Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—WashSupCt: Courts May Determine Unfair Acts Beyond Those Enumerated in Washington Consumer Protection Act , (Mar 5, 2013)

By Jody Coultas, J.D.

The Washington Supreme Court held that a trustee in a non-judicial foreclosure violated the Washington Consumer Protection Act (CPA) by failing to exercise its authority to decide whether to delay a sale and to falsely notarizing a notice of sale (Klem v. Washington Mutual Bank, February 28, 2013, Chambers, J.). The conduct could constitute a violation of the statute, even though the CPA did not enumerate it as a per se violation.

A home owner secured a loan by a deed of trust on her home from Washington Mutual. After the home owner developed dementia, a professional guardian was appointed to take care of the home owner’s personal and legal issues. The guardianship did not have sufficient funds to satisfy a notice of default on the home owner’s mortgage, and the trustee issued a notice of trustee sale. The guardian notified the trustee of its intention to sell the home and erroneously believed that the trustee sale would be postponed. When the trustee sale was not postponed and the home was sold for much less than its value, the guardian sued the trustee.

The guardian alleged that a trustee of a deed of trust violated the CPA by predating notarized foreclosure documents and deferring to the lender on whether to postpone most sales. A jury found for the guardianship, but the court of appeals reversed the holding. The court of appeals held that only an act or practice the legislature has declared to be "unfair" is unfair for purposes of the CPA

A claim under the CPA may be predicated upon a per se violation of statute, an act or practice that has the capacity to deceive substantial portions of the public, or an unfair or deceptive actor practice not regulated by statute but in violation of public interest, according to the Washington Supreme Court. The CPA states that it is an unfair or deceptive act or practice for any person, acting alone or in concert with others, to offer or offer to accept or accept from another, any consideration of any type not to bid, or to reduce a bid, at a sale of property conducted pursuant to a power of sale in a deed of trust. Courts and legislatures have the power to determine whether a specific act or practice is unfair or deceptive under the CPA.

The practice of a trustee in a non-judicial foreclosure deferring to the lender on whether to postpone a foreclosure sale and failing to exercise its independent discretion as an impartial third party with duties to both parties violated the CPA, according to the court. In a non-judicial foreclosure, the trustee is an impartial third party who owes a duty to both parties to ensure that the rights of both the beneficiary and the debtor are protected. Quality Loan Services Corporation, as trustee, had an agreement with Washing Mutual that it would not delay a trustee's sale except upon Washing Mutual's express direction. Because the trustee failed to act in good faith to exercise its fiduciary duty to both the sides and merely honored an agency relationship with one, it acted unfairly under the CPA. Quality’s argument that it was merely following a legally-mandated contract with Washington Mutual to honor the bank’s wishes was dismissed because the trustee abdicated its duty to act impartially towards both parties.

Because Quality failed to fulfill its fiduciary duty to postpone the sale, the court held that there was sufficient evidence to support the jury’s CPA violation verdict. It is a crime in Washington for a notary to falsely notarize a document, and the act of false dating by a notary employee of the trustee in a non-judicial foreclosure is an unfair or deceptive act or practice under the CPA. Had the documents had been properly dated, the sale would have been later and the guardianship would have had more time to persuade Washington Mutual to postpone the sale. The court did not need to determine whether the deceptive act caused the guardianship’s damages.

The case is No. 87105-1.

Attorneys: Frederick Philip Corbit (Northwest Justice Project) for Dianne Klem. Edgar I. Hall (Washington Debt Law, PLLC) for Washington Mutual.

Companies: Washington Mutual Bank; Quality Loan Service Corporation of Washington

Cases: ConsumerProtection StateUnfairTradePractices WashingtonNews