Link to Mo. Sup. Ct. Opinion
The Supreme Court of Missouri held that a mortgage broker business did not engage in the unauthorized practice of law when it gathered information necessary to prepare[2] a note and mortgage or deed of trust, and then subsequently provided that information to third parties who prepared these legal documents. The court also found that the plaintiff’s claim of unjust enrichment was not necessarily predicated on the finding that a mortgage broker engaged in the unauthorized practice of law.
I. Facts and Holding
JLB Corporation (JLB) provides mortgage brokering services.[3] It functions as a middleman, matching borrowers with lenders.[4] JLB collects financial information from the borrower and provides this information to a potential lender.[5] After matching a borrower with a lender, JLB assists the borrower in preparing a loan application.[6] When a lender approves a loan, JLB collects information necessary to prepare a note and mortgage or deed of trust.[7] This information is then provided to “title companies, investors and/or a California company called Document Systems Inc.”[8] These third parties prepare the necessary legal documents and send them to JLB.[9] JLB then transfers these legal documents to the borrower.[10]
In January 2009, Bonnie Hargis contracted with JLB to refinance her home.[11] JLB charged Hargis various fees, including a loan origination fee, a loan discount fee, a broker fee, an underwriting fee, an administrative fee, and a processing fee.[12]
Hargis alleged that JLB “engaged in the unauthorized practice of law in violation of [Revised Statutes of Missouri] section 484.010 in charging her a fee for preparing, procuring and assisting in the drawing of legal documents and in preparing her loan application and other financial disclosures as it negotiated with a lender to obtain refinancing for her.”[13] Additionally, Hargis alleged that the unauthorized practice of law violated the Missouri Merchandising Practices Act.[14] Lastly and alternatively, Hargis alleged that JLB was unjustly enriched because JLB charged her various fees for preparing the legal documents, a service which she alleges JLB did not provide.[15]
JLB alleged that the administrative and processing fees were for assisting Hargis in preparing the loan application, collecting information for the preparation of the note and deed of trust, and transferring the final legal documents to Hargis.[16] JLB alleged that it had no role in preparing the legal documents.[17]
At the trial court, JLB filed a motion for summary judgment.[18] JLB asserted that: (1) “it did not procure or assist in the drawing of legal documents;” (2) by acting as a middleman between Hargis and the lender, it did not engage in the unauthorized practice of law; and (3) it did not charge Hargis for the preparation of the note and deed of trust.[19] The trial court granted JLB summary judgment.[20]
The Missouri court of appeals affirmed the grant of summary judgment.[21] The Supreme Court of Missouri then granted transfer.[22]
A. Unauthorized Practice of Law
In determining whether JLB engaged in the unauthorized practice of law by procuring or assisting in the drawing of legal documents, the court first determined what constituted procuring a legal document.[23] Hargis argued that the action of gathering or obtaining a document constituted procuring a legal document.[24] JLB argued that procuring a legal document meant taking part in the drafting of a legal document.[25]
The court held that procurement required an “active involvement in the obtaining of some object, person or purpose.”[26] It further explained that procurement involved “acting to bring about or contriving to cause an effect.”[27] The court clarified this definition by holding that procurement involved “more than merely passively gathering or obtaining information, data or documents from third parties or other sources.”[28]
After defining procurement, the court analyzed JLB’s conduct.[29] First, the court held that JLB’s gathering of previously prepared financial documents relating to Hargis’ “prior loans, mortgages, employment and credit history” was not the unauthorized practice of law because it constituted the mere gathering of documents.[30] Second, the court looked at JLB’s conduct in sending this financial information to third parties who prepared the note and deed of trust.[31] Because JLB did not draw the note or deed of trust itself, but merely gathered documents reflecting Hargis’ financial situation and transferred these documents to third parties, this conduct was not the unauthorized practice of law.[32] Nor did JLB charge a separate document preparation fee.[33] The processing fee and the administrative fee were charged for tasks associated with processing the loan, including the gathering of documents and communicating with the underwriter.[34]
Lastly, Hargis argued that JLB engaged in the unauthorized practice of law by “charging to assist her in preparing a loan application and other financial disclosure documents required to obtain a loan.”[35] The court held that the loan application and financial disclosure documents were primarily financial documents.[36] Because these were not legal documents, the preparation of them by members of the finance industry did not constitute the unauthorized practice of law.[37]
B. Unjust Enrichment
As an alternative to the unauthorized practice of law claim, Hargis alleged that JLB was “unjustly enriched by charging her for services it did not perform.”[38] To bring a claim of unjust enrichment, the plaintiff must show that he “(1) conferred a benefit on the defendant; (2) the defendant appreciated the benefit, and (3) the defendant accepted and retained the benefit under inequitable and/or unjust circumstances.”[39]
In JLB’s motion for summary judgment, JLB did not set out facts contradicting Hargis’ claim of unjust enrichment.[40] JLB only set out facts “supporting its argument that it did not engage in the unauthorized practice of law.”[41] The trial court, however, granted JLB summary judgment on the unjust enrichment claim.[42]
JLB argued that because the facts set out by Hargis supporting her claim of unauthorized practice of law were insufficient to prevent summary judgment on that claim, they should also be insufficient to prevent summary judgment on the unjust enrichment theory.[43] The court rejected JLB’s argument.[44] The court reasoned that even though the same facts support both claims, the legal basis of the two claims is entirely different.[45] Because JLB’s motion for summary judgment did not clearly explain that JLB was seeking summary judgment on the unjust enrichment claim, and because JLB did not produce any facts supporting summary judgment on the unjust enrichment claim, the court determined that the trial court erred in granting summary judgment on the unjust enrichment claim.[46]
Chief Justice Teitelman, in his concurring in part and dissenting in part opinion, focused on the statutory interpretation of Revised Statutes of Missouri § 484.010.2.[47] He found that because the term “procuring” meant something different than “drawing,” one could “procure a legal document without any participation in drawing the document.”[48] Thus, he would have found that “there could be circumstances in which gathering legal information to produce legal documents for a fee amounts to ‘procuring’ legal documents.”[49] Based on this interpretation, Chief Justice Teitelman found that the record did not conclusively establish that JLB did not participate in the procuring of legal documents for Hargis.[50] He even went so far as to suggest that it would have been highly unlikely that JLB, rather than charging its customers for filling in the documents, actually absorbed these costs.[51] In his opinion, JLB almost certainly “wisely elects to pass these costs on to its customers in the form of various processing and administrative fees.”[52] Thus, Chief Justice Teitelman would not have granted summary judgment on the unauthorized practice of law claim.[53]
II. Legal Background
The practice of law in Missouri is restricted to licensed attorneys so as to “protect the public from being advised or represented in legal matters by incompetent or unreliable persons.”[54] There are two statutes that define the practice of law.[55] Revised Statutes of Missouri § 484.010.1 defines the “practice of law” as: “the appearance as an advocate in a representative capacity or the drawing of papers, pleadings or documents or the performance of any act in such capacity in connection with proceedings pending or prospective before any court of record, commissioner, referee or any body, board, committee or commission constituted by law or having authority to settle controversies.”
Section 484.010.2 defines the “law business” as: “the advising or counseling for a valuable consideration of any person, firm, association, or corporation as to any secular law or the drawing or the procuring of or assisting in the drawing for a valuable consideration of any paper, document or instrument affecting or relating to secular rights or the doing of any act for a valuable consideration in a representative capacity, obtaining or tending to obtain or securing or tending to secure for any person, firm, association or corporation any property or property rights whatsoever.”
These statutes, however, merely aid the courts’ regulation of the practice of law because the judiciary is the “sole arbiter of what constitutes the practice of law.”[56]
Several cases have used these statutes as a starting point in determining what constitutes the unauthorized practice of law in real estate transactions.[57]
In Hulse v. Criger, the court held that mortgage brokers do not engage in the unauthorized practice of law when they fill in a standardized note and deed of trust, so long as a Missouri attorney created the legal documents and the filling in of the documents was part of the broker’s main business.[58] However, if the broker charged a separate fee for helping to fill in the legal documents or gave legal advice regarding the documents, he would have engaged in the unauthorized practice of law.[59]
Similarly, in In re First Escrow the court held that nonlawyer employees of an escrow company could gather information and fill in blanks in a standardized real estate closing document, so long as they do so “under the supervision of, and as agents for…[a party] who has a direct financial interest in the transaction.”[60] In addition, the employees could only do this so long as the escrow company did not charge a separate fee for this particular work.[61] The court further held that nonlawyer employees of escrow companies could not complete nonstandardized real estate documents.[62]
In In re Mid-America, the court held that “merely gathering information for use in a legal document does not necessarily constitute the unauthorized practice of law.”[63] However, the nonlawyer trust officers in that case were engaging in the unauthorized practice of law because they gave legal advice to their clients about the possible choices to be made in filling out the documents and the legal effects of those choices.[64]
To determine whether a document is a “legal document,” a court must “balance the protection of the public against a desire to avoid unnecessary inconvenience and expense.”[65] A key factor in this determination is “whether preparing the document requires legal judgment or discretion.”[66] In Eisel v. Midwest BankCentre, the court held that promissory notes and deeds of trust were legal documents.[67] It further held that when nonlawyers prepare these documents for a fee, they are engaging in the unauthorized practice of law.[68]
III. Comment
Whether certain conduct is considered to be the unauthorized practice of law is a difficult question. On the one hand, gathering legal documents and filling out certain legal forms can be done competently and cheaply by a nonlawyer. On the other hand, a mortgage broker in Missouri cannot charge a separate fee for helping a customer fill in legal documents.[69] But, what is there to prevent the mortgage broker from merely labeling this cost as a processing or administrative fee so that it can legally collect it?[70]
Possibly, a plaintiff could hire a forensic accountant to do some number crunching and could then prove that the mortgage broker is charging an illegal fee. But, the services of the forensic accountant will cost money, too, and the accountant’s fee will likely be more than the illegal fee charged by the mortgage broker.
One possible solution is to allow nonlawyers to fill in standardized legal documents and charge for their service. As a result, fees charged by mortgage brokers might be more transparent, and transparent fees would then promote competition based on price and quality of service. All of this would perhaps be better for the consumer.
-Lauren K. Shores CPA
[1] No. SC91639 (Mo. Dec. 20, 2011) (en banc), available at http://www.courts.mo.gov/file.jsp?id=51374. The West reporter citation is Hargis v. JLB Corp., 357 S.W.3d 574 (Mo. 2011) (en banc).
[2] The Supreme Court of Missouri used the term “prepare” generally whenever describing the document services provided by third parties such as JLB. Id. at 15, note 7. This case summary also uses the term “prepare” generally.
[3] Id. at 2.
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] Id.
[11] Id. at 3.
[12] Id.
[13] Id. at 4.
[14] Id.
[15] Id.
[16] Id. at 3-4.
[17] Id. at 4.
[18] Id.
[19] Id.
[20] Id. at 4-5.
[21] Id. at 5; Hargis v. JLB Corp., No. ED 94750 (Mo. App. E.D. Jan. 25, 2011).
[22] Hargis, No. SC91639, slip op. at 5.
[23] Id. at 10.
[24] Id.
[25] Id.
[26] Id. at 11.
[27] Id.
[28] Id.
[29] Id. at 13.
[30] Id.
[31] Id. at 14.
[32] Id. at 14-16.
[33] Id. at 15-16.
[34] Id.
[35] Id. at 18.
[36] Id. at 19.
[37] Id.
[38] Id. at 22.
[39] Howard v. Turnbull, 316 S.W.3d 431, 436 (Mo. App. W.D. 2010).
[40] Id. at 21.
[41] Id.
[42] Id. at 20.
[43] Id. at 21.
[44] Id.
[45] Id.
[46] Id. at 21-2.
[47] Id. at 1 (Teitelman, J., concurring in part and dissenting in part).
[48] Id. at 2.
[49] Id.
[50] Id. at 3.
[51] Id. at 3-4.
[52] Id. at 4.
[53] Id. at 1.
[54] Id. at 5 (citing Hulse v. Criger, 247 S.W.2d 855, 857-58 (Mo. 1952) (en banc)).
[55] Id. at 6.
[56] Hulse, 247 S.W.2d at 857-58.
[57] Hargis, No. SC91639, slip op. at 6.
[58] Hulse, 247 S.W.2d at 862.
[59] Id.
[60] In re First Escrow, 840 S.W.2d 839, 841 (Mo. 1992) (en banc).
[61] Id. at 848-49.
[62] Id.
[63] In re Mid-America Trust Associates, Inc. 927 S.W.2d 855, 856-58 (Mo. 1996) (en banc).
[64] Id. at 865.
[65] Hargis, No. SC91639, slip op. at 18 (citing In re First Escrow, 840 S.W.2d 839, 283 (Mo. 1992) (en banc)).
[66] Id.
[67] Eisel v. Midwest BankCentre, 230 S.W.3d 335, 339 (Mo. 2007) (en banc).
[68] Id.
[69] Hulse, 247 S.W.2d at 862.
[70] See Hargis, No. SC91639, slip op. at 3-4 (Teitelman, J., concurring in part and dissenting in part).
