The opinion of the court was delivered by: Judge Simpson
BEFORE: HONORABLE RENÉE COHN JUBELIRER, Judge, HONORABLE ROBERT SIMPSON, Judge, (P) HONORABLE ROCHELLE S. FRIEDMAN, Senior Judge.
In these consolidated appeals, four former mortgage consultants allegedly involved in a huge fraudulent mortgage scheme seek reversal of a preliminary injunction entered by the Court of Common Pleas of Berks County (trial court) in a consumer protection action brought by the Commonwealth, acting by Attorney General Thomas W. Corbett, Jr., (Commonwealth) pursuant to the Unfair Trade Practices and Consumer Protection Law (CPL).*fn1 Kenneth R. Bennetch, Julie Ann Musser, Jacquelyne Hepford-Rennie and Susan Louise Hunt (collectively, Consultants) contend the trial court erred or abused its discretion by enjoining them from working in the mortgage financing or investment products fields pending disposition of the Commonwealth's claims. For the following reasons, we conclude the trial court had reasonable grounds to issue the preliminary injunction.
This consumer protection case arises out of transactions between OPFM, Inc. (OPFM), a now-defunct mortgage brokerage and investment group run by Wesley A. Snyder (Snyder) in Berks and Lancaster Counties,*fn2 and approximately 811 homeowners and 31 mortgage investors (Consumers). Snyder was OPFM's president and sole shareholder. In September 2007, OPFM filed for Chapter 7 bankruptcy. Thereafter, the United States Attorney for the Middle District of Pennsylvania charged Snyder with operating a "Ponzi"*fn3 scheme that defrauded Consumers of more than $29,000,000. In November 2007, Snyder pled guilty in federal court to one count of mail fraud, a violation of 18 U.S.C. §1341, resulting in a loss somewhere between $15,000,000 and $32,000,000. See Cmwlth. Ex. 3 (Snyder Guilty Plea). Snyder is now serving a 12-year sentence in a federal prison.
Of sole concern in this appeal is the part of the scheme involving the promotion and sale of a purported second mortgage known as a "wrap-around mortgage"*fn4 (Wrap Mortgage) under what OPFM marketed as the "Equity Slide Down Program." Of the 811 Wrap Mortgage Consumers, all but 22 sustained a loss. See Cmwlth. Ex. 3 (Snyder Guilty Plea) at 26. The total loss among the Wrap Mortgage group was approximately $26,600,000. Id. The highest individual loss was $201,897. Id. The average loss for all Wrap Mortgage victims was $29,000. Id.
Consultants worked for OPFM for varying amounts of time as mortgage salespersons. They promoted and sold both conventional mortgages and Wrap Mortgages. Snyder trained Hepford-Rennie, the most senior consultant, who started in 1993. Hepford-Rennie later trained Bennetch, Musser and Hunt. Consultants met with Consumers who responded to OPFM's advertisements. Consultants discussed mortgage options with Consumers, including the Wrap Mortgage and the Equity Slide Down Program. They also took Consumers' applications and handled the ensuing settlements. Although Consultants were not licensed mortgage brokers, they worked for OPFM, a licensed mortgage broker.*fn5
Consultants were paid solely on a commission basis. They received an annual commission over the life of the Wrap Mortgage. The amount of the commission was based on the amount of the Wrap Payment to OPFM's subsidiary, Image Masters. In addition, any prepayments to Image Masters over the life of the Wrap Mortgage increased the amount of Consultants' annual commission. Consultants never disclosed to Consumers that they received commissions based on the Wrap Payment and Wrap Mortgage prepayments.
C. The Wrap Mortgage Scheme
The Wrap Mortgage scheme worked as follows. OPFM advertised low interest rate mortgages in newspapers in Berks and Lancaster Counties. To obtain the discounted interest rate, Consumers needed to qualify for the Wrap Mortgage program. To qualify, Consumers needed a large down payment or a large amount of equity (at least 20%) in their property to "wrap around" their mortgage. The scheme required Consumers to determine the amount they needed or intended to borrow. Consumers were then convinced to execute a mortgage with a conventional lender for more than they actually needed. These mortgages were recorded in the County Recorder of Deeds' Office.
A few days later, Consumers executed a purported second mortgage (Wrap Mortgage) to OPFM subsidiary Personal Financial Management, and later to OPFM subsidiary Image Masters.*fn6 Consumers then turned over the equity (Wrap Payment or Wrap Money) to Image Masters for Snyder to invest. In exchange, Consumers received an interest rate on the Wrap Mortgage usually one to two points lower than the rate on their conventional mortgages, depending on the size of the Wrap Payment. However, the Wrap Mortgage documents did not include any investment terms. In addition, contrary to normal practice, the Wrap Mortgages were not recorded.
As part of the Wrap Mortgage scheme, an OPFM entity promised to assume responsibility for Consumers' monthly payments on their conventional mortgages. An OPFM entity sent Consumers a commitment letter stating it would convert the conventional mortgage by changing some of its terms and conditions, and by lowering the interest rate. See Cmwlth. Ex. 15. The OPFM entity also required Consumers to sign a "Subrogation Agreement" that purported to render the conventional mortgage subordinate to the Wrap Mortgage. See Cmwlth. Ex. 19. However, OPFM never obtained any subrogation agreement from the conventional lenders. Moreover, as noted, the Wrap Mortgages were not recorded. Consumers signed a settlement statement which indicated Image Masters assumed the conventional mortgages. See Cmwlth. Exs. 30, 37, 48, 68, 76.
OPFM, through Image Masters, mailed monthly statements to Consumers. The first statement reflected a reduction in their Wrap Mortgage equal to their Wrap Payment. However, Consumers never received any statements from their conventional mortgage lenders regarding their conventional mortgage balance.*fn7 At closing, Consultants required Consumers to execute a change of address letter instructing their conventional lenders to forward all information, statements and correspondence regarding their accounts to: "[Consumer], c/o Image Masters, Inc, P.O. Box 144, Dept. 2007041, Oley, PA, 19547."*fn8 See Cmwlth. Exs. 23, 58.
In actuality, neither Image Masters nor its parent, OPFM, used Consumers' Wrap Money to pay down their conventional mortgages.*fn9 In addition, OPFM only invested a very small portion of the money it received. OPFM primarily used the money from new Consumers to pay the conventional mortgages of existing Consumers, thereby keeping the Ponzi scheme alive. OPFM also used Consumers' Wrap Money to pay its employees and expenses.
Further, although the Pennsylvania Department of Banking examined OPFM's mortgage business, it never became aware of the existence of Image Masters or the Wrap Mortgage program. Images Masters was not a licensed mortgage banker or broker. Snyder stored the Wrap Mortgage documents at a separate facility in Reading, Pa., that he owned in his own name to conceal the Wrap Mortgage scheme from Department auditors.
D. Wrap Mortgage Documents
Consultants presented Consumers with the Wrap Mortgage documents at the second closing. The Wrap Mortgage documents consisted of a note and a mortgage. The note consisted of two pages in 12-point type. The mortgage consisted of six pages with 43 paragraphs in 8-point type.
Paragraph 21 of the Wrap Mortgage provided (with emphasis added):
SENIOR MORTGAGE REMAINS IN EFFECT. Notwithstanding anything to the contrary therein contained, Borrower covenants and agrees to keep the present senior mortgage in full force and effect for the entire term of that mortgage notwithstanding any other prepayment provisions there contained, unless you sell or convey the property to any other Person, Firm or Corporation or completely refinance any and all indebtedness owed to Image Masters, Inc. (R.R. at 59a)
However, Consultants did not explain Paragraph 21 to Consumers. In addition, Consultants required Consumers sign a settlement statement, which provided on Line 206, "Loan Assumed-[amount of conventional loan]."*fn10 See Cmwlth. Exs. 30, 37, 48, 68, 76. Consultants also required Consumers to execute a fraudulent subrogation agreement that purported to render the recorded conventional mortgage subordinate to the unrecorded Wrap Mortgage. See Cmwlth. Ex. 19.
Paragraph 27 of the Wrap Mortgage provided (with emphasis added):
PREPAYMENT. The Borrower may prepay any of the Liabilities at any time in any amount. However, any prepayment shall not accelerate the LENDER'S obligation hereunder to make payments on the Senior Mortgage as they are actually due. (R.R. at 59a)
Many Consumers chose a Wrap Mortgage because it, unlike most conventional mortgages, permitted prepayment.*fn11 However, Consultants did not point out Paragraph 27, which provided that prepayment did not accelerate Image Masters' obligation to pay on the conventional mortgage, which remained in effect.*fn12
Further, Consultants did not inform Consumers that they had the option to insert language in the Wrap Mortgage stating that their conventional mortgage would be paid off when they paid off their Wrap Mortgage. OPFM's bookkeeper, Alicia Waid testified this provision was inserted in only five Wrap Mortgages. R.R. at 735a.
E. Collapse of the Wrap Mortgage Scheme
OPFM engaged in the Wrap Mortgage scheme for approximately 20 years, beginning in 1986-87. The Wrap Mortgage program, a Ponzi scheme, annually paid out more than it received and consistently lost large amounts of money (approximately a million dollars per year). Id. at 741a-42a. Despite a cash infusion from another scam, the Mortgage Participation Program, Snyder's Ponzi scheme eventually collapsed. In early 2007, OPFM started having problems making timely payments on Consumers' conventional mortgages. Around May or June 2007, Snyder advised his staff that OPFM was experiencing cash flow problems.
Consultant Hepford-Rennie testified she stopped selling Wrap Mortgages when OPFM started missing payments on the conventional mortgages. Significantly, however, Consultants Bennetch, Musser and Hunt continued to sell Wrap Mortgages after becoming aware of OPFM's financial problems. In September 2007, OPFM notified Consumers of its impending bankruptcy and shortly thereafter filed for bankruptcy protection. Thereafter, over 700 Consumers filed complaints with the Attorney General.
F. Commonwealth's Complaint
In May 2008, the Commonwealth filed a comprehensive four-count complaint against Snyder and his employees, including Consultants, alleging they engaged in fraudulent or deceptive conduct prohibited by the CPL. For purposes of the preliminary injunction, we need focus only on Count II-Violations of the [CPL], Commonwealth v. [Consultants].*fn13 See R.R. at 30a-36a.
In Paragraphs 128-29 of its complaint, the Commonwealth alleges Consultants acted in the capacity of mortgage brokers and thus owed a fiduciary duty to act for the benefit of Consumers. Id. at 30a. In Paragraph 130, the Commonwealth alleges Consultants breached their fiduciary duty in numerous ways. Id. at 31a-33a.
In Paragraphs 131-35, the Commonwealth alleges Consultants violated the CPL. Id. at 33a-34a. More particularly, the Commonwealth alleges Consultants engaged in the following unfair or deceptive practices defined in Section 2(4) of the CPL:
(i) Passing off goods or services as those of another;
(ii) Causing likelihood of confusion or of misunderstanding as to the source, sponsorship, approval or certification of goods or services;
(iii) Causing likelihood of confusion or of misunderstanding as to affiliation, connection or association with, or certification by, another;
(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;
(ix) Advertising goods or services with intent not to sell them as advertised;
(xxi) Engaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding.
73 P.S. §§201-2(4)(i), (ii), (iii), (v), (vii), (ix) and (xxi) (emphasis added).
Consultants Bennetch, Musser and Hunt filed preliminary objections to the Commonwealth's complaint alleging, among other things, that the Commonwealth failed to state a claim under the CPL. Consultants' preliminary objections were overruled. Hepford-Rennie filed an answer to the complaint.
G. Preliminary Injunction
Pursuant to Pa. R.C.P. No. 1531 and the CPL, the Commonwealth filed a motion for a preliminary injunction against Consultants and three other defendants seeking temporary injunctive relief and a freezing of their assets pending disposition of the lawsuit. See R.R. at 91a-104a. In late August 2008, the trial court held seven days of hearings on the requested injunction. The Commonwealth presented 15 witnesses, including a number of Consumers. It also called ...