No. A16-0239 October 31, 2016

STATE OF MINNESOTA IN SUPREME COURT State of Minnesota, by its Attorney General Lori Swanson, Petitioner, vs. Minnesota School of Business, Inc. d/b/a Minnesota School of Business, et al., Respondents.

RESPONDENTS’ RESPONSE TO CERTIFICATION

DATE OF FILING OF COURT OF APPEALS’ DECISION: September 12, 2016

ANTHONY OSTLUND BAER & LOUWAGIE P.A. JOSEPH W. ANTHONY Atty. Reg. No. 2872 BROOKE D. ANTHONY Atty. Reg. No. 387559 DANIEL R. HALL Atty. Reg. No. 392757 AMELIA R. SELVIG Atty. Reg. No. 393392 3600 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402 Telephone: (612) 349-6969 ATTORNEYS FOR RESPONDENTS

LORI SWANSON Attorney General State of Minnesota ALAN GILBERT Solicitor General Atty. Reg. No. 34678 KATHRYN LANDRUM Assistant Attorney General Atty. Reg. No. 389424 ADAM WELLE Assistant Attorney General Atty. Reg. No. 389951 445 Minnesota Street, Suite 1100 St. Paul, MN 55101 Telephone: (651) 757-1450 ATTORNEYS FOR APPELLANT

Respondents, Minnesota School of Business and Globe University (collectively, the “Schools”), oppose Appellant’s Petition for Discretionary Review (“Petition”) for the following reasons. LEGAL ISSUES 1.

Where Minn. Stat. § 334.16 exempts open-end credit plans—as defined in the version of the Truth in Lending Act and Regulation Z “in effect on June 5, 1971”—from the general interest rate limits, was it error to apply the June 5, 1971 definition of open-end credit plans?

No. The court of appeals and district court correctly held that Minn. Stat. § 334.16 unambiguously incorporates the definition of open-end credit plans from Regulation Z from the Truth in Lending Act (“Reg. Z”) as that law was “in effect on June 5, 1971” and that the Schools’ loans were open-end credit plans because they fit that definition. 2.

Where a licensing statute requires those in the business of making loans to obtain a license only before making loans at rates that are higher than otherwise permitted by law, was it error to find that no license was required for the Schools to make loans at rates that were permitted by law?

No. The court of appeals and district court correctly held that Chapter 56 is unambiguous and only requires individuals or entities in the “business of making loans” to be licensed if the loans made charge interest at rates that are not otherwise permitted by law. Because the Schools’ loans were open-end credit plans and permitted by law to charge the interest rates charged, the Schools were not required to be licensed. STATEMENT OF THE CASE This case began as a consumer fraud case in July 2014. In March 2015, the State of Minnesota (“State”) amended its Complaint to add claims related to loans that the Schools provide to students. This Petition applies only to the claims added in the Amended Complaint. The State alleged that the Schools violated Minnesota Chapter 56 because they were not licensed to make loans. The State also alleged that the Schools’ loans were usurious because they charged an interest rate in excess of 8%. The district court granted summary judgment against the State on these counts in December 2015. The district court found that the Schools’ loans were open-end credit plans

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under Minn. Stat. § 334.16 and therefore were subject to an 18% interest rate limit rather than the 8% usury rate in Minn. Stat. § 334.01. Because the interest rates charged were permitted by law, the district court concluded that the Schools were not required to be licensed under Chapter 56. The State appealed. On September 12, 2016, the court of appeals affirmed the district court decision. The court of appeals analyzed the undisputed facts related to the Schools’ loans and concluded that the loans were open-end credit arrangements whereby: “(1) the seller may permit the buyer to make purchases from time to time from the seller or other sellers, (2) the buyer has the privilege of paying the balance in full or in installments, and (3) a finance charge may be computed by the seller from time to time on an outstanding unpaid balance.” (Add. 7, 12-15.) The court of appeals rejected the State’s argument that a later amendment to Reg. Z modified the definition of “open end credit” under Minn. Stat. § 334.16. The court reasoned that Minn. Stat. § 334.16 adopted Reg. Z in “closed” fashion with the phrase “as in effect on June 5, 1971.” (Add. 8, 9.) The court also rejected the State’s argument that it had abandoned precedent, explaining that it declined to apply the State’s cited cases as dicta or as otherwise undeveloped. (Add. 10.) The court of appeals also rejected the State’s argument concerning inconsistency between the Schools’ TILA disclosures and its position with respect to Minn. Stat. § 334.16, noting that the State had essentially confused federal law with state law. (Add. 11.) While the Schools’ loans might not qualify as open-end credit under current federal law, the question for the court of appeals was “whether the loans qualify as open-credit plans under Minnesota law.” (Id.) The federal TILA disclosure requirements were irrelevant. (Add. 12.) On the question of Chapter 56, the court of appeals looked to the plain, unambiguous language of the statute and found that only lenders who issue loans at interest rates above those

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permitted by law must be licensed. (Add. 16.) Because the interest rates charged were permitted by law, the court of appeals held that the Schools do not need to be licensed. (Add. 19.) ARGUMENT The State disagrees with the outcome of the lower court decisions. This, however, is not a basis for Supreme Court review. The State attempts to manufacture a basis for review by claiming that the lower courts incorrectly interpreted the statutes, “abandoned precedent,” and addressed an issue of first impression requiring clarification. The Petition fails to satisfy any of the required criteria necessary to support this Court’s review of the court of appeals’ decision. A second level of appellate review is not warranted here. The lower courts correctly applied unambiguous statutes to a specific fact pattern. The Petition should be denied. I.

THE LOWER COURTS CORRECTLY INTERPRETED MINN. STAT. § 334.16. Minn. Stat. § 334.16 defines “open-end credit” under Minnesota law and unambiguously

adopts Reg. Z as “in effect on June 5, 1971.” Minn. Stat. § 334.16, subd. 2. Certain amendments to Reg. Z after 1971 changed the definition of open-end credit for the purpose of certain federal laws to include a requirement that credit be “generally made available to the extent that any outstanding balance is repaid.” (Add. 8.) Minn. Stat. § 334.16, however, did not adopt amendments to Reg. Z. It specifically adopted the definitions contained in Reg. Z “as in effect on June 5, 1971.” (Add. 8.) The lower courts correctly read and interpreted Minn. Stat. § 334.16 as written. There is no reason for this Court to review those decisions. A.

The court of appeals did not ignore federal law.

Federal law is only relevant here because Minn. Stat. § 334.16 incorporates Reg. Z as “in effect on June 5, 1971.” See Minn. Stat. § 334.16, subd. 2. The State argues that the court of appeals should have considered amendments after June 5, 1971, because a separate Minnesota

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statute – Minn. Stat. § 645.31, subd. 2 – provides for the adoption of subsequent amendments where no clear legislative intent to the contrary exists. (Pet. 5.) That argument rings hollow, however, where the words “in effect on June 5, 1971” establish a clear legislative intent not to adopt subsequent amendments. Then, the State argues that the federal form loan contract containing federal TILA disclosures should control and trump the application of the Minnesota statute’s plain language. (Pet. 5.) This is not a contract dispute. The question before the lower courts was whether the Schools’ loans are open-end credit under a Minnesota statute, not under federal law. (Add. 11.) Minn. Stat. § 334.16 does not conflict with TILA disclosure requirements and the State did not sue the Schools for violating federal TILA disclosure requirements. The State also raised for the first time in its reply brief on appeal an issue of constitutional preemption between TILA and Minn. Stat. § 334.16. (Pet. 6.) The court of appeals correctly declined to consider this issue. (Add. 11.) Even if the issue had been considered, however, the State’s position would have been readily rejected. There is no conflict between TILA disclosure requirements and Minnesota law setting the amount of interest that can be charged. See 12 C.F.R. § 1026.28(a)(1); Minn. Stat. § 334.16. B.

The court of appeals did not abandon precedent.

The State cites four cases, calls them “26 years of precedent,” and complains that the court of appeals rejected them. The court of appeals correctly declined to follow the State’s cases. None of the cases addressed the amendment to Reg. Z requiring the availability of a repaid balance. (Add. 10.) The court of appeals correctly noted that the State’s cases did not address the issues in this case and referred to later versions of Reg. Z only where it was not outcome determinative and therefore was “dicta” or “otherwise undeveloped.” (Id.) The State apparently wants to use the dicta from those cases to create an exception to unambiguous

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statutory language. But as this Court has explained: “judicially crafted exception[s] . . . substantially undermine the purpose of the statute and would be inconsistent with both the letter and the spirit of the law.” Figgins v. Wilcox, 879 N.W.2d 653, 659 (Minn. 2016) (rejecting lower court decision to allow exception without textual support). C.

This Court should decline the State’s invitation to rewrite Minn. Stat. § 334.16

Under Minnesota law, courts may not “rewrite a statute under the guise of statutory interpretation.” State v. Struzyk, 869 N.W.2d 280, 288 n.5 (Minn. 2015) (quoting Laase v. 2007 Chevrolet Tahoe, 776 N.W.2d 431, 438 (Minn. 2009)). Nonetheless, in what appears to be a preference for federal law over state law, the State is asking this Court to accept review of the court of appeals’ decision and then ignore the words “in effect on June 5, 1971” in Minn. Stat. § 334.16 and apply later amendments to Reg. Z. Like the district court and the court of appeals, this Court cannot rewrite the statute in the way the State is suggesting. Undeterred, the State argues that the courts failed to construe Minn. Stat. § 334.16 liberally in favor of consumers. (Pet. 5.) There is no legal basis on which to “construe” a statute where no ambiguity exists. (Add. 17 (citing Larson v. State, 790 N.W.2d 700, 704 (Minn. 2010)).) Courts are bound to apply the statute as written. II.

CHAPTER 56 DOES NOT NEED TO BE “CLARIFIED.” The State argues that the lower courts’ decisions on Chapter 56 should be reviewed

because they address “an issue of first impression.” (Pet. 7.) Though courts may not have previously considered licensure in this context under Chapter 56, that fact alone does not require Supreme Court review. Chapter 56 contains the following language: Except as authorized by this chapter and without first obtaining a license from the commissioner, no person shall engage in the business of making loans of money, credit, goods, or things in action, in an amount or of a value not exceeding [$100,000], and

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charge, contract for, or receive on the loan a greater rate of interest, discount, or consideration than the lender would be permitted by law to charge if not a licensee under this chapter. Minn. Ch. 56.01(a). The State reads Chapter 56 to require all lenders to be licensed, regardless of the amount of interest charged. (Pet. 7.) That reading renders the language “and charge, contract for, or receive on the loan a greater rate of interest discount, or consideration than the lender would be permitted by law to charge if not a licensee under this chapter” superfluous. (Add. 16.) The court of appeals correctly determined that it could not “excise 34 words from the statute,” as the State argued. (Id.) The court of appeals was limited to applying the statute as written and correctly did not look to rules of statutory construction when the statute is unambiguous. See Binkley v. Allina Health Sys., 877 N.W.2d 547, 550 (Minn. 2016); see also Add. 17 (citing Larson, 790 N.W.2d at 704). CONCLUSION There is no ambiguity in Minn. Stat. § 334.16 and Chapter 56. The lower courts’ reliance on the plain language of the statutes without reference to irrelevant federal law, without creating a judicial exception, and without construing those statutes in favor of the consumer is not error requiring correction by this Court. If the State disagrees with Minn. Stat. § 334.16 or Chapter 56, it should raise that disagreement with the legislature. See Binkley, 877 N.W.2d at 554, n.7. The Schools respectfully request that the State’s Petition be denied.

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Respectfully submitted, ANTHONY OSTLUND BAER & LOUWAGIE P.A. Dated: October 31, 2016

By: s/ Brooke D. Anthony Joseph W. Anthony (#0002872) Brooke D. Anthony (#0387559) Amelia R. Selvig (#0393392) Daniel R. Hall (#0392757) 3600 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402 Telephone: (612) 349-6969 ATTORNEYS FOR RESPONDENTS MINNESOTA SCHOOL OF BUSINESS, INC. D/B/A MINNESOTA SCHOOL OF BUSINESS AND GLOBE UNIVERSITY, INC. D/B/A GLOBE UNIVERSITY

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STATE OF MINNESOTA IN SUPREME COURT State of Minnesota, by its Attorney General, Lori Swanson,

Court of Appeals File No. A16-0239

Petitioner, CERTIFICATION OF LENGTH OF DOCUMENT

v. Minnesota School of Business, Inc. d/b/a Minnesota School of Business and Globe University, Inc., d/b/a Globe University, Respondents.

I hereby certify that this document conforms to the requirements of the applicable rules, is produced with a proportional font, and the length of this document is 1,978 words. This document was prepared using Microsoft Word Version 2010. ANTHONY OSTLUND BAER & LOUWAGIE P.A. Dated: October 31, 2016

By: s/ Brooke D. Anthony Joseph W. Anthony (#0002872) Brooke D. Anthony (#0387559) Amelia R. Selvig (#0393392) Daniel R. Hall (#0392757) 3600 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402 Telephone: (612) 349-6969 ATTORNEYS FOR RESPONDENTS MINNESOTA SCHOOL OF BUSINESS, INC. D/B/A MINNESOTA SCHOOL OF BUSINESS AND GLOBE UNIVERSITY, INC. D/B/A GLOBE UNIVERSITY

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