Tuesday, January 29, 2013

Garozzo v. Missouri Department of Insurance, Financial Institutions & Professional Registration, Division of Finance[1]

Opinion handed down January 29, 2013

In 2010, the Missouri SAFE Act was passed in response to the federal SAFE Act that was enacted in the wake of the 2008 financial crises.[2]  A provision of the Missouri SAFE Act, section 443.713(2)(a), prohibited the director of the division of finance from issuing a mortgage loan originator license to anyone who had pleaded guilty to a felony seven years prior to the date of the application.[3]  Ray Garozzo, who had been a mortgage loan originator for several decades, applied for a license in 2010, but had pleaded guilty to a felony in 2006. [4] As a result, Garozzo’s license application was rejected.[5]  Garozzo subsequently filed a suit claiming that section 443.713(2)(a) violated portions of the Missouri Constitution, namely: article I, section 30’s ban on bills of attainder; article I, section 13’s ban on retrospective laws; and article I, section 10’s guarantee of due process.[6]  Although the lower court held section 443.713(2)(a) unconstitutional, the Supreme Court of Missouri reversed the ruling.[7]

I.  Facts & Holding

Ray Garozzo had been working as a mortgage loan originator since 1985.[8]  At that time, there was no licensing requirement for mortgage loan originators.[9]  In 2006, Garozzo pleaded guilty to a class C felony of possession of a controlled substance and received a suspended imposition of sentence that was conditioned on several provisions, which he successfully completed.[10]

In 2008, the United States Congress enacted the Secure and Fair Enforcement Mortgage Licensing Act (“SAFE Act”) as part of a legislative response to the subprime mortgage crises.[11]  The SAFE Act established a nationwide licensing requirement for mortgage loan originators and provided that the federal government will establish a licensing system in any state that declines to adopt a licensing and registration law that complies with the minimum requirements of the act.[12]  As a result, in 2010, the General Assembly enacted the Missouri Secure and Fair Enforcement Mortgage Licensing Act (“Missouri SAFE Act”) and charged the division of finance with the responsibility of administering the law.[13]

Like the federal SAFE Act, the Missouri SAFE Act provides that “[n]o individual . . . shall engage in the business of a mortgage loan originator … without first obtaining and maintaining a license . . .”[14]  The Missouri SAFE Act also prohibits the director from issuing a mortgage loan originator’s license to an applicant who has pleaded guilty to a felony within seven years prior to the date of the application.[15]

In July 2010, Garozzo submitted an application for a mortgage loan originator license, and the application was denied pursuant to section 443.713(2)(a) because Garozzo had pleaded guilty to a felony in 2006.  Garozzo subsequently filed a notice of appeal with the residential mortgage board.  However, the board determined that section 443.413(2)(a) required the denial of Garozzo’s license application.[16] 

Garozzo then filed a petition for review in the circuit court.[17]  The circuit court entered a declaratory judgment finding that section 443.713(2)(a) was unconstitutional as applied to Garozzo in that the statute constituted a bill of attainder, violated the article I, section 13 ban on retrospective laws, and violated Garozzo’s right to substantive due process.  The circuit court ordered the director to issue a license to Garozzo and the director appealed. After separately analyzing each of the supposed constitutional violations, the Supreme Court of Missouri concluded that section 443.713(2)(a) was not unconstitutional.[18] 

In order to prove that section 443.713(2)(a) amounted to a bill of attainder, the Court noted that Garozzo had to show that the statute singled out a specifically designated person or group and inflicted punishment on that person or group.[19]  The Court noted that section 443.713 was a licensing statute that was enacted to protect the public and not to punish the applicant.[20]  As a result, the court determined that section 443.713(2)(a) did not inflict punishment on applicants with felony records and held that section 443.713(2)(a) was not a bill of attainder.[21]

Regarding Garozzo’s claim that section 443.713(2)(a) violated the state’s constitutional ban on retrospective laws, the Supreme Court of Missouri concluded that the ban on retrospective laws did not prohibit the state from considering past conduct in determining licensing eligibility in the future.[22]  Therefore, the Court held that section 443.713(2)(a) did not violate article 1, section 13.[23]  Furthermore, the Court struck down Garozzo’s argument that section 443.713(2)(a) violated his right to procedural and substantive due process.[24]  The Court stated that Garozzo’s right to procedural due process was triggered by the denial of his license application and was satisfied by the review process that led to the appeal.  Also, the court noted that the denial of Garozzo’s license application did not violate any of Garozzo’s fundamental rights; therefore, section 443.713(2)(a) did not violate his right to substantive due process.[25]

II.  Legal Background

According to Supreme Court of Missouri precedent, a bill of attainder is a legislative enactment that inflicts punishment on a specific person or group without trial or judicial action.[26]  The historical meaning of legislative punishment generally includes statutes that bar a specific person or identifiable group from participating in a regulated business or profession.[27]  For example, in Cummings v. Missouri, the United States Supreme Court invalidated, as a bill of attainder, a provision of Missouri’s 1865 Constitution that prevented a priest from practicing his religious obligations without taking an oath that he had not participated in the rebellion against the Union, which amounted to punishment.[28] 

Although there are numerous cases suggesting a historical trend of treating bans on employment as punishment, Missouri and federal court’s look at second and third analytical factors of challenged statutes to determine if challenged statutes are in fact punitive in practice.[29]  The second analytical factor asks the court to determine whether the challenged statute reasonably can be said to advance a non-punitive legislative purpose.[30]  For instance, in Hawker v. People of New York[31] the Supreme Court held that a statute prohibiting convicted felons from practicing medicine did not amount to punishment in violation of the bill of attainder clause because a legitimate legislative purpose was advanced by certifying that only persons of good character practiced medicine.[32]  Moreover, Missouri courts have consistently held that “the purpose behind licensing statutes is to protect the public rather than to punish the licensed professional,” which indicates the legislature did not intend section 443.713(2)(a) to inflict punishment on potential applicants.[33]

Garozzo also asserted that section 443.713(2)(a) violated article I, section 13 of the Missouri Constitution which prohibits retrospective laws.[34]  Retrospective laws are “those which take away or impair vested rights acquired under existing laws, or create a new obligation, impose a new duty, or attach a new disability in respect to transactions or considerations already past.”[35]  However, Missouri courts have consistently held that professional licenses do not amount to a vested right.[36]  Furthermore, licensing requirements that impose restrictions based upon an applicant’s previous criminal convictions do not impose a new obligation or duty on the applicant, as prohibited by article I, section 13.[37]  Also, a licensing statute that does not require a prospective applicant to do anything and imposes the regulatory obligation on a government entity would not qualify as a “new disability in respect to transactions or considerations already past.”[38]

The government must provide procedural due process before depriving anyone of his or her professional license because such licenses are “property” for the purposes of the Fourteenth Amendment to the United States Constitution.[39]  For professions that were historically unlicensed, the Missouri courts have held that there is no such thing as a “de facto” license and that there exists no right for the law to remain unchanged or “be free from further collateral consequences of [a] prior guilty plea.”[40]

In order to establish a violation of an individual’s substantive due process, a plaintiff must demonstrate that the state’s conduct was conscience-shocking and violated “one or more of the fundamental rights that are deeply rooted in [United States] history and tradition, and implicit in the concept of ordered liberty, such that neither liberty nor justice would exist if they were sacrificed.”[41]  There is no Missouri precedent supporting the proposition that the denial of a professional license to someone who has pleaded guilty to a felony violates a deeply rooted fundamental right implicit in the concept of liberty.

III.  Comment

The Supreme Court of Missouri correctly decided to reverse the lower court’s holding and find that the denial of Garozzo’s license was constitutional.  Garozzo, as the party challenging the statute’s validity, bared the burden of proving the statute clearly and undoubtedly violated the Missouri Constitution, a burden he clearly did not meet.  Numerous statutory licensing requirements, both state and federal, contain provisions that deny applicant’s the ability to obtain a license if they had previously been convicted of a felony.  Therefore, Garozzo’s claim that section 443.713(2)(a) violated is substantive due process rights by denying him a license was without merit.  As the Court pointed out, an individual’s ability to obtain a professional license is a privilege, not a right. Therefore, the denial of such a license to one who has pleaded guilty to a felony cannot be said to violate that individual’s fundamental rights.

Also, it is clear, given the legislative history, that section 443.713(2)(a) of the Missouri SAFE Act was not intended to inflict punishment on a particular group of individuals as Garozzo claimed, and therefore, did not amount to a bill of attainder.  Furthermore, regarding Garozzo’s claim that section 443.713(2)(a) violated the Missouri Constitution’s ban on retrospective laws, Missouri precedent clearly establishes that a professional license is not a vested right as Garozzo asserted, but is instead a privilege that may be limited by the State.  Moreover, section 443.713(2)(a) did not impose a new obligation, duty, or disability on Garozzo because he was under no affirmative obligation to comply with section 443.713(2)(a) and only chose to comply with the provision because he decided to continue to serve as a mortgage loan originator. 

-  Haden Crumpton

[1]  No. SC92152 (Mo. Jan. 29, 2013)(en banc), available at http://www.courts.mo.gov/file.jsp?id=59611. The West reporter citation is Garozzo v. Missouri Dept. of Ins., Fin. Institutions & Prof'l Registration, Div. of Fin., 389 S.W.3d 660 (Mo. 2013) (en banc). 
[2]  Id. at 2.
[3]  Id. at 3.
[4]  Id. at 2.
[5]  Id. 
[6]  Id. at 3.
[7]  Id. at 14.
[8]  Id. at 2.
[9]  Id.
[10]  Id.
[11]  Id.
[12]  Id.; see also 12 U.S.C. 5107.
[13]  Id.
[14]  §443706.1.
[15]  §443.713(2)(a).
[16]  Id. at 2. 
[17]  Id.
[18]  Id. at 3
[19]  Id. at 4.
[20]  Id.
[21]  Id. at 5. 
[22]  Id. at 11
[23]  Id. 
[24]  Id. at 12.
[25]  Id.
[26]  Id. at 4.; see also Doe v. Phillips, 194 S.W.3d 833, 848 (Mo. banc 2006).  
[27]  Id. at 5; see also State ex rel. Bunker Res. Recycling & Reclamation, Inc. v. Mehan, 782 S.W>2d 381, 386 (Mo. banc 1990). 
[28]  Id.
[29]  Id. at 6
[30]  Id.
[31]  170 U.S.189 (1898).
[32]  Garozzo, slip op. at 6.
[33]  Id.; see also Duncan v. Missouri Bd. of Architects, Professional Engineers and Land Surveyors, 744 S.W.2d 524, 531-32 (Mo. App. 1988). 
[34]  Id. at 7-8. 
[35]  Id. at 8. 
[36]  Id.
[37]  Id. at 9. 
[38]  Id. at 11. 
[39] Id.
[40]  Id.
[41]  Id.; see also Slusarchuk v. Hoff, 346 F.3d 1178, 1181-82 (8th Cir. 2003).