Corbett v. Snyder

This action arises out of the marketing and sale of wrap-around mortgages to various residents of Berks County and surrounding areas, through a series of six corporations engaged in the business of providing mortgage brokering, investment brokering and financial/investment counseling services. They consisted of (1) OPFM Inc. t/a Personal Financial Management, (2) Image Masters Inc., (3) Mortgage Assistance Professionals Inc., (4) Mortgage Assistance Professional II Inc., (5) Discovered Treasures Inc. and (6) D.I.V.I.D.I.T. Inc. (collectively known as the OPFM companies) and were operated out of four separate locations: 4700 Perlciomen Avenue, Reading, 4714 Perkiomen Avenue, Reading, *511270 Shelbourne Road, Reading, and 1672 Manheim Pike, Lancaster.1

The appellants, Jacquelyn Hepford-Rennie, Julie Ann Musser, Susan Louise Hunt and Kenneth Roger Ben*52netch, were each employed as mortgage consultants by the OPFM companies.2

As mortgage consultants, the appellants’ role was to advise potential customers of the availability of two alternative forms of financing: (1) a conventional loan secured by a mortgage from an outside lending institution, and (2) a conventional loan secured by a mortgage from an outside lending institution, coupled with a wraparound mortgage through Image Masters Inc. If the latter alternative was chosen, the clients, as the appellants preferred to classify them, were told that they would have to obtain a conventional loan in an amount which was in excess of what they had originally needed or intended to borrow. They were further told that the excess funds would be invested for them by Image Masters Inc., thereby entitling them to a reduced interest rate and lower monthly mortgage payments on the Image Masters Inc. wrap-around mortgage, which monthly amount would be their only obligation to pay.

Thereafter, a closing was held on the conventional loan (always before a title insurance company representative), *53followed by a second closing approximately one week later (usually at the client’s home), at which time the Image Masters Inc. wrap-around mortgage was executed and the client would turn over those excess proceeds that he or she was entitled to from the conventional loan. What the client was not told was how the investments were made, or in what specific companies or funds the investments would be made, as well as the fact that a significant portion of the excess funds would be used to pay various conventional mortgage obligations of existing clients to various conventional lending institutions, together with office overhead and payroll, including substantial compensation in an unknown amount to the sole shareholder and president of the OPFM companies, that being appellee Wesley Alvin Snyder.

The Commonwealth commenced this action on May 23, 2008, by filing a complaint, together with a motion for preliminary injunction. Generally, the Commonwealth alleged in its complaint that the appellants were engaged in the operation of a Ponzi scheme in connection with the sale of these wrap-around mortgages, whereby over 800 consumers were wrongfully induced to mortgage the equity in their homes and to turn over the proceeds in exchange for promises of reduced mortgage interest rates and greater investment returns, resulting in a total collective loss of more than $36,000,000.

The Commonwealth contends, in support of these allegations, that the appellants’ activities were in violation of the following paragraphs of section 201.2(4) of the Pennsylvania Unfair Trade Practices and Consumer Protection Law:3

*54“(ii) Causing likelihood of confusion or of misunderstanding as to the source, sponsorship, approval or certification of goods and services;

“(v) Representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits or quantities that they do not have or that a person has a sponsorship, approval, status, affiliation, or connection that he does not have;

“(vii) Representing that goods or services are of a particular standard, quality or grade, or that goods are of a particular style or model, if they are of another;

“(xxi) Engaging in any other fraudulent or deceptive conduct creates likelihood of confusion or of misunderstanding.”

In its motion for preliminary injunction, the Commonwealth asked this court to enjoin the appellants from engaging in any further sale of mortgage financing and investment products and to correspondingly freeze all of their assets in an effort to prevent their dissipation, so that they could potentially be used to repay those customers of the OPFM companies who were victimized by this alleged Ponzi scheme.

Following the filing and service of the complaint, appellants Susan Louise Hunt, Kenneth Roger Bennetch and Julie Ann Musser filed preliminary objections to the Commonwealth’s complaint.4 This court overruled each set of preliminary objections following oral argument held on August 15, 2008.

*55Thereafter, beginning on August 18, 2008, this court held a seven-day evidentiary hearing on the Commonwealth’s motion for preliminary injunction, at which time we received testimony from numerous witnesses called by the Commonwealth and also the appellants, along with 95 exhibits.5 At the conclusion of that hearing, we entered the following order:

“And now, August 29, 2008, upon consideration of the motion for a preliminary injunction and after a hearing held pursuant to Pa.R.C.P. 1531(a), this court hereby grants the following preliminary injunctive relief, pending a hearing to determine whether a permanent injunction should be entered in the within matter:

“(A) Defendants Jacquelyn Hepford-Rennie, Julie Ann Musser, Susan Louise Hunt and Kenneth Roger Bennetch are restrained and enjoined from receiving monies and/ or payments for services, as an employee or otherwise, pertaining to the provision of mortgage financing and investment products;

“(B) Defendants Jacquelyn Hepford-Rennie, Julie Ann Musser, Susan Louise Hunt and Kenneth Roger Bennetch are restrained and enjoined from entering into contracts and/or agreements, oral, verbal and/or written, as an employee or otherwise, to provide mortgage financing and investment products.

*56“(C) Defendants shall, within 20 business days of this order, prepare and serve upon the Commonwealth a financial statement which lists all transfers and assignments of assets and property valued in excess of $2,500 since January 1, 2007, indicating the name and address of the transferee or assignee, the value of the transfer or assignment, and the type and value of any consideration paid to said defendant; and a verification from each said defendant that the information he or she has provided has been provided subject to the penalty of perjuiy under 18 Pa.C.S. §4904. Each such financial statement shall be served upon Commonwealth by facsimile or overnight delivery.

“(D) A hearing to establish whether a permanent injunction should be entered will be held by this court beginning at 9:30 a.m. on April 20, 2009. All discovery shall be completed no later than February 13,2009, with expert reports to be exchanged on February 13,2009 and 21 days thereafter for rebuttal reports. A pre-hearing conference will be at 9:30 a.m. on April 13,2009, before the undersigned.”

All four mortgage consultants (the named appellants herein) each filed a timely appeal from the entry of this order to the Commonwealth Court of Pennsylvania. Thereafter, the appellants filed written motions with this court for stay of its order and the trial proceedings scheduled for April 20,2009, which we denied. The appellants then proceeded to file similar motions with the Commonwealth Court, which also included an alternative request for an expedited appeal. Following oral argument held on October 28, 2008, the Commonwealth Court denied the appellants’ request for a stay, but granted their request for an expedited appeal.

*57In order to facilitate this expedited appeal, we hereby set forth our brief statement of the reasons for the entry of the order of August 29, 2008.

In order for the Commonwealth to be entitled to preliminary injunctive relief, it was required to establish, by a preponderance of the credible evidence, that (1) such relief is necessary to prevent immediate and irreparable harm that cannot be adequately compensated by money damages; (2) that greater injury would result from refusing injunctive relief than from granting it; (3) that the requested injunctive relief will restore the parties to the status quo that existed immediately prior to the alleged wrongful conduct; (4) that the plaintiff is likely to prevail on the merits; (5) that the injunctive relief sought is reasonably suited to abate the offending activity; and (6) that the issuance of such relief will not adversely affect the public interest. Summit Towne Centre Inc. v. Shoe Show of Rocky Mount Inc., 573 Pa. 637, 828 A.2d 995 (2003).

In making our determination in favor of the Commonwealth, we relied upon the Mortgage Bankers and Brokers and Consumer Equity Protection Act,6 which defines a mortgage broker as:

“A person who directly or indirectly negotiates or places mortgage loans for others in the primary market for consideration.”

In interpreting this provision, the Commonwealth Court has held that mortgage brokers owe a fiduciary duty to their customers. McGlawn v. Pennsylvania Human Relations Commission, 891 A.2d 757, 769 (Pa. *58Commw. 2006). It is hornbook law that a fiduciary duty represents a duty of candor, honesty and loyalty toward another and a duty to act in that person’s best interests. Blacks Law Dictionary (8th ed. 2004). This means that a mortgage broker, who is in a position of trust and confidence vis-a-vis his or her client, must act with scrupulous fairness and good faith in dealing with the client and refrain from using his or her position to the client’s disadvantage. Young v. Kaye, 443 Pa. 335, 342, 279 A.2d 759, 763 (1971). This includes advising the client of all relevant facts and circumstances known to the broker. DiPalma v. LaLiberte, 1996 WL 480729, 2 (E.D. Pa. Aug. 16, 1996); see also, Alfaro v. E.F. Hutton & Co. Inc., 606 F. Supp. 1100, 1120 (E.D. Pa. 1985); Merrill Lynch, Pierce, Fenner & Smith v. Perelle, 356 Pa. Super. 165, 183, 514 A.2d 552, 560-61 (1986); Fox Intern. Relations v. Fisery Securities Inc., 490 F. Supp.2d 590, 615 (E.D. Pa. 2007).

Although it was undisputed by the parties that the individual appellants were not required to hold a mortgage brokers license, since they were employees of a licensed broker, namely Wesley Alvin Snyder, they performed all of the functions of licensed mortgage brokers and, therefore, owed the same fiduciary duty to act with the utmost candor, honesty and loyalty, by providing all material information to their clients in order to allow them to make an informed decision as to whether or not to enter into a wrap-around mortgage. However, the record demonstrates, as this court found, that the appellants failed to do so.7

*59More specifically, the record will show that the appellants failed to provide full and complete information as to how or where the investments of the excess funds were to be made; on the contrary, the appellants simply told their clients that Wesley Alvin Snyder (who most of them never met) knew how to invest the funds and that the investments would be made wisely in low risk mutual funds. The clients were never provided with copies of documents that were eventually signed by them at the second closing, except in those few instances where they specifically asked for them. For that matter, the appellants not only did not give their customers the opportunity to review those documents prior to or at the second closing, they did not take the time to read or otherwise review or explain the language in these documents to them, even though the appellants knew that the clients were certainly not sophisticated as to this type of unique transaction. They likewise never advised their clients that the conventional loan and mortgage would remain in effect, despite the second closing, and/or that the wrap-around mortgage would not be recorded in the county recorder of deeds office. Instead, they simply told their clients that the conventional mortgage was a mere formality, which was in all situations patently not true. The clients were likewise never advised that they had the option to ask for language to be inserted in the Image Masters wrap-around mortgage documents requiring that the conventional loan and mortgage be paid off in its entirety upon the completion of their payments on the Im*60age Masters loan, but were simply told that the monthly payment to Image Masters Inc. was the only obligation which they had to pay.

And despite the appellants having been advised as early as May 2007 that payments on the outstanding wrap-around mortgages were not being made in a timely fashion, they never informed any of their prior, current or subsequent clients of that fact at any time thereafter, but instead boldly continued to sell these wrap-around mortgages to unsuspecting new consumers all the way up through September 18, 2007, when the OPFM companies formally filed for bankruptcy, a fact that the appellants knew or should have known was inevitable and would certainly be to their clients’ detriment.

In view of the fiduciary duty imposed upon the appellants under Pennsylvania law, in their capacity as mortgage consultants selling these wrap-around mortgages to customers, and of their failure to meet that duty, we believe that the evidence sufficiently establishes each and every one of the six elements necessary for the entry of preliminary injunctive relief in this case.

And so, for these reasons, we respectfully request the Commonwealth Court to deny the instant appeals.