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Posts from January 2015.

Concept of penalty. Wooden cravel and dollars with coins.As a longtime fan of Motown music and former Washington Supreme Court law clerk and now practicing lawyer, it’s hard to resist a mischievous overlap in nomenclature between our highest legal panel and Diana Ross and the Supremes.  Once in a while our Court also inspires litigants and court watchers to burst out in song.  Perhaps this is such a moment.

The Washington Supreme Court is made up of nine justices with a wide range of legal experience, most of whom have been trial lawyers and judges before being elevated to the state's highest court.  They are individually and collectively respected as smart and hardworking.  However, it appears that notwithstanding their varied backgrounds, none of the justices has much experience with the Washington Deed of Trust Act.

I reach this conclusion after reading the recent 9-0 decision of the Court in Washington Federal v. Harvey, No. 90078-7(January 8, 2015).  In that case, the Court sided with the unified legions of banks against commercial loan guarantors seeking to avoid liability for loan deficiency judgments after non-judicial foreclosures.  In the wake of the "Great Recession," during which more real estate loans went into default than at any time since the Depression, it became tragically commonplace that foreclosure sales did not yield proceeds sufficient to pay what were once well-secured loans.  That resulted in large loan deficiencies, and banks looked to whatever source was available to help them repay loan losses, including to loan guarantors.

In Washington, the Deed of Trust Act bars deficiency judgments except in certain narrow circumstances involving commercial loans.  While deficiency actions after trustee’s sales are generally prohibited, RCW 61.24.100(10) provides that a,

"trustee's sale under a deed of trust securing a commercial loan does not preclude an action to collect or enforce any obligations of a borrower or guarantor if that obligation, or the substantial equivalent of that obligation, was not secured by the deed of trust."  (emphasis added)

In the cases before the Court, the banks used loan documents which said that the foreclosed deeds of trust secured not only the borrowers’ original notes, but also the loan guaranties.  It's not clear if the inclusion of the guaranties in the documents secured was intentional, or if the banks did not contemplate that the Washington Deed of Trust Act seemed to prevent actions against guarantors after a non-judicial foreclosure of the deed of trust, as the language quoted above suggests.

But with the ease of a footnote, the Court dismissed the language quoted above, or added its own additional qualification on the exception, in footnote (2) of that opinion:

". . .  Subsection (10) is clear; it provides clarity about when a deficiency judgment may be brought, but does not protect a guarantor of a commercial loan from deficiency judgments solely because the guarantor's guaranty is secured by a deed of trust regardless of who granted such deed of trust.  Accordingly, here, even if the borrowers' deeds of trust secured the guarantors' guaranties, subsection (10) would not preclude deficiency judgments against the guarantors because the guarantors did not grant such deeds of trust."

Notwithstanding that footnote, there is no such limitation in the language of RCW 61.24.100(10).  It refers to a guarantor whose guaranty "was not secured by the deed of trust (foreclosed)".   The Court, in effect, re-writes RCW 61.24.100(10) to read that a,

 "trustee's sale under a deed of trust securing a commercial loan does not preclude an action to collect or enforce any obligations of a borrower or guarantor if that obligation, or the substantial equivalent of that obligation, was not secured by the deed of trust granted by such borrower or guarantor against whom a deficiency action is sought."  (the author’s additional language is in bold)

Without the additional language, the statute would apply to both deeds of trust granted by the borrowers, as in the cases decided by the Court, and deeds of trust granted by the guarantors.  Without that language, there is no basis for making the critical distinction made by the unanimous Court!

The Court pointed to no evidence in other portions of RCW 61.24 or the legislative history to suggest that it is only when the guarantor is the “grantor” under the deed of trust foreclosed that the guarantor is then protected against a deficiency judgment.  In effect, the Court decided the entire case on a limitation to the prohibition on deficiency actions which is not mentioned in the statute.

After reading the opinion, I'm sure bankers across Washington started singing that old Supremes hit, "I Hear a Symphony," while those unfortunate guarantors were shaking their heads and humming, "You Keep Me Hanging On".

Beach sceneBowman v. California Coastal Commission, 2014 WL 5390057 (Cal. App.), involved a now-deceased landowner’s attempt to rehabilitate and improve real property within the California coastal management zone.  The landowner applied to the local County for an “over-the-counter” permit for repairs (which were exempt from Coastal Commission review under the California Coastal Act of 1976), but later added a septic tank repair and rehabilitation of a dilapidated house to that permit application, which were subject to such review.  After beginning the work on the over-the-counter permits, the landowner was told by the County to stop work until a final permit had issued.  He did so but had not done any work on the septic tank or the rehabilitation of the house.  He then passed away and a family trust assumed ownership.

Much later, the County approved the permit but added a condition of approval to require a lateral easement along the shorefront of the property, stating that the building had not been in use for some years and the occupation facilitated by the permit would increase the intensity of the use.  Later that year, the family trust applied for an amended approval and requested removal of the condition, which the County did.  However, the amended permit was appealed to the Defendant Commission under California law regarding the removal of the condition.  The Commission ultimately determined that the condition was binding and its removal would violate a public policy in favor of public access to coastal resources and took action to restore the condition.  A co-trustee of the family trust appealed that determination.

The court said it would review the Commission’s order for abuse of discretion.  Plaintiff contended the exaction was unlawful under Nollan and Dolan, because there was no “rough proportionality” between the impacts of the development and the condition imposed.  Defendant Commission argued that it did not create the condition and that it was final and binding.  The court responded that normally the failure to appeal a condition gives rise to collateral estoppel in a subsequent challenge.  However, the court recognized an exception to this rule:

"But under the facts here, application of collateral estoppel gives primacy to a procedural rule that creates an unjust result and subverts the fair application of the California Coastal Act of 1976.  (Pub Resources Code, § 30000 et seq.) Inherent in collateral estoppel are met when its application comports with fairness and sound public policy."

In this case, the court noted that the repairs that were made were exempt from the Coastal Act and were done on an “over-the-counter” basis and could not be the subject of a rough proportionality analysis, noting that the County recognized that fact by removing the condition from its permit.  Moreover, the facts also belie the Commission’s acquiescence argument as neither the land owner nor the family trust took the benefits of a permit.  The court reversed the Commission’s action and struck the condition.

The use of equitable principles in review of the land use decision is fraught with peril.  However, the lack of the constitutionality of the condition left the court with an all-or-nothing proposition in which the unconstitutionality of the condition weighed more heavily then the stability of the decision making process.

Bowman v. California Coastal Commission, 2014 WL 5390057 (Cal. App.)

Optical fibres around earthT-Mobile South, LLC v. City of Roswell (United States Supreme Court, January 14, 2015), was a case brought by a “personal wireless service provider” under the Telecommunications Act of 1996 (TCA) which, among other things, supported rapid deployment of personal communications devices (e.g., cell phones) by requiring that land use decisions on matters relating to such things as cell towers be “in writing” and supported by substantial evidence from a written record.

In this case defendant City denied plaintiff’s cell tower application by letter, informing plaintiff that it could find the reasons for the denial in the City Council minutes.  There was a 30-day appeal period under the TCA; however, the City’s draft minutes were not approved until four days before the appeal period ran.   Nevertheless, plaintiff challenged the denial in federal court on the “in writing” requirement and also alleged the denial was not supported by substantial evidence.  The trial court found for the plaintiff but the Eleventh Circuit, following a majority of circuits, found the letter and reference to the minutes to be sufficient.  The Supreme Court granted certiorari.

Justice Sotomayor wrote for the court and interpreted the “in writing” and “substantial evidence” requirements to require reasons to be given for judicial review purposes. Not requiring reasons would make the judicial task much more difficult. The use of “substantial evidence” in the TCA was a “term of art,” describing how an administrative record was to be reviewed by a court under the TCA.  The court inferred that Congress required findings to be derived from the administrative process, rejecting the City’s contention that this requirement would deprive it of its local zoning authority, finding that Congress meant to interfere with local zoning processes to this extent, but stressing that the reasons need not be elaborate – just sufficiently clear to enable judicial review.

Moreover, the court determined that the TCA did not require that the reasons be found in the decision or be in any particular form, as the TCA stated it did not otherwise affect the authority of a local zoning authority noting that FCC rules allowed 90 or 150 days for local governments to make decisions on complete applications.  While it may be a plausible interpretation of the TCA for the reasons to be in the decision, the Act did not specifically require this to occur and the court would not infer it.  However, the court did require that the reasons be given either in the decision or essentially contemporaneous with the same.  By waiting until 26 days after its decision to issue detailed approved minutes, the City failed its statutory obligations and the decision of the Eleventh Circuit was reversed.

Justice Alito concurred, adding that it would be sufficient for the City to state simply that the proposal was “esthetically incompatible with the surrounding area,” that plaintiff was not injured by the City’s delay in providing the final version of the minutes (which he viewed as harmless error) and that this procedural error can easily be corrected.

Chief Justice Roberts authored a dissent, in which Justices Ginsburg and Thomas joined, stating that, while findings or reasons for the decision were required, they need not be issued “essentially contemporaneously” with the decision, as such a requirement was not in the TCA, noting that Congress has in other legislation, such as the Administrative Procedures Act and other sections of the TCA itself, made such a specific requirement.  Moreover, the dissent observed that the “sole issue” before the court was the “in writing” requirement and not the timing of the findings, an issue not raised below.  While agreeing that findings were implicitly required by the use of the “substantial evidence” standard, if they were not given or are inadequate, remand would be justified, rejecting the contention that plaintiff needed to see the reasons in order to decide whether to appeal:

"This concern might have force if towns routinely made these decisions in secret, closed-door proceedings, or if applicants were unsophisticated actors. But the local zoning board or town council is not the Star Chamber, and a telecommunications company is no babe in the legal woods.  Almost invariably in cases addressing [land use decisions under the TCA], the relevant local authority has held an open meeting at which the applicant was present and the issues publicly aired.  In this case and others, T-Mobile has brought its own court reporter, ensuring that it has a verbatim transcript of the meeting well before the town is likely to finalize its minutes.  I strongly doubt that a sophisticated, well-lawyered company like T-Mobile – with extensive experience in these particular types of proceedings – would have any trouble consulting its interests and deciding whether to seed review before it had received a written explanation from the town."

Finally, the dissent suggests that impacts of this case on local governments will be “small” – they need only hold back the final decision until the minutes be transcribed or reasons given -- also suggesting that the delay in making the final version of the minutes available may be harmless error.

It appears the entire court would conclude that the TCA requires reasons for a land use decision involving cell towers; however the justices disagree on the required timing of those reasons.  This result may come as a surprise for some local governments.

T-Mobile South, LLC v. City of Roswell (United States Supreme Court, January 14, 2015).

CO2When Barack Obama was a law student at Harvard University, his constitutional law professor was Lawrence Tribe. A distinguished legal scholar and teacher, Professor Tribe has also been counsel in a number of high profile cases such as Bush v. Gore (Tribe represented former Vice President Al Gore). President Obama and his former professor appear to have maintained a cordial relationship (e.g., Tribe has described the President as “the best student I ever had” and he served as a judicial adviser to Mr. Obama’s 2008 presidential campaign; in addition, during President Obama’s first term Tribe was “Senior Counselor for Access to Justice” in the Department of Justice). Despite his apparent goodwill toward the President, last month Tribe filed rulemaking comments suggesting that the U.S. Environmental Protection Agency should scuttle its proposal to establish first-time restrictions on greenhouse gas (carbon dioxide - CO2) emissions from existing coal-fired power plants. EPA’s proposal, Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units, 79 Fed. Reg 34830 (June 18, 2014), which is often referred to as the Obama Administration’s “Clean Power Plan,” is intended to reduce CO2 emissions from the electric power sector by 30% through various means including shifting a significant portion of coal-fired generation to natural gas and increased reliance on renewable energy. Tribe’s comments, filed on December 1st in conjunction with Peabody Coal Company, take direct aim at the Clean Power Plan as a “remarkable example of executive overreach” that violates the Constitution’s bedrock principle of “separation of powers” (“separation of powers” is an important aspect of the curriculum for constitutional law, and one could conclude from Mr. Tribe’s comments that he must think his former student missed class on those days!).

Attempts at humor aside, Professor Tribe’s comments have received considerable attention. Among other things, he argues that the Clean Power Plan’s downgrading of coal-fired electricity contradicts many decades of federal government encouragement of – and financial support for – producing electricity from coal, and results in an unconstitutional “taking” of private property. That argument seems questionable (a “taking” in the regulatory context assumes that the government action at issue deprives the injured party’s property of essentially all value, which is not the case here). In addition, Tribe challenges EPA’s interpretation of the statute that is the underlying legal basis for the Clean Power Plan, section 111(d) of the Clean Air Act. This relates to the fact that when section 111(d) was modified as part of the Clean Air Act Amendments of 1990, the Senate and House each approved different and somewhat conflicting versions of the statute. Although the conflict should have been addressed in a House-Senate conference, that did not happen. Instead, the legislation signed by President George H.W. Bush and recorded in the U.S. Statutes at Large included the two different versions of section 111(d). In the Clean Power Plan EPA refers to the conflict as an ambiguity that the agency reconciles by interpreting section 111(d) in a manner that authorizes EPA to regulate CO2 emissions from existing power plants and other industrial sources. Professor Tribe, on the other hand, says there is no ambiguity and he treats the House version of section 111(d) – which would not authorize EPA regulation of power plants’ CO2 emissions – as controlling. He adds that even if there is an ambiguity, EPA’s attempt to reconcile the two provisions violates separation of powers because “choos[ing] which of two competing versions of a statute . . . to make legally operative” is “the exclusive responsibility of the legislature.”

While Professor Tribe’s role in challenging the Clean Power Plan initiative by his former student is an interesting irony, the more important point is the virtual certainty that the Clean Power Plan will be challenged in court. The Clean Power Plan is widely acknowledged by stakeholders across the spectrum (industry, state and local government, environmental organizations, etc.) as one of the most far reaching proposals in EPA’s 45-year history, and how courts interpret section 111(d) (which will include interpretive questions beyond those noted here) will be very important to the Clean Power Plan’s success or failure. If President Obama’s CO2 reduction initiative is upheld, it is likely to be the President’s signature environmental achievement. EPA is expected to take final action on the Clean Power Plan by mid-summer.

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