Casey v. North Am. Savings, 8th Cir. Preemption Mo. Law Fed Bank Regulation

UNITED STATES COURT OF APPEALSFOR THE EIGHTH CIRCUIT

Appeal No. 09-1096

Michael Casey, et al.,Appellants,

— vs. —

Accel Mortgage Services, Inc.,et al.,Appellees.

Opening BriefGREEN JACOBSON, P.C.Joe D. JacobsonJonathan F. AndresAllen P. Press7733 Forsyth Blvd., Suite 700Clayton, MO 63105Tel: (314) 862-6800Fax: (314) 862-1606Email: [email protected] for appellants

Case: 09-1096 Page: 1 Date Filed: 02/20/2009 Entry ID: 3518985

i

SUMMARY OF THE CASE

Missouri law prohibits anyone except a licensed attorney to engage

in “the drawing or the procuring of or assisting in the drawing for a valu-

able consideration of any paper, document or instrument affecting or relat-

ing to secular rights…” While Missouri law allows non-lawyers to prepare

documents for their own transactions, it does not allow them to charge

others for preparing the documents. This law is generally applied and

enforced against all types of persons engaged in all types of businesses.

While the law does not purport to regulate any lender’s lending activities,

it is enforced against lenders the same as it is against anyone else. Thus,

to the extent a lender attempts to charge a separate fee for documents

prepared by laymen in connection with its lending activities, the Missouri

law has an incidental affect on those lending activities.

A single issue is therefore presented: Does 12 CFR § 560.2 preempt

the Missouri law to prevent it from being enforced against Federal Savings

Associations regulated by the Office of Thrift Supervision?

This is a case of first impression presenting important issues of

federal preemption and a state’s power to regulate the practice of law

within its borders. Oral argument of 15 minutes per side is requested.


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TABLE OF CONTENTS

SUMMARY OF THE CASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

JURISDICTIONAL STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ISSUE PRESENTED FOR REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . 3

STATEMENT OF THE CASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

STATEMENT OF FACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

SUMMARY OF THE ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

STANDARD OF REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

The state trial court erred in holding 12 CFR § 560.2 preemptsMissouri law barring non-lawyers from engaging in the lawbusiness by charging separate fees for the preparation of legaldocuments because the Missouri law is outside the scope ofpreemption under the regulation in that it is part of Missouri’sgeneral contract, tort, and commercial law and only incident-ally affects the lending operations of Federal Lenders . . . . . . . . . . . . . 10

A. The law barring non-lawyers from charging documentpreparation fees is part of Missouri’s generally-applicablecommercial law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

B. The remedies provided by Missouri law for violations ofits prohibition on non-lawyers charging document pre-paration fees are part of Missouri’s generally-applicablecontract and tort laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13


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C. The text, history, statutory authority for, and scope of 12CFR § 560.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

D. Missouri’s prohibition on non-lawyers charging documentpreparation fees is part of the basic commercial law ofthis state aimed at governing the practice of law inMissouri; the prohibition is not aimed at regulatinglenders and has only an incidental affect on lending . . . . . . . . . . 29

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

CERTIFICATE OF COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 39

CERTIFICATE OF SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

ADDENDUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1


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TABLE OF AUTHORITIES

Cases Pages

Baldanzi v. WFC Holdings Corp.,2008 U.S. Dist. Lexis 95727 (S.D.N.Y. Nov. 14, 2008) . . . . . . 28–29

Binetti v. Washington Mutual Bank,446 F. Supp. 2d 217 (S.D.N.Y. 2006) . . . . . . . . . . . . . . . . . . . . . . 28

Carpenter v. Countrywide Home Loans, Inc.,250 S.W.3d 697 (Mo. banc 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Cedar Rapids Cellular Tel., L.P. v. Miller,280 F.3d 874 (8th Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Eisel v. Midwest BankCentre,230 S.W.3d 335 (Mo. banc 2007) . . . . . . . . . . . . . . . . . . 3, 11, 12, 14

Fidelity Federal Savings & Loan Ass’n v. De la Cuesta,458 U.S. 141 (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Finnegan v. Old Republic Title Co. of St. Louis, Inc.,246 S.W.3d 928 (Mo. banc 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Flanagan v. Germania, F.A., 872 F.2d 231 (8th Cir. 1989) . . . . 3, 31–32

Gadda v. Ashcroft, 377 F.3d 934 (9th Cir. 2004) . . . . . . . . . . . . . . . . . . 30

Gibbons v. J. Nuckolls, Inc., 216 S.W.3d 667 (Mo. banc 2007) . . . . 35–36

Gibson v. World Savings & Loan Assn.,103 Cal. App. 4th 1291 (Cal. App. 4th Dist. 2002) . . . . . . . . . . . . 16

Horton v. Conklin, 431 F.3d 602 (8th Cir. 2005) . . . . . . . . . . . . . . . . . . . 2

Hulse v. Criger, 247 S.W.2d 855 (Mo. banc 1952) . . . . . . . . . . . . . . . . . 11


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In re First Escrow, Inc., 840 S.W.2d 839 (Mo. banc 1992) . . . . . . . . . . 11

In re Mid-America Living Trust Assocs., Inc.,927 S.W.2d 855 (Mo. banc 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . 12

In re Ocwen Loan Servicing, LLC, Mortgage Servicing Litig.,491 F.3d 638 (7th Cir. 2007) . . . . . . . . . . . . . . . . . . . . . . . . 3, 32–35

Investors Title Co. v. Hammonds,217 S.W.3d 288 (Mo. banc 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Lynch v. Lynch, 260 S.W.3d 834 (Mo. banc 2008) . . . . . . . . . . . . . . . . . . 9

Marano Enters. of Kansas v. Z-Teca Rests., L.P.,254 F.3d 753 (8th Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Middlesex County Ethics Comm. v. Garden State Bar Ass’n,457 U.S. 423 (1957) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Raster v. Ameristar Casinos, Inc.,Appeal No. ED90984 (Mo. App. E.D., Feb. 17, 2009) . . . . . . . . . . 16

Schuchmann v. Air Services Heating & Air Conditioning, Inc.,199 S.W.3d 228 (Mo. App. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . 16

United States ex rel. O’Keefe v. McDonnell Douglas Corp.,132 F.3d 1252 (8th Cir. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Zmuda v. Chesterfield Valley Power Sports, Inc.,267 S.W.3d 712 (Mo. App. 2008) . . . . . . . . . . . . . . . . . 12, 14, 15–16


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Statutes

12 U.S.C. §§ 1461 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

12 U.S.C. § 1463(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

12 U.S.C. § 1464(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19–20

Section 407.010, RSMo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Section 407.020, RSMo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14–15

Section 407.025, RSMo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Section 484.010, RSMo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Section 484.020, RSMo. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 14

Regulations

12 CFR § 560.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

NB: This regulation is quoted 20–22 and diagramed 26

12 CFR § 560.110 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20, 21–23

Other Authority

61 Fed. Reg. 50,951 (Sept. 30, 1996) . . . . . . . . . . . . . . . . . . . . . . 3, 23–25

Opinion of OTS Chief Counsel: Preemption of State LawsApplicable to Credit Card Transactions (Dec. 24, 1996) . . . . . . . 35


1

JURISDICTIONAL STATEMENT

This appeal was pending before the Missouri Court of Appeals when

the Federal Deposit Insurance Corporation (“FDIC”) was appointed

Receiver of Washington Mutual Bank (“WaMu”), successor in interest to

defendant-appellee North American Mortgage Company (“NAMCO”).

The FDIC was appointed WaMu’s Receiver September 25, 2008.

Approximately one month later, on October 24, 2008, FDIC moved to be

substituted for NAMCO in the appeal and for a 90-day stay of the proceed-

ings, all as authorized by 12 U.S.C. § 1821(d). The FDIC’s motion was

granted October 31, 2008.

While the stay was in place, the FDIC removed the appeal to the

United States District Court for the Eastern District of Missouri. The

FDIC filed its notice of removal November 6, 2008. Removal was author-

ized by 12 U.S.C. § 1819(b)(2)(B), which allows the FDIC as Receiver to

remove to federal court any action in which it is substituted for a party

within 90 days of being substituted.

Once the appeal was removed to district court, appellant Crider —

the only appellant appealing the judgment in favor of NAMCO — moved

to dismiss his appeal. Simultaneously, the other appellants moved to


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remand their appeals to the state appellate court. The district court denied

the motions without prejudice, holding that its sole function when a state-

court appeal is removed to federal court is to rubber-stamp the judgment

and transmit the file to the United States Court of Appeals.

Upon transmittal of the appeal to this Court, Crider renewed his

motion to dismiss and the other appellants renewed their motion to

remand. The renewed motion to remand added a ground for remand not

available when the initial motion was filed in the district court — the

failure of the other appellees to join in the removal notice. This Court

routinely holds that all defending parties in a state-court case must join

in a notice of removal for that notice to invoke federal jurisdiction. Horton

v. Conklin, 431 F.3d 602, 604 (8th Cir. 2005); Marano Enters. of Kansas v.

Z-Teca Rests., L.P., 254 F.3d 753, 755 n.2 (8th Cir. 2001).

Here, none of the other appellees joined in the FDIC’s removal notice,

and thus the notice of removal was ineffective and remand is required.

Thus, although this is an appeal from a final judgment, there is no

jurisdiction in this Court because of appellees’ failure to join in the notice

of removal.


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The FDIC has been dismissed from this appeal on Crider’s motion.

The motion for remand is fully briefed. The Court has ordered that the

motion for remand be decided by the panel deciding the appeal.

ISSUE PRESENTED FOR REVIEW

Whether the state trial court erred in holding 12 CFR § 560.2 pre-empts Missouri law barring non-lawyers from engaging in the lawbusiness by charging separate fees for the preparation of legaldocuments because the Missouri law is outside the scope of pre-emption under the regulation in that the Missouri law (a) does notpurport to regulate lending activity, (b) is part of Missouri’sgeneral contract, tort, and commercial law, and (c) only inciden-tally affects the lending operations of Federal Lenders.

Eisel v. Midwest BankCentre, 230 S.W.3d 335 (Mo. banc 2007)

Flanagan v. Germania, F.A., 872 F.2d 231 (8th Cir. 1989)

In re Ocwen Loan Servicing, LLC, Mortgage Servicing Litig.,491 F.3d 638 (7th Cir. 2007)

Final Rule Issuance, 61 Fed. Reg. 50,951 (1996)


4

STATEMENT OF THE CASE

Respondents were sued with other residential mortgage lenders in

the Circuit Court for St. Louis County, Missouri, by putative classes of

residential mortgage borrowers. Plaintiffs claimed lenders had engaged in

the law business in violation of Missouri law by charging borrowers a

separate fee for the preparation of legal documents by non-lawyers in

connection with their mortgages. The charging of document preparation

fees by non-lawyers is illegal in Missouri.

The claims against respondents were dismissed November 13, 2002,

with the trial court holding that 12 CFR § 560.2 preempted application of

the Missouri law against Federal Savings Associations. [LF 138-39]. Docu-

ments captioned “final judgment” or “final judgment of dismissal with

prejudice” were entered at the request of respondents December 16, 2002.

[LF 24-25, 142-45]. The dismissals were not final judgments for purpose

of appeal under Missouri law, however, because claims remained pending

against other defendants. The final remaining claim against the last

remaining defendant was voluntarily dismissed with prejudice August 28,

2007. [LF 77, 146]. Appellants’ notice of appeal was timely filed September

5, 2007. [LF 78, 147].


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When the Missouri Court of Appeals stated in an order dated

November 5, 2007 that it could not determine from the record whether the

dismissals in favor of respondents had become a final and appealable judg-

ment, the trial court at appellants’ request entered an order under Rule

74.01(b) of the Missouri Rules of Civil Procedure finding “there is no just

cause for delay of an appeal of the dismissal of the above-dismissed

claims.” Such an order allows an appeal to proceed as a final judgment

even if some of the claims in the case are still pending. The Rule 74.01(b)

order was entered November 15, 2007. [LF 148].

STATEMENT OF FACTS

The facts relevant to the appeal are undisputed.

Michael Casey and Julie Pennington borrowed money from North

American Savings, F.S.B., to purchase property in St. Louis County,

Missouri. North American charged Casey and Pennington a document pre-

paration fee of $250 in the transaction, which they paid. [LF 82].

Richard and Kathleen Keller borrowed money from North American

to purchase property in Jefferson County, Missouri. North American

charged the Kellers a document preparation fee of $250 in the transaction,

which they paid. [LF 86].


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The Kellers also borrowed money from Heartland Bank to purchase

property in Jefferson County, Missouri. Heartland charged them a docu-

ment preparation fee of $100 in the transaction, which they paid. [LF 86].

Richard and Heidi Piatchek borrowed money from ABN AMRO to

purchase property in St. Louis County, Missouri. ABN AMRO charged the

Piatcheks a document preparation fee of $150 in the transaction, which

they paid. [LF 88].

In this brief, appellants are referred to as the “borrowers” and

respondents are referred to as the “Federal Lenders.” The term “Federal

Lenders” is also used in this brief at times to refer generally to Federal

Savings Associations and their subsidiaries. The Federal Lenders are each

either a Federal Savings Association or a subsidiary of a Federal Savings

Association. The Federal Lenders are subject to regulation by the Office of

Thrift Supervision (“OTS”). [LF 138-39].

Borrowers brought suit against their respective Federal Lenders,

alleging it was “unlawful under Missouri law for Lenders to charge or

collect from their borrowers a separate Document Preparation Fee.” [LF

81-82]. The borrowers contended the Federal Lenders were liable “for

actual damages in the sum of the Document Preparation Fee charged” to


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each person whom they charged the fee [LF 106], and that under Section

484.020.2, RSMo., each of the Federal Lenders was “liable for treble

damages to each such borrower to whom it charged such a Document Pre-

paration Fee within two years prior to the date of the filing of [the] peti-

tion.” [LF 95, 98, 99, 100]. The borrowers also contended the Federal

Lenders’ conduct violated Missouri’s Merchandising Practices Act,

§ 407.010, et seq., RSMo. (the “MPA”). [LF 104].

Federal Lenders moved to have the claims asserted against them

dismissed on the basis of federal preemption. [LF 109-33]. The trial court

granted the motions, holding:

[T]he Director [of OTS] has elected to occupy thefield except for limited areas covered by (c) of theregulations [12 CFR § 560.2(c)], none of whichappear to be relevant to this proceeding. Federalregulations such as 12 CFR 560.2(a) have the sameeffect as federal statutes. Regulation of fees relatedto financial transactions is within the clear intentof the regulations preempted. Therefore, this fieldhas been preempted by federal law and Plaintifffails to state a cause of action against those Defen-dants.

[LF 139].


8

When the claims brought by other borrowers against other defen-

dants were finally resolved, this appeal followed. The history of the appeal

is discussed in the jurisdictional statement and the statement of the case.

SUMMARY OF THE ARGUMENT

Missouri law prohibits anyone not a lawyer from charging others a

separate fee for the preparation of documents affecting legal rights. This

law is enforced in Missouri against a wide variety of persons engaged in

a wide range of activities, including real estate brokers, escrow agents, and

motor vehicle dealers. The law does not purport to impose requirements

on the lending activities of the Federal Lenders. Rather, it purports to

protect the public from the danger of having legal documents improperly

prepared by non-lawyers by reducing the financial incentive for lay

persons to prepare such documents.

Under 12 CFR § 560.2, courts engage in a multi-step analysis to

determine whether a state law is preempted by the regulation. Under that

multi-step analysis, which is summarized in a diagram below at page 26,

the Missouri law barring non-lawyers from charging document preparation

fees is not preempted because:


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(a) the law does not purport to impose requirements regarding the

Federal Lenders’ ability to charge loan-related fees or on other

aspects of their lending activity; and

(b) the law, and the statutory and common-law remedies provided

for violations of the law, are all part of Missouri’s generally-

applicable tort, contract, and commercial law, and any affect

the limitation on non-lawyers charging document preparation

fees may have on the Federal Lenders’ lending activity is

incidental to the law’s purpose.

STANDARD OF REVIEW

Under both federal and Missouri law, the standard of review of a

trial court’s grant of a motion to dismiss is de novo. Cedar Rapids Cellular

Tel., L.P. v. Miller, 280 F.3d 874, 878 (8th Cir. 2002); Lynch v. Lynch, 260

S.W.3d 834, 836 (Mo. banc 2008).


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ARGUMENT

The state trial court erred in holding 12 CFR § 560.2 preemptsMissouri law barring non-lawyers from engaging in the lawbusiness by charging separate fees for the preparation of legaldocuments because the Missouri law is outside the scope of pre-emption under the regulation in that it is part of Missouri’sgeneral contract, tort, and commercial law and only incidentallyaffects the lending operations of Federal Lenders.

A. The law barring non-lawyers from charging documentpreparation fees is part of Missouri’s generally-applic-able commercial law.

Missouri law prohibits anyone who is not a licensed attorney from

engaging in “the law business,” which includes “the drawing or the procur-

ing of or assisting in the drawing for a valuable consideration of any paper,

document or instrument affecting or relating to secular rights…” Section

484.010.2, RSMo.

The power to impose this prohibition comes from the Missouri

Supreme Court’s inherent power to control the practice of law within the

State. “The judiciary is necessarily the sole arbiter of what constitutes the

practice of law. Statutes may aid by providing machinery and criminal

penalties but may not extend the privilege of practicing law to persons not

admitted to practice by the judiciary.” Eisel v. Midwest BankCentre, 230

S.W.3d 335, 338 (Mo. banc 2007).


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This prohibition is not aimed solely at the Federal Lenders or,

indeed, specifically at lenders of any type. It is a general rule of law aimed

at all who would charge or increase a fee for services when the services

involves non-lawyers performing legal work within Missouri or affecting

Missouri property or other legal rights. See Eisel, 230 S.W.3d at 339.

The Missouri Supreme Court prohibits real estate brokers from

charging a separate, additional charge for the preparation of documents

affecting property rights. Hulse v. Criger, 247 S.W.2d 855, 863 (Mo. banc

1952). The Missouri Supreme Court prohibits escrow companies from

either charging a separate fee for document preparation or varying their

customary charges for closing services based upon whether documents are

to be prepared in the transaction. In re First Escrow, Inc., 840 S.W.2d 839,

849 (Mo. banc 1992). The Missouri Supreme Court prohibits commercial

businesses from charging for the drawing, preparing, or assisting in the

preparation of trust workbooks, trusts, wills, and powers of attorney for a

Missouri resident without the direct supervision of an independent

licensed attorney selected by and representing the resident. In re Mid-

America Living Trust Assocs., Inc., 927 S.W.2d 855, 871 (Mo. banc 1996).


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The Missouri Court of Appeals recently held that Missouri law

prohibits recreational vehicle dealers from charging a separate docu-

ment fee to prepare “purchase agreements, invoices, retail installment

contracts, title work, financing documents, and other instruments and

documents of legal significance, or that affect or relate to rights and title

to property” in connection with the sale of all-terrain vehicles, motorcycles,

or other recreational vehicles. Zmuda v. Chesterfield Valley Power Sports,

Inc., 267 S.W.3d 712 (Mo. App. 2008).

Moving to the lending arena, the Missouri Supreme Court prohibits

state-chartered banks from charging document preparation fees in

mortgage transactions to recoup the cost of preparing standard-form

documents necessary to facilitate the selling of mortgage loans on the

secondary market. Eisel, 230 S.W.3d at 338-39. The prohibition stated in

Eisel is the same prohibition that borrowers contend should apply to the

Federal Lenders here.

In short, Missouri’s prohibition on non-lawyers charging document

preparation fees is part of Missouri’s general commercial law, applicable

to all persons in Missouri.


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B. The remedies provided by Missouri law for violations ofits prohibition on non-lawyers charging documentpreparation fees are part of Missouri’s generally-applic-able contract and tort laws.

Missouri law provides several remedies, both statutory and common-

law, for those persons who are charged a document preparation fee by a

non-lawyer not authorized to engage in the law business in Missouri.

These remedies are all part of Missouri’s general law. None of the reme-

dies are specifically directed against Federal Lenders. While some of the

remedies available sound in contract and others in tort, and still others are

criminal in nature, all of them are equally applicable to all persons in

Missouri who violate the prohibition against the unauthorized engaging

in the law business. Any affect the imposition of any of these remedies

might have on the lending operations of the Federal Lenders is only

incidental.

One of the statutory remedies is an award of treble damages under

the “law business” statute, which provides in relevant part:

Any person, association, partnership, limited liabil-ity company or corporation who shall violate theforegoing prohibition of this section shall be guiltyof a misdemeanor … and shall be subject to be suedfor treble the amount which shall have been paidhim or it for any service rendered in violation here-


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of by the person … paying the same within twoyears from the date the same shall have beenpaid…

Section 484.020.2, RSMo. The applicability of this statute to the unlawful

imposition of document preparation fees in mortgage transactions was

recognized by the Missouri Supreme Court in Eisel, 230 S.W.3d at 339.

A second statutory remedy is provided by the Merchandising Prac-

tices Act. The MPA supplements common-law actions for fraud. The MPA’s

purpose is to “preserve fundamental honesty, fair play and right dealings

in public transactions.” Zmuda, 267 S.W.3d at 716 (citations omitted). The

MPA defines certain fraud-like conduct to be unlawful:

The act, use or employment by any person of anydeception, fraud, false pretense, false promise, mis-representation, unfair practice or the concealment,suppression, or omission of any material fact inconnection with the sale or advertisement of anymerchandise in trade or commerce … in or from thestate of Missouri, is declared to be an unlawfulpractice.

Section 407.020.1, RSMo. The MPA provides penalties for these unlawful,

fraud-like practices:

Any person who purchases or leases merchandiseprimarily for personal, family or householdpurposes and thereby suffers an ascertainable lossof money or property, real or personal, as a result of


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the use or employment by another person of amethod, act or practice declared unlawful by section407.020, may bring a private civil action in eitherthe circuit court of the county in which the seller orlessor resides or in which the transaction complain-ed of took place, to recover actual damages. Thecourt may, in its discretion, award punitivedamages and may award to the prevailing partyattorney’s fees, based on the amount of timereasonably expended, and may provide such equit-able relief as it deems necessary or proper.

Section 407.025.1, RSMo.

The Missouri appellate court has recently held the MPA is available

as a remedy for consumers when a non-lawyer charges a document prepar-

ation fee:

Zmuda’s petition alleges that charging a documentpreparation fee is a “deception and unfair practice”as the terms are used in the MPA. In this case,assuming all of Zmuda’s allegations are true,especially in light of our conclusion that headequately pleaded a cause of action for improperlyengaging in the law business, Zmuda sufficientlypleaded a cause of action for violation of the MPA.

Zmuda, 267 S.W.3d at 716.

The MPA has a scope far broader than misbehaving lenders or viola-

tions of restrictions on the unauthorized engagement in the law business.

It is a general part of Missouri’s commercial or business tort law. See, e.g.,


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Raster v. Ameristar Casinos, Inc., Appeal No. ED90984 (Mo. App. E.D.,

Feb. 17, 2009), slip op. at 16 (MPA applies to claim that casino gave mis-

leading description of changes to rules of compensation club; “a customer

placing a bet is owed a duty of fair play”); Finnegan v. Old Republic Title

Co. of St. Louis, Inc., 246 S.W.3d 928, 929 (Mo. banc 2008) (MPA applies

to notaries who charged for notarizations without recording the signa-

tures in their notary journals as required by the notary statute); Gibbons

v. J. Nuckolls, Inc., 216 S.W.3d 667 (Mo. banc 2007) (MPA applies to car

wholesaler who sold rebuilt car without disclosing that car had been in

an accident, even though there was no privity of contract between the

buyer and the wholesaler); Schuchmann v. Air Services Heating & Air

Conditioning, Inc., 199 S.W.3d 228, 233 (Mo. App. 2006) (MPA applies to

claim that an HVAC contractor would not honor “lifetime warranty” on

new equipment installed by the contractor).

A third remedy, which is a remedy under the common-law, is avail-

able to any person who has been charged a document preparation fee for

legal documents prepared by a non-attorney. “Any person engaged in the

unauthorized practice of law has no right to collect fees, and those who


17

have been improperly charged these fees have the right to their return at

common law under the theory of money had and received.” Carpenter v.

Countrywide Home Loans, Inc., 250 S.W.3d 697, 703 (Mo. banc 2008).

“[A]n action of money had and received is based on an implied contract of

repayment…” Id. at 703 n.5.

This common-law theory of recovery for money had and received is

a generally-applied feature of Missouri contract law, and does not apply

solely to Federal Lenders, or even just to lenders generally:

The appropriate action when one party has beenunjustly enriched through the mistaken payment ofmoney by the other party is an action at law formoney had and received. Although the action ispurely one at law, it partakes of the nature ofequity, and whenever it is shown that one hasmoney in his possession which rightfully belongs toanother, the law establishes privity between theparties, and implies the promise and obligationupon which the action rests. The action for moneyhad and received has always been one favored inthe law and the tendency is to widen its scope — itbeing a flexible form of action, levying tribute onequitable, as well as strictly legal doctrines; so that,it has become axiomatic that the action lies wherethe defendant has received or obtained possessionof the money of the plaintiff, which, in equity andgood conscience, he ought to pay over to theplaintiff.


18

Investors Title Co. v. Hammonds, 217 S.W.3d 288, 293-294 (Mo. banc 2007)

(citations and internal quotations omitted) (county required to repay title

company money stolen over time by employee of county recorder of deeds

notwithstanding absence of an express contract between county and title

company).

Thus, the Missouri state laws applicable to this case — both the laws

prohibiting the charging of document preparation fees and the laws speci-

fying the remedies available in case of a violation of this prohibition — are

laws of general application falling within the normal course of Missouri’s

contract, commercial, and tort laws.

The question, therefore, is whether 12 CFR § 560.2 preempts these

aspects of Missouri’s general laws of contracts, tort, and commercial law

from being applied to prohibit Federal Lenders from engaging in the law

business by charging borrowers document preparation fees.

C. The text, history, statutory authority for, and scope of12 CFR § 560.2.

The trial court found that Missouri’s prohibition on the charging of

document preparation fees by non-lawyers was preempted with respect to

the Federal Lenders by 12 CFR § 560.2. This regulation was promulgated


19

under authority granted by the Home Owners Loan Act (“HOLA”), 12

U.S.C. §§ 1461, et seq., and in particular under the authority granted by

Sections 1463 and 1464 of Title 12.

Section 1463(a) authorizes the Director of OTS to “provide for the

examination, safe and sound operation, and regulation of savings associ-

ations,” and provides that, “[t]he Director may issue such regulations as

the Director determines to be appropriate to carry out the responsibilities

of the Director or the Office.” 12 U.S.C. § 1463(a).

Section 1464 states the matters to be regulated by the Director of

OTS and gives details for such regulations. Section 1464 begins generally:

“In order to provide thrift institutions for the deposit of funds and for the

extension of credit for homes and other goods and services, the Director is

authorized, under such regulations as the Director may prescribe … to

provide for the organization, incorporation, examination, operation, and

regulation of associations to be known as Federal savings associations

(including Federal savings banks)…” 12 U.S.C. § 1464(a)(1).

Among the many regulations issued by the OTS under the authority

of the above-cited statutory sections is the regulation relied on by the trial


20

court in granting the motion to dismiss, 12 CFR § 560.2. This regulation

states in relevant part:

§ 560.2 Applicability of law.

(a) Occupation of field.… OTS hereby occupies theentire field of lending regulation for federal savingsassociations. OTS intends to give federal savingsassociations maximum flexibility to exercise theirlending powers in accordance with a uniformfederal scheme of regulation. Accordingly, federalsavings associations may extend credit as author-ized under federal law, including this part, withoutregard to state laws purporting to regulate or other-wise affect their credit activities, except to theextent provided in paragraph (c) of this section or §560.110 of this part. For purposes of this section,“state law” includes any state statute, regulation,ruling, order or judicial decision.

(b) Illustrative examples. Except as provided in§ 560.110 of this part, the types of state laws pre-empted by paragraph (a) of this section include,without limitation, state laws purporting to imposerequirements regarding: …

(5) Loan-related fees, including without limitation,initial charges, late charges, prepayment penalties,servicing fees, and overlimit fees;…

(c) State laws that are not preempted. State laws ofthe following types are not preempted to the extentthat they only incidentally affect the lending opera-tions of Federal savings associations or are other-wise consistent with the purposes of paragraph (a)of this section:


21

(1) Contract and commercial law; …

(4) Tort law;

(5) Criminal law…

12 CFR § 560.2 (emphasis added).

A second preemption regulation issued by OTS is 12 CFR § 560.110,

which is a regulation referenced in 12 CFR § 560.2. This second regulation

states in relevant part:

§ 560.110 Most favored lender usury preemption.

(a) Definition. The term “interest” as used in 12U.S.C. 1463(g) includes any payment compensatinga creditor or prospective creditor for an extension ofcredit, making available of a line of credit, or anydefault or breach by a borrower of a condition uponwhich credit was extended. It includes, amongother things, the following fees connected withcredit extension or availability: numerical periodicrates, late fees, not sufficient funds (NSF) fees,overlimit fees, annual fees, cash advance fees, andmembership fees. It does not ordinarily includeappraisal fees, premiums and commissions attri-butable to insurance guaranteeing repayment ofany extension of credit, finders’ fees, fees for docu-ment preparation or notarization, or fees incurredto obtain credit reports.

(b) Authority. A savings association located in astate may charge interest at the maximum ratepermitted to any state-chartered or licensed lendinginstitution by the law of that state. If state law


22

permits different interest charges on specifiedclasses of loans, a federal savings association mak-ing such loans is subject only to the provisions ofstate law relating to that class of loans that arematerial to the determination of the permittedinterest. For example, a federal savings associationmay lawfully charge the highest rate permitted tobe charged by a state-licensed small loan company,without being so licensed, but subject to state lawlimitations on the size of loans made by small loancompanies. Except as provided in this paragraph,the applicability of state law to Federal savingsassociations shall be determined in accordance with§ 560.2 of this part. State supervisors determine thedegree to which state-chartered savings associ-ations must comply with state laws other thanthose imposing restrictions on interest, as definedin paragraph (a) of this section.…

12 CFR § 560.110 (emphasis added).

Because document preparation fees are among the fees outside the

definition of “interest” stated in 12 CFR § 560.110, that regulation is

inapplicable to this appeal. If, however, one considered document prepara-

tion fees to be “interest,” then 12 CFR § 560.110 would be applicable and

Federal Lenders would be limited in charging such fees to the same extent

as state-chartered lenders. In other words, if document preparation fees

were interest, then state-chartered lenders and Federal Lenders would


23

both be prohibited in Missouri from charging borrowers a separate fee for

the preparation of legal documents by non-lawyers.

In its final rule issuance, the OTS explained the scope of the preemp-

tion it intended in issuing these regulations — and, in particular, its intent

when enacting 12 CFR § 560.2 to not preempt basic state laws that have

only an incidental affect on lending:

Paragraph (c) describes certain types of state lawsthat OTS does not intend to preempt.…

OTS believes that paragraph (c) should be retainedin order to provide guidance regarding the scope ofpreemption intended by paragraph (a). OTS wantsto make clear that it does not intend to preemptbasic state laws such as state uniform commercialcodes and state laws governing real property,contracts, torts, and crimes. To reduce the potentialfor misunderstanding, however, we have madeseveral changes to paragraph (c). First, we havemodified the regulatory language that precedes thelist of state laws that are not preempted. The intro-ductory language now indicates that laws falling inthese areas are not preempted to the extent thatthey either: (i) Have only an incidental impact onlending; or (ii) are otherwise not contrary to thepurposes expressed in paragraph (a) of the regula-tion.…

Adding this two-part test to the regulation willprovide an interpretive standard for identifyingstate laws that may be designed to look like tradi-tional property, contract, tort, or commercial laws,


24

but in reality are aimed at other objectives, such asregulating the relationship between lenders andborrowers, protecting the safety and soundness oflenders, or pursuing other state policy objectives.

When confronted with interpretive questions under§ 560.2, we anticipate that courts will, in accor-dance with well established principles of regulatoryconstruction, look to the regulatory history of§ 560.2 for guidance. In this regard, OTS wishes tomake clear that the purpose of paragraph (c) is topreserve the traditional infrastructure of basic statelaws that undergird commercial transactions, not toopen the door to state regulation of lending byfederal savings associations. When analyzing thestatus of state laws under § 560.2, the first step willbe to determine whether the type of law in questionis listed in paragraph (b). If so, the analysis willend there; the law is preempted. If the law is notcovered by paragraph (b), the next question iswhether the law affects lending. If it does, then, inaccordance with paragraph (a), the presumptionarises that the law is preempted. This presumptioncan be reversed only if the law can clearly be shownto fit within the confines of paragraph (c). For thesepurposes, paragraph (c) is intended to be inter-preted narrowly. Any doubt should be resolved infavor of preemption

61 Fed. Reg. 50,951, 50,966-67 (1996) (emphasis added).

In the state appellate court, the Federal Lenders focused their argu-

ment on the last portion of the OTS’s discussion in its final rule issuance

— the portion beginning, “When analyzing the status of state laws under


25

§ 560.2…” — which they referred to as the OTS interpretative guidelines.

These OTS interpretive guidelines suggest a sequence for the analysis of

whether 12 CFR § 560.2 preempts any particular state law.

While the Federal Lenders contend that the interpretive guidelines

lead to the conclusion that the Missouri law is preempted, this contention

is not correct because the Federal Lenders consistently misstate the first

step of the analysis. The first step, as stated in paragraph (b) of the regula-

tion, is whether the state law is “purporting to impose requirements

regarding” the Federal Lender’s lending activity. It is not, as the Federal

Lenders have contended, whether the state law affects that lending

activity — that is the second step of the analysis, and is stated in para-

graph (a) of the regulation. (Whether the state law is of general application

and whether its impact is only incidental are stated in paragraph (c).) The

proper step-by-step analysis stated in the interpretive guidelines may

perhaps be most clearly presented in the form of a flow chart:


26

Yes

Yes

Yes

No

No

Yes

No

Not Preempted

Preempted

¶ (b)Does the state lawpurport to regulatelending activities?

¶ (a)Does the state law

affectlending activities?

¶ (c)Is the state law one

of general application,e.g. , contract, tort?

¶ (c)Does the state law

only incidentally affectlending activities?

Flow chart representing 12 CFR § 560.2The decision boxes refer to paragraphs (a), (b), and (c) of the regulation

No


27

As one can see from the flow chart, under the OTS interpretative

guidelines a state law that purports to impose requirements on or other-

wise regulate a Federal Lender’s lending activities is preempted. On the

other hand, a state law that (1) does not purport to regulate lending

activities, (2) is part of the state’s laws of general application (such as

contract, commercial, and tort laws), and (3) only incidentally affects a

Federal Lender’s lending activities, is not preempted under 12 CFR

§ 560.2.

The Missouri law falls into this latter group. As discussed in greater

detail below, there is nothing in the Missouri laws to which one can point

to support the contention that Missouri was purporting to impose require-

ments regarding loan-related fees. The laws in question are simply laws

of general application regulating the practice of law. It is not accurate to

suggest that Missouri was purporting to impose requirements affecting the

lending activities of Federal Lenders when it prohibited non-lawyers from

engaging in the law business. Nor has Congress or the OTS indicated an

intent to preempt state regulation of the practice of law within their

respective borders as an incident of regulating Federal Lenders.


28

Consequently, the Missouri law here is not “the type of law” listed in

paragraph (b) of the regulation, and thus the analysis does not “end there”

with paragraph (b), but continues through the remaining steps of the

analysis to the conclusion that the Missouri law is not preempted.

Finally, in determining whether a state law’s possible impact on

lending operation is only incidental, “the question is whether any impact

on lending operations is incidental to the statute’s primary purpose — not

whether the impact of the statute on a bank’s lending operation is ‘inciden-

tal.’” Binetti v. Washington Mutual Bank, 446 F. Supp. 2d 217, 221

(S.D.N.Y. 2006); see also Baldanzi v. WFC Holdings Corp., 2008 U.S. Dist.

Lexis 95727 (S.D.N.Y. Nov. 14, 2008).

In Baldanzi, an action brought under the National Bank Act, the

court held that state-law claims for breach of contract and violation of a

state consumer protection act were not preempted, stating:

defendant’s ability to conduct its banking businessis no more than incidentally affected by the require-ment that it comply with state laws that apply to allindustries and individuals alike. The plaintiffs’claims in both cases fall squarely on the “incidentaleffect” side of the equation, and in no way involveprinciples of state law that would impair the abilityof the national bank to exercise its federally-granted real estate lending powers


29

Id. at *8-*9 (emphasis added).

D. Missouri’s prohibition on non-lawyers charging docu-ment preparation fees is part of the basic commerciallaw of this state aimed at governing the practice of lawin Missouri; the prohibition is not aimed at regulatinglenders and has only an incidental affect on lending.

Numerous federal courts have considered the scope of federal pre-

emption under HOLA and the regulations issued thereunder. While the

courts agree that HOLA’s preemption provisions are broad, they also agree

that the regulations are not all-encompassing in scope. See, e.g., Fidelity

Federal Savings & Loan Ass’n v. De la Cuesta, 458 U.S. 141, 171 (1982)

(O’Connor, J., concurring ) (“the authority of [OTS’s predecessor] to pre-

empt state laws is not limitless … it is clear that HOLA does not permit

the Board to pre-empt the application of all state and local laws to such

institutions”).

Courts recognize that the key preemption provision, 12 CFR § 560.2,

excludes broad and important areas of state law from the scope of federal

preemption. While no federal court or state appellate court has yet consi-

dered whether a prohibition on non-lawyers charging document prepara-

tion fees is preempted under HOLA, the cases below demonstrate that


30

borrowers’ claims against the Federal Lenders are not preempted under

HOLA or, more specifically, under 12 CFR § 560.2.

As a starting point, it is necessary to recognize the central impor-

tance to the states in controlling the practice of law within their respective

borders. “The Supreme Court of the United States has long recognized that

the several states have an important interest in regulating the conduct of

the attorneys whom they license.” Gadda v. Ashcroft, 377 F.3d 934, 944

(9th Cir. 2004) (rejecting contention that state cannot discipline the license

of an attorney who practices solely before the Board of Immigration

Appeals notwithstanding that federal immigration law has granted the

U.S. Attorney General exclusive authority to discipline immigration

lawyers), citing Middlesex County Ethics Comm. v. Garden State Bar

Ass’n, 457 U.S. 423, 434 (1957); accord United States ex rel. O’Keefe v.

McDonnell Douglas Corp., 132 F.3d 1252 (8th Cir. 1998) (rejecting Justice

Department regulation authorizing government attorneys to directly

contact persons represented by counsel in violation of state ethics rules

prohibiting such contacts).

This Court has rejected the contention that HOLA and the regula-

tions issued thereunder preempt tortious interference claims brought


31

under Missouri law. Flanagan v. Germania, F.A., 872 F.2d 231 (8th Cir.

1989). In Flanagan, plaintiff contracted to purchase tanning beds from an

import company, Silver Sales. Silver Sales’ sister company defaulted on a

$550,000 loan from Germania, a Federal Lender. As part of the loan

workout, Germania became Silver Sales’ sole shareholder. Germania

appointed new management, which refused Flanagan’s demand for

delivery of the beds. Id. Plaintiff brought a tortious interference with

contract action against Germania, alleging it “engaged in loan collection

practices that prevented Silver Sales from performing its obligation to

deliver the tanning beds.” Id. at 232. Some of the evidence supporting this

claim showed that Germania provided false and fraudulent information to

its own attorney, and that a Germania officer “wrote a memorandum to his

superiors boasting that Germania would receive ‘excess value’ and ‘wind-

fall profits’ by collecting Silver Sales’ assets.” Id. at 233.

This Court held Germania’s preemption defense to Flanagan’s

tortious inference claim was “without merit,” id. at 232, stating:

Germania relies on regulations promulgated by theFederal Home Loan Bank Board [predecessor to theOTS], which has Congressional authority to controlthe operations of all federal savings associations.These regulations, however, have no direct bearing


32

on the issues before us. [The regulations] deal[]with a number of issues, including what loans canbe made by federal associations, but says nothingabout the collection practices of those associations.

Id. at 234.

Borrowers suggest that a Federal Lender’s collection practices, the

activity at issue in Flanagan, are more closely related to its core business

of lending money than is the charging of document preparation fees, the

activity at issue here. If a Federal Lender’s collection practices are outside

the scope of federal preemption and can be the subject of a common-law

action for tortious interference with contract, as held by this Court in

Flanagan, it is reasonable to conclude that a restriction on a Federal

Lender’s unauthorized practice of law — which, after all, is what the prohi-

bition on charging document preparation fees boils down to — is also

outside the scope of federal preemption.

The Seventh Circuit held in In re Ocwen Loan Servicing, LLC,

Mortgage Servicing Litig., 491 F.3d 638 (7th Cir. 2007), that because

HOLA and the OTS regulations provide no remedy to persons injured by

wrongful acts of Federal Lenders, “we read subsection (c) [of 12 CFR

§ 560.2] to mean that OTS’s assertion of plenary regulatory authority does


33

not deprive persons harmed by the wrongful acts of savings and loan

associations of their basic state common-law-type remedies.” Id. at 643.

The Seventh Circuit also held: “Not all state statutes that might be

invoked against a federal S&L are preempted, any more than all common

law doctrines are; for remember that contract and commercial law are

among the laws listed in subsection (c) of the regulation…” Id. at 646.

Specifically, the Seventh Circuit held that various state deceptive acts and

practices (“DAP”) statutes — statutes similar to the Missouri MPA here —

are not generally preempted by HOLA and its regulations. Id. at 644.

The Seventh Circuit reached its holding that statutes like the MPA

were not preempted relying in part on the express language of subsection

(c) and in part on a formal opinion of the OTS chief counsel, in which the

agency opined:

State laws prohibiting deceptive acts and practicesin the course of commerce are not included in theillustrative list of preempted laws in § 560.2(b). TheIndiana DAP deceptive acts and practices statuteprohibits specified acts and representations in allconsumer transactions without regard to whetherthe transaction involves an extension of credit.Although not directly aimed at lenders, this lawaffects lending to the extent that it prohibits mis-leading statements and practices in loan trans-actions by a federal savings association. Accord-


1 The OTS Chief Counsel’s opinion is available on the internet at:http://www.ots.treas.gov/docs/5/56615.pdf.

34

ingly, a presumption arises that the DAP statutewould be preempted in connection with loans madeby the Association.

The OTS has indicated, however, that it does notintend to preempt state laws that establish thebasic norms that undergird commercial trans-actions. The Indiana DAP falls within the categoryof traditional “contract and commercial” law under§ 560.2(c)(1). While the DAP may affect lendingrelationships, the impact on lending appears to beonly incidental to the primary purpose of the statute— the regulation of the ethical practices of allbusinesses engaged in commerce in Indiana. Thereis no indication that the law is aimed at any stateobjective in conflict with the safe and soundregulation of federal savings associations, the bestpractices of thrift institutions in the United States,or any other federal objective identified in§ 560.2(a). In fact, because federal thrifts arepresumed to interact with their borrowers in atruthful manner, Indiana’s general prohibition ondeception should have no measurable impact ontheir lending operations. Accordingly, we concludethat the Indiana DAP is not preempted by federallaw.

Ocwen, 491 F.3d at 644 (ellipses and brackets in original deleted, emphasis

added), quoting Opinion of OTS Chief Counsel: Preemption of State Laws

Applicable to Credit Card Transactions (Dec. 24, 1996) at pp. 9–10.1


35

Gibson v. World Savings & Loan Assn., 103 Cal. App. 4th 1291 (Cal.

App. 4th Dist. 2002), is also on point. In Gibson, a Federal Lender was a

defendant in a class action accusing it of buying “forced insurance” on the

mortgaged properties securing its loans, including many properties where

the homeowners already had hazard insurance in place to protect the

Federal Lender’s interests. The Federal Lender was accused of charging

its borrowers a substantial mark-up over the actual insurance premiums.

The suit against the Federal Lender alleged this conduct violated the

California unfair trade practices act. The Federal Lender moved to dismiss

the suit, claiming the state-law claims were preempted under 12 CFR

§ 560.2. The California appellate court rejected Federal Lender’s

preemption defense, holding:

Moreover, none of the predicate duties are directedtoward federal savings associations. Instead, theduties on which the plaintiffs’ claims are predicatedgovern, not simply the lending business, but anyoneengaged in any business and anyone contractingwith anyone else. On their face, they do not purportto regulate federal savings associations and are notspecifically directed toward them. Nor is there anyevidence that they were designed to regulatefederal savings associations more than any othertype of business, or that in practice they have adisproportionate impact on lending institutions.Any effect they have on the lending activities of a


36

federal savings association is incidental rather thanmaterial.

Gibson, 103 Cal. App. 4th at 1302.

In light of the text of 12 CFR § 560.2, which excludes general laws of

contracts, torts, and commercial law from the scope of its preemption; in

light of the authoritative announcement of the opinion of the OTS chief

counsel; in light of the decisions of the Courts of Appeals in Flanagan and

Ocwen; in light of the nature and scope of Missouri’s prohibition of the

unauthorized practice of the law business through the charging of docu-

ment preparation fees by non-lawyers, the common-law contractual rule

of money had and received, and the statutory tort rules embodied in the

MPA — in light of all of this, it appears indisputable that the trial court

erred in holding borrowers’ claims against the Federal Lenders preempted.

In short, the laws that borrowers invoke against the Federal Lenders

are part of the general laws of the State of Missouri. These are laws that

are not aimed at promoting or enforcing any state policy about the lending

practices of Federal Lenders. Indeed, these laws are not particularly

directed at and have no special application to any lender, but are equally

directed at and enforced against all sorts of persons, from real estate


37

brokers to escrow agents, from commercial businesses to recreation vehicle

dealers, from notaries to car wholesalers, casinos, and HVAC contractors.

The Missouri laws bars anyone who is not an attorney licensed in the state

from preparing legal documents for money. The laws at issue in this case

are part of the general contract, tort, and commercial laws of the State of

Missouri and, therefore, are outside the scope of preemption claimed by

the OTS in 12 CFR § 560.2, and are not preempted by any other federal

law.


38

CONCLUSION

The judgment of the trial court should be reversed. The case should

be remanded to state court to proceed to trial against appellees North

American Savings, Heartland Bank, and ABN AMRO with the direction

that appellants’ claims are not preempted by federal law.

Respectfully submitted,

GREEN JACOBSON, P.C.

By: ________________________________Joe D. JacobsonJonathan F. AndresAllen P. Press7733 Forsyth Blvd., Suite 700Clayton, MO 63105Tel: (314) 862-6800Fax: (314) 862-1606Email: [email protected] for appellants


39

CERTIFICATE OF COMPLIANCE

Pursuant to Rule 32(a)(7)(C) of the Federal Rules of Appellate

Procedure and Local Rule 28A(c), the attorney signing this brief certifies

as follows:

Appellants’ Opening Brief complies with the type-volume limitations

set in Rule 32(a)(7)(B) in that, according to WordPerfect’s word-count

function, the brief contains 7,339 words, excluding those portions of the

brief excluded from the volume limitations under the rule.

The brief complies with the typeface requirements established by

Rule 32(a)(5) and the type style requirements established by Rule 32(a)(6)

because it has been prepared in a proportionally-spaced typeface using

WordPerfect word-processing software version X3 in 14-point Century

Schoolbook font.

The electronic copies of this brief provided to the Court and opposing

party, and the diskettes on which those copies are served, have been scan-

ned for viruses using Symantec Endpoint Protection anti-virus software,

version 11.0.1000.1375, updated to the most current virus definitions, and

have been found to be virus-free.


40

CERTIFICATE OF SERVICE

The attorney signing this brief certifies that two true and complete

copies of this Opening Brief, and a floppy disk containing an electronic

copy of this brief, have been served by mailing the same by U.S. Mail, first-

class postage prepaid, this 20th day of February, 2009, to each of the

following named counsel of record at the following addresses of record:

Sanford J. BoxermanCapes Sokol Goodman & Sarachan PC7701 Forsyth Blvd., 4th FloorClayton, MO 63105

Michael A. CampbellPolsinelli Shalton Welte & Suelthaus100 South Fourth Street, Suite 1100St. Louis, MO 63102

Kenneth J. MallinBryan Cave LLP211 North Broadway, Suite 3600St. Louis, MO 63102-2750

C:\Temp\09-1096 Appellants Opening Brief.wpd


STATE OF MISSOURI ))ss

COUNTY OF ST. LOUIS )

IN THE CIRCUIT COURT OF THE COUNTY OF ST. LOUISSTATE OF MISSOURI

MICHAEL CASEY, et aI,Plaintiff

CAUSE NO. 02CC-1055

VB

ACCEL MORTGAGE SERVICES! INC,Et al

Defendants.

ORDER OF COURT

DIVISION 19

Defendants, Allegiant Mortgage Company, Countrywide Home Loans,Inc., Chase Manhattan Mortgage Corporation, Heartland Bank,Midwest BankCentre, Mortgage Resources Incorporated, NorthAmerican Savings Bank, F.B.B., Southwest Bank of St. Louis, WellsFargo Home Mortgage, North American Mortgage Company, ABN AmroMortgage Group, Inc, Cornerstone Mortgage, Inc, U.S. BankNational Association, have each filed some form of Motion toDismiss. Within those various motions are some themes that arecommon and there are some themes that are exclusive to thatDefendant's claim for relief. For purposes of judicial econ~my,

the court will first address and rule upon those claims that arecommon to more than one Motion to Dismiss and then rule upon allother claims for relief.

I.UNLAWFUL PRACTICE OF LAW OR DOING LAW BUSINESS

a. Violation of Section 484.020, RSMo.

In their Petition, Plaintiffs allege that each Defendant isa lender engaged in the business of making or brokering homeloans in the State of Missouri. They also allege that" Each ofthese home loans is secured by a deed of trust (or mortgage),and, in some cases, releases of deeds of trust, variable rateriders, a HUD-l Settlement Statement/ and other instruments anddocuments of legal significancel/. Each lender is alleged to


charge a document preparation fee. Each Plaintiff alleges he orshe was charged such a fee for document preparation. In Count Iof the Petition, Plaintiffs allege that "Section 484.020, RSMo,prohibits any association or corporation, except a professionalcorporation organized pursuant to the provisions of Chapter 356,RSMo, from engaging in the practice of law or doing lawbusiness... JI Plaintiffs allege that each of the defendants isprohibited from engaging in the practice of law or doing lawbusiness in the State of Missouri. Section 484.010, RSMo, defines"practice of the lawu as "the appearance of an advocate in arepresentative capacity or the drawing of papers, pleadings ordocuments or the performance of any act in such capacity inconnection with proceedings pending or prospective before anycourt of record, commissioner, referee or any body, board,committee or commission constituted by law or having authority tosettle controversies." "Law business" is defined as "the advisingor counseling for a valuable consideration of any person, firm,association, or corporation as to any secular law or the drawingor the procuring of or assisting in the drawing for a valuableconsideration of any paper, document or instrument affecting orrelating to secular rights or the doing of any act for a valuableconsideration in a representative capacity, obtaining or tendingto obtain or securing or tending to secure for any person, firm,association or corporation any property or property rightswhatsoever." Although the allegations of Plaintiffs fail toallege that Defendants engaged in the practice of law as thatterm is defined in Section 484.010, RSMo, the allegations dostate that Defendants were engaged in doing law business asdefined and as prohibited by Section 484.020, RSMo. Therefore,Plaintiffs state a cause of action in Count I under theprovisions of Section 484.020,RSMo.

b. Common Law Unlawful Practice of Law

Plaintiffs also claim that, aside from the provisi~ns of~Section 484.020, RSMo, they have alleged a cause of actlon for

damages for unlawful practice of law under common law. TheMissouri Supreme Court has stated that "the judicial departmentis necessarily the sole arbiter of what constitutes the practiceof law. n Hulse v. Criger, 247 S.W. 2d 855(Mo.1952). Ultimately,it will be the Missouri Supreme Court that determines what mayormay not constitute the unlawful practice of law. Suffice it tosay that the Supreme Court has already stated that although it isnot the unlawful practice of law for a party to fill out businessforms ancillary to the business of the person who did so, suchactions must be taken without separate charge. Hulse v. Criger,supra. Therefore, this court finds that, until otherwise ruled bythe Missouri Supreme Court, it appears that Plaintiffs haveadequately alleged that Defendants have unlawfully practiced law.

2


The critical issue before this court is whether or not thereis a civil action for unlawful practice of law independent of anaction under Section 482.020, RSMo. See, Jansen v. Guaranty LandTitle Co, 571 S.W.2d 702(Mo. App. E.D. 1978). That case cites toRule 5.25. On the basis of that rule the court found that"Plaintiffs simply have no standing to prosecute; their interestin the purity of the legal profession is no greater than that ofthe public at large. u Jansen, supra, 571 S.W.2d at 706. On thatbasis the court found that the substantive suits based on theillegal practice of law were properly dismissed by the trialcourt. That rule does not appear to be the same Rule 5.25 that ispresently in existence. However, Rule 5.29(a) provides "For thepurpose of protecting the public, the chief disciplinary counselshall have the power and is charged with the duty on behalf ofthe bar of investigating the unauthorized practice of law and ofinstituting and prosecuting appropriate suits, actions, orproceedings against any parties and in any forums within orwithout the state of Missouri for the purpose. u There is nothingwithin the Rules that appear to authorize independent civilactions to seek damages independent of actions under Section484.020,RSMo. Therefore, the court finds that Plaintiffs lackstanding to seek civil relief for the unlawful practice of law atcommon law. To the extent their pleadings seek to do so theyshould be dismissed. Wherefore, it is hereby ordered that theclaims of all Plaintiffs against all Defendants are herebydismissed for failure to state a cause of action to the extentthe Plaintiffs seek to claim a cause of action under Count I forUnlawful Practice of Law at Common Law.

II. STATUTE OF LIMITATIONS AND STANDING

In some cases, the Plaintiffs clearly allege that thecharging of a fee for document preparation, which they allege isthe illegal practice of law giving rise to a caus~of actionunder Section 484.020, RSMo, occurred more than two years priorto the filing of the petition. Section 484.020.2 provides that"Any person, ... or corporation who shall violate the foregoingprohibition of this section shall be guilty of a misdemeanor ...and shall be subject to be sued for treble the amount which shallhave been paid him or it for any services rendered by the ...corporation paying the same within two years from the date thesame shall have been paid. n It further provides that "if withinsaid time such ... person... shall neglect and fail to sue for orrecover such treble amount, then the State of Missouri shall havethe right to and shall sue for such treble amount and recover thesame and upon the recovery thereof such treble amount shall bepaid into the treasury of the state of Missouri." Contrary to theallegations of the Defendants in their Motions to Dismiss, this

3


statute is not a statute of limitations. However, as pointed outin the oral arguments, this statute speaks to the issue of thestanding of a Plaintiff to claim rights to recover under theprovisions of Section 484.020, RSMo. This court finds that thosePlaintiffs who failed to file suit within two years from the datethe payments were made to the said Defendants, lack standing toseek relief under Section 484.020. That right vests exclusivelywith the State. Also, since the remedy afforded within Section484.020, RSMo is a penalty} it is further covered by the threeyear statute of limitations under Section 516.130, RSMo.

The claims of Plaintiffs, Michael Casey and Julie Pennington,and Richard and Kathleen Keller against Defendant, North AmericanSavings Bank, Plaintiff, Michael T. Crider, Jr. against Defendant,North American Mortgage Company} Plaintiffs, William and PatriciaCraft against Defendant, Southwest Bank of St. Louis, Plaintiff,Mimi Fowler against Defendant, U.S. Bank National Association (asto the claim of 3/24/99), Plaintiff, Tim Lore against Defendant,Mortgage Resources r Plaintiff, Carl Makarewicz against Defendant,Countrywide Home Loans, Inc r and Plaintiffs, Andrea and MichaelMcCann against Defendant, Allegiant Mortgage Company J were allfiled more than two years after the named Defendants charged thosePlaintiffs a document preparation fee. Therefore, those actionsshould be ordered dismissed for lack of standing by Plaintiffs tobring chose actions.

Wherefore, it is hereby ordered that the above-listed claimsunder Count I of the First Amended Petition be dismissed for lackof standing under Section 484.020, RSMo.

III. MERCHANDISING PRACTICES ACT

a) SUFFICIENCY OF PLEADINGS

JPlaintiffs have alleged in Count II of their Petition that

they are entitled to recover damages pursuant to theMerchandising Practices Act, Section 407.010, RSMo. et seq. Thecourt finds that the Petitioner sufficiently alleges a violationof that act by alleging "charging a Document Preparation Fee forthe preparation of Documents necessary to effectuate financingtransactions" as "a deception and an unfair practice."

b) EXCLUSIONS FROM LIABILITY UNDER THE MERCHANDISINGPRACTICES ACT

Section 407.020.2(2) provides that the provisions of thisact do not apply to "Any institution or company that is under thedirection and supervision of the director of the department of

4


insurance, director of the division of credit unions, or directorof the division of finance, unless the directors of suchdivisions specifically authorize the attorney general toimplement the powers of this chapter or such powers are providedto either the attorney general or a private citizen by statute."Plaintiffs have acknowledged in their briefs that "State banksregulated by the Missouri Division of Finance are exempt fromcivil litigation or prosecution under the Merchandising PracticesAct." In Count II, paragraph 79, Plaintiffs allege "This countis alleged against all defendants and all members of theDefendants' Class who are not under the direction and supervisionof the director of the division of credit unions or the directorof the division of finance." The court discerns from the Motionsthat have been filed that institutions other than State Banksbelieve they are under the direction and supervision of thedivision of finance. Plaintiffs do not specify which of the namedDefendants need to respond to that allegation. It isinappropriate for Plaintiffs to require the court and theDefendants to have to guess whether or not this allegation isdirected at a party defendant. Therefore, as to those Defendantswho have alleged they are within this exception, this count needsto be dismissed to permit Plaintiffs to file a more specificpleading to permit the court to rule on which Defendants shouldremain subject to action on this count. Defendants J SouthwestBank of St. Louis, Midwest BankCentre, Mortgage ResourcesIncorporated, Cornerstone Mortgage J Inc., allege that they areunder the direction and supervision of the Director of theMissouri Division of Finance. Wherefore, it is hereby orderedthat Count II of Plaintiffs' Petition against Defendants,Southwest Bank of St. Louis, Midwest BankCentre, MortgageResources Incorporated, Cornerstone Mortgage, Inc. be and arehereby dismissed without prejudice with leave to file an amendedPetition which alleges which, if any, of such Defendants is notunder the direction and supervision of the Director of theMissouri Division of Finance. J

IV. PREEMPTION

Numerous Defendants have alleged that the causes of actionby Plaintiffs have been preempted by various federal laws. Thecourt finds no basis within any federal law to overcome thepresumption against preemption except within that federal lawapplicable to Federal Savings Banks and their subsidiaries.

a. Federal Savings Banks

Pursuant to 12 U.S.C. 1463 (a) (2) the Director of theOffice of Thrift Supervision is authorized to \\issue

5


such regulations as the Director determines to beappropriate to carry out the responsibilities of theDirector of the Office./I Pursuant to 12 U.S.C. 1464(a)," ... the Director is authorized, under such regulations asthe Director may prescribe-(l) to provide for theorganization, incorporation l examination, operation andregulation of associations to be known as FederalSavings associations (including Federal savings banks),and... 11 Under 12 C. F. R. 560.2 (a), the Director I byregulation has elected to occupy the field except forlimited areas covered by (c) of the regulation, none ofwhich appear to be relevant to this proceeding. Federalregulations such as 12 C.P.R. 560.2(a) have the sameeffect as federal statutes. Fidelity Federal Savings andLoan Assn v. de la Cuesta, 458 U.S. 141,153, 73 L.Ed. 2d664, 102 S. Ct. 3014 (1982). Regulation of fees relatedto financial transactions is within the clear intent ofthe regulations preempted. Therefore, this field hasbeen preempted by federal law and Plaintiff fails tostate a cause of action against those Defendants.

Defendants, Heartland Bank, North American SavingsBank, F.S.B., ABN AMRO Mortgage Group, Inc., and NorthAmerican Mortgage Company, have each alleged that theyare Federal Savings Association or subsidiaries underthe exclusive regulatory authority of the Office ofThrift Supervision and subject to statutory authority ofthe Home Owners Loan Act, 12 U.S.C. 1462 et seq.Plaintiffs have not challenged these claims.

Wherefore, it is hereby ordered that the FirstAmended Petition of Plaintiffs, Richard and KathleenKeller, against Defendant, Heartland Bank, Plaintiffs,Michael Casey and Julie Pennington and Richard andKathleen Keller against D@fendant, North AmericanSavings Bank, F.B.B., Plaintiffs, Richard and HeidiPiatchek, against Defendant, ABN AMRO Mortgage Group,Inc i Plaintiff, Michael T. Crider, Jr. againstDefendant, North American Mortgage Company, be and arehereby dismissed for failure to state a cause of actionas a result of federal preemption. Leave is herebygranted to file an amended Petition which alleges thatany of these named defendants are not under thestatutory authority of 12 U.S.C. 1462, et seq.

V. REMAINING CLAIMS OF DEFENDANTS

The Court finds no merit in any of the other claimsfor relief alleged in the Motions to Dismiss of the

6


various Defendants.

Wherefore, it is hereby ordered that all additionaland other grounds for relief, if any, requested byDefendant, Midwest BankCentre, on the claims ofPlaintiff Patricia Eisel, by Defendant, Southwest Bankof St. Louis on the claims of Plaintiffs William andPatricia Craft, by Defendant, Countrywide Home Loans,Inc. on the claims of Plaintiffs Cheryl Held and CarlMakarewicz, by Defendant, Allegiant Mortgage Company, onthe claim of Plaintiffs, Andrea and Michael McCann, byDefendant, U.S. Bank National Association, on the claimof Plaintiff Mimi Fowler, Defendant, Chase ManhattanMortgage Corporation on the claims of Plaintiffs,Timothy Hacker and Cathryn Senger and Ray and ConstanceRaley, Defendant, North American Savings Bank, F.S.B. onthe claims of Plaintiffs,Michael Casey and JuliePennington, and Richard and Kathleen Keller, byDefendant, Mortgage Resources Incorporated on the claimof Plaintiff, Tim Lore, by Defendant, ·CornerstoneMortgage, Inco, on the claims of Plaintiffs, Mimi Fowlerand Richard and Jean M. Hynes, by Defendant/Wells FargoHome Mortgage, Inc. on the claims of Plaintiffs,MichaelCrider, Jr. and Cory L and Jeremy W. Timblin, byDefendant, ABN AMRO Mortgage Group, on the claims ofPlaintiffs, Richard and Heidi Piatchek, by Defendant,North American Mortgage Company, on the claim ofPlaintiff, Michael T. Crider, Jr. be and are herebydenied.

VI. ADDITIONAL ORDERS OF COURT

a) It is further ordered that Defendants against whomclaims remain are granted 30 days from the date of thisorder to file answer@ to the Petitions.

b. This cause is hereby set for an additionalscheduling conference for December 16/ 2002, at 9:00a.m.

7


MELVYN W. WIESMAN, JUDGE/

SO ORDERED:

~"- 7Entered this Jlegd~y of November 2002.

cc: Martin Green and Thomas Federer, Attorneys for PlaintiffsSanford J. Boxerman, Attorney for ABN AMRO Mortgage Inc.Michael Campbell, Attorney for Defendants, Mortgage

Resources, Inc., Cornerstone Mortgage, Inc, and NorthAmerican Savings F.S.B.

David Crane, Attorney for Defendant, Countrywide Home Loans,Inc.

Gregory F. Herkert, Attorney for Defendant, MidwestBankCentre

Chris Hohn, Attorney for Defendant, Chase Manhattan MortgageCorporation

Kenneth Mallin, Attorney for Defendant! Heartland BankGary~ Mayes, Attorney for Defendants, Allegiant Mortgage

Company! and U.S. Bank National Association.Phillip Morse, Attorney for Defendant, Accel Mortgage

Services, Inc.Stephen Sanders, Attorney for Defendant, North American

Mortgage Co.Jay Summerville, Attorney for Defendant, Southwest Bank of

St. LouisDavid Wells, Attorney for Defendant, Wells Fargo Home

Mortgage, Inc.

8


IN THE CIRCUIT COURT FOR ST. LOUIS COUNTY J:,,::' .. ,r'rSTATE OF IVrrSSOURI

ACCEL 110RTGAGE SERVICES)INC., et al.)

JUAiC!r~Gi...!n· GLL .

Cause No. 02CC-OOI055

Division 20

Plaintiffs)

Defendants.

v.

l\1ICHAEL CASEY, et al., individually)and on behalf of all others similarly )situated) )

)))))))

r ))

VOLUNTARY DISMISSAL OF ACCEL MORTGAGE SERVICES, INC.WITI-I PREJUDICE

Pursuant to Rule 67(a), Plaintiffs Janles D. Phillips and Deborah J. Phillips

hereby dislniss their claims against Defendant Accel 1\1ortgage Services, Inc. with

prejudice.

GREEN JACOBSON AND BUTSCH P.C.

BY:~!.-Y1rc>Tv'Iartin M. Green #16465Joe D. Jacobson #33715David T. Butsch #37539Jonathan F. Andres #39531Allen P. Press #392937733 Forsyth Blvd., Suite 700St. Louis) Missouri 63105

Attorneys for Plaintiffs
