Commission interpretation makes Texas constitutional amendment unconstitutional says Texas Supreme Court.

Finance Commission of Texas v Norwood, et al., No. 10-0121 (Tex. June 21, 2013).

This is not exactly a city related case, but the legal analysis of how the Texas Constitution can be unconstitutional with itself is an interesting analysis which should be considered analogous to city charter amendments which, for different political reasons, can contradict other portions of a city charter, even if you don’t think they do.

The Texas Supreme Court starts out with some discussion of the different roles of the three branches of government (executive, legislative, and judicial) and that this separations-of-powers concept is superior to other portions contained within the Constitution.  In this case, a 2003 constitutional amendment (suggested by the Texas Attorney General) authorized the Legislature to delegate to a state agency the power to interpreted provisions of the Texas Constitution governing home equity lending, which is a power “unquestionably allocate[d] to the Judiciary.” Tex. Const. art. XVI, § 50.  It also provided a safe harbor for lenders to avoid constitutional violations as long as they followed agency interpretations, which ultimately, equated to the agencies deciding what is constitutional and what is not. The three interpretations at issue (those of the Finance Commission and the Credit Union Commission (“the Commissions”))  deal with the conditions under which a forced sale can be used to repay home equity loans. The first removed “lender fees” from the constitutional cap of three percent.  The second interpretation allowed a borrower to mail the lender the required consent to having a lien placed on the homestead and appear by attorney at closing, even though the Constitution prohibits the use of a power-of-attorney. Third, the agencies interpreted the prohibition on closing before the 12th day after notice to include a rebuttable presumption that notice is received three days after mailing. The Commissions argued in their brief the amendments altered the basic separation-of-power principles and judicial review should be limited if not entirely prohibited (as well as several contradictory and confusing positions noted).  OK, so the factual context is rather boring.  However, the analyses and end result is the important part.

The Court stated that reading Section 50 too broadly violates the requirement of Article II, Section 1 that exceptions to the separation of powers must be expressly stated. And since no express language exists the interpretations must be subject to judicial review.  The Court then determined the homeowners have standing since they have loans subject to these rule interpretations. The Court determined that Section 50(u) does put the Commissions’ interpretations on equal footing with the courts of appeals, which is within the Legislature’s prerogative.  But no such exception exists from the Supreme Court’s review and the Court reviews such interpretations de novo, as it does with any legal interpretation from the courts of appeals.  While the Commission may interpret, it cannot set policy. The essence of the Commissions’ argument for interpretative authority is that their interpretations are not only unreviewable but greater than that exercised by the Judiciary, which is simply incorrect.

Having resolved these core issues, the Court then went on to analyze and rule on the substantive merits of the interpretations. For those who are really interested (why I  don’t know but just in case you are), the Court held 1) Commissions’ interpretation of the fee cap, tying its meaning to a statute, utterly defeats the clear purpose of constitutionalizing it, which was to place the limitation beyond the Legislature’s power to change without ratification by the voters. For this reason alone, the Commissions’ interpretation is invalid, but the Court went on to state the proper definition of “interest” means the amount determined by multiplying the loan principal by the interest rate, period; 2) the interpretation of mail-in provision is invalid and the statute means what it says (but without further explanation; 3) the Court agreed with the interpretation that a rebuttable presumption of receipt within three days exists if notice is mailed.

While most cities will not have occasion to deal with Commission interpretations of home equity loans, the Supreme Court analysis should be considered as it would relate to city charter amendments. There is a hierarchy of power within a creation document like a charter, with certain provisions carrying more power than others. The power of the city manager under a charter cannot be usurped by charter amendment unless the structural separation between council and manager remains unaffected. The power of your municipal court may not be interfered with, even if you attempt to do so via charter amendment (although there’s a state court additional element to consider). The power of the council cannot be delegated for certain non-delegable duties, even if by charter amendment. These truths exist not simply as a charter relates to state statutes and the Texas Constitution, but also between different provisions of the charter itself. Additionally, there is also the situation where a city may disagree with an agency (such as the TCEQ or Comptroller) interpretation which pulls it power from the Texas Constitution, in which instances this case may be helpful. I’m sure there are other uses for this case I’m not thinking of, but I welcome any comments on other applications.

If you would like to read this 34 page opinion click here. If not, that’s understandable.

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