Johnson v. Phelan Hallinan & Schmieg, LLP

202 A.3d 730

EdElla JOHNSON (A/K/A EdElla Robinson A/K/A EdElla Robinson Johnson), Eric Johnson, Individually and on Behalf of Other Similarly Situated Former and Current Homeowners in Pennsylvania, Appellants

v.PHELAN HALLINAN & SCHMIEG, LLP

No. 359 WDA 2017

Superior Court of Pennsylvania.

Argued November 28, 2017

Filed January 08, 2019

Michael P. Malakoff, Pittsburgh, for appellants.

Jonathan J. Bart, Philadelphia, for appellee.

BEFORE: BOWES, J., STABILE, J., and FORD ELLIOTT, P.J.E.

OPINION BY BOWES, J.:

EdElla Johnson (a/k/a EdElla Robinson a/k/a EdElla Robinson Johnson) and Eric Johnson, individually and on behalf of other similarly-situated former and current homeowners in Pennsylvania (collectively "the Johnsons"), appeal from the February 6, 2017 order sustaining the preliminary objections in the nature of a demurrer filed by Phelan Hallinan & Schmieg, LLP ("Phelan"). We affirm.

The certified record reveals the following. On May 23, 2002, the Johnsons executed a mortgage and associated promissory note in the amount of $74,000. The mortgage was secured by property located at 636 Collins Avenue, Pittsburgh, Allegheny County.¹ That instrument was duly delivered, recorded, and subsequently assigned to the Bank of New York Mellon Trust Company ("Mellon").

In December 2008, the Johnsons defaulted on the mortgage. On March 31, 2009, Mellon, through its counsel, Phelan, filed a complaint in mortgage foreclosure. In the complaint, Mellon asserted, inter alia , that the Johnsons owed $1,300 in attorney fees. After a non-jury trial, the trial court found in favor of Mellon. The Johnsons appealed that decision, and this Court affirmed. Bank of New York Mellon Trust Co., Nat'l Ass'n v. Johnson , 170 A.3d 1261 (Pa.Super. 2017) (unpublished memorandum).

On March 23, 2012, while the foreclosure action was pending, the Johnsons initiated the instant class action against Phelan. In their complaint, the Johnsons alleged, inter alia , that Phelan violated section 406 of the Pennsylvania Loan Interest and Protection Law, 41 P.S. §§ 101 et seq . ("Act 6"), by pursuing an award of attorney fees in the mortgage foreclosure action that were not actually incurred.² The Johnsons argued further that the same harm had been suffered by other former and current Pennsylvania homeowners against whom Phelan had filed foreclosure complaints. In reliance on section 502 of Act 6,³ which provides remedies for violations of section 406, the Johnsons claimed that they and other similarly-situated mortgagors were entitled to treble damages for excess attorney fees assessed by Phelan.

Phelan filed preliminary objections in the nature of a demurrer, contending that section 406 applies solely to "residential mortgage lenders," and not to their foreclosure counsel. On May 2, 2012, the trial court sustained Phelan's preliminary objections, and consolidated the matter for appeal with another case raising similar issues, Glover v. Udren Law Offices, P.C. , docketed in the Allegheny County Court of Common Pleas at GD-11-18015.

In the consolidated appeal, this Court affirmed the trial court's order, and determined that a "residential mortgage debtor" can only maintain a cause of action for a violation of section 406 against a "residential mortgage lender," and not against their foreclosure counsel. Glover v. Udren Law Offices, P.C. , 92 A.3d 24, 28 (Pa.Super. 2014). Subsequently, the Pennsylvania Supreme Court reversed, holding that foreclosure counsel constituted a "person" for purposes of section 502, and, thus, "a borrower may recover under [s]ection 502 from any entity — not solely the residential mortgage lender — that collects excessive attorney's fees in connection with a foreclosure." Glover v. Udren Law Offices, P.C. , 635 Pa. 620, 139 A.3d 195, 200 (2016). However, the High Court offered no opinion regarding the term "collected," as used in section 502, and remanded the matter for further proceedings. Id . at 201.

On remand, Phelan again filed preliminary objections in the nature of a demurrer. However, for the first time, it asserted that the Johnsons were barred from pursuing relief under Act 6 because their $74,000 mortgage did not qualify as a "residential mortgage" under section 101 of the Act, as their mortgage exceeded the $50,000 statutory limit in effect at the time it was executed in 2002.⁴ The Johnsons maintained that the court should apply the version of section 101 in effect in 2009, at the time the foreclosure action was commenced, which raised the limit for a "residential mortgage from $50,000 to $217,873.⁵ On November 30, 2016, the trial court sustained Phelan's preliminary objection based on collateral estoppel. The Johnsons filed a motion for reconsideration, which Phelan opposed, and the Johnsons filed a reply in support of their motion. The trial court granted reconsideration so that the three remaining preliminary objections could be ruled upon. On February 6, 2017, the trial court sustained the first preliminary objection on the basis that the version of section 101 in effect at the time the mortgage was executed was controlling, and the Johnsons were precluded from bringing an action against Phelan under Act 6 because their mortgage was not a "residential mortgage" under the Act.⁶ In so finding, the trial court determined that, when the legislature amended section 101 in 2008, it did not manifest an intent that the amendment apply retroactively. See Trial Court Opinion, 2/6/17, at 2. The trial court observed that this conclusion was supported by the reasoning employed in two federal district court cases, Murphy v. Bank of America, N.A. , 2016 WL 1020969 (E.D. Pa., March 14, 2016),⁷ and Trunzo v. Citi Mortg. , 43 F.Supp.3d 517 (W.D. Pa. 2014),⁸ which it found persuasive. See Trial Court Opinion, 2/6/17, at 2.

The Johnsons filed a timely notice of appeal. Since the trial court did not order the Johnsons to file a Pa.R.A.P. 1925(b) concise statement of errors complained of on appeal, the court did not issue a Pa.R.A.P. 1925(a) opinion, and instead entered an order indicating its reliance on its February 6, 2017 opinion and order. This matter is now ready for our review.

The Johnsons raise five questions for our consideration:

1. Did the prior decisions of the Pennsylvania appellate courts, and the Pennsylvania agencies that were delegated by the Legislature to regulate Act 6, as amended in 2008[,] erroneous[ly] interpreted [sic ] the statutory language of new Act 6?

2. Did the lower court err when it concluded that a district court decision discussing considerably different issues under Act 6 enacted in 1974, as amended, with respect to quite different loan transactions[,] constitute error as a matter of law?

3. Did the lower court err in holding that the general rule that contracts cannot be regulated apply [sic ] to the contracts of highly regulated banks engaged in mortgage financing?

4. Did the lower court err in holding that the general rule that the attorney fee terms of a contract cannot be regulated although the Pennsylvania Supreme Court held that, because an attorney has no vested rights in the attorney fee terms, they can be regulated?

5. Did the lower court err when it failed to follow Supreme [C]ourt's earlier mandate and remand in [ Glover , supra ] ?

Appellants' brief at 2.⁹

Our scope and standard of review following a trial court's ruling on preliminary objections in the nature of a demurrer is well settled:

Our standard of review of an order of the trial court overruling or [sustaining] preliminary objections is to determine whether the trial court committed an error of law. When considering the appropriateness of a ruling on preliminary objections, the appellate court must apply the same standard as the trial court.

Preliminary objections in the nature of a demurrer test the legal sufficiency of the complaint. When considering preliminary objections, all material facts set forth in the challenged pleadings are admitted as true, as well as all inferences reasonably deducible therefrom. Preliminary objections which seek the dismissal of a cause of action should be sustained only in cases in which it is clear and free from doubt that the pleader will be unable to prove facts legally sufficient to establish the right to relief. If any doubt exists as to whether a demurrer should be sustained, it should be resolved in favor of overruling the preliminary objections.

Feingold v. Hendrzak , 15 A.3d 937, 941 (Pa.Super. 2011) (internal citation omitted).

Also implicated herein is a question of statutory interpretation of certain provisions of Act 6. As statutory interpretation is a question of law, our standard of review is de novo and our scope of review is plenary. See e.g., Roverano v. John Crane, Inc. , 177 A.3d 892, 903 (Pa.Super. 2017).

The Johnsons contend that the trial court erred by applying the version of section 101 in effect at the time their mortgage was executed in 2002, rather than the version of section 101 in effect at the time the foreclosure action was initiated in 2009. Since the prior version of section 101 had been repealed and replaced, they argue the trial court was required to apply the amended terms of section 101. They further claim that nothing in the 2008 amendment indicates an intent by the legislature to restrict its effect to mortgages executed after to its effective date, and maintain that the absence of such language indicates an intention that the 2008 amendment apply to all foreclosure actions upon its effective date. Appellant's brief at 13-14.

In support of their position, the Johnsons highlight the protective provisions contained in sections 403, 404, 406, and 407 of Act 6, which utilize the term "residential mortgage" in concert with the commencement of a foreclosure action, and claim that these provisions suggest that the effective date of the amendment need only precede the commencement of foreclosure proceedings. They further note that section 405, which prohibits prepayment penalties,...