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M. Barber v. National Bank of AK & D. Wallace (7/26/91), 815 P 2d 857
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Notice: This is subject to formal
correction before publication in the Pacific
Reporter. Readers are requested to bring
typographical or other formal errors to the
attention of the Clerk of the Appellate
Courts, 303 K Street, Anchorage, Alaska
99501, in order that corrections may be made
prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
MICHAEL J. BARBER, )
) Supreme Court File No. S-3736
Appellant, ) Superior Court No.
) 3AN-88-06453 CI
)
v. ) O P I N I O N
)
NATIONAL BANK OF ALASKA and ) [No. 3721 - July 26, 1991]
DIANIA WALLACE, )
)
Appellee. )
______________________________)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage, J. Justin Ripley, Judge.
Appearances: David Rankine, Law Offices
of William L. McNall, Anchorage, for
Appellant. LeRoy E. DeVeaux, DeVeaux and
Associates, Anchorage, for Appellees.
Before: Rabinowitz, Chief Justice,
Burke, Matthews, Compton and Moore, Justices.
MOORE, Justice.
This case concerns events surrounding the National Bank
of Alaska's (NBA) foreclosure of Michael Barber's duplex
property. Barber appeals the superior court's grant of partial
summary judgment and directed verdict. The superior court
dismissed by summary judgment Barber's claims under the federal
Fair Debt Collection Practices Act1 and the Alaska Unfair Trade
and Consumer Practices Act.2 The superior court granted NBA's
motion for a directed verdict on Barber's claims of general
negligence, misrepresentation, breach of covenants of good faith
and fair dealing, and punitive damages. NBA received $30,000 in
attorney's fees which Barber also appeals.
We affirm summary judgment on the federal and state
statutory claims. We affirm as well the directed verdict on the
claim of breach of implied covenants of good faith and fair
dealing. We reverse and remand for trial the negligence claim,
one of the misrepresentation claims, and the related punitive
damage claims. We also vacate the award of attorney's fees.
I. FACTS
NBA, the servicing agent for Alaska Housing Finance
Corporation (AHFC), the mortgagee, foreclosed Barber's Anchorage
residential property in 1988. When NBA sought to have Barber
removed from the property, he counterclaimed alleging statutory
and common law violations and also brought claims against NBA
employee, Diania Wallace. Barber's claims span the entire course
of his dealings with NBA from his purchase of the property in
1982 to the foreclosure in 1988.
Barber originally financed the purchase of his property
in 1982 through NBA which sold the mortgage to AHFC; however, NBA
continued to service the mortgage. Barber purchased the house
for $138,000 at a 13.75% interest rate. Within five months of
closing, Barber lost his position as a petroleum engineer on the
North Slope. From that time until the foreclosure in 1988,
Barber experienced lengthy periods of unemployment. As a result,
he was repeatedly late in his mortgage payments. Moreover, the
value of the property declined as the Anchorage housing market
plummeted in the mid- to late 1980s.
In 1986, Wallace, an NBA mortgage collection employee,
was assigned to Barber's account. Wallace worked closely with
Barber. She suggested various strategies to enable him to keep
the property, including refinancing and adjusting the interest
rate. None proved successful. Barber alleges that
misrepresentation and breach of implied covenants of good faith
and fair dealing occurred in the course of these efforts.
Barber ceased to make mortgage payments in June 1987.
To avoid foreclosure, Wallace suggested that Barber apply for
refinancing to the Home Owner's Assistance Program (HOAP) through
the Mortgage Guarantee Insurance Corporation.3 Barber applied on
February 18, 1988. However, as Barber was no longer making
mortgage payments, NBA continued the foreclosure proceedings
concurrently. Barber was aware of the dual process, but Wallace
assured him that the foreclosure would be postponed while his
HOAP application was pending. Wallace and Barber had a number of
telephone conversations between the time Barber applied to HOAP
and April 25, 1988, the date NBA had set for foreclosure.
Pursuant to the agreement with Barber, Wallace took
steps to postpone the April 25 foreclosure. Believing she had
postponed the sale, Wallace went on vacation several days before
April 25. Her replacement failed to stop the sale which
proceeded as scheduled. Wallace returned from vacation on April
25. When she subsequently learned that the sale had taken place,
she postponed recordation, so that the processing of Barber's
HOAP application would continue. Ultimately, Barber's
application and appeal for HOAP refinancing were denied.
Wallace did not tell Barber that the foreclosure had
occurred. Rather, she told him that it had been postponed until
a date in May. During subsequent conversations, Barber claims
Wallace stated several successive postponement dates, the last of
which was June 3, 1988. Barber did not learn that the
foreclosure had occurred until June 2, 1988, when his counsel
contacted NBA and was informed that the foreclosure sale had
indeed occurred on April 25, 1988. Barber claims that NBA and
Wallace's failure to postpone the foreclosure and Wallace's
subsequent misstatements concerning the foreclosure, violated the
Fair Debt Collection Practices Act, the Alaska Unfair Trade and
Consumer Protection Act, were negligent, and constituted
negligent or knowing misrepresentation.
II. STANDARD OF REVIEW
"When reviewing a grant of summary judgment, this court
must determine whether there was a genuine issue of material fact
and whether the moving party was entitled to judgment on the law
applicable to the established facts." Merdes v. Underwood, 742
P.2d 245, 248 (Alaska 1987).
Our standard of review for a directed verdict is to
view the evidence in the light most favorable to the nonmoving
party and affirm the motion only if fair-minded jurors could not
reach different conclusions. City of Delta Junction v. Mack
Trucks, Inc., 670 P.2d 1128, 1130 (Alaska 1983).
III. THE FAIR DEBT COLLECTION PRACTICES ACT
Barber appeals the grant of summary judgement on his
Federal Debt Collection Practices Act4 (the Federal Act) claim.
Although the parties stipulated that NBA is not subject to the
provisions of the Federal Act, Barber contends that it should be
construed to include employees of mortgage servicers, such as
Wallace. He argues that Wallace is a "debt collector" under
section 1692a(6)(F) and, therefore, she must comply with its
provisions.
The Federal Act was enacted to stop abusive practices
in the collection of consumer debts such as threats of physical
violence, use of profanity, and misrepresentation. S. Rep. No.
382, 95th Cong., 1st Sess. 3, reprinted in 1977 U.S. Code Cong. &
Admin. News 1695, 1698. The Federal Act's definition of "debt
collector" does not encompass collection of mortgage debt or
mortgage service companies servicing debts which were not in
default when service commenced.5 The legislative history also
states that "persons who service debts for others"are not debt
collectors for purposes of the act. 1977 U.S. Code Cong. &
Admin. News at 1701. Subsequent cases have found that mortgage
service companies are not "debt collectors"under the Federal
Act. See, e.g., Perry v. Stewart Title Co., 756 F.2d 1197, 1208
(5th Cir. 1985).
Thus, the Federal Act was not directed at the type of
debt (mortgage) nor the type of activity (debt service) at issue
in this case. We therefore reject Barber's plea for a liberal
construction of the statute and affirm the superior court's grant
of summary judgment.
IV. ALASKA UNFAIR TRADE PRACTICES AND CONSUMER PROTECTION ACT
The Alaska Unfair Trade Practices and Consumer
Protection Act6 (the Alaska Act) is the state counterpart to the
Federal Act.7 Barber contends that the mortgage NBA sold him was
a "good,"or alternatively, that the mortgage and the subsequent
servicing arrangements were a provision of "services."
Therefore, he claims that the actions of Wallace and NBA were
covered by the Alaska Act. In support of his argument
that mortgage loan servicing constitutes a "service"governed by
the Alaska Act, Barber cites State of Alaska v. O'Neill
Investigations, Inc., 609 P.2d 520 (Alaska 1980), which held that
the Alaska Act applies to activities of independent debt
collection agencies. However, the O'Neill decision defines an
independent debt collector as "a person in a business the
principal purpose of which is the collection of debts owed or due
or asserted to be owed or due."609 P.2d at 523 n.1 (emphasis
added).8 As NBA's principal business is not debt collection,
NBA is not an independent debt collector. Therefore, O'Neill
does not support Barber's contention that the Alaska Act is
applicable to his case.
Barber's loan also is not a "good"under the Alaska
Act. In State v. First National Bank of Anchorage, 660 P.2d 406,
413 (Alaska 1982), we held that the sale of real property is not
governed by the Alaska Act. We therefore conclude as a matter of
law that the Alaska Act does not apply to Barber's mortgage.
Accordingly, we affirm the trial court's grant of summary
judgment on this issue.
V. THE NEGLIGENCE CLAIM
Barber argues that NBA/Wallace were negligent in
failing to postpone the mortgage sale. In support of this
argument, he cites NBA/Wallace's representations that the
foreclosure would be postponed during the period in which his
HOAP application was pending. Barber states that he relied on
the promised postponement and on Wallace's subsequent statement
that the foreclosure had been postponed until June 3, 1988, and
that he incurred damages in the form of increased federal tax
liability when he failed to file for bankruptcy prior to the
foreclosure.9
NBA acknowledges that the failure to postpone the
foreclosure was caused by its employee's mistake. Further,
Barber's intention to file for bankruptcy prior to the
foreclosure is evidenced by the fact that he met with counsel on
June 2, 1988 and, believing that the foreclosure was to occur the
following day, completed the necessary papers to commence
bankruptcy proceedings. We find that Barber has
presented evidence sufficient to allow a fair-minded juror to
conclude that he relied to his detriment on NBA/Wallace's promise
to postpone foreclosure. We therefore reverse the directed
verdict with respect to the negligence claim and remand this
issue for retrial.
VI. MISREPRESENTATION CLAIMS
Barber alleges that NBA/Wallace made knowing or
negligent misrepresentations of numerous facts, or that it failed
to inform him of material facts. The elements of a cause of
action for knowing misrepresentation or deceit include: a false
representation of fact, scienter, intention to induce reliance,
justifiable reliance, and damages. See Restatement (Second) of
Torts 525 (1976); see also Thomson v. Wheeler Constr. Co., 385
P.2d 111, 113 (Alaska 1963).
This court first recognized the tort of negligent
misrepresentation in Howarth v. Pfeifer, 443 P.2d 39 (Alaska
1968). Subsequent cases have found, under delineated
circumstances, "a duty to provide accurate information"once one
undertakes to speak. Bevins v. Ballard, 655 P.2d 757 (Alaska
1982); see also Transamerica Title Insurance Co. v. Ramsey, 507
P.2d 492 (Alaska 1973). In determining whether a duty to "speak
carefully" exists, the Bevins decision lays out the following
test:
(a) whether the defendant had
knowledge, or its equivalent, that the
information was desired for a serious purpose
and that the plaintiff intended to rely upon
it;
(b) the foreseeability of harm;
(c) the degree of certainty that
plaintiff would suffer harm;
(d) the directness of causation; and
(e) the policy of preventing future harm.
655 P.2d at 760.
We apply these tests to determine whether Barber has
alleged facts sufficient to allow a fair-minded juror to find
knowing or negligent misrepresentation regarding each of the
following claimed misrepresentations: (1) the postponement of
the foreclosure sale; (2) Barber's ability to qualify for
refinancing; (3) the possibility of loan modification; (4) the
likelihood that, if foreclosure occurred, it would be a judicial
foreclosure; and (5) the likelihood that the foreclosure process
would be completed in November 1987.
Claim 1: Barber alleges that Wallace repeatedly
represented that the foreclosure sale had been postponed when it
had not. Barber's contacts with NBA during this period are
documented. Thus, Barber has alleged facts under which a
reasonable juror could conclude that Wallace knew the foreclosure
had occurred but deliberately represented that it had been
postponed. Moreover, it could be reasonably concluded that
Wallace intended to cause Barber to rely on the false
information, or that she should have known that he would rely on
the information to his detriment.
Barber alleged that, due to this misrepresentation, he
incurred damages in the form of increased federal tax liability.10
The superior court ordered a directed verdict on this claim
reasoning that the alleged damages, i.e., the increased federal
tax liability, occurred after the foreclosure of April 25 and,
therefore, any misrepresentation concerning the foreclosure could
not be causally linked to the damages. We disagree. Barber
states that he contacted NBA the very day the foreclosure took
place and was assured that the foreclosure had been postponed.
Had Barber been informed on April 25 that the postponement had
not been achieved, his attorney may have been able to pursue
other remedies. We remand this issue for proceedings in
accordance with this opinion.11
Claim 2: Barber claims that NBA misrepresented that he
could qualify for refinancing. One such misrepresentation
allegedly occurred at closing when "[t]he loan closer [sic]
assured . . . [Barber] that he could refinance at a later date."
However, Barber does not provide sufficient details of this
transaction to support a misrepresentation claim. Moreover, even
if Barber had demonstrated reliance on this alleged assurance, he
has failed to show a causal link between the assurance and his
alleged damages, his subsequent failure to qualify for
refinancing.
Claim 3: Barber alleges that NBA misrepresented to him
that his interest rate could be modified. Barber testified that,
in July 1986, NBA suggested that he attempt to modify the
interest rate of his existing loan. However, after being
informed that "no one in the State of Alaska had ever . . . had
their mortgage loan modified,"he decided not to apply for a rate
modification. Thus, Barber fails to allege either reliance or
harm; he voluntarily decided not to apply when informed of the
unlikelihood of success.
Claim 4: Barber alleges that NBA/Wallace
misrepresented to him that it would most likely judicially
foreclose on his property when it was aware that a non-judicial
foreclosure was actually more likely.12 Again, however, Barber
has failed to allege that he took any action in reliance on this
information or that he suffered any harm as result of it.
Claim 5: Barber lastly alleges that NBA's
correspondence and Wallace's telephone communications
misrepresented that Barber would be required to vacate the
property by November 1987. Barber states that he relied on this
information and, in August, he gave notice to his tenants who
immediately vacated the property. The property remained vacant
from August through the date of the foreclosure. Barber claims
NBA/Wallace's projection that the foreclosure would occur in
November caused him to lose rental income between the date the
tenants vacated the property and the date the foreclosure
actually occurred. However, the NBA correspondence which Barber
claims supports his assertion does not specify a date on which he
was to vacate the property. At trial, Wallace was not asked
whether she had given Barber a November moving date. We conclude
that Barber has not set forth sufficient evidence in the record
to substantiate his claim.
For the reasons discussed above, we reverse the
directed verdict against Barber's misrepresentation claims only
as to NBA/Wallace's misrepresentation concerning the postponement
of the foreclosure. We remand that issue for retrial. We affirm
the directed verdict with respect to the misrepresentation claims
(2) through (5) inclusive.13
VII. BREACH OF IMPLIED COVENANTS OF GOOD FAITH AND FAIR DEALING
Barber argues that he entered into a contract with NBA
for a loan which obligated him to pay NBA various fees and costs,
and which contained implied covenants of good faith and fair
dealing. He asserts that NBA and Wallace breached these
covenants by directing him to seek refinancing for which they
knew he did not qualify. The superior court rejected this
argument on the ground that the Barber's contract was with AHFC
not NBA. The record supports the superior court's finding.
Furthermore, even if the servicing arrangement constituted a
contractual relationship between NBA and Barber, Barber does not
allege sufficient facts to show a breach of contract with respect
to NBA's servicing of the loan. On the contrary, Barber's
testimony reveals that Wallace/NBA made repeated efforts to
assist him when his payments were late. We therefore conclude
that reasonable jurors could not find that NBA or Wallace had
breached an implied covenant of good faith and fair dealing.
Accordingly, we affirm the directed verdict on this issue.
VIII. PUNITIVE DAMAGES
The trial court's directed verdict on punitive damages
resulted from its directed verdict on the claims of negligence,
misrepresentation, and breach of implied covenants of good faith
and fair dealing. We affirm the superior court's ruling that
punitive damages could not be awarded on Barber's claim for
breach of implied covenants of good faith and fair dealing.
However, because we reverse and remand Barber's claims of
negligence and negligent or knowing misrepresentation with
respect to postponement of the foreclosure, the issue of punitive
damages as to these claims must likewise be reconsidered on
remand.14
To recover punitive damages, the "plaintiff must prove
that the wrongdoer's conduct was _outrageous, such as acts done
with malice or bad motives or a reckless indifference to the
interests of another._ Actual malice need not be proved.
Rather, _[r]eckless indifference to the rights of others, and
conscious action in deliberate disregard of them . . . may
provide the necessary state of mind to justify punitive
damages._"15 Sturm, Ruger & Co., Inc. v. Day, 594 P.2d 38, 46
(Alaska 1979) (quoting Restatement (Second) of Torts 908 (Tent.
Draft No. 19, 1973)), modified, 615 P.2d 621 (Alaska 1980), cert.
denied, 454 U.S. 894 (1981), overruled on other grounds, Dura
Corp. v. Harned, 703 P.2d 396 (Alaska 1985); accord Great Western
Sav. Bank v. George W. Easley Co., J.V., 778 P.2d 569 (Alaska
1989); Lee Houston & Associates, Ltd. v. Racine, 806 P.2d 848
(Alaska 1991). Punitive damages require proof by clear and
convincing evidence. AS 09.17.020.
In previous decisions, we have adopted the view that
"[t]he purpose of punitive damages is twofold: to punish the
wrongdoer and to deter the wrongdoer and others like him from
repeating the offensive act." Providence Washington Ins. v. City
of Valdez, 684 P.2d 861, 863 (Alaska 1984). Thus, we have found
punitive damages to be appropriate in cases where the actual
losses are nominal.16
Regarding damages for Barber's misrepresentation claim,
we direct the superior court to consider the public policy
implications of the conduct at issue. Foreclosure of residential
property is fraught with financial repercussions for the
individuals involved. Financial institutions must handle such
dealings in a scrupulous fashion taking care to disclose and
explain all relevant matters to the parties.
IX. ATTORNEY'S FEES
Barber argues that, had he prevailed, his recovery for
attorney's fees would have been limited to $6000 pursuant to
Alaska Rule of Civil Procedure 82. He contends that the award of
$30,000 in attorney's fees to NBA/Wallace violates the Equal
Protection Clause of the Alaska Constitution.17 We reject this
argument. Rule 82 gives the superior court discretion to fix
attorney's fees in a reasonable amount when no monetary recovery
is had. We find that the superior court did not abuse its
discretion when it awarded attorney's fees to NBA/Wallace as the
prevailing party.18
Notwithstanding this determination, we vacate the award
of attorney's fees and remand the question to the superior court
for redetermination after a trial of these remaining issues.
AFFIRMED in part, REVERSED in part, VACATED in part and
REMANDED.
_______________________________
1. 15 U.S.C.A. 1692-1692o et. seq. (1982 & Supp. 1991).
2. AS 45.50.471-561 et. seq.
3. The HOAP program allowed financially troubled homeowners
to refinance their property at lower interest rates; it was more
lenient than conventional refinancing with respect to the
borrower's mortgage payment history.
4. 15 U.S.C.A. 1692 et. seq. (1982 & Supp. 1991).
5. The statutory definition of "debt collector"does not
include a person who is collecting a debt due another if the
collection activity "(i) is incidental to a bona fide fiduciary
obligation or a bona fide escrow arrangement . . . [or] (iii)
concerns a debt which was not in default at the time it was
obtained by such person. . . ."15 U.S.C. 1692a (6)(F).
6. AS 45.50.471-561.
7. AS 45.50.471 provides in relevant part:
(a) Unfair methods of competition and unfair or
deceptive acts or practices in the conduct of trade or
commerce are declared to be unlawful.
(b) The terms "unfair methods of competition" and
"unfair or deceptive acts or practices"include, but
are not limited to, the following acts:
* * *
(11) engaging in any other conduct
creating a likelihood of confusion or of
misunderstanding and which misleads, deceives
or damages a buyer or a competitor in
connection with the sale or advertisement of
goods or services;
(12) using or employing deception,
fraud, false pretense, false promise,
misrepresentation, or knowingly concealing,
suppressing, or omitting a material fact with
intent that others rely upon the concealment,
suppression or omission in connection with
the sale or advertisement of goods or
services whether or not a person has in fact
been misled, deceived or damaged.
8. O'Neill also cites the Federal Act definition of "debt
collector." Id.
9. The sale of an asset worth less than the outstanding
debt owed on that asset, to a creditor in exchange for the
creditor foregoing the portion of the loan not secured by the
asset, constitutes discharge of indebtedness income which is
subject to federal tax liability. One exception to imposition of
tax liability occurs when the debtor has commenced a proceeding
under the Bankruptcy Code and discharges the debt during the
course of the proceeding. 26 U.S.C. 108(a) (1988). Therefore,
tax liability on the discharge of indebtedness income resulting
from the foreclosure sale of Barber's property may have been
avoided had Barber filed for bankruptcy prior to the foreclosure.
10. See supra note 9.
11. On remand, Barber will have to establish damages with
"reasonable certainty." Alaska Ins. Co. v. Movin' on Constr.
Inc., 718 P.2d 472, 474 (Alaska 1986).
12. A judicial foreclosure would enable the lien holder to
recover any deficiency between the sale price of Barber's
property and the outstanding loan balance. See AS 09.45.170; see
also Conrad v. Counsellors Inv. Co., 751 P.2d 10 (Alaska 1988).
13. In light of this determination as well as our conclusion
that Barber has made a sufficient factual showing to allow a
finding of knowing or negligent misrepresentation with respect to
his first claim, we decline to address Barber's argument that the
tort of innocent misrepresentation is applicable to the alleged
acts.
14. This court has upheld punitive damage awards for
negligent misrepresentation in Clary Ins. Agency v. Doyle, 620
P.2d 194 (Alaska 1980), and knowing misrepresentation in Alaska
Ins. Co. v. Movin' on Constr. Inc., 718 P.2d 472 (Alaska 1986).
15. NBA contends that no facts are alleged which could
establish the required scienter. We disagree. Barber alleges
that Wallace told him on several occasions that the foreclosure
sale had been postponed until June 3 even though she knew that
the sale had already taken place.
16. In Oaksmith v. Brusich, 774 P.2d 191, 201 (Alaska 1989),
this court reiterated its earlier holding that "in some cases
substantial punitive damages may be awarded even though actual
losses have not been proven with sufficient definiteness to
support other than nominal damages."(citing Haskins v. Shelden,
558 P.2d 487, 493 (Alaska 1976)).
17. NBA's counsel submitted records indicating that it
incurred actual attorney's fees of $50,028.
18. The purpose of allowing the prevailing party to obtain
fees is to partially compensate the party for the costs incurred
in litigation. City of Valdez v. Valdez Dev. Co., 523 P.2d 177
(Alaska 1974). This court will interfere with an award of such
fees only when discretion has been abused; abuse of discretion is
shown when the trial court's determination is manifestly
unreasonable. Palfy v. Rice, 473 P.2d 606 (Alaska 1970).
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