Opinion
Opinion No. 26710.
Heard June 10, 2009.
Filed August 31, 2009.
Appeal From Orangeburg County, James C. Williams, Jr., Circuit Court Judge.
REVERSED AND REMANDEDC. Bradley Hutto, of Williams Williams, of Orangeburg, Charles L. Dibble, of Dibble Law Offices, of Columbia, Daniel W. Williams, of Bedingfield Williams, of Barnwell, Steven W. Hamm, C. Jo Anne Wessinger-Hill, and Jocelyn T. Newman, all of Richardson, Plowden Robinson, of Columbia, T. Alexander Beard, of Beard Law Offices, of Mt. Pleasant, Thomas M. Fryar, of Columbia, for Appellants.
James Y. Becker and Sarah P. Spruill, both of Haynsworth, Sinkler, Boyd, of Columbia, T. Thomas Cottingham, III, of Winston Strawn, of Charlotte, for Respondent.
In this case, Lois King and Deloris Sims, on behalf of themselves and those similarly situated, brought an action against American General Finance alleging the loan company violated the attorney preference statute by failing to timely ascertain the borrower's preference for legal counsel. S.C. Code Ann. § 37-10-102. The class was certified, and subsequently decertified by a different trial court. The individual actions brought by King and Sims continued, resulting in summary judgment for American General and a defense jury verdict respectively. King and Sims appeal the class decertification and the dispositions of their individual cases. We reverse the class decertification as well as the trial court's holdings in the individual cases. We remand this case to continue as a class action and allow the class action to once again envelop the individual cases.
I.
In 1996, the Legislature amended section 37-10-102(a), the key statute in this case. Prior to the 1996 amendment, lenders, such as American General, were required to "ascertain the preference of the borrower as to the legal counsel that is employed to represent the debtor . . . and the credit application on the first page thereof must contain information as is necessary to ascertain these preferences of the borrower" when the loan was secured in whole or in part by real estate. S.C. Code Ann. § 37-10-102(a) (Supp. 1995). Following the 1996 amendment, a lender must notify the borrower prior to closing of the borrower's attorney preference rights by including the information on or with the credit application or providing the borrower written notice "delivered or mailed no later than three business days after the application is received or prepared." S.C. Code Ann. § 37-10-102(a) (2002). The 1996 amendment became effective on May 30, 1996. Act No. 355, 1996 S.C. Acts 2187.
Accordingly, both versions of section 37-10-102(a) require timely notice to the borrower of his or her attorney preference rights. King and Sims allege American General failed to make this notification and bring this action on behalf of themselves and those similarly situated. King and Sims allege this action implicates approximately five thousand loans. Notably, section 37-10-105 of the South Carolina Code was amended in 1997 to preclude class actions for subsequent violations of section 37-10-102. S.C. Code Ann. § 37-10-105 (2002).
King and Sims, the class representatives, both closed their loans with American General in 1995. Individually, King sought a home improvement loan to be secured by her home; however, she eventually received a debt consolidation loan instead. Nevertheless, American General presented King with a federal disclosure statement, which read "[y]ou are giving a security interest in your Real Estate" and listed an address. King executed this document.
Undisputedly, Deloris Sims received a loan from American General secured by her real property; however, the document American General relied on was an undated attorney preference statement.
In 1996, King and Sims brought this action on behalf of themselves and those similarly situated. In 1998, Judge T. L. Hughston, Jr. denied American General's motion for summary judgment and certified the class. The court analyzed the proposed class under Rule 23(a), SCRCP, and found all the following elements satisfied: numerosity, commonality, typicality, adequacy of King and Sims as class representatives, and amount in controversy exceeded one hundred dollars per class member.
Importantly, when discussing typicality, the court stated:
[American General] has asserted a "substantial compliance" argument based upon Davis v. NationsCredit Fin. Serv. Corp., [ 326 S.C. 83,] 484 S.E.2d 471 (1997). This argument is misplaced. Davis dealt with an issue of form, not one of timing. In Davis, the plaintiff had received the required notice at the time of application as required by [s]ection 37-10-102, but the notice was on a separate sheet rather than on the first page of the application. Timing is a critical issue of informed disclosure. The definition proposed by [King and Sims] excludes those who received the form at the time of application. Failure to give the required notice in such a manner in which it can be effective is not substantial compliance. The bright-line test of [s]ection 37-10-105 addresses the company-wide procedures of [American General]. Therefore, the requirement of typicality is satisfied.
This understanding of Davis and the distinction between the timing element and the form are essential to our ruling today.
Further, in his order Judge Hughston stated:
This Court therefore orders the certification of the proposed class consisting of all persons who, since July 1, 1982, have taken a loan from [American General] which was secured in whole or in part by a lien on real estate in South Carolina for personal, family, or household purposes, whether recorded or not, and
a. for whom the debt secured is: I) still outstanding, or ii) (sic) payment was made on the loan within three years of the date of the filing of this action on August 1, 1996, and
b. for whom [American General] failed to ascertain the attorney or insurance preference of the borrower at the time of application in the manner required by S.C. Code Ann. § 37-10-102.
American General petitioned this Court for Writ of Mandamus and Writ of Certiorari from Judge Hughston's order. This Court denied both petitions. Subsequently, this case was designated complex and assigned to Judge James C. Williams, Jr.
In 2001, Judge Williams decertified the class finding "there is no such thing as a typical plaintiff in this case" because the timing of when a loan attached to property differed among the borrowers. In a later ruling, the trial court granted summary judgment for American General in King's individual case, finding the loan King eventually received was not secured by real property.
Additionally, the trial court granted partial summary judgment for Sims in her individual case, correctly noting "there can be no substantial compliance where the preferences are not ascertained until closing." Subsequently, the trial court granted American General's motion to reconsider the ruling for Sims, vacated its earlier ruling, and conducted a jury trial.
The jury found for American General. The jury was first asked, "[d]id the actions of American General in this case give a clear and prominent disclosure of the information necessary to ascertain the relevant preference of Deloris Sims? In other words, did American General substantially comply with the statutory requirements?" The jury answered "yes." In the second question the jury was asked to answer the critical question in the case — when was the disclosure made. Eleven of the jurors found American General made the disclosure on the day of the closing, and one juror found American General made the disclosure prior to the closing. Judgment was entered for American General.
This appeal of the decertification and treatment of King's and Sims's individual cases followed.
II.
King and Sims argue the trial court erred in decertifying the class. We agree.
It is within a trial court's discretion whether a class should be certified. Tilley v. Pacesetter Corp., 333 S.C. 33, 42, 508 S.E.2d 16, 21 (1998). Additionally, "[a] court may not look to the merits when determining whether to certify a class." Id. at 43, 508 S.E.2d at 21.
As discussed above, prior to 1996, section 37-10-102 read:
Whenever the primary purpose of a loan that is secured in whole or in part by a lien on real estate is for a personal, family or household purpose —
(a) The creditor must ascertain the preference of the borrower as to the legal counsel that is employed to represent the debtor in all matters of the transaction relating to the closing of the transaction and except in the case of a loan on property that is subject to the South Carolina Horizontal Property Act (§ 27-31-10 et seq.) the insurance agent to furnish required hazard and flood property insurance in connection with the mortgage and comply with such preference, and the credit application on the first page thereof must contain information as is necessary to ascertain these preferences of the borrower. The creditor may require that the attorney or agent so chosen be able to provide reasonable security to the creditor by way of mortgage title insurance in a company acceptable to the creditor and other insurance in a company acceptable to the creditor. If title insurance is made a condition of the loan at any point during the negotiations, it must remain a condition all the time thereafter regardless of which attorney ultimately closes the transaction. Any legal fees other than for examination and certification of the title, the preparation of all required documents, and the closing of the transaction required or incurred by the creditor in connection with the transaction is the responsibility of the creditor regardless of which party pays for the title work, document preparation, and closing.
(emphasis added). This Court interpreted section 37-10-102 in Davis v. NationsCredit Financial Services Corp., 326 S.C. 83, 484 S.E.2d 471 (1997).
In Davis, this Court answered certified questions arising from a mortgage loan transaction where Davis received an attorney and hazard insurance preference statement on a separate sheet of paper contemporaneously with her credit application. 326 S.C. at 84, 484 S.E.2d at 471. Therefore, the issue in Davis was one of form: whether the presentation of the attorney preference disclosure on a separate paper from the application violated section 37-10-102.
In answering those questions, we construed the legislative purpose of section 37-10-102 to be "to protect borrowers." Id. at 86, 484 S.E.2d at 472. This Court then held, although the lender may technically deviate from section 37-10-102 by assessing the borrower's preference for legal counsel on a separate piece of paper administered contemporaneously with the actual application, the lender substantially complied with section 37-10-102 when the borrower received "clear and prominent disclosure of the statutorily required information." Id. Thus, this Court held substantial compliance may be achieved if the form of the disclosure is clear and meaningful.
The timing of the attorney preference disclosure was not an issue in Davis, as the lender provided the attorney preference statement contemporaneously with the loan application. Timing is the central issue in this case. As plainly defined in Davis, a clear, meaningful disclosure is a separate element from the timing requirement. The substance of the disclosure may be achieved through substantial compliance. The Davis concept of substantial compliance does not neatly fit the timing element of the attorney preference disclosure.
The notion of substantial compliance may have a limited application concerning the timing requirement in section 37-10-102 as written prior to the 1996 amendment, but only when the attorney preference disclosure is provided sufficiently prior to closing to allow the borrower to make an informed and meaningful decision. It was legal error to equate the Davis concept of substantial compliance concerning the form of the disclosure with statutory compliance concerning the timing of the disclosure.
To permit a construction of section 37-10-102 as sanctioning the lender's furnishing of the attorney preference disclosure at the closing would render the manifest legislative purpose a nullity. The purpose of section 37-10-102 is "to protect borrowers." Davis, 326 S.C. at 86, 484 S.E.2d at 472; see also McClanahan v. Richland County Council, 350 S.C. 433, 438, 567 S.E.2d 240, 242 (2002) ("All rules of statutory construction are subservient to the one that legislative intent must prevail if it can be reasonably discovered in the language used, and that language must be construed in light of the intended purpose of the statute."). Disclosure at closing that a borrower can employ a closing attorney of his or her preference is nonsensical.
As noted, section 37-10-102 was amended on May 30, 1996. Notably, the amendment affects causes of action accruing on or after May 30, 1996. Act No. 355, 1996 S.C. Acts 2187. The amended statute requires, "[t]he creditor must ascertain prior to closing the preference of the borrower as to the legal counsel that is employed to represent the debtor in all matters of the transaction relating to the closing of the transaction." (emphasis added). The amended statute alerts creditors they may comply by including preference information on the application or mailing or delivering written notice of the preference information no later than three business days after the preparation or receipt of an application. While the pre-1996 version of section 37-10-102 lacks an express timing provision, we hold the Legislature intended for the attorney preference disclosure to be made sufficiently in advance of the closing to provide a borrower a meaningful opportunity to select an attorney of his or her choice.
The trial court correctly observed the varying times in the loan process during which the attorney preference disclosure was made. But this timing differential does not impact Rule 23's typicality requirement, for typicality is found in the common feature of the lender delaying the attorney preference disclosure such that the borrower is denied any meaningful opportunity to select an attorney of his or her choice. In decertifying the class, we hold the trial court committed legal error. Accordingly, we reverse the class decertification. The class shall be deemed certified as of July 2, 1998, without interruption.
III.
We turn to Sims's individual case, which involved a signed but undated attorney preference disclosure form. Sims argues the trial court erred in again merging the principle of substantial compliance with the timing element of section 37-10-102. We agree.
As discussed above, the trial court impermissibly entangled the concept of timeliness and substantial compliance so as to permit a finding of substantial compliance when the attorney preference disclosure is made at closing. As a matter of law, providing the attorney preference disclosure on the day of closing comes too late. This prejudicial error is clear in the inconsistent jury verdict forms.
In the first form, the jury unanimously held American General substantially complied with the statutory requirements. However, in the second form, eleven jurors found American General provided the attorney preference disclosure on the day of Sims's closing while one juror found the disclosure was made prior to the closing. Accordingly, we reverse due to the trial court's error of law imposing substantial compliance on the timing element in section 37-10-102.
IV.
King argues the trial court erred in granting American General summary judgment on the basis that her loan was not secured by real property. We agree.
"Summary judgment is appropriate when it is clear that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law." Cafe Assoc., Ltd. v. Gerngross, 305 S.C. 6, 9, 406 S.E.2d 162, 164 (1991).
King entered into a loan transaction with American General on December 26, 1995. As part of the American General loan application, King executed a federal disclosure statement, which read "[y]ou are giving a security interest in your Real Estate" and then listed an address. Construing the facts in a light most favorable to King, this language created a security interest in King's property in favor of American General. Koester v. Carolina Rental Ctr., Inc., 313 S.C. 490, 493, 443 S.E.2d 392, 394 (1994) ("In determining whether any triable issues of fact exist, the evidence and all inferences which can be reasonably drawn from the evidence must be viewed in the light most favorable to the non-moving party."). There is nothing in the record to indicate American General returned this document to King or otherwise took steps to nullify the grant of the security interest.
We recognize that Gail Laney, the manager of deeds in the county where King's home is located, stated in her affidavit no mortgage is recorded for King's property in the land records office; however, the absence of recording affects priority among creditors, not the existence of a lien. Epps v. McCallum Realty Co., 139 S.C. 481, 497, 138 S.E. 297, 302 (1927) (holding as to the two parties involved in making an instrument, recording is not necessary for the instrument to be valid). The executed document granting American General a lien on King's property remains notwithstanding the lack of recordation.
Due to the execution and retention of the security interest, we hold a genuine dispute of fact exists, precluding summary judgment. We reverse the grant of summary judgment.
V.
King and Sims make additional arguments we decline to reach due to our above holdings. Futch v. McAllister Towing of Georgetown, Inc., 335 S.C. 598, 613, 518 S.E.2d 591, 598 (1999) (stating an appellate court need not discuss remaining issues when disposition of prior issue is dispositive).
We reverse the trial court's rulings regarding King's and Sims's individual claims and the decertification of the class. We remand the case to proceed as a class action effective as of the date of Judge Hughston's original order to certify the class filed on July 2, 1998.
REVERSED AND REMANDED.
TOAL, C.J., WALLER, PLEICONES and BEATTY, JJ., concur.