IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
PENNY ARNESON fka PENNY ARNESON SWEET, on behalf of DIVISION ONE herself personally and on behalf of The 6708 Tolt Highlands Personal No. 71148-2-1 Residence Trust,
Appellant, UNPUBLISHED OPINION
GARY NORDLUND and ALDENTE, LLC, Respondents,
MFE, LLC; COLUMBIA NORTH WEST MORTGAGE; MARK D. FLYNN; L80 COLLECTIONS, LLC; MCGAVICK GRAVES, P.S.; and DOE DEFENDANTS 1 through 20, inclusive,
Defendants. FILED: March 30, 2015
Dwyer, J. — The 6708 Tolt Highlands Personal Residence Trust obtained
loans from Aldente, LLC and Gary Nordlund in 2009 and 2010, respectively.
This lawsuit, brought by Penny Arneson, one of the trustors of the Trust and one
of two co-trustees at the time of the loans, is related to these loan transactions.
Arneson asserts claims, both in her individual capacity and as co-trustee,
pursuant to the Consumer Loan Act and the usury act, alleging that the lenders were not licensed to make the loans and that the loan interest rates exceeded
rates allowed by statute. In separate orders, the trial court granted summary judgment in favor ofeach lender. Arneson appealed from each order. As No. 71148-2-1/2
concerns the claims of the Trust, we reverse both of them. As concerns
Arneson's individual claims, we affirm each of them.
I
Arneson and her then-husband, Kenneth Sweet, established the 6708 Tolt
Highlands Personal Residence Trust on October 31, 2006.1 From its formation,
Arneson and Sweet were both trustors and trustees of the Trust. The sole
beneficiary of the Trust was another entity, the Rose Adorer Family Limited
Partnership (the Partnership). Additionally, the Trust instrument granted Arneson
and Sweet the discretion to designate additional beneficiaries of the Trust, so
long as the additional designated beneficiary was one of their children or
grandchildren. The trust instrument did not grant Arneson and Sweet the
authority to designate themselves as trust beneficiaries.
The trust instrument did grant Arneson and Sweet broad discretionary
powers in their capacities as trustees, including borrowing and encumbrance
powers.
The Trustees may borrow money upon such terms and conditions as it shall deem advisable .... The Trustees shall have the power to obligate the trust property for the repayment of any sums borrowed where the best interests of the beneficiaries have been taken into consideration. The Trustees shall have the power to encumber the trust property, in whole or in part, by a mortgage or mortgages, deeds of trust, or by pledge, hypothecation or otherwise, even though such encumbrance may continue to be effective after the term of any trust or trusts created in this agreement.
1The parties dispute whether the trust is irrevocable ortestamentary. This dispute is of no moment here. No. 71148-2-1/3
These discretionary powers were required to "be exercised by the Trustees
solely in a fiduciary capacity and subject always to the Trustees' fiduciary
obligations."
Shortly after the Trust's formation, third party sellers conveyed title to real
property located at 6708 Highlands Road NE in Carnation, Washington (the
Property) directly to the Trust. Although the Trust was officially named the "6708
Tolt Highlands Personal Residence Trust," the Trust instrument makes no other
reference to the Property. Moreover, the Trust instrument makes no provision for
Arneson or Sweet to occupy the Property. Nonetheless, Arneson, Sweet, and
their children apparently did occupy the Property.
In 2009, Sweet was arrested on suspicion of sexually abusing one of
Arneson's children.2 Arneson filed for divorce immediately after Sweet's arrest.3
This turmoil was the backdrop for the loans at the center of this case.
In May of 2009, Sweet arranged for a loan through Aldente, LLC (Aldente)
in the amount of $200,000.00. The loan was approved by the superior court and
was to be secured by a deed of trust against the subject Property. The proceeds
of the loan were to be used to pay living expenses, spousal maintenance, child
support, taxes, divorce and criminal lawyers, and other family expenses.
On May 19, 2009, the loan with Aldente closed. According to the loan agreement, "The purpose of the loan is for a cash-out refinance of the real property owned by Borrower." The loan documents included a promissory note, which obligated the Trust, with Arneson and Sweet as guarantors, to repay the 2Sweet was subsequently convicted of various felony charges arising from his misconduct. See State v. Sweet, King County Superior Court No. 09-1-06102-1 SEA. 3 In re Marriage of Sweet, King County SuperiorCourt No. 09-3-01590-6 SEA. No. 71148-2-1/4
sum of $200,000.00 at the rate of 10 percent per annum and to be paid in full on
or before November 1, 2010. The closing of the Aldente loan is evidenced by a
HUD-I settlement statement. According to entries on this form, in addition to the
10 percent interest rate called for in the promissory note, Aldente received an
additional "loan fee" of 3 percent, thus making the effective interest rate 13
percent. Arneson alleges that additional "loan payments" were withheld as well.
In January of 2010, Sweet arranged for a second loan, this from Nordlund,
in the amount of $375,000.00. Sweet arranged for this loan with the assistance
of mortgage broker Mark Flynn, who was an acquaintance of Nordlund and who
approached Nordlund regarding loaning funds to the Trust. This loan was also
approved by the superior court, in orders dated October 15, 2009, November 17,
2009, and January 13, 2010. Repayment of this loan was to be secured by a
deed of trust against the subject Property. The proceeds of the loan were to be used to satisfy the Aldente loan and fund various of Sweet's personal expenses.
On January 15, 2010, the Nordlund loan closed. The loan documents
included a promissory note, whereby the Trust was obligated to repay the sum of $375,000.00 at the rate of 12 percent per annum and to be paid in full on or
before January 15, 2011. The promissory note states that the "sums represented by [the] Note are being used for business, investment or commercial proposes, and not for personal, family or household purposes." Arneson and Sweet
separately initialed this provision. The closing of the Nordlund loan is evidenced by a HUD-I settlement statement. According to entries on this form, in addition to the 12 percent interest rate called for in the promissory note, charges for making No. 71148-2-1/5
the loan added an additional "loan fee" of 16 percent. Also according to entries
on this form, Sweet's divorce lawyer and his criminal defense lawyer were paid
directly from escrow, as was a parenting evaluator. The balance of the funds, to
the "borrower," was paid directly to Sweet. Nordlund would have had to approve
these disbursements through escrow instructions.
On January 19, 2011, the superior court in the Arneson and Sweet
dissolution action entered a decree of dissolution that provided "[t]he real
properties awarded to wife are held in the 6708 Tolt Highlands Personal
Residence Trust.... In addition to [the real property held by the Trust,] the
following other entit[y is] also awarded to wife: Rose Adorer Family Limited
Partnership (NY)."
All principal and interest accrued were due in full on the Nordlund loan on
January 15, 2011. After the Trust failed to fulfill its obligation on the loan,
Nordlund made a demand on Arneson for payment of the Trust's loan. When the
Trust still had not fulfilled its loan obligations to Nordlund by August 2011—nearly
eight months after all principal and interest were due in full—Nordlund issued a
notice of default to the Trust. Nordlund issued an amended notice of default for
the Trust's debt, plus attorney fees and costs, in September 2011 and,
eventually, a successor trustee to the deed of trust provided the Trust with notice of foreclosure under chapter RCW 61.24 and recorded a notice of trustee's sale.
The trustee's sale of the Property was scheduled to occur on February 3,
2012. Shortly before the sale, Arneson filed this lawsuit seeking to enjoin the trustee's sale of the Property and recover damages. In her amended complaint, No. 71148-2-1/6
Arneson alleged violations of the Consumer Loan Act, the usury act, the
Consumer Protection Act, the deeds of trust act, and asserted common law
claims for intentional or negligent misrepresentation. The trial court granted
Arneson's request for a preliminary injunction and, thus, the trustee's sale of the
Property scheduled for February 3, 2012 was cancelled. Instead, the Trust was
ordered to proceed with marketing and selling the Property and to deposit the
sale proceeds into the court registry.
In support of her claims for recovery, Arneson argued that she and her
husband, rather than the Trust, were the true owners of the Property and that the
Trust's loans from Aldente and Nordlund were really personal, consumer loans to
her and Sweet in their individual capacities and not commercial loans to the
Trust. Arneson further argued that she was the true borrower and personally
liable on the promissory note conveyed to Nordlund. In advancing these claims,
Arneson relied extensively on terminology used by the superior court in the
dissolution of marriage action between her and Sweet.
Aldente and Nordlund each moved for summary judgment, arguing both
that Arneson lacked standing to bring the action in her individual capacity
because she was not individually a party to either loan transaction, and that the
Trust's claims against them must fail because the underlying loans to the Trust
were business loans and, as such, were exempt from the usury statutes and the
Consumer Loan Act. The trial court agreed and granted each defendant's motion
for summary judgment, dismissing the claims against them. No. 71148-2-1/7
Based on the provision in the promissory note requiring the Trust to pay
Nordlund's costs and attorney fees, the trial court also entered judgment in favor
of Nordlund and against the Trust in the sum of: (1) $375,000 in unpaid principal,
(2) $193,263.43 in prejudgment interest accruing from the Trust's default on
January 16, 2011 at the default rate specified in the promissory note, (3)
$29,955.50 in attorney fees, and (4) $6,152.79 in costs. Because, during the
pendency of Arneson's action, the Trust had sold the Property and deposited the
proceeds from that sale into the court's registry, the court ordered the clerk of
court to disburse funds from the registry so as to satisfy Nordlund's judgment
against the Trust. Thus, Nordlund's judgment against the Trust was paid in full.
The remaining proceeds from the Trust's sale of the Property were distributed
from the registry to the Trust through its counsel.
II
Arneson alleged a cause of action pursuant to the Consumer Protection
Act (CPA), chapter 19.86 RCW. This cause of action is premised (at least in part) upon alleged violations of two other statutes: the Consumer Loan Act (CLA), chapter 31.04 RCW, and the usury act, chapter 19.52 RCW. A violation of either statute constitutes a per se violation of the CPA. See RCW 19.52.036;
RCW 31.04.208.
A
The CLA has been frequently amended since its 1991 enactment. Indeed,
different versions of the CLA—neither of which was cited by the parties in their
briefing to us—apply to the two loans at issue herein. No. 71148-2-1/8
The following statutory provisions applied to the May 19, 2009 Aldente
loan. Pursuant to former RCW 31.04.035 (2008), entitled "License required,"
anyone engaged in the business of loaning money was required to maintain a
CLA license: "No person^ may engage in the business of making secured or
unsecured loans of money, credit, or things in action without first obtaining and
maintaining a license in accordance with this chapter."5 Another provision listed
exceptions to the licensing requirement for certain entities or types of loans.
This chapter shall not apply to any person doing business under and as permitted by any law of this state or of the United States relating to banks, savings banks, trust companies, savings and loan or building and loan associations, or credit unions, nor to any pawnbroking business lawfully transacted under and as permitted by any law of this state regulating pawnbrokers, nor to any loan of credit made pursuant to a credit card plan.
4 "'Person' includes individuals, partnerships, associations, limited liability companies, limited liability partnerships, trusts, corporations, and all other legal entities." Former RCW 31.04.015(1) (2008). 5 This provision had been amended in 2008. Prior to that amendment, the licensing requirement applied only to those engaged in making loans "at interest rates authorized by [the CLA]." Former RCW 31.04.035 (1991). The CLA permitted licensees to "[l]end money at a rate that does not exceed twenty-five percent per annum." Former RCW 31.04.105 (2008). By contrast, the highest rate generally permitted under the usury statute was 12 percent. Former RCW 19.52.020 (2008). Thus, under the 1991 version of the statute, a license was generally required only to facilitate loans bearing interest rates between 12 and 25 percent. In 2009, in response to the 2008 amendments to the CLA, the agency charged with administering and interpreting the CLA, the Department of Financial Institutions, adopted regulations that hewed to the prior statutory language by indicating that the CLA licensing requirement applied only to those engaged in the business of loaning money at rates above the rates permitted by the usury act. See former WAC 208-620-230 (2009). However, "[a]n administrative agency . .. cannot modify or amend a statute by regulation." Bird-Johnson Corp. v. Dana Corp., 119 Wn.2d 423, 428, 833 P.2d 375 (1992). These regulations were contrary to the plain meaning of the statute as amended and, therefore, were invalid. Unsurprisingly, the agency changed tack soon thereafter, and regulations that became effective in 2010 reflect the general licensing requirement dictated by the 2008 legislative amendments. In the 2009 regulations, the agency also improperly modified the CLA by limiting the definition of "borrower" to "any natural person." See former WAC 208-620-010 (2009). However, by defining "borrower" as "any person ..." and "person" to include "individuals, partnerships, associations, . . . trusts, corporations, and all other legal entities," RCW 31.04.015, the legislature had made the meaning of borrower plain. Accordingly, the agency was without authority to interpret the statute to mean otherwise. Again, unsurprisingly, the agency has since changed this definition and it is no longer limited to natural persons. See former WAC 208-620-011 (2014).
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Former RCW 31.04.025 (2008). There was also an exception for retail
installment contracts made under the authority of chapter 63.14 RCW. See
former RCW 31.04.025 (2008).
Thus, when the Aldente loan was made, anyone in the business of loaning
money who did not qualify for one of the exceptions listed in the statute was
required to hold a CLA license. Given that there is no dispute that Aldente did
not hold a license at the time it made the relevant loan to the Trust, the sole
remaining question is whether Aldente was engaged in the business of making
qualifying loans at the time.
The CLA was amended once again prior to the January 15, 2010
Nordlund loan. These amendments changed the statute in two material ways.
First, the interplay between RCW 31.04.025 and RCW 31.04.035 was made
explicit—specifically, that RCW 31.04.025 lists exceptions to the general licensing requirement contained in RCW 31.04.035. The amended statute
provided:
No person may engage in the business of making secured or unsecured loans of money, credit, or things in action withoutfirst obtaining and maintaining a license in accordance with this chapter, except those exempt under RCW 31.04.025.
Former RCW 31.04.035 (2009). Thus, the only entities exempted from the CLA
licensing requirement were those exempted by RCW 31.04.025. RCW 31.04.025 was also amended. Those entities that had been exempt
under the previous iteration ofthe statute remained exempt and new exemptions were added. These included an exemption for: "[a]ny person making loans
primarily for business, commercial, or agricultural purposes, or making loans
-9- No. 71148-2-1/10
made to government or government agencies or instrumentalities, or to
organizations as defined in the federal truth in lending act." Former RCW
31.04.025(e) (2009).
As with Aldente, there is no dispute that Nordlund did not hold a CLA
license. However, in his case, there are two relevant questions: first, whether
Nordlund was engaged in the business of making qualifying loans, and, second,
whether the loan at issue was a consumer transaction or, as contended by
Nordlund, a business transaction.
B
Unlike the CLA, the same provisions of the usury statute apply to both of
the loans made by Aldente and Nordlund, respectively.
Interest rates above 12 percent are generally usurious: "(1) Any rate of
interest shall be legal so long as the rate of interest does not exceed ...: (a)
Twelve percent per annum." RCW 19.52.020.6
The act includes an exception for loans to certain entities, including trusts.
However, the exception does not apply to consumer transactions.
Profit and nonprofit corporations, Massachusetts trusts, associations, trusts, general partnerships, joint ventures, limited partnerships, and governments and governmental subdivisions, agencies, or instrumentalities may not plead the defense of usury nor maintain any action thereon or therefor. ..: PROVIDED,
6To be more specific, the usury act permits any rate of interest so long as it does not exceed the higher of 12 percent or (b) four percentage points above the equivalent coupon issue yield (as published by the Board of Governors of the Federal Reserve System) of the average bill rate for twenty-six week treasury bills as determined at the first bill market auction conducted during the calendar month immediately preceding the later of (i) the establishment of the interest rate by written agreement of the parties to the contract, or (ii) any adjustment in the interest rate in the case of a written agreement permitting an adjustment in the interest rate. RCW 19.52.020(1 )(b).
-10- No. 71148-2-1/11
HOWEVER, That this section shall not apply to a consumer transaction of any amount.
RCW 19.52.080 (emphasis added). Consumer transactions are "transactions
primarily for personal, family, or household purposes." RCW 19.52.080. A
consumer transaction is contrasted with a transaction "primarily for agricultural,
commercial, investment, or business purposes." RCW 19.52.080.
The effective interest rate on each of the loans is not here at issue.
Neither Aldente nor Nordlund presently disputes that the interest rate on the
loans at issue exceeded the highest rate generally permitted. Instead, the
relevant concern for each loan is whether the loan was a consumer transaction
and, thus, subject to the provisions of the usury statute, or a business transaction
and, therefore, excepted therefrom.
Ill
Both defendants prevailed on summary judgment. We review a grant of
summary judgment de novo. Lokan & Assocs., Inc. v. Am. Beef Processing,
LLC, 177 Wn. App. 490, 495, 311 P.3d 1285(2013). Summary judgment is
appropriate if there is no genuine issue of material fact and the moving party is
entitled to judgment as a matter of law. Am. Express Centurion Bank v.
Stratman, 172 Wn. App. 667, 673, 292 P.3d 128 (2012). We consider the
evidence and the reasonable inferences therefrom in the light most favorable to
the nonmoving party. Stratman, 172 Wn. App. at 673. A genuine issue of
material fact exists where reasonable minds could differ regarding the facts
controlling the outcome of the litigation. Parks v. Fink, 173 Wn. App. 366, 374,
293P.3d 1275(2013).
-11 - No. 71148-2-1/12
"A trial court's obligation to follow the law remains the same regardless of
the arguments raised by the parties before it." State v. Quismundo. 164 Wn.2d
499, 505-06, 192 P.3d 342 (2008). It is our duty to apply the correct version of a
statute, even if that version of the statute was not cited below. Chmela v. Dep't
of Motor Vehicles. 88 Wn.2d 385, 393, 561 P.2d 1085 (1977).
Courts should not be confined by the issues framed or theories advanced by the parties if the parties ignore the mandate of a statute or an established precedent. A case brought before this court should be governed by the applicable law even though the attorneys representing the parties are unable or unwilling to argue it.
Mavnard Inv. Co. v. McCann. 77 Wn.2d 616, 623, 465 P.2d 657 (1970); accord
In re Dependency of G.C.B.. 73 Wn. App. 708, 717, 870 P.2d 1037 (1994)
("Although neither party brought this statute to our attention, it is the duty of an
appellate court to apply a dispositive statute to the undisputed facts of a case
notwithstanding the parties' failure to call the statute to the attention of the
court."). "This rule may be applied to reverse the trial court." Bitzan v. Parisi, 88
Wn.2d 116, 126, 558 P.2d 775 (1977).
Aldente contends that it was proper for the trial court to grant summary
judgment in its favor. This is so, it asserts, because the "loan transaction upon
which this complaint was brought was an exempt transaction under the [CLA]."
Specifically, relying on an inapplicable version of the CLA, Aldente contends that
its loan was exempt as a transaction with a business or commercial purpose.
However, as set forth above, there was no such exception to the CLA licensing
requirement at the time of the Aldente loan. Applying the correct version of the
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CLA, we hold that summary judgment in Aldente's favor was improperly granted.
As previously explained, the question here is whether Arneson presented
sufficient evidence that Aldente was "engage[d] in the business of making
[qualifying] loans," including secured or unsecured loans of money. There is
evidence in the record that Aldente made at least two secured cash loans during
this time, including the loan herein at issue.7 This evidence supports at least an
inference that Aldente was, in fact, in the business of making qualifying loans.
Thus, Arneson presented sufficient evidence to create an issue of material fact
and summary judgment in Aldente's favor was improper.89
As with Aldente, Nordlund contends that summary judgment was properly
granted in his favor. This is so, he asserts, because the loan was exempt from
both the CLA and the usury act because the transaction had a business purpose.
We disagree.
As set forth above, at the time the Nordlund loan was made, lenders
making loans for business or commercial purposes were exempt from the CLA.
7 The other was made in March 2009. Arneson does not allege any statutory violations arising from that loan transaction. 8 As a violation of the CLA also constitutes a per se violation of the CPA, RCW 31.04.208, the trial court's dismissal of both the CLA claim and the CPA claim is reversed. 9Aldente correctly notes that Arneson's amended complaint did not plead a cause of action againstAldente for violation of the usury act. Furthermore, although Arneson did plead a CPA claim against Aldente, and a violation of the usury act can constitute a violation of the CPA, RCW 19.52.036, Arneson's amended complaint did not assert such a connection. Similarly, nothing in Arneson's pleadings submitted in opposition to Aldente's summary judgment motion contended that Arneson's CPA claim against Aldente was predicated upon a claimed violation of the usury act. Instead, the CLA was the focus of each party's briefing. Thus, although the parties argue at length in their appellate briefing concerning whether the Aldente loan at issue was (or was not) made for a business purpose, that issue is not properly before us. Although thiswould be an appropriate inquiry had a usury act violation been alleged, no such allegation was pleaded. Moreover, as we have discussed, an exemption for business or commercial loans was not included in the version of the CLA in effect at the time the challenged Aldente loan was made.
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Similarly, loans with a business or commercial purpose were exempt from the
usury statute. However, both the CLA and the usury act apply to loans made for
primarily personal, family, or household purposes (consumer transactions).
Thus, Arneson's CLA and usury act claims against Nordlund10 converge on a
single issue—whether the purpose of the loan was consumer or business.
Summary judgment in Nordlund's favor was proper only ifthere was no genuine
dispute as to whether the loan was for a business purpose.
A loan's purpose "is principally established by the representations the
borrower makes to the lender at the time the loan is procured." Brown v. Giqer,
111 Wn.2d 76, 82, 757 P.2d 523 (1988); accord Jansen v. Nu-West, Inc.. 102
Wn. App. 432, 439, 6 P.3d 98 (2000). "The issue is a factual one to be answered
after examining the circumstances surrounding the transaction." Castronuevo v.
Gen. Acceptance Corp., 79 Wn. App. 747, 751-52, 905 P.2d 387 (1995). "The
lender's purpose for the loan, which almost always is a business purpose, is
irrelevant." Aetna Fin. Co. v. Darwin. 38 Wn. App. 921, 928, 691 P.2d 581
(1984). "[T]he burden is on the lender to show the business exception applies." Marashi v. Lannen, 55 Wn. App. 820, 823, 780 P.2d 1341 (1989); see also
Soarkman & McLean Income Fund v. Wald, 10 Wn. App. 765, 768, 520 P.2d 173
(1974).
"Washington cases consistently have noted the importance of objective
indications of purpose in determining the applicability of the 'business purpose' exemption." Brown, 111 Wn.2d at 82. Courts "focus on the purpose the
10 Unlike Aldente, Nordlund does not dispute that both CLA and usury act claims were asserted against him.
-14- No. 71148-2-1/15
borrower actually represented at the time, not what was written on the
application." Jansen. 102 Wn. App. at 439-40. "[W]hen other representations of
the borrowers are inconclusive, written statements in the loan documents may be
dispositive." Marashi. 55 Wn. App. at 824. However, other evidence may
contradict the written representations, thus creating a factual question for the trier
of fact. Jansen. 102 Wn. App. at 440. A direct conflict in the evidence on the
issue of the loan's purpose creates an issue for the trier of fact. Marashi. 55 Wn.
App. at 824.
"Determination of the purpose is for the jury, and the question of whether
that purpose constitutes a business purpose is a question of law to be decided by
the court." Marashi. 55 Wn. App. at 824 n.3. Put differently, while "[a] jury
decides the factual question of what the parties understood the funds were going
to be spent on," it is for the courtto "decide as a matter of law whetherthe[] proposed expenditures constitute business purposes." Jansen. 102 Wn. App. at
441.
Moreover, the purpose of a given loan transaction is not determined by
what type of entity the borrower happens to be. Thus, in Paulman v. Filtercorp.
Inc., 127 Wn.2d 387, 899 P.2d 1259 (1995), our Supreme Court treated the
purpose of a loan to a for-profit corporate entity as presenting a fact question. The court noted that the consumer loan exemption "represents a calculated
legislative decision not to afford the protection of the usury laws to either a corporation or a natural person who borrows money for business purposes." Paulman, 127 Wn.2d at 392. The court's analysis recognizes that non-natural
-15 No. 71148-2-1/16
"persons" may have a personal or consumer purpose in taking out a loan. Thus,
it is possible for a trust to do so. Additionally, the fact that entities other than
natural persons, by their nature, must engage in loan transactions through
representatives does not alter the inquiry. We look to objective indications of the
borrower's purpose, as manifested by those acting on the borrower's behalf.
Here, Nordlund presented evidence supporting his assertion that the loan
transaction had a business purpose. In particular, he points to the following
statement in the promissory note: "Maker represents and warrants to Holder that
the sums represented by this Note are being used for business, investment or
commercial purposes, and not for personal, family or household purposes." This
statement was separately initialed by Arneson and Sweet as co-trustees.
However, Arneson presented evidence to the contrary, supporting her
assertion that the loan had a consumer purpose. First, Arneson points to a
document entitled "Private Money Term Sheet," which was signed by Nordlund.
This document must have been created before the terms of the promissory note
were finalized, because it includes a notation to include the business purpose
term in the promissory note. The document also includes the following statement
indicating that Nordlund was aware of the family court proceedings going on at
the time: "Mr. Sweet is allowed to pull $65,000 in cash to him. Mrs. Sweet is
required by court order to sign the loan documents or the court will sign for her." Additionally, it includes the following notes regarding how some of the loan proceeds were to be distributed: "Other Items- Back taxes of approximately $19,900 will be paid from proceeds."
16 No. 71148-2-1/17
Second, Arneson points to the HUD-I settlement statement, which
demonstrates that a portion of the loan proceeds were to be used for consumer
purposes. The list of individuals to receive disbursements from the loan
proceeds included Sweet's attorneys from the ongoing family law and criminal
cases and the family law parenting evaluator. Arneson contends that the
settlement statement would have been completed by and present at the loan
closing. Additionally, Arneson asserts, Nordlund would have approved these
disbursements through escrow instructions. The private money term sheet and
the HUD-I settlement statement tend to prove that Nordlund had direct
knowledge of the consumer purpose of the loan.
Third, Arneson points to evidence that Nordlund's agent, Mark Flynn,11
knew of the consumer purpose of the loan. The fact that Flynn made a
declaration that was submitted in the family law case leads to an inference that
he was aware of the family court's involvement in the loans, including the court's
limitations on how the loan proceeds were to be used. As an agent's knowledge
is generally imputed to the principal if that knowledge is relevant to the agency
relationship, at least for the purpose of Nordlund's summary judgment motion,
Flynn's apparent knowledge of the purpose of the loan must be imputed to Nordlund. See Kelsev Lane Homeowners Ass'n v. Kelsev Lane Co.. 125 Wn.
App. 227, 235, 103 P.3d 1256 (2005).
Because the burden of persuasion is ultimately on Nordlund to show that
the loan transaction had a business purpose and because there is a fact question
11 Nordlund does not dispute this relationship in his appellate briefing.
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as to whether this was the case, summary judgment should not have been
granted.
IV
Arneson contends that the trial court erred in concluding that she had no
standing to bring claims against Aldente and Nordlund on her own behalf and
thus dismissing her individual claims against them. This is so, Arneson asserts,
because she was the "true borrower" on both of the loans. We disagree.
It is undisputed that Arneson and Sweet chose to create the Trust during
their lifetimes and to use the Trust to hold title to various assets. It is undisputed
that third party sellers conveyed the Property directly into the Trust. It is
undisputed that, with the approval of the court in their dissolution matter and with
the apparent guidance of their legal counsel, the Trust entered into the loan
transactions with Aldente and Nordlund. It is undisputed that Arneson and Sweet
made the promissory notes to Aldente and Nordlund and supporting deeds of
trust solely in their capacities as co-trustees of the Trust. It is undisputed that
neither Arneson nor Sweet signed any loan document regarding the Trust's
transaction with Nordlund in their individual capacities. It is also undisputed that
Arneson and Sweet signed loan documents regarding the Trust's transaction with
Aldente in their individual capacities only as guarantors.
Nevertheless, Arneson urges us to conclude that she was the "true
borrower" on the loans. Arneson purports to find the "true borrower" concept in
McGovern v. Smith. 59 Wn. App. 721, 801 P.2d 250 (1990). In that case, the
borrower, Jack McGovern, signed a loan agreement that contained an express
18- No. 71148-2-1/19
representation and warranty that he would use the loan proceeds "solely for
business or commercial purposes." McGovern. 59 Wn. App. at 726. McGovern's
aunts, the Marinos, signed a deed of trust securing his loan and, along with
McGovern, they signed a promissory note. But the Marinos did not sign the loan
agreement. McGovern. 59 Wn. App. at 726-27. After McGovern defaulted on
the loan and the lender initiated foreclosure proceedings on the deed of trust,
McGovern and the Marinos sought injunctive relief and asserted a claim of usury.
McGovern. 59 Wn. App. at 728. The lender responded by arguing that the loan
transaction was exempt from the usury statute, as it was for a business or
commercial purpose and not for a consumer or household purpose. McGovern.
59 Wn. App. at 729. The court held that the Marinos were not "borrowers" for
purposes of determining whether the business exemption from the usury statute
applied because "[t]hey were not liable for any cash payments, and [the lender's]
sole recourse against the Marinos was to foreclose upon the real estate."
McGovern. 59 Wn. App. at 735. Accordingly, the court only looked to
McGovern's purpose in determining whether the business exemption from the
usury statute applied. McGovern. 59 Wn. App. at 735.
Arneson contends that McGovern stands for one specific and one general
proposition relevant to this case. The specific proposition urged is that "one need not sign the note to be [the] actual borrower." Appellant's Br. at 27. However, the facts of McGovern do not sustain this proposition. The actual borrower
therein, McGovern, did, in fact, sign the note. Similarly, the actual borrower
19 No. 71148-2-1/20
herein, the Trust—through its legal representatives, Arneson and Sweet—signed
the loan documents.
The general proposition urged is that courts "prefer[] substance over form"
when it comes to the usury statute. Appellant's Reply Br. at 12. The implication
of the proposition is that, even though Arneson and Sweet made the strategic
economic decision to hold certain property in trust, appointed themselves co
trustees of the trust they created, then, as co-trustees, engaged in loan
transactions on behalf of the Trust, using trust property as security on the loans,
we should hold that Arneson and Sweet—and not the Trust—were the true
borrowers on the loans. We will do no such thing. Having made the conscious
decision to place the 6708 Tolt Highlands property in trust, Arneson must live
with the economic impact of that decision—both when it is of benefit to her and
otherwise.
It is clear from both loan agreements that the Trust was the borrower, not
Arneson. Thus, the trial court did not err by dismissing Arneson's individual
claims based upon her lack of standing.
V
As he does not substantially prevail on appeal, Nordlund's request for an
award of attorney fees is denied.12
The trial court's orders on summary judgment in favor of Aldente and
Nordlund and against the Trust are reversed, as is the judgment entered in favor
12 The parties have not briefed the effect of Nordlund prevailing on appeal against only Arneson. The trial court's award of attorney fees in favor of Nordlund cannot survive today's decision. On remand, the parties may litigate whether Nordlund has any claim for an award of attorney fees as against Arneson individually.
-20- No. 71148-2-1/21
of Nordlund, and the cause is remanded to the trial court for further proceedings
consistent with this opinion. The trial court's orders dismissing Arneson's
individual claims are affirmed.
Affirmed in part, reversed in part, and remanded.
We concur: ^=r^