Arkansas Board of Collection Agencies and Old Republic Surety Company v. Sharon McGhee et al.

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SUPREME COURT OF ARKANSAS  No.  07­129  ARKANSAS  BOARD  OF  COLLECTION  AGENCIES  AND  OLD  REPUBLIC  SURETY COMPANY,  APPELLANT,  VS.  SHARON MCGHEE, ET AL.,  APPELLEES,  Opinion Delivered  1­17­08  APPEAL  FROM  PULASKI  CIRCUIT  COURT  A D M I N I S T R A T I V E   D E C I S I O N  REVERSED  AND  REMANDED;  CIRCUIT COURT AFFIRMED.  ROBERT L. BROWN, Associate Justice  The Arkansas Board of Collection Agencies (“Board”) appeals from an order of the  Pulaski County Circuit Court reversing its decision to deny the request of Sharon McGhee,  individually and on behalf of a class of similarly situated persons, for a  claim on a surety  bond  issued  by  Old  Republic  Surety  Company,  Inc.  (“Old  Republic”).  We  reverse  and  remand the decision of the Board and affirm the decision of the circuit court.  On May 27, 2003, McGhee, individually and on behalf of a class of similarly situated  persons, filed an action in Pope County Circuit Court against Old Republic.  Old Republic  had previously issued a surety bond to the Board dated August 1, 1999, in the amount of  $50,000 on behalf of Russellville Check Express, Inc. (“RCE”), a payday lender licensed  under  the  Arkansas  Check­Cashers  Act,  which  was  enacted  in  1999  and  is  codified  at  Arkansas Code Annotated §§ 23­52­101 – 23­52­117 (Repl. 2000 and Supp. 2007). McGhee sought  release  of  the  bond  amount  to  satisfy  a  consent  judgment  she  and  the  class  had  1  received against RCE in the amount of $191,419.20.  The consent judgment, accordingly,  established liability and damages against RCE for the check­casher contracts entered into  with its customers, leaving only the issue of collection on the bond from the surety, Old  Republic, to be resolved.  The Pope County Circuit Court granted summary judgment in favor of McGhee, and  Old Republic appealed to this court.  In Old Republic Surety Company v. McGhee, 360 Ark.  562,  203  S.W.3d  94  (2005)  (McGhee  I),  this  court  reversed  the  circuit  court’s  grant  of  summary judgment and held that McGhee had failed to exhaust her administrative remedies  by filing her suit in circuit court without first seeking relief from the Board.  After the circuit court dismissed her action in accordance with this court’s decision  in McGhee I, McGhee sought relief from the Board on the issue of Old Republic’s liability  under its bond.  A hearing was held before the Board on May 25, 2005, after which the  Board issued its Findings of Fact, Conclusions of Law and Order.  In its order, the Board  denied McGhee relief and ruled that Section XXX of its Rules and Regulations requires that  the check casher be found in violation of either the Check­Cashers Act or the Rules and 1  The consent judgment against RCE is dated January 8, 2003, and was entered in Pope  County Circuit Court.  It explains that McGhee’s complaint against RCE had alleged that  RCE  had  charged  its  customers  usurious  rates  of  interest  and  that  the  circuit  court  had  previously entered an order granting summary judgment in favor of McGhee regarding her  usury  claim.  The  consent  judgment  further  declares  all  of  RCE’s  customer  contracts  outstanding  on  or  before  the  date  of  the  filing  of  McGhee’s  complaint  as  void  and  unenforceable.  ­2­  07­129  Regulations adopted pursuant to the Act before making a demand on the bond.  The Board  concluded that McGhee had presented no evidence that RCE had violated the Check­Cashers  Act or the Rules and Regulations, and, accordingly, McGhee was not entitled to a claim on  the bond. McGhee then filed a petition for judicial review in Pulaski County Circuit Court on  January 20, 2006, pursuant to the Arkansas Administrative Procedure Act.  Shortly after  McGhee filed her petition for judicial review, Old Republic filed a motion to consolidate that  petition with an already pending petition for judicial review.  The pending petition involved  a May 16, 2003 order of the Board, in which the Board, in an almost identical case, had  denied McGhee’s claim on a bond issued by Old Republic on behalf of AAA Check Cashing,  Inc., another payday lender.  McGhee responded to the motion to consolidate and asserted  that the administrative appeal concerning the bonds issued on behalf of AAA Check Cashing  2  3 had been resolved.  As a result, McGhee formally moved to dismiss the earlier appeal.  2  McGhee states in her brief to this court that after she filed a petition for review in the  AAA Check Cashing case, the class reached a settlement with the owners of AAA Check  Cashing, which was approved by the Craighead County Circuit Court. She states that this  mooted her claim against Old Republic in that case.  3  McGhee  and  Old  Republic  agreed  to  a  Joint  Stipulation  of  Facts,  which  was  presented to the State Board at the May 25, 2005 hearing concerning the bonds issued on  behalf of RCE. In this Joint Stipulation of Facts,  the  parties acknowledged that “[i]n an  almost  identical  state  court  case,”  McGhee  had  been  awarded  a  judgment  against  AAA  Check Cashing and that she had received a hearing in that case before the Board. A copy of  the transcript from the earlier hearing and the advisory opinion issued after the hearing by  the Hearing Officer for the Board were attached to the Joint Stipulation. The parties further  stipulated that the advisory opinion had subsequently been approved and adopted by the  ­3­  07­129  On October 9, 2006, a hearing was held by the circuit court on McGhee’s petition for  review,  and  an  order  was  entered  on  October  17,  2006.    In  that  order,  the  circuit  court  reversed the Board’s order and ruled that McGhee was entitled to the proceeds from the bond  4  at issue.  Specifically, the circuit court concluded:  “The State Board of Collection Agency’s  ruling  that  the  surety  bond  does  not  cover  the  Petitioner’s  loss  in  this  case  is  reversed  pursuant to Arkansas Code Annotated § 25­15­212(h).”  Old Republic later filed a motion  for a new trial, which was never ruled upon by the circuit court, and, thus, was deemed  denied thirty days thereafter pursuant to Rule 4(b)(1) of the Arkansas Rules of Appellate  Procedure ­ Civil.  Old Republic and the Board filed separate notices of appeal from the  circuit court’s order.  I.  Collateral Estoppel  Old Republic first maintains that McGhee is collaterally estopped from pursuing any  administrative appeal because she purposefully dismissed her petition for judicial review  concerning AAA Check  Cashing,  which,  according  to  Old  Republic,  involved  the  same  parties and the same issues.  Thus, Old Republic claims that the first administrative decision  by the Board, which denied McGhee’s request for a claim on a bond issued by Old Republic  on behalf of AAA Check Cashing, is intact and controls the same issues now raised in the Board.  4  On October 11, 2006, Old Republic, which was not a formally named party in the  administrative appeal, filed a motion to intervene, and an Agreed Order of Intervention was  entered by the circuit court.  ­4­  07­129  instant appeal to this court.  Old Republic insists that the language on which McGhee bases  her claim against the bond in the instant case is the same as that in the previous case and that  the issue of whether the language of the bond allowed McGhee’s claim against the bond was  extensively litigated in the previous hearing before the Board.  Old  Republic  further  contends  that  the  doctrine  of  collateral  estoppel  applies  to  agency decisions and is used to prevent collateral attacks on previous agency decisions when  the  agency  has  conducted  a  hearing,  made  findings  of  fact  and  law,  and  applied  those  findings in an administrative adjudication.  Old Republic admits, however, that it did not  raise the affirmative defense of collateral estoppel to the Board in the instant case, but it  asserts that the first administrative appeal involving AAA Check Cashing was still pending  in circuit court when the May 25, 2005 hearing in this case took place and that it was not  until  after  the  instant  administrative  appeal  was  lodged  in  circuit  court  that  the  first  administrative appeal was dismissed and the previous administrative decision became final  and  controlling.  Old  Republic  also  admits  that  despite  arguing  the  issue  of  collateral  estoppel to the circuit court during the circuit court’s hearing and also in its motion for a new  trial, the circuit court never ruled on the issue.  We  decline  to  address  the  issue  of  collateral  estoppel  because  the  issue  is  not  preserved for our review.  Old Republic admits that it never raised this issue to the Board as  a defense.  It argues, however, that it could not raise the issue before the board because the  AAA Check Cashing appeal was pending in circuit court on a petition for judicial review and ­5­  07­129  had not been dismissed by McGhee.  It was only at the time of the dismissal, Old Republic  contends,  that  the  AAA  Check  Cashing  matter  became  final  for  purposes  of  collateral  estoppel, and by that time the RCE matter was already in circuit court.  We are not persuaded by Old Republic’s argument.  At the time of the hearing before  the Board on McGhee’s claim relating to RCE, Old Republic was well aware of the fact that  the Board had already denied the AAA Check Cashing claim on May 16, 2003, based on an  advisory opinion issued by its appointed hearing officer.  For this reason, it was obligated  to present any affirmative defense to the Board premised on collateral estoppel during the  RCE proceedings, even though a petition for judicial review was pending in circuit court on  5  the AAA Check Cashing claim.  This  court  has  held  repeatedly  that  defenses  must  be  presented  first  to  the  administrative agency before they can be presented to an appellate court for consideration.  See, e.g., Nash v. Arkansas Elevator Safety Bd., 370 Ark. 345, __ S.W.3d __ (2007); AT&T  Communications of the Southwest, Inc. v. Arkansas Public Serv. Comm’n, 344 Ark. 188, 40  S.W.3d 273 (2001); Hamilton v. Jeffrey Stone Co., 6 Ark. App. 333, 641 S.W.2d 723 (1982).  Old Republic’s collateral­estoppel point has no merit.  II.  Substantial Evidence 5  Nor did Old Republic obtain a ruling from the Pulaski County Circuit Court on its  collateral estoppel defense, as it readily admits, which provides an additional reason to affirm  for lack of preservation.  See e.g., Beverly Enterprises­Arkansas, Inc. v. Thomas, 370 Ark.  310, __ S.W.3d __ (2007).  ­6­  07­129  Old Republic next claims that the record contains substantial evidence to support the  Board’s decision to deny McGhee’s claim on the Old Republic surety bond and that the  Board’s decision is not arbitrary or capricious and cannot be characterized as an abuse of  discretion.  See Ark. Code Ann. § 25­15­212(h)(6) (2007).  Old Republic further contends  that McGhee was afforded a full and complete hearing on the issues she raises before the  Board.  It adds that the Board’s previous decision concerning the bonds issued on behalf of  AAA Check Cashing was reached only after a full hearing in front of an experienced hearing  officer who heard testimony from witnesses and considered exhibits and briefs submitted by  each party and then issued an advisory opinion.  Old Republic notes that the transcript from  the previous hearing, including the exhibits, the hearing officer’s advisory opinion, and the  Board’s  previous  Findings  of  Fact  and  Conclusions  of  Law  and  Order  in  AAA  Check  Cashing were submitted by both parties at the Board’s May 25, 2005 hearing as part of the  Joint Stipulation of Facts.  It insists that the Board relied on all the evidence submitted in  reaching  its  decision  in  the  RCE  case  and  that  the  evidence  is  sufficient  to  support  the  Board’s decision to deny the claim against the bond.  Moreover, it urges that the Board is  familiar with interpreting its own Rules and Regulations, as well the language of the bond  in question, and that its decision should be upheld.  The Board, which submitted a separate brief, argues too that there was substantial  evidence to support its decision in favor of Old Republic and against collection under the  bond.  It asserts that it was required to follow the procedures set out in its own Rules and ­7­  07­129  Regulations and that Section XXX of the Rules and Regulations provides that the check  casher must have violated either a provision of the Check­Cashers Act or one of the Board’s  rules in order for a claimant to make demand on a bond.  The Board contends that McGhee  presented no evidence that RCE performed any act or engaged in any conduct prohibited by  the Check­Cashers Act or the Board’s Rules and Regulations, and, therefore, the Board’s  decision to deny McGhee’s request for a claim on the bond was not arbitrary or capricious  or characterized by an abuse of discretion.  The Board also maintains that in making  its decision in this case, it relied on the  decision it made several years ago concerning the bond issued on behalf of AAA Check  Cashing and that the parties stipulated that this earlier  decision could be considered.  In  reaching its earlier  decision, the Board emphasizes that it relied heavily on the advisory  opinion issued by the hearing officer, which thoroughly discussed and analyzed the intent  of the parties in issuing the bond as well as the application of Section XXX.  The Board  argues that it took this earlier decision into consideration and thoroughly analyzed the issues  in the RCE matter and, therefore, its decision was not arbitrary.  The Board insists that there  was  evidence  presented  that  Old  Republic  had  not  intended  for  its  bond  to  cover  usury  judgments and that because it cannot be said that fair­minded individuals would not have  reached the same conclusion as the Board, the Board’s decision is supported by substantial  evidence. ­8­  07­129  McGhee makes several points in rebuttal. She maintains that the real issue in this case  is not whether RCE violated the Check­Cashers Act or the Board’s Rules and Regulations,  but, rather, whether the bond covers her loss.  She points out that she does not seek relief  based on any of the Board’s Rules and Regulations, as those rules did not even exist when  Old  Republic  issued  the  bond.  Rather,  she  contends  that  the  bond  was  in  essence  an  insurance agreement, which should be liberally construed in favor of coverage, and under  the bond’s language, her loss is covered.  Specifically, she contends that under the bond Old Republic agreed to satisfy, up to  $50,000, “any loss or damages suffered by the State and/or any person(s) of the State,” for  violation of the Check­Cashers Act, the Rules and Regulations, and “any other applicable  laws of the State [of] Arkansas,” and she insists that any ambiguity in this language must be  construed in favor of coverage and against the surety.  She notes that the Board’s Executive  Director unilaterally modified the language in the bonds after the RCE bond was issued to  eliminate  the  language  providing  for  coverage  resulting  from  a  violation  of    “any  other  applicable  laws”  in  Arkansas,  and  she  makes  the  point  that  had  the  bond  not  provided  coverage  for  a  violation  of  any  law,  including  usury  laws,  when  issued,  the  Executive  Director would not have removed that language.  McGhee argues, in addition, that the circuit court’s reversal of the Board’s decision,  which denied the bond claim against Old Republic, was proper because RCE did actually  violate the Board’s subsequently adopted rules, which  prohibit deceptive or unconscionable ­9­  07­129  business  practices,  because  the  charging  of  unconstitutional  usurious  interest  rates  is  unconscionable.  She further claims that RCE continued to charge usurious rates and fees  even after this court held that the General Assembly could not usurp a judicial function by  legislating that certain fees allowed under the Check­Cashers Act were not interest.  See  6  Luebbers v. Money Store, Inc., 344 Ark. 232, 40 S.W.3d 745 (2001).  She insists that the  Board’s decision in this case denying the claim under the bond was arbitrary and capricious  and that it was properly reversed by the circuit court.  Decisions by the Arkansas Board of Collection Agencies are reviewed pursuant to the  Administrative Procedure Act (APA), which is codified at Arkansas Code Annotated §§ 25­  15­201 – 25­15­218 (Repl. 2002 and Supp. 2007).  This court has said that the “[r]eview of  administrative agency decisions, both by the circuit court and by appellate courts, is limited  in scope.”  Dep’t of Health & Human Servs. v. R.C., 368 Ark. 660, 667, __ S.W.3d __, __  (2007) (quoting Ark. Dep’t of Human Servs. v. Thompson, 331 Ark. 181, 185, 959 S.W.2d  46, 48 (1998)).  Furthermore, “[t]he review by appellate courts is directed not to the decision  of the circuit court but to the decision of the administrative agency.”  Id. 6  In Luebbers, supra, this court held that Ark. Code Ann. § 23­52­104(b) (Repl. 2000)  of the Check­Cashers Act, which exempted certain fees charged by check cashers from being  considered  as  interest,  was  a  violation  of  the  separation­of­powers  doctrine  because  it  deprived courts of the power to decide whether a transaction was usurious. This court said  that  §  23­52­104(b)  was  an  invalid  attempt  by  the  General  Assembly  to  exclude  certain  check­cashing  transactions  from  the  confines  of  the  Arkansas  Constitution’s  usury  provisions.  ­10­  07­129  The  Administrative  Procedure  Act  provides  for  a  circuit  court’s  review  of  an  administrative decision on the following grounds:  (h) The court may affirm the decision of the agency or remand the case  for  further  proceedings.    It  may  reverse  or  modify  the  decision  if  the  substantial  rights  of  the  petitioner  have  been  prejudiced  because  the  administrative findings, inferences, conclusions, or decisions are:  (1) In violation of constitutional or statutory provisions;  (2) In excess of the agency’s statutory authority;  (3) Made upon unlawful procedure;  (4) Affected by other error or law;  (5) Not supported by substantial evidence of record; or  (6) Arbitrary, capricious, or characterized by abuse of discretion.  Ark. Code Ann. § 25­15­212(h) (Repl. 2002).  This court has explained the deference that we give to an administrative decision:  We have recognized that administrative agencies are better equipped  than courts, by specialization, insight through experience, and more flexible  procedures to determine and analyze underlying legal issues affecting their  agencies, and this recognition accounts for the limited scope of judicial review  of administrative action and the refusal of the court to substitute its judgment  and discretion for that of the administrative agency.  R.C., 368 Ark. at 668, __ S.W.3d at __ (quoting Ark. Dep’t of Human Servs. v. Thompson,  331 Ark. 181, 185, 959 S.W.2d 46, 48­49 (1998)).  This court has further explained that  “[t]he challenging party has the burden of proving an absence of substantial evidence and  must demonstrate that the proof before the administrative agency was so nearly undisputed  that fair­minded persons could not reach its conclusion.”  R.C., 368 Ark. at 668, __ S.W.3d  at __. Finally, “[t]he question is not whether the evidence would have supported a contrary  finding,  but rather whether it supports the finding that was made.”  Id. ­11­  07­129  In its Findings of Fact, Conclusions of Law and Order, the Board ruled that Section  XXX of its Rules and Regulations contain the only reference about when the Board could  make demand on a surety bond and that Section XXX requires that the Board find that the  check casher be in violation of either the Check­Cashers Act or its Rules and Regulations  before making demand on a bond.  The Board’s ruling, however, is unduly restrictive.  The surety bond issued on behalf of RCE states:  THE CONDITIONS OF THE ABOVE OBLIGATIONS ARE SUCH THAT:  . . . .  That the above bound Principal shall faithfully comply with and abide  by  each  and  every  provision  of  [Act  1216  of  1999]  and  all  the  Rules  and  Regulations promulgated thereunder; shall faithfully perform the duties and  obligations pertaining to the business of check­cashing/deferred presentment  option services; shall satisfy any loss or damages suffered by the State and/or  any  person(s)  of  the  State  resulting  from  the  Principal’s  violation  of  any  provision of Act 1216 of 1999 (or as amended) or the Rules and Regulations  promulgated  thereunder  or  any  other  applicable  laws  of  the  State  [of]  Arkansas; and that the State of Arkansas State Board of Collection Agencies  or any person(s) of this State suffering such loss or damages shall have the  right to bring an action on this bond against the Principal or Surety.  (Emphasis  added.)  McGhee  points  to  the  above  emphasized  language  to  support  her  contention that the bond covers any loss resulting from RCE’s violation of any state law, not  just its violation of the Check­Cashers Act or the Board’s Rules and Regulations.  McGhee  argues that RCE manifestly violated this state’s usury laws by entering into usurious check­  cashing agreements with its customers and that the consent judgment entered on January 8,  2003, establishes that liability. ­12­  07­129  We agree that the applicable laws of the State of Arkansas, as referred to under the  Old Republic bond, have been violated.  The Arkansas Constitution provides the following  regarding rates of interest and usurious loans:  (a)  General Loans:  (i)  The maximum lawful rate of interest on any contract entered into  after the effective date hereof shall not exceed five percent (5%) per annum  above the Federal Reserve Discount Rate at the time of the contract.  (ii)  All  such  contracts  having  a  rate  of  interest  in  excess  of  the  maximum lawful rate shall be void as to the unpaid interest. A person who has  paid interest in excess of the maximum lawful rate may recover, within the  time provided by law, twice the amount of interest paid. It is unlawful for any  person to knowingly charge a rate of interest in excess of the maximum lawful  rate in effect at the time of the contract, and any person who does so shall be  subject to such punishment as may be provided by law.  Ark. Const. art. 19, § 13(a).  In addition, Arkansas statutes provide for the maximum rate of interest to be charged  in this state based on Article 19, § 13 of the Arkansas Constitution and prohibit charging a  usurious rate of interest, which is an interest rate in excess of the maximum rate.  See Ark.  Code Ann. §§ 4­57­104 – 4­57­105 (Repl. 2001).  It is apparent to this court that what this case entails is a question of law and whether  RCE violated the laws of Arkansas so as to invoke the terms of Old Republic’s bond.  While  Old Republic and the Board would like to limit liability to violations of the Check­Cashers  Act and the Board’s Rules and Regulations, which were not yet adopted when the bond was  issued in 1999, the plain reading of the bond language is not so limited.  It protects against  loss or damage suffered by any person resulting from RCE’s violation of the “applicable laws ­13­  07­129  of the State [of] Arkansas.”  Without question, a violation of this state’s usury laws is a  violation of an applicable law of Arkansas.  Old Republic remonstrates and urges that it was entitled to rely on the Check­Cashers  Act, which was enacted in 1999, before this court cast doubt on its constitutionality in our  Luebbers decision in 2001.  We do not view that Act as affording Old Republic blanket  protection  for  purposes  of  the  1999  bond.  The  usury  laws  of  this  state,  including  what  constitutes interest or fees, have been part of our constitution, statutory law, and case law for  decades. See Ark. Const. art. 19, § 13(a); Ark. Code Ann. §§ 4­57­104 – 4­57­105 (Repl.  2001); see, e.g., Schuck v. Murdock Acceptance Corp., 220 Ark. 56, 247 S.W.2d 1 (1952).  It was incumbent upon Old Republic to know and abide by the clear public policy of this  state as expressed by the Arkansas people in the Arkansas Constitution regardless of one  legislative act (the Check­Casher Act) that runs counter to that public policy.  Old Republic  did not do so, and by this failure, it violated the laws of this state and became liable under  the bond.  We conclude that the Board’s decision is at odds with the clear language of the  Old Republic bond because this state’s anti­usury policy as expressed by Article 19, § 13 of  the Arkansas Constitution has been violated.  Hence, substantial evidence does not support  the  Board’s  decision.  We  further  hold  that  by  violating  the  Arkansas  Constitution,  the  applicable laws of this state were violated irrespective of whether the Check­Cashers Act  provided that check­casher fees were not interest. See Ark. Code Ann. § 23­52­104(b) (Repl. ­14­  07­129  2000), declared unconstitutional by Leubbers v. Money Store, Inc., supra. Accordingly, Old  Republic is liable to McGhee under the bond.  We reverse the order of the Arkansas Board of Collection Agencies and remand to the  Board for further action with regard to the surety bond and McGhee’s claim in accordance  with this opinion.  Administrative decision reversed and remanded; circuit court affirmed. ­15­  07­129 

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