Cox v. Estate of Cooper

          Appeal from the Superior Court No. 3AN-15-10101 CI of the State of Alaska, Third Judicial District, Anchorage, William F. Morse, Judge.

          Clayton H. Walker, Jr., and James L. Gaines, Alaska Law Offices, Inc., Anchorage, for Appellant.

          Chris D. Gronning, Bankston Gronning O'Hara, P.C., Anchorage, for Appellees.

          Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and Carney, Justices.

          OPINION

          STOWERS, CHIEF JUSTICE

         I. INTRODUCTION

         This case concerns the interpretation of Alaska's usury statute, AS 45.45.010. The question on appeal is whether the statute provides for a maximum interest rate on contract or loan commitments in which the principal amount exceeds $25, 000. William C. Cox argues that the statute provides for a maximum interest rate of 10.5% on all loans in which the principal exceeds $25, 000. The Estate of Steve Cooper and Dorothy Cooper (collectively "the Coopers")^[1] argue that parties may contract for any interest rate if the principal of the contract or loan commitment exceeds $25, 000.

         The superior court initially agreed with Cox that loans over $25, 000 had a maximum legal interest rate of 10.5%, but the Coopers moved for reconsideration and provided the court with statutory history. This statutory history convinced the court that the Coopers were correct and that AS 45.45.010 did not limit the interest rate for contract or loan commitments over $25, 000. Cox appeals.

         Cox also challenges the superior court's decision to consider statutory history when ruling on the Coopers' motion for reconsideration and the superior court's decision to grant the Coopers reasonable attorney's fees under Alaska Civil Rule 82.

         We affirm the superior court's ruling in all respects.

         II. FACTS AND PROCEEDINGS

         A. Facts

         The material facts in this case are undisputed. In October 2008 the Coopers loaned Cox $325, 000. Cox executed a deed of trust note with a 20% annual interest rate to be repaid by April 2009. He provided his house as security for the note. In June 2010 the Coopers lowered the interest rate to 8% and extended the term to April 2011. In July 2015 the trustee gave notice of default and sale and foreclosure, providing for a public sale in October 2015. According to the notice, Cox owed a principal sum of $315, 500 plus interest accrued under the 20% rate of $98, 450.72 and under the 8% rate of $46, 909.19.

         B. Proceedings

         Three days before the foreclosure sale was scheduled Cox filed a complaint, alleging that the 20% interest rate was usurious under AS 45.45.010 and seeking forfeiture of the remaining interest owed pursuant to AS 45.45.040.^[2] The next day Cox recorded a notice of lis pendens, and the trustee postponed the sale.^[3]

         The Coopers moved to dismiss, and Cox moved for summary judgment. The superior court ruled in favor of Cox on the usury issue, concluding that the maximum legal interest rate on loans over $25, 000 was 10.5%. The court therefore denied the Coopers' motion to dismiss and granted Cox's motion for summary judgment with respect to the usury issue.

         The Coopers sought reconsideration of the court's decision. They contended that the superior court had misapplied AS 45.45.010 and our decisions in Riley v. Northern Commercial Co.^[4] and Rocks tad v. Erikson, ^[5] as well as overlooking the legislative history and the longstanding practice of the lending industry. They explained that "[i]n all candor, [the court's] decision was completely unexpected." The Coopers asserted that "[t]he significance of [the] Court's decision to the lending industry [could not] be overstated" because "[i]t mean[t], among other things, that all existing loans made in Alaska . . . where the loan exceeded $25, 000 and the interest rate exceeded 10.5% [were] usurious." They also said that "the legislative history presented to [the court] ha[d] been incomplete, and in some cases distorted" and that they "ha[d] undertaken a more complete review of the legislative history."

         In support of their motion, the Coopers filed an affidavit of a real-estate appraiser as to lending industry practice, 143 pages of photocopies of former statutes, and a listing and graph of federal fund rates dating back to 1954. The superior court invited Cox to respond and the Coopers to reply to that response. In its order inviting further briefing the court explained that it would "consider the new material about legislative history" but would "not consider the new evidence or argument about Alaska's lending market." Cox responded to the Coopers' motion for reconsideration and attached one interest-rate graph. The Coopers replied, attaching 59 pages of statutory history.

         The superior court granted the motion for reconsideration. It first reiterated that "while it would consider . . . new material about legislative history, it would not consider the proffered new evidence or argument about Alaska's lending market." It then explained that the Coopers' presentation of the statutory history convinced the court that they were correct and that the statute applies only where there is no rate set by contract or the loan does not exceed $25, 000. It also noted that dicta in our case law supported this result. The Coopers then moved for summary judgment and the superior court granted the motion.

         The Coopers moved for an award of attorney's fees under Alaska Civil Rule 82. Cox opposed, characterizing the Coopers' request for attorney's fees as a request for a deficiency judgment. He argued that the Coopers had elected to sell the home through a non-judicial foreclosure sale and that AS 34.20.070, the statute authorizing non-judicial foreclosure sales, allows for recovery of attorney's fees.^[6] Since a separate statute allowed for recovery of attorney's fees, Cox argued Rule 82 did not apply. The Coopers replied, clarifying that they were not requesting a deficiency judgment, that they were only requesting attorney's fees incurred during their defense of Cox's lawsuit, and that they were not requesting attorney's fees incurred in conducting the foreclosure. The superior court awarded the Coopers attorney's fees.^[7]

         III. STANDARD OF REVIEW

         "The interpretation of a statute is a legal question which we review de novo. 'We interpret... Alaska law according to reason, practicality, and common sense, taking into account the plain meaning and purpose of the law as well as the intent of the drafters.' "^[8]

         We review the decision to grant a motion for reconsideration for abuse of discretion.^[9] "An abuse of discretion exists if we are 'left with a definite and firm conviction on the whole record that the trial judge has made a mistake.' "^[10]

         "We review an award of attorney's fees for abuse of discretion, but 'the determination of which statute or rule applies to an award of attorney's fees is a question of law that we review de novo.'^[11]

         IV. DISCUSSION

         A. The Interest Rate At Issue In This Case Was Not Usurious.

         Alaska Statute 45.45.010 contains two subsections relevant to this case. These provide:

(a) The rate of interest in the state is 10.5 percent a year and no more on money after it is due except as provided in (b) of this section.

(b) Interest may not be charged by express agreement of the parties in a contract or loan commitment that is more than the greater of 10 percent or five percentage points above the annual rate charged member banks for advances by the 12th Federal Reserve District on the day on which the contract or loan commitment is made. A contract or loan commitment in which the principal amount exceeds $25, 000 is exempt from the limitation of this subsection.^[12]

         Cox argues that subsection (a) provides the general interest rate for all loans not covered by subsection (b). And he contends that the second sentence of subsection (b) provides that subsection (b) does not cover loans greater than $25, 000. Thus, he argues, subsection (a) must apply to all loans in which the principal exceeds $25, 000. The Coopers argue that subsection (b) governs all loans where there has been a contracted-for interest rate. They contend that if the principal of the contract or loan commitment exceeds $25, 000, then the parties may contract for any interest rate.

         Although we have never directly addressed this question, our cases strongly support the Coopers' interpretation of the usury statute. In Crissey v. Alaska USA Federal Credit Union we held that federal usury law, not state usury law, applied to loans issued by federally chartered credit unions.^[13] But in two footnotes we expressed our opinion that state usury law would not have covered the loan agreement at issue even if it were not preempted by federal law. In the first footnote we explained, "[I]n their brief to this court the Crisseys cite AS 45.45.010. This statute imposes a legal rate of interest for loans of $25, 000 or less ..., "^[14] And in the second footnote we said:

Notably enough, since legislative amendment in July 1981, our state usury statute has applied only to loans of $25, 000 or less (and then only when no other statute preempts the claim). Consequently, in November 1981, when the Crisseys entered into their $50, 000 loan agreement with Alaska USA, no state statute governed the interest rate.^[15]

         In Rockstad v. Erikson we considered whether one promissory note for $26, 000 that was accompanied by two checks constituted one loan or two smaller loans for the purposes of AS 45.45.010(b).^[16] Erikson argued that there had been one loan for over $25, 000, so the loan was outside the reach of AS 45.45.010.^[17] Rockstad argued that AS 45.45.010 applied because there were two separate loans, each under $25, 000.^[18] We concluded that there had only been one loan for over $25, 000, which meant the loan was not usurious.^[19]

         Finally, in Bibi v. Elfrink we considered a loan that originally was under $25, 000 but was modified multiple times and rose above $25, 000.^[20] We affirmed the superior court's determination that there had only been one loan.^[21] "Consequently, when the March 2008 modification brought the single loan's principal over $25, 000, the interest rate cap no longer applied."^[22] Because Bibi had "paid her entire loan principal plus all interest, both legal and usurious, ... under AS 45.45.030, [she was] entitled to double whatever portion of these payments constituted usurious interest, that is, interest above the statutory maximum at the time."^[23] We explained that on remand the superior court should "calculate what amount of Bibi's total payments were applied toward usurious interest generated by the original loan and the two modifications that preceded the principal's rise over $25, 000 in March 2008, the point at which the usury statute ceased to apply."^[24] But we cautioned that "applying a legal hypothetical interest rate from the beginning may push the date at which the loan's principal would have exceeded $25, 000 past March 2008, thereby extending the period to which the usury statute applied to the loan. If so, the new date should be taken into account when calculating Bibi's recovery."^[25]

         Thus, while we have never been called on to decide whether the usury statute contains a maximum interest rate for loans over $25, 000, we have consistently assumed that it does not. A close examination of the language of AS 45.45.010 and the legislative history of the statute support our prior statements on this issue: there is no maximum legal interest rate under AS 45.45.010 for contract or loan commitments with express interest rates in which the principal exceeds $25, 000.

         " 'When we construe a statute, we look at both its plain language and ... its legislative history.' We use a sliding scale approach under which '[t]he plainer the statutory language is, the more convincing the evidence of contrary legislative purpose or intent must be.' '[W]henever possible, we construe a statute in light of its purpose.' "^[26]

         The simplest interpretation of AS 45.45.010 is that subsection (b) governs all contract or loan commitments with express interest rates. By its plain text the first sentence of the subsection applies to all contract or loan commitments with express interest rates. The second sentence then exempts certain contract or loan commitments, those with a principal exceeding $25, 000, from the limitation in the first sentence-that is, from the maximum interest rate. Thus contract or loan commitments with principals over $25, 000 may contain any express interest rate. Cox's reading requires taking the interest rate in subsection (a), which provides the interest rate for money after it is due and which contains no mention of contract or loan commitments, and making it the maximum interest rate only for contract or loan commitments over $25, 000, when contract or loan commitments are otherwise governed exclusively by subsection (b). The Coopers' reading is more persuasive.

         The statutory history of AS 45.45.010 confirms this reading. The original statute from 1900 stated:

The rate of interest in the District shall be eight per centum per annum, and no more, on all moneys after the same become due; on judgments and decrees for the payment of money; on money received to the use of another and retained beyond a reasonable time without the owner's consent, expressed or implied, or on money due upon the settlement of matured accounts from the day the balance is ascertained; on money due or to become due where there is a contract to pay interest and no rate specified. But on contracts interest at the rate of twelve per centum may be charged by express agreement of the parties, and no more.^[27]

         Thus, the statute consisted of two sentences, the first addressing situations where there was no agreed-upon interest rate and the second addressing contract or loan commitments where there was an express interest rate. As the following recitation will show, these two sentences would become subsections (a) and (b), and this basic division still exists in the current statute.

         The territorial legislature made minor changes to the statute in 1913, 1933, 1935, and 1939, but there were no relevant changes to the structure of the statute.^[28] The statute first significantly changed in 1962 with the formal revision of the Alaska Statutes.^[29] The revised statute was divided into subsections. The first sentence became subsection (a), and the categories covered in the first sentence were numbered (1) through (5). The second sentence became subsection (b) and the organization of the sentence was changed slightly. After the 1962 revision AS 45.45.010 read:

(a) The rate of interest in the state is six per cent a year and no more on (1) money after it is due; (2) judgments and decrees for the payment of money, except that a judgment or decree founded on a contract in writing providing for the payment of interest until paid at a specified rate exceeding six per cent a year and not exceeding 10 per cent a year bears interest at the rate specified in the contract if the interest rate is set out in the judgment or decree; (3) money received to the use of another and retained beyond a reasonable time without the owner's express or implied consent; (4) money due upon the settlement of matured accounts from the day the balance is ascertained; or (5) money due or to become due where there is a contract to pay interest and no rate is specified.

(b) Interest at the rate of eight per cent may be charged by express agreement of the parties in a contract.

         But in dividing the statute into subsections and modernizing the language, there is no indication that the legislature intended to make any substantive changes. The maximum interest rate on contract or loan commitments where there was an express interest rate was governed entirely by the new subsection (b), while interest rates in other areas were governed by subsection (a).

         The legislature made a minor change in 1968, ^[30] but then made significant changes in 1969. In 1969 it first repealed subsection (a)(2) dealing with "judgments and decrees for the payment of money."^[31] At the same time, it amended AS 09.30.070 to cover interest on judgments.^[32] Second, the legislature significantly rewrote subsection (b) and added a subsection (c) to the statute.^[33] For the first time, subsection (b) tied the maximum contract interest rate to the Federal Reserve rate, making it four percentage points higher than the Federal Reserve discount rate for the 12th Federal Reserve District, in effect until the end of 1970 when it would then reset to eight percent.^[34] The new subsection (c) for the first time created an exception to the usury statute for large loans, specifically for loans over $500, 000 processed through certain financial institutions, in effect until the end of 1970.^[35] In 1970 the Legislature extended the tie- in to the Federal Reserve rate in subsection (b) until February 15, 1972 and removed the expiration provision from subsection (c).^[36]

         In 1973 the legislature again significantly amended AS 45.45.010. Subsection (b) of the 1973 version of the usury law provided for an eight percent cap, except on loans made before April 15, 1975, for which the maximum rate was either four or four and one-half percentage points above the Federal Reserve rate.^[37] The 1973 amendment repealed subsection (c).^[38] It also added subsections (d) through (h), which are not directly relevant to this case, except that subsection (e) affirmatively stated what subsection (b) implied, that "[i]nterest at a rate not to exceed eight per cent may be charged by express agreement of the parties in a contract or loan commitment dated after April 14, 1975."^[39]

         In 1974 the legislature introduced the language at the core of this case. The 1974 version of subsection (b) contained two sentences.^[40] The first made permanent the reference to the Federal Reserve rate, setting the maximum interest rate for all contract or loan commitments with express interest rates at "four percentage points above the annual rate charged member banks for advances by the 12th Federal Reserve District that prevailed on the 25th day of the month preceding the commencement of the calender quarter during which the contract or loan commitment is made."^[41] The second provided, "A contract or loan commitment in which the principal amount exceeds $100, 000 is exempt from the limitation of this subsection."^[42]

         The meaning of the second sentence of subsection (b) was clear when it was introduced in 1974: for contract or loan commitments exceeding $100, 000, the parties could agree to any interest rate. As the Coopers explain, "The legislature exempted large loans 'from the limitations of this subsection' because subsection (b) was the only subsection that applied to contracts which specified interest rates. Subsection (a) did not apply to them." This is because subsection (a) ...