fees to GCFS is reversed. Respondents are awarded their costs on appeal.

Jones, P.J., and Needham, J., concurred.


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