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REPLY IN SUPPORT OF PETITION FOR REVIEW Supreme Court

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REPLY IN SUPPORT OF PETITION FOR REVIEW Supreme Court Powered By Docstoc
					                       No. 10-0121
                         In the
                  Supreme Court of Texas
                  THE FINANCE COMMISSION OF TEXAS,
THE CREDIT UNION COMMISSION OF TEXAS, AND TEXAS BANKERS ASSOCIATION
                                                 Petitioners,

                                        v.

 ASSOCIATION OF COMMUNITY ORGANIZATIONS FOR REFORM NOW (ACORN),
VALERIE NORWOOD, ELISE SHOWS, MARYANN ROBLES-VALDEZ, BOBBY MARTIN,
                 PAMELA COOPER, AND CARLOS RIVAS,
                                               Respondents.


                         On Petition for Review from the
                      Third Court of Appeals in Austin, Texas


            REPLY IN SUPPORT OF PETITION FOR REVIEW


  GREG ABBOTT                                EVAN S. GREENE
  Attorney General of Texas                  Assistant Solicitor General
                                             State Bar No. 24068742
  C. ANDREW WEBER
  First Assistant Attorney General           JACK HOHENGARTEN
                                             Deputy Division Chief
  DAVID S. MORALES
                                             Financial Litigation Division
  Deputy Attorney General for Civil
  Litigation
                                             OFFICE OF THE ATTORNEY GENERAL
  JAMES C. HO                                P.O. Box 12548 (MC-059)
  Solicitor General                          Austin, Texas 78711-2548
                                             [Tel.] (512) 936-1845
                                             [Fax] (512) 474-2697
                                             Counsel for Petitioners The Finance
                                             Commission of Texas and The Credit Union
                                             Commission of Texas
                                                  TABLE OF CONTENTS


Index of Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

          I.         The Court Should Grant Review to Clarify the Broad Scope of the
                     Commissions’ Authority to Interpret the Home Equity Lending Laws . . . . 2

          II.        Alternatively, the Court Should Grant Review to Uphold the “Interest”
                     Interpretations Under a Reasonableness Standard . . . . . . . . . . . . . . . . . . . . 5

Prayer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Certificate of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10




                                                                   ii
                                            INDEX OF AUTHORITIES

Cases

State v. Thomas,
       766 S.W.2d 217 (Tex. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Stringer v. Cendant Mortgage Corp.,
       23 S.W.3d 353 (Tex. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 7

Tarver v. Sebring Capital Credit Corp.,
      69 S.W.3d 708 (Tex. App.—Waco 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Tex. Workers’ Comp. Ins. Fund v. DEL Indus., Inc.,
      35 S.W.3d 591 (Tex. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Thomison v. Long Beach Mortgage,
      176 F.Supp.2d 714 (W.D. Tex. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8



Constitutional Provisions, Statutes, and Rules

TEX. CONST. art. II, § 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

TEX. CONST. art. XVI, § 50(a)(6)(E) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-8

TEX. CONST. art. XVI, § 50(a)(6)(L)(i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 7

TEX. CONST. art. XVI, § 50(a)(6)(M)(ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

TEX. CONST. art. XVI, § 50(g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 8

TEX. CONST. art. XVI, § 50(u) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-5

TEX. CONST. art. XVI, § 50(u)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

TEX. GOV’T CODE § 311.021(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4



                                                              iii
                          No. 10-0121
                             In the
                      Supreme Court of Texas

                      THE FINANCE COMMISSION OF TEXAS,
    THE CREDIT UNION COMMISSION OF TEXAS, AND TEXAS BANKERS ASSOCIATION
                                                     Petitioners,

                                           v.

     ASSOCIATION OF COMMUNITY ORGANIZATIONS FOR REFORM NOW (ACORN),
    VALERIE NORWOOD, ELISE SHOWS, MARYANN ROBLES-VALDEZ, BOBBY MARTIN,
                     PAMELA COOPER, AND CARLOS RIVAS,
                                                   Respondents.


                           On Petition for Review from the
                        Third Court of Appeals in Austin, Texas


                REPLY IN SUPPORT OF PETITION FOR REVIEW


TO THE HONORABLE SUPREME COURT OF TEXAS:

      ACORN’s response confirms the reasons the Court should grant the Commissions’

petition. While leveling inflammatory accusations about a “power grab,” the response

acknowledges the unique nature of the Commissions’ constitutional authorization “to

interpret” the home equity lending laws, and implicitly recognizes that the framework for

judicial review of the Commissions’ “interpretations” is unclear. Indeed, ACORN filed a
cross-petition arguing (without any support) that the Court should review the case to

determine whether the court of appeals erred by affording any deference to the Commissions.

       Nevertheless, ACORN reflexively opposes review here, claiming that the

Commissions’ purportedly broad “interest” interpretations “make a mockery” of legislative

intent—even though the Commissions adopted the legislature’s own century-old definition

of “interest” to clarify the Constitution’s use of the term. Ironically, it is ACORN’s

continuing effort to substitute its preferred “commonly understood” definition of

interest—irrespective of the reasonableness of the Commissions’ interpretations—that poses

the only threat to the Constitution in this litigation. At a minimum, the Court should grant

the petition to preserve the Commissions’ authority to issue reasonable interpretations of the

home equity lending laws, and to confirm that the Commissions have done so.1

                                           ARGUMENT

I.     THE COURT SHOULD GRANT REVIEW TO CLARIFY THE BROAD SCOPE OF THE
       COMMISSIONS’ AUTHORITY TO INTERPRET THE HOME EQUITY LENDING LAWS.

       ACORN does not (and cannot) contest that the challenged “interest” interpretations

were enacted pursuant to an unprecedented constitutional amendment empowering the

Commissions with authority “to interpret” the home equity lending provisions of the Texas

Constitution. Nor does ACORN provide any support for its brazen assertion that, despite

that authority, courts should be free to wholly disregard even reasonable “interpretations”


        1. The Association of Community Organization for Reform Now has filed an unopposed motion to
dismiss itself from this lawsuit. That motion is pending with the Court. For ease of reference, the
Commissions continue to refer to all Respondents collectively as “ACORN.”

                                                 2
issued by the Commissions. See Resp. at 1, 4-5 (“courts should review [the Commissions’]

interpretations de novo and not through the deferential review typically accorded an

administrative agencies’ [sic] actions”).

       Instead, ACORN resorts to rhetoric, mischaracterizing the Commissions’ petition as

a “thinly veiled” attempt to evade judicial review and “destroy the plain meaning of the

constitution.” See Resp. at 4-5. Despite ACORN’s claims, the Commissions make no

“suggestion of exclusive authority to interpret the Texas Constitution” (id. at vii, 4-5); nor

do the Commissions challenge this Court’s jurisdiction over the case (id.).

       Rather, the Commissions argue that the court of appeals erred by analyzing the

challenged “interpretations” under traditional standards of deference, without due regard for

the Commissions’ unique and sweeping constitutional authority “to interpret” the home

equity lending laws. Pet. at 7-9. Indeed, Article XVI, § 50(u)(2) equates safe-harbor rules

enacted by the Commissions with interpretations of the home equity lending laws issued by

state and federal courts of appeals. That extraordinary provision raises questions concerning

whether courts may overturn the Commissions’ “interpretations” on the basis of substantive

validity, and if so, under what circumstances and standards of review.

       This is hardly an unsupported “attempt at a power grab.” See Resp. at 5. The

Constitution itself establishes the Commissions’ authority. As discussed in the petition,

§ 50(u) was enacted after the Attorney General issued Opinion DM-495 advising that the

Constitution would need to be amended in order to provide a state agency with “definitive


                                              3
interpretative powers” over the home equity lending amendments. See Pet. at 7-8. The

Attorney General’s opinion relies upon Article II, § 1 of the Texas Constitution, which

establishes that express grants of constitutional power—like the “power to interpret” set forth

in § 50(u)—trump general separation of powers principles. Cf. State v. Thomas, 766 S.W.2d

217, 219 (Tex. 1989) (the constitutional balance of powers may be altered by amendment).

       Ignoring this constitutional framework, ACORN attempts to trivialize the

Commissions’ authority and convert it into a meaningless exercise.               Because the

Commissions lack enforcement authority, affording their constitutional “interpretations” no

weight upon judicial review (under ACORN’s argument) would effectively relegate the

interpretations to mere opinion. But as ACORN is well-aware, the Commissions were able

to issue advisory opinions interpreting the home equity provisions before § 50(u) was

enacted. See Stringer v. Cendant Mortgage Corp., 23 S.W.3d 353, 357 (Tex. 2000). Plainly,

the legislature and voters who ratified § 50(u) could not have intended that the amendment

would have no effect on the Commissions’ authority. Cf. Tex. Workers’ Comp. Ins. Fund v.

DEL Indus., Inc., 35 S.W.3d 591, 593 (Tex. 2000) (“we presume that the Legislature

intended the entire statute . . . be effective”) (citing TEX. GOV’T CODE § 311.021(2)).

       Moreover, ACORN’s argument for de novo review undermines the entire purpose of

§ 50(u). The amendment was adopted to advance lower-cost lending by empowering the

Commissions to clarify constitutional ambiguities that were inhibiting lenders from extending

home equity loans. See Pet. at 2-3. Under ACORN’s view, Texans could not rely upon the


                                              4
Commissions’ “interpretations” with any confidence that established safe-harbors are valid,

and that compliance therewith would protect their loan transactions from invalidation.

       Notwithstanding ACORN’s inexplicable position against review here, it is clear that

the parties, courts, homeowners and lenders will benefit from this Court’s guidance

concerning the role of the judiciary in connection with lawsuits challenging the substantive

validity of the Commissions’ “interpretations.” The Court should grant review to affirm the

broad scope of the Commissions’ “power to interpret” the home equity lending laws, and

uphold the challenged “interest” interpretations under that broad constitutional authority.

II.    ALTERNATIVELY, THE COURT SHOULD GRANT REVIEW TO UPHOLD                              THE
       “INTEREST” INTERPRETATIONS UNDER A REASONABLENESS STANDARD.

       The Commissions’ interpretation of § 50(a)(6)(E)’s “interest exception” is based upon

the statutory definition of “interest” contained in the Finance Code. See Pet. at 4-5. Utilizing

the legislature’s established definition of “interest” to clarify the legislatures’ use of that

same term in § 50(a)(6)(E) is inherently reasonable, as further confirmed by: (1) the fact that

the Commissions had already published advisory commentary that was virtually identical to

the “interest” interpretations at issue before § 50(u) was ratified empowering the

Commissions with constitutional authority “to interpret” § 50(a)(6)(E); (2) the Senate’s

rejection of a 2003 proposal to amend § 50(a)(6)(E) to exclude the more limited “contract

rate of interest on the principal amount”—as opposed to “any interest”—from the fee cap;

(3) the fact that the legislature revised the Finance Code definition of “interest” after the

challenged “interpretations” became effective but did nothing to exclude the Commissions’

                                               5
use of the definition to interpret § 50(a)(6)(E); and (4) Texas and federal case law. See Pet.

at 11-13. ACORN fails to even address the bulk of these arguments in its response.2

        ACORN’s effort to undermine the reasonableness of the “interest” interpretations

depends almost entirely upon its repeated assertion that the Commissions have “delete[d]”

or “managed to eviscerate” § 50(a)(6)(E)’s cap on “all” (or “most all”) fees paid to lenders.

See Resp. at vii, 1, 5. But the interpretations do no such thing. As discussed in the petition,

if a given payment constitutes “compensation for the use, forbearance, or detention of

money” it is “interest” under the interpretations (and Texas law more broadly); if the payment

is made for a separate and distinct service other than the pure lending of money, it is subject

to the fee cap. See Pet. at 15. This is true regardless of whether the payment is made directly

to a lender or a third-party. Id.

        Nor is the reasonableness of the Commissions’ interpretations called into question by

any of the home equity lending provisions cited by ACORN. Article XVI, § 50(a)(6)(L)(i)

requires a home equity loan to be repaid in periodic installments that equal or exceed the

amount of “accrued interest” as of the date of the payment, thereby ensuring that some

amount of principal is reduced with each payment over the course of the loan. That the

Commissions’ interpretations may include certain up-front charges as additional forms of



        2. ACORN’s citation to Tarver v. Sebring Capital Credit Corp., 69 S.W.3d 708 (Tex. App.—Waco
2002) to support its claim is wanting. Tarver rejected the argument that the fee cap should be “liberal[ly]”
construed to include discount points. Id. at 711. Instead, the court relied upon the plain language
of § 50(a)(6)(E), existing statutes and case law to find that points are a form of consideration paid for the use
of money, and thus “interest” exempt from the cap. Id. at 711-12.

                                                       6
“interest”—for purposes of § 50(a)(6)(E)’s exclusion of “any interest” from the fee

cap—does not undercut or conflict with § 50(a)(6)(L)(i) at all. Put simply, the “accrued

interest” referred to in § 50(a)(6)(L)(i) (e.g., “interest paid monthly under the promissory

note”) is one form of “interest” that is included under the Commissions’ interpretations; but

nothing in § 50(a)(6)(L)(i) suggests that it is the exclusive form of “interest.”

       ACORN also suggests that § 50(a)(6)(M)(ii)’s itemized disclosure requirement

necessarily means that the more narrow “common usage” of “interest” was intended (see

Resp. at 8-9), presumably because the provision lists “interest” separately from “points,”

“costs,” and other “charges” that could constitute “interest” under the Commissions’

interpretations. But ACORN fails to acknowledge that § 50(a)(6)(M)(ii) also lists “fees” as

a separate item to be disclosed, implying, under ACORN’s reasoning, that “points,” “costs,”

and “charges” are also not “fees” that would be subject to the three percent cap under

§ 50(a)(6)(E). The bottom line is that § 50(a)(6)(M)(ii) lists every item that must be

disclosed on the final disclosure statement—but unlike § 50(a)(6)(E), the provision was not

designed to distinguish among different categories of charges.

       Nor does § 50(g) provide any support for ACORN’s claim. Section 50(g), which

ACORN acknowledges “does not provide substantive rights” (Resp. at 9; see also Stringer,

23 S.W.3d at 357), requires borrowers to be provided with a specific notice summarizing

many of the constitutional requirements for home equity loans, including that “fees and

charges to make the loan may not exceed 3 percent of the loan amount.” Of course, there is


                                               7
no dispute that § 50(a)(6)(E) imposes a three percent cap on certain fees. But there is also

no dispute that “any interest” is excluded from that cap. The § 50(g) disclosure simply does

not address the existence or scope of the “interest exception” under § 50(a)(6)(E).3

        At bottom, ACORN’s argument is nothing more than a policy plea to substitute a more

narrow definition of “interest” for the Commissions’ interpretations. While purporting to

present the lone reasonable view of the “plain meaning” of § 50(a)(6)(E), ACORN provides

no support for the “commonly understood” definition of “interest” it proposes, much less any

support for the notion that the legislature intended for this definition to be used in the context

of § 50(a)(6)(E). Even more significantly, ACORN ignores the fact that the legislature and

voters authorized the Commissions “to interpret” this very provision to provide more clarity

as to its meaning. The Commissions have reasonably done so by adopting and incorporating

the preexisting legislative definition of “interest.” Their interpretations should be upheld.

                                                 PRAYER

        The court should grant the petition for review, reverse the court of appeals’s judgment

striking down the Commissions’ “interest” interpretations, and render judgment upholding

the validity of the interpretations.



        3. ACORN also cites Thomison v. Long Beach Mortgage, 176 F.Supp.2d 714 (W.D. Tex. 2001) as
the “one case that has squarely decided the issue of the fee cap.” Resp. at 10. Sidestepping well-established
Texas law, Thomison, which was vacated, held that the name of a given charge, rather than its substance,
was dispositive as to whether the charge was a “fee” or “interest.” Thomison, 176 F.Supp.2d at 716-17.
Nevertheless, the court’s finding that a “loan origination fee” paid to a mortgage broker was subject to
§ 50(a)(6)(E)’s fee cap is entirely consistent with the Commissions’ “interpretations” (which were adopted
after Thomison was decided), because the charge was not “compensation for the use, forbearance, or
detention of money.” Id.; see CR.674, 690-703 (court filings from Thomison).

                                                     8
Respectfully submitted,

GREG ABBOTT
Attorney General of Texas

C. ANDREW WEBER
First Assistant Attorney General

DAVID S. MORALES
Deputy Attorney General for Civil Litigation

JAMES C. HO
Solicitor General



EVAN S. GREENE
Assistant Solicitor General
State Bar No. 24068742

JACK HOHENGARTEN
Deputy Division Chief
Financial Litigation Division

Office of the Attorney General
P.O. Box 12548, MC 059
Austin, Texas 78711-2548
[Tel.] (512) 936-1845
[Fax] (512) 474-2697

Counsel for Petitioners The Finance Commission
of Texas and The Credit Union Commission of
Texas




  9
                              CERTIFICATE OF SERVICE

       I certify that on June 25, 2010 a true and correct copy of this Reply in Support of
Petition for Review was served by electronic mail and certified U.S. mail, return receipt
requested, on all appellate counsel of record in this proceeding as listed below:

Craig T. Enoch
WINSTEAD P.C.
401 Congress, Suite 210
Austin, Texas 78701

COUNSEL FOR PETITIONER TEXAS BANKERS ASSOCIATION

Robert W. Doggett
TEXAS RIO GRANDE LEGAL AID
4920 North IH-35
Austin, Texas 78751

COUNSEL FOR RESPONDENTS




                                         _____________________________
                                         Evan S. Greene




                                           10

				
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