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Reagan v. Racal Mortgage
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MAINE SUPREME JUDICIAL COURT						Reporter of Decisions
Decision:1998 ME 188 
Docket:Fed-98-63
Argued:	June 9, 1998
Decided:July 27, 1998


Panel:WATHEN, C.J., and ROBERTS, CLIFFORD, RUDMAN, DANA, and SAUFLEY, JJ.






MARGO REAGAN, et al.{1} v. RACAL MORTGAGE, INC., et al.{2}




WATHEN, C.J.


	[¶1]  Following defendants' appeal to the First Circuit Court of Appeals
from summary judgments entered in the United States District Court for the
District of Maine (Carter, J.), the First Circuit, pursuant to 4 M.R.S.A. § 57
(1989) and M.R. Civ. P. 76B, certified to us the following questions of Maine
law:
	(1)  For purposes of Me. Rev. Stat. Ann. tit. 1, § 302, does a violation of
Maine Consumer Credit Code section 9-405(4) constitute a "penalty"
incurred at the moment the violation occurred?

	(2) If the answer to Question 1 is no, do the 1994 amendments to the
Maine Consumer Credit Code have retroactive effect under the common law
of Maine?

	(3) If the answer to Question 1 is yes, or the answer to Question 2 is
no, can an error of law constitute a "bona fide error" for purposes of Maine
Consumer Credit Code section 9-405(7)?

	[¶2]  The undisputed facts may be summarized as follows: In 1992,
Racal Mortgage, Inc. (hereinafter referred to as "Racal") entered into certain
mortgage loan transactions with plaintiffs Bruce Goulette and Robin and
Stephen St. Jean (hereinafter individually referred to by name or collectively
referred to as "debtors") for the purpose of financing the purchase of
debtors' respective residences.  The loans were closed in Racal's name, as
lender, but were "table-funded" by Chemical Residential Mortgage
Corporation, i.e., Chemical provided the funds that Racal lent to the debtors. 
Racal immediately assigned the loans to Chemical.  Thereafter, Chemical
serviced the loans and collected the amounts due from the debtors.
	[¶3]  At the time of the closings in 1992, Racal was registered with
the Maine Bureau of Consumer Credit Protection as a credit services
organization, 9-A M.R.S.A. § 10-102(1) (1997 & Supp. 1997), but not as a
licensed supervised lender, 9-A M.R.S.A. § 1-301(39)(Supp. 1997). 
Pursuant to the Maine Consumer Credit Code, only supervised financial
organizations or licensed lenders may engage in the business of making
supervised loans, 9-A  M.R.S.A. § 2-301 (1997), and the loans made by Racal
to the debtors were "supervised loans" as defined by the Code.  9-A M.R.S.A.
§ 1-301(40) (Supp. 1997).     
	[¶4]  In 1995, Goulette and the St. Jeans each brought a separate
action for sanctions pursuant to 9-A M.R.S.A. § 9-405(4) against Racal for
making unauthorized supervised loans.  The actions were consolidated in
the United States District Court, and summary judgment was granted in
favor of the debtors.  St. Jean v. Racal Mortgage, Inc., 952 F.Supp. 22, 31 (D.
Me. 1997).  Racal appealed to the First Circuit Court of Appeals, which
concluded that Racal violated the Code by making supervised loans without
being licensed to do so.  Reagan, 135 F.3d at 41.  The unresolved issue
concerns the applicable sanction provision -- the law in effect at the time
the loans were made in 1992 or the current law in effect at the time the
debtors filed their complaints.  To answer these questions, the First Circuit
certified the three questions of law.  Reagan v. Racal Mortgage, Inc., 135
F.3d 37, 46 (1st Cir. 1998).
	[¶5] Former section 9-405(4), in effect in 1992, provides in relevant
part as follows: "If a creditor has violated the provisions of this article
applying to authority to make supervised loans, section 9-201, the debtor is
not obligated to pay the loan finance charge." P.L. 1987, ch. 396, § 12
(emphasis added).   Current section 9-405(4), amended effective July 14,
1994, provides for a lesser penalty, described in relevant part as follows:  "If
a creditor has violated the provisions of this article applying to authority to
make supervised loans, section 9-201, the debtor is not obligated to pay any
application fee, prepaid finance charge or closing cost, nor the loan finance
charge owed for the first 12 months of the loan."  P. L. 1993, ch.  496, § 4
(emphasis added). Section 9-405(7) of the 1992 law provides an affirmative
defense, however, in the following terms:
If the creditor establishes by a preponderance of evidence that a
violation is unintentional or the result of a bona fide error
notwithstanding the maintenance of procedures reasonably
adapted to avoid any such violation or error, no liability is
imposed under subsections 1, 2 and 4, the validity of the
transaction is not affected, and no liability is imposed under
subsection 3, except for refusal to make a refund.
P. L. 1987, ch. 396, § 12 (emphasis added).  Current section 9-405(7),
amended effective July 14, 1994, deletes reference to subsection 4, which
is the subsection at issue in this case, thereby eliminating the defense for
such violations, and also amends the language "unintentional or the result of
a bona fide error" to "unintentional and the result of a bona fide error." P. L.
1993, ch. 496, § 4 (emphasis added).	
I. General Savings Statute
	[¶6] The debtors argue that the general savings statute, 1 M.R.S.A. §
302 (1989), applies to this case and that therefore the harsher sanction
provided by the 1992 law applies. We agree.  Section 302 provides in
relevant part as follows:
The repeal or amendment of an Act or ordinance does not affect
any punishment, penalty or forfeiture incurred before the repeal
or amendment takes effect, or any action or proceeding pending
at the time of the repeal or amendment, for an offense
committed or for recovery of a penalty or forfeiture incurred
under the Act or ordinance repealed or amended.
Id. (emphasis added).

	[¶7]  The test pursuant to section 302 is two-pronged:  (1) there must
be a punishment, penalty, or forfeiture; and (2) the punishment, penalty, or
forfeiture must have been incurred before the amendment. When
interpreting a statute, we first look at the plain meaning of the statutory
language, seeking to give effect to legislative intent, and consider the
particular language in the context of the whole statutory scheme.  Maine
Green Party v.  Secretary of State, 1997 ME 175, ¶ 6, 698 A.2d 516, 519.
We construe the language to reach a harmonious result and to avoid absurd,
illogical, or inconsistent results. Thibeault v. Larson, 666 A.2d 112, 114 (Me.
1995).  If an ambiguity is found in the statute, we look to the legislative
history of the statute to ascertain the legislative intent. See Maine Green
Party v.  Secretary of State, 1997 ME 175, ¶¶ 6, 7, 698 A.2d 516, 519.   
Further, we note in particular that "section 302 provides a rule of
construction only, and the rule is controlling 'absent clear and unequivocal
language to the contrary.'" Riley v. Bath Iron Works Corp., 639 A.2d 626, 627
(Me. 1994)(Citation omitted). 
	[¶8]  The terms "punishment, penalty or forfeiture" are not defined in
section 302, or in related provisions.   In the absence of a legislative
definition, "the term must be given a meaning consistent with the overall
statutory context and must be construed in the light of the subject matter,
the purpose of the statute and the consequences of particular
interpretation."  Town of Madison v. Town of Norridgewock, 544 A.2d 317,
319 (Me. 1988) (citation omitted).  We have interpreted "penalty" on other
occasions in connection with section 302.  See generally Town of Ogunquit
v. McGarva, 570 A.2d 320 (Me. 1990) (a $200 per day fine, a civil penalty,
for land use violations was a penalty pursuant to section 302, but an award of 
attorneys fees was not a penalty); State v. Alley, 263 A.2d 66 (Me. 1970) (a
criminal sentence for unlawful possession of a certain narcotic drug was a
penalty pursuant to section 302); Thompson v. Edgar, 259 A.2d 27, 29 (Me.
1969) (the loss of a driver's license is not a penalty pursuant to section 302). 
	[¶9]  While no case is directly on point, we find Town of Ogunquit v.
McGarva, 570 A.2d 320 most comparable to the sanctions involved in this
case.  In McGarva, the defendant argued that the provisions of a local
ordinance imposing penalties for land use violations were preempted by a
state statute providing for lesser penalties. We did not reach that issue,
however, because we determined that the "$200 per day fine provision was
clearly a 'penalty  . . . incurred' by McGarva when he began violating the
ordinance" prior to enactment of the state statute.  Applying section 302, we
held that the allegedly preemptive statute did not affect the penalty already
"incurred" by McGarva.  Id. at 321.  
	[¶10]  The sanctions for land use violations are comparable to the
sanctions of the Consumer Credit Code. Contrary to Racal's argument,
Thompson v. Edgar, 259 A.2d 27, 30 (Me. 1969), is readily distinguishable. 
In Thompson, we concluded that the suspension of a driver's license was
not a "punishment" under section 302 in part because the loss of license was
not intended to punish the operator, but to protect the public by suspending
the right to drive.  In the present case, the sanction for violating the
Consumer Credit Code does not suspend any privilege that Racal currently
enjoys.  Although the Consumer Credit Code is designed to protect the
public,{3} it accomplishes this goal by deterring creditors from transacting
business in violation of the Code.
	[¶11]  The Maine Consumer Credit Code is based on the Uniform
Consumer Credit Code, 7A U.L.A. 1 (1985).  Article 9 of the Maine Consumer
Credit Code was adopted to "reorganize and recodif[y] provisions from 4
articles of the Maine Consumer Credit Code that deal with first-lien
mortgage lending by nonbanks into a new article IX."  L.D. 1560, Statement
of Fact (113th Legis. 1987).  Section 9-405 of Article 9, entitled "Effect of
violations on rights of parties," is derived in general from Article 5, entitled
"Remedies and Penalties," and in particular from section 5-201(2), also
entitled "Effect of violations on rights of parties."{4}  Section 5-201(2)
provides a similar remedy to that in section 9-405 and also is similar to
section 5.201 of the Uniform Consumer Credit Code (1974 Act), 7A U.L.A.
181 (1985).  9-A M.R.S.A. § 5-201 Historical and Statutory Notes (1997).
The comment to section 5.201 in the uniform law provides in part:
	1.  Rights that are accompanied by inadequate remedies or
no remedy at all and limitations on agreements and practices
that do not provide for sufficient penalties or for any penalty at
all are generally ineffective to accomplish the desired result. . . .
In order to protect rights created and to deter provisions of
agreements and practices proscribed by legislation, suitable
remedies and penalties must exist.  Since an aggrieved party is
one of the persons best able to enforce violations of rights and
limitations, this section sets forth a right of action in the
consumer in the event of violation by the creditor of each
section of this Act that does not include its own provision for
infraction and better to deter such practices, even of some that
do . . .

	2.  . . . The penalty is designed not only to provide a
deterrent to potential violators but also an incentive to a
consumer to bring an action when a violation has occurred.
	
Uniform Consumer Credit Code § 5.201, comment ¶¶ 1, 2 (1974 Act), 7A
U.L.A. 183 (1985) (emphasis added). In amending section 9-405 in 1994,
the Legislature stated its intention "to bring the penalty more in line with
the severity of the violation, while retaining sufficient deterrence to
nonlicensed lending." L.D. 1649, Statement of Fact (116th Legislature 1993)
(emphasis added).
	[¶12]  Thus, the complete legislative history of section 9-405
describes the sanction provided therein as a "penalty" and suggests that the
purpose of the sanction is to both protect the consumer and penalize the
violator for purposes of deterrence.  Moreover, the Legislature intended, by
making the sanctions payable to the consumer, to create an incentive for the
consumer to bring an action to enforce the statute.  Based on this legislative
history, and our analyses in  McGarva and Thompson, we hold that the
sanction for violating section 9-405(4) of the Maine Consumer Credit Code
is a penalty for purposes of section 302.
	[¶13]  Moreover, we hold that the penalty was incurred at the time of
the wrongful act --  the making of a supervised loan by a unlicensed lender. 
See Town of Ogunquit v. McGarva, 570 A.2d 320 (Me. 1990) (a civil penalty
for land use violation was incurred when McGarva began violating the
ordinance); State v. Alley, 263 A.2d 66 (Me. 1970) (in criminal proceeding,
the punishment incurred is that in effect at the time of the wrongful act). 
We reject Racal's attempt to distinguish McGarva on the basis that, in that
case, the penalty was automatic and no affirmative defense was provided. 
The fact that defendants in criminal cases have the right to raise defenses
and challenge the sufficiency of the evidence does not alter the fact that the
punishment incurred is that in effect at the time of the wrongful act.
	[¶14]  We conclude that the sanction for violating the Consumer Credit
Code is a penalty for purposes of 1 M.R.S.A. § 302 and that the penalty
incurred is that which was in effect when Racal violated the Code by closing
the mortgage loan transactions in 1992.  Accordingly, we answer the first
question in the affirmative and do not answer the second question.
	[¶15]   The third question does not specify any particular error of law,
and thus presents unresolved issues of fact.  We are unable to provide a
definitive answer.

Attorneys for plaintiffs: John G. Connor, Esq., (orally) P O Box 6809 Portland, ME 04103 (for Bruce Goulette) Kurt Olafsen, Esq., (orally) Olafsen & Butterfield P O Box 130 Portland, ME 04112-0130 (for Robin & Stephen St. Jean) Attorney for defendants: Richard L. O'Meara, Esq., (orally) Murray, Plumb & Murray P O Box 9785 Portland, ME 04104-9785
FOOTNOTES******************************** {1} The other plaintiffs are John Reagan, Robin and Stephen St. Jean, Gregg and Kathleen Bullock, and Bruce Goulette. The Reagans were dismissed from the action. Summary judgment was granted against Bullocks on their claim, St. Jeans v. Racal Mortgage, Inc., 952 F. Supp. 22, 26 (D. Me. 1997), and the Bullocks did not appeal. Only the St. Jeans and Goulette remain as appellees. {2} The other defendants are Chemical Residential Mortgage Corporation and GE Capital Mortgage Services, Inc. and are collectively referred to as "Racal." {3} One of the purposes of the Maine Consumer Credit Code is "[t]o protect consumer buyers, lessees, and borrowers against unfair practices by some suppliers of consumer credit, having due regard for the interests of legitimate and scrupulous creditors." 9-A M.R.S.A. § 1- 102(2)(D) (1997). On the other hand, another purpose is "[t]o permit and encourage the development of fair and economically sound consumer credit practices." 9-A M.R.S.A. § 1- 102(2)(E) (1997). {4} Prior to Article 9 being adopted, section 2-301 provided for the general authority to make supervised loans. Section 5-201(2) provided in part as follows: "If a creditor has violated the provisions of this Act ap