Opinion
C076826
12-02-2016
SUSAN L. ESTANTE, Cross-complainant and Appellant, v. MOUNTAIN LION ACQUISITIONS, INC., Cross-defendant and Respondent.
NOT TO BE PUBLISHED California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 39-2012-00290205-CU-MC-STK)
Appellant and cross-complainant Susan Estante claims her consumer debt is uncollectable because the original lender sold her note to respondent and cross-defendant Mountain Lion Acquisitions, Inc. (Mountain Lion) in violation of the California Finance Lenders Law (Fin. Code, § 22000 et seq.).
Further statutory references to sections of an undesignated code are to the Financial Code.
Section 22340, subdivision (a) provides: "A licensee may sell promissory notes evidencing the obligation to repay loans made by the licensee pursuant to this division or evidencing the obligation to repay loans purchased from and made by another licensee pursuant to this division to institutional investors, and may make agreements with institutional investors for the collection of payments or the performance of services with respect to those notes." Subdivision (b) of that section defines the term, "institutional investor." Mountain Lion does not fit within any of the definitions in subdivision (b).
The question presented is whether section 22340 requires that a licensed lender sell promissory notes only to institutional investors, or whether it may sell promissory notes to noninstitutional investors. We shall conclude that the statutory language is ambiguous, but that the legislative history clearly intended to restrict the sale of promissory notes to institutional investors only when the promissory note was secured by real property. Because Estante's loan was not secured by real property, we shall affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
Estante borrowed money from CashCall, Inc. (CashCall). The loan was not secured by real property. CashCall was licensed as a finance lender pursuant to the California Finance Lenders Law (§ 22000 et seq.), the law governing Estante's loan. CashCall sold Estante's debt to Mountain Lion for collection. Mountain Lion is neither a licensed finance lender, nor an institutional investor. Mountain Lion sued Estante for collection of the debt. Estante cross-complained, alleging violations of the California Finance Lenders Law, the Rosenthal Fair Debt Collection Practices Act (RFDCPA) (Civ. Code, § 1788 et seq.), and the federal Fair Debt Collection Practices Act (FDCPA) (15 U.S.C. § 1692 et seq.). She claimed not only that she did not have to repay the loan, but also that she was owed damages. Her claims were based on her contention that the sale of her debt to Mountain Lion, which was neither a licensed finance lender, nor an institutional investor as defined in Financial Code section 22340, subdivision (b), violated subdivision (a) of that section and rendered the debt void pursuant to section 22750, subdivision (b). She claimed Mountain Lion's attempts to collect the allegedly void and uncollectable debt violated the RFDCPA and the FDCPA.
Mountain Lion moved for judgment on the pleadings with respect to the cross-complaint. The trial court granted the judgment in favor of Mountain Lion on the cross-complaint, and Estante appeals from that judgment. We shall affirm.
DISCUSSION
I
Section 22340 Does Not Prohibit Finance Lenders From Selling
Non-real-estate-secured Debts to Non-institutional Investors
Estante's claims depend upon her construction of section 22340. Subdivision (a) of that section provides that a licensed finance lender "may sell promissory notes evidencing the obligation to repay loans made by the licensee pursuant to this division or evidencing the obligation to repay loans purchased from and made by another licensee pursuant to this division to institutional investors, and may make agreements with institutional investors for the collection of payments or the performance of services with respect to those notes." Subdivision (b) of section 22340 defines " 'institutional investors,' " and Mountain Lion does not fit any of the descriptions of an institutional investor.
An institutional investor is defined by statute as:
"(1) The United States or any state, district, territory, or commonwealth thereof, or any city, county, city and county, public district, public authority, public corporation, public entity, or political subdivision of a state, district, territory, or commonwealth of the United States, or any agency or other instrumentality of any one or more of the foregoing.
"(2) A bank, trust company, savings bank or savings and loan association, credit union, industrial bank or industrial loan company, finance lender, residential mortgage lender, or insurance company doing business under the authority of and in accordance with a license, certificate, or charter issued by the United States or any state, district, territory, or commonwealth of the United States.
"(3) Trustees of pension, profit sharing, or welfare funds, if the pension, profit sharing, or welfare fund has a net worth of not less than fifteen million dollars ($15,000,000), except pension, profit sharing, or welfare funds of a licensee or its affiliate, self-employed individual retirement plans, or individual retirement accounts.
"(4) A corporation with outstanding securities registered under Section 12 of the Securities Exchange Act of 1934 or any wholly owned subsidiary of that corporation; provided, however, that the purchaser represents that it is purchasing for its own account for investment and not with a view to or for sale in connection with any distribution of the promissory note.
"(5) A syndication or other combination of any of the foregoing that is organized to purchase the promissory note.
"(6) A trust or other business entity established by an institutional investor for the purpose of issuing or facilitating the issuance of undivided interests in, the right to receive payments from, or that are payable primarily from, a pool of financial assets held by the trust or business entity if all of the following apply . . . ." (§ 22340, subd. (b).)
Estante claims section 22340 should be construed to mean that a finance lender may sell promissory notes only to institutional investors, and that the sale in this case to a noninstitutional investor rendered the debt void and uncollectable pursuant to section 22750, subdivision (b). That section provides in pertinent part that if any licensed or unlicensed person willfully violates the California Finance Lenders Law in making or collecting a loan, the loan contract is void and may not be collected. This contention was rejected in Montgomery v. GCFS, Inc. (2015) 237 Cal.App.4th 724 (Montgomery). We agree with Montgomery, and rely on its analysis.
"The first principle of statutory interpretation is that, to ascertain the Legislature's intent, we turn initially to the words of the statute, and if ' "the statutory language is clear and unambiguous, there is no need for construction and courts should not indulge in it." ' " (People v. Johnson (2006) 38 Cal.4th 717, 723.) Section 22340 states that a licensed finance lender "may" sell promissory notes to institutional investors. The word "may" is ordinarily construed as permissive rather than mandatory. (Montgomery, supra, 237 Cal.App.4th at p. 729.) The question here is whether the statutory language permits finance lenders to sell their notes only to institutional investors. (Ibid.) The language of the statute does not clearly answer this question. On the one hand, since the statute does not prohibit the sale of consumer loans to noninstitutional lenders, it could mean that such loans may be sold to anyone. On the other hand, applying the principle expressio unius est exlusio alterius (the inclusion of one thing in a statute implies the exclusion of other things), it might mean that the inclusion of institutional investors implies the exclusion of all others. (Id. at pp. 729-730.)
Because the statutory language is ambiguous, we may look to indicia of the Legislature's intent, including the legislative history of the statute. (Montgomery, supra, 237 Cal.App.4th at p. 730.) Montgomery analyzed the legislative history, and concluded that the Legislature's purpose in enacting section 22340, subdivision (a) was to permit licensed finance lenders to sell promissory notes secured by real property to institutional investors without having to be licensed as real estate brokers. (Id. at pp. 730-731.)
Section 22340, subdivision (a) was initially enacted as section 22476. (Montgomery, supra, 237 Cal.App.4th at p. 730.) --------
The purpose of section 22340, subdivision (a) of the California Finance Lenders Law was to eliminate the need for licensed finance lenders to obtain a real estate broker's license in order to sell loans secured by real estate on the secondary market. (Montgomery, supra, 237 Cal.App.4th at p. 730.) Finance lenders are not required to have a real estate license when acting within the scope of their license as a finance lender. (Id. at p. 731.) Prior to the enactment of section 22340, subdivision (a), the law regulating finance lenders was silent concerning the authority of finance lenders to sell and service promissory notes, but persons engaged in assigning notes to the public that were secured by real property were required to have a real estate license. (Id. at p. 730.)
The following statement of legislative intent was published in the Assembly Journal by unanimous consent: "Assembly Bill 346 authorizes finance companies . . . to sell real estate loans they have made to specified classes of institutional investors, and to make agreements to service those loans. [¶] In accordance with the finance companies' exemption from the real estate law, this authority eliminates the possibility that they could be required to be licensed and regulated as real estate brokers when selling or servicing real estate loans they have made." (2 Assem. J. (1985-1986 Reg. Sess.) p. 3298.)
"This legislative history makes clear that section 22340 [subdivision] (a) was intended to clarify Business and Professions Code section 10133.1, subdivision (a)(6): the sale of any debt, including debt secured by real estate, by a licensed finance lender to an institutional investor was within the authority of that lender's license. That history also makes clear that the Legislature did not intend the provision to prohibit the sale of debt to non-institutional investors. Instead, the Legislature left the statute silent as to other sales, leaving open the possibility that other statutory schemes could regulate those sales." (Montgomery, supra, 237 Cal.App.4th at p. 731, italics added.)
Because there is a clearly discernible legislative intent, we do not apply the principle of expressio unius est exlusio alterius where, as here, such application would lead to a contradictory result. (Montgomery, supra, 237 Cal.App.4th at p. 730.) Thus, CashCall, as a licensed finance lender, did not violate section 22340, subdivision (a), when it sold a non-real-estate-secured loan to Mountain Lion. As there was no violation of section 22340, subdivision (a), Estante's claim that the debt is now void and uncollectable pursuant to section 22750, subdivision (b), is groundless.
II
The Sale of Estante's Debt to a Non-institutional Investor Did not
Contravene the Purpose of the California Finance Lenders Law
Estante points to section 22001, subdivision (a), which states that the purposes of the California Finance Lenders Law are, inter alia, to "ensure an adequate supply of credit to borrowers in this state" and to "protect borrowers against unfair practices by some lenders, having due regard for the interests of legitimate and scrupulous lenders." Estante claims the California Finance Lenders Law was intended to "protect California consumers against predatory and usurious loans, such as the underlying loan in this case." Whether the instant loan was predatory and usurious is irrelevant here. The issue here concerns the sale of the loan after it is made and its terms are set. The restrictions on usury regulate the making of the loan, not the subsequent assignment or sale of the loan. (Montgomery, supra, 237 Cal.App.4th at p. 732.) "The California Constitution exempts from its usury restrictions 'persons authorized by statute'—such as finance lenders (§ 22002)—and 'any successor in interest to any loan or forbearance exempted under this article.' (Cal. Const. art. XV, § 1, subd. (2).) The Constitution does not require successors in interest to be independently exempt from usury restrictions. Moreover, in Strike v. Trans-West Discount Corp. (1979) 92 Cal.App.3d 735, 745, the Court of Appeal rejected an argument that 'the [non-exempt] assignee of an exempt lender becomes thereby a usurer unable to collect any interest,' noting such a rule would be 'not conformable to the public policy exempting [certain entities] in the first instance.' " (Ibid.)
Estante argues that protecting consumers from predatory collection practices is one of the purposes of the California Finance Lenders Law, but any matters concerning collection practices or the sale of a consumer loan after it has been made are noticeably absent from the stated purposes of the California Finance Lenders Law. (§ 22001.) Similarly, "[a] 'finance lender' is defined to include 'any person who is engaged in the business of making consumer loans.' (§ 22009, italics added.) In accord with this definition, most of the regulatory provisions [with the exception of regulations relating to payment on and satisfaction of the note (§ 22337, subd. (c)-(e))] govern the terms of the loan when made, including permissible interest rates and fees and various impermissible terms. (See §§ 22300-22307, 22311-22312.) The sale or assignment of the loan does not alter these terms." (Montgomery, supra, 237 Cal.App.4th at pp. 731-732, fn. omitted.)
Estante's claim that the loan is now void and uncollectable pursuant to section 22750, subdivision (b), as well as her claim for damages under the FDCPA and RFDCPA, depend on a finding that section 22340, subdivision (a) was violated when her loan was sold to an unlicensed, noninstitutional investor. Because we have concluded the statute does not prohibit such a sale, her claims fail.
DISPOSITION
The judgment is affirmed. Mountain Lion is awarded its costs on appeal. (Cal. Rules of Court, rule 8.278(a)(2).)
/s/_________
Blease, Acting P. J. We concur: /s/_________
Mauro, J. /s/_________
Renner, J.