Chroniak v. Golden Investment Corp.

January 19, 1993
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 91-2343

PAULINE CHRONIAK and THOMAS PUGLIESE,

Plaintiffs, Appellees,

v.

GOLDEN INVESTMENT CORP. and ARMAND ROBERTS,

Defendants, Appellants.

No. 92-1121

THOMAS PUGLIESE,

Plaintiff, Appellee,

v.

GOLDEN INVESTMENT CORP. and ARMAND ROBERTS,

Defendants, Appellants.

No. 92-1317

THOMAS PUGLIESE,

Plaintiff, Appellant,

v.

GOLDEN INVESTMENT CORP. and ARMAND ROBERTS,

Defendants, Appellees.

No. 92-1318

THOMAS PUGLIESE,

Plaintiff, Appellant,

v.

GOLDEN INVESTMENT CORP. and ARMAND ROBERTS,

Defendants, Appellees.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW HAMPSHIRE

[Hon. Martin F. Loughlin, U.S. District Judge]

Before

Selya, Cyr and Stahl,

Circuit Judges.

Richard F. Johnston with whom Kenna, Johnston, Craighead &

Sharkey, P.A. were on brief for appellants.

Peter S. Wright, Jr. with whom Wright & Cherry were on brief for

appellees.

Cyr, Circuit Judge. Appellants Armand Roberts and
Cyr, Circuit Judge.

Golden Investment Corporation challenge the district court's

interpretation of three New Hampshire statutes regulating lending

and debt collection practices. Appellee Thomas Pugliese cross-

appeals from the district court order disallowing an award of

attorney fees. We affirm the district court judgment and remand

for reconsideration of the application for attorney fees.

I

BACKGROUND

In June 1986, Armand Roberts and Golden Investment

Corporation loaned Pugliese $75,000 with which to arrange his

release on bail. Pugliese and his aunt, Pauline Chroniak,

cosigned a promissory note which stated the dollar amount of the

interest charge ($1,384.61 biweekly), but not the interest rate

by percentage (45% annually). The loan was secured by a first

mortgage on the Chroniak residence. The loan was repaid in full

by June 1988.

In July 1987, appellants loaned Pugliese an additional

$20,000 to buy equipment for his trucking business. Pugliese and

Chroniak executed a promissory note in the amount of $27,000,

which required a payment of $7,000 within ninety days of its

execution.

3

The loan was secured by a second mortgage on the Chroniak home.

In July 1988, Pugliese defaulted on the loan after making

principal payments totalling $18,000. Chroniak made what she

believed was a "final" $2,000 payment on the second mortgage loan

shortly thereafter. Claiming that $27,000 (rather than $20,000)

had been advanced to Pugliese under the second loan, appellants

demanded an additional $32,000 to discharge the second

mortgage.1 Pugliese's counsel notified appellants that both

loans violated New Hampshire law, as the notes did not disclose

the percentage rate of interest. Appellants promptly instituted

foreclosure proceedings on the Chroniak residence.

In November 1988, Pugliese and Chroniak2 brought a

six-count complaint against Roberts and Golden Investment in New

Hampshire federal district court, alleging, inter alia,3 that

the interest and repayment provisions in both promissory notes

violated three New Hampshire statutes.

Relying on the Second Mortgage Home Loan Act, N.H. Rev.

1Because Pugliese made his initial loan payment after the
specified due date, the note provided that interest would there-
after accumulate at the rate of $2,000 per month. By October
1988, as a result of this rapid acceleration in interest accrual,
appellants made claim to an outstanding principal balance of
$16,000, accrued interest of $15,000, and legal fees of $1,000.

2In December 1988, the foreclosure proceedings against the
Chroniak residence were suspended pending resolution of the
present litigation. In October 1991, Chroniak settled her claim
against appellants.

3The original complaint alleged violations of the Racketeer
Influenced and Corrupt Organizations statute. See 18 U.S.C.

1962(c). The RICO claims were dismissed and form no part of
the present appeal.

4

Stat. Ann. 398-A [hereinafter: "SMHLA"], the complaint alleged

that (1) appellants had forfeited their "right to collect

interest" on the notes by failing to state the "rate of

interest," thereby entitling plaintiffs to a "refund" of all

interest payments on the $75,000 note (i.e., $74,768.94) (SMHLA

3),4 (2) appellants' violations of SMHLA, section 3, con-

stituted criminal offenses because they were "willful" (SMHLA

7a), and (3) appellants overstated by $7,000 the amount of the

loan proceeds received by Pugliese on the second note, or

included a $7,000 prepayment penalty in the second note (SMHLA

2 (III, IV)).

Relying on the Consumer Protection Act, N.H. Rev. Stat.

Ann. 358-A [hereinafter: "CPA"], plaintiffs claimed (1) actual

damages because appellants' violations of the SMHLA constituted

"unfair or deceptive act[s] or [trade] practice[s]" (CPA 2),

and (2) double or treble damages because appellants' violation of

section 2 of the CPA was "willful or knowing" (CPA 10).

Finally, relying on the Unfair Collection Practices

Act, N.H. Rev. Stat. Ann. 358-C [hereinafter: "UCPA"], plain-

tiffs claimed that (1) appellants qualified both as "debt collec-

tors"

4The complaint did not demand reimbursement of the interest
paid on the $27,000 note but merely a declaration that the note
had been satisfied by plaintiffs' payments totalling $20,000 in
principal, an issue which the jury resolved adversely to appel-
lants.

5

(UCPA 1) and "creditors" engaged in "consumer credit transac-

tions" in the "ordinary course of business," (2) appellants

attempted to collect interest on the $75,000 note5 "in an

unfair, deceptive, or unreasonable manner," as the interest

charges were not "expressly authorized" by the loan agreement,

hence were not "legally chargeable" to the plaintiffs (UCPA 2

& 3), and (3) appellants' violation of the UCPA simultaneously

violated CPA, section 2, which authorizes awards of double or

treble damages (UCPA 4(IV)).

Appellants initially were granted summary judgment on

the ground that the SMHLA, whose violation formed the bases for

liability under the CPA and the UCPA, exempted appellants from

all liability because (1) Roberts was not licensed under the

SMHLA to conduct "the business of [providing] second mortgage

loans," and (2) both loans were "incidental" to Roberts' real

estate investment business. On appeal, these questions were

certified to the New Hampshire Supreme Court, which determined

that the SMHLA applies both to licensed lenders and to "any

person making a loan secured by a mortgage." Chroniak v. Golden

Inv. Corp., 133 N.H. 346, 349-50, 577 A.2d 1209, 1212-13 (1990).

Acknowledging that loans "incidental" to a real estate investment

business would be exempt under

5Unlike the first note ($75,000), which arguably was
advanced for "personal" purposes (i.e., bail), see UCPA 1

(defining "consumer"), the $27,000 note evidenced a business loan
not actionable under the UCPA as a "consumer credit transaction."

6

the SMHLA, the New Hampshire Supreme Court noted the

"improbability that a loan advanced for purposes of posting bail

or purchasing a boat trailer could ever be considered incidental

to the [real estate investment] business." Id. at 352, 577 A.2d

at 1214. Thereafter, the summary judgment was vacated on appeal

and the case was remanded for trial.

In its final charge to the jury, the district court

read verbatim excerpts from the three New Hampshire statutes.

The jury ultimately responded in the following manner to the

special verdict form and a special interrogatory:

1. The loans extended by Golden Investment
Corporation to Thomas Pugliese were
incidental to the conduct or the opera-

tion of the business of Golden
Investment Corporation. (Question 1)

2. Roberts knew that the $75,000 and
$27,000 notes failed to disclose the
"rate of interest." (Questions 2, 3)

3. The $75,000 and $27,000 loan
transactions were not "strictly private"
in nature and were undertaken in the
"ordinary course of a trade or
business." (Questions 4,5)

4. Pugliese incurred $20,000 in damages.
(Question 6)

5. Pugliese received only $20,000 in the
course of the loan transaction evidenced
by the $27,000 promissory note signed
July 27, 1987. (Special Interrogatory)

On October 24, 1991, the district court entered judgment for

Pugliese in the amount of $20,000, rejecting Pugliese's request

for an award of attorney fees.

7

II

DISCUSSION

A. The Roberts and Golden Investment Appeal6

1. "Technical" Violation

of SMHLA, Section 3
of SMHLA, Section 3

The jury was instructed on five substantive statutory

provisions (SMHLA, 2 & 3, see infra pp. 9, 11; CPA, 2, see

infra p. 13; and UCPA 2 & 3). Appellants concede that the

verdicts may have been based on their failure to state the rate

of interest in the promissory notes, which constituted a

predicate violation of both the CPA and the UCPA. On the other

hand, appellants argue that the jury simply may have bypassed

consideration of the CPA and the UCPA altogether, instead basing

its award solely on appellants' direct "technical" violation of

the disclosure requirements in SMHLA, section 3:

6Although it is undisputed that the jury found that Pugliese
sustained monetary damages as a consequence of appellants'
"knowing" failure to disclose the rate of interest in the promis-
sory notes, three factors hamper our review of appellants'
various challenges to the jury instructions. First, the district
court read verbatim excerpts from the three New Hampshire

statutes, but during its deliberations the jury apparently was
provided with unexcerpted photocopies of the statutes, including

extraneous, uninstructed portions. Second, the jury received
little guidance as to whether (or how) the three statutes might
be interrelated. Finally, the special verdict form did not
require the jury to indicate the statutory provision on which its
award was based. Consequently, we must scrutinize the statutes,
the jury charge, and the special verdict form to ensure that the
jury verdicts were not predicated on any impermissible basis,
including an incorrect application of the statutory law. Brown

v. Trustees of Boston Univ., 891 F.2d 337, 353 (1st Cir. 1989)

("'Our principal focus in reviewing jury instructions is to
determine whether they tended to confuse or mislead the jury on
the controlling issues.'") (quoting Service Merchandise Co. v.

Boyd Corp., 722 F.2d 945, 950 (1st Cir. 1983)), cert. denied, 496

U.S. 937 (1990).

8

If any note secured by a second mortgage and
any such mortgage, in the case of loans other
than open-end loans, does not, among its
provisions, specify as separate items the

principal sums, the rate of interest, the

period of the loan and the periodic due
dates, if any, of principal and interest
. . . then the lender shall have no right to

collect interest.

(Emphasis added.) Appellants further argue that the plain

language of section 3 merely affords the borrower an affirmative

defense in any action initiated by the lender to collect interest

on the note, and unlike other sections of the SMHLA (e.g., 2 &

7), affords the borrower no affirmative right to recover interest

paid to the lender.7

The procedural peregrinations of the present claim

almost daunt description. Appellants raised the claim initially

in their motion for summary judgment, see supra pp. 6-7, but the

district court granted summary judgment on an alternate ground.

On appeal, the summary judgment was vacated. Following remand,

appellants renewed their motion for summary judgment. Pugliese

opposed summary judgment on the ground that a criminal

("willful") violation of SMHLA, section 3, would give rise to a

common-law cause of action for restitution of the interest paid

on the illegal loan. Prior to trial, the district court

purportedly granted appellants' motion to dismiss the "common

7We reject appellants' contention that the complaint did not
allege that SMHLA, 3, created an independent cause of action
for rescission of the loan agreement and refund of the interest
payments. Count one alleged that the $75,000 note was "illegal"
and "[p]laintiffs are entitled to have all interest payments
refunded. . . ."

9

law" claims based on SMHLA, section 3. Thus, the jury was given

no instruction on any "common law" claims based on SMHLA, section

3.

Normally, this would end our inquiry. As previously

suggested, however, two factors aligned to configure a correct

jury instruction on the applicable law. In the course of

defining the predicate conduct that could serve as an "unfair or

deceptive" trade practice under the CPA and the UCPA, sections 2

and 3 of the SMHLA were read, verbatim, to the jury. But the

court did not instruct the jury that it could not return a

verdict based exclusively on the provisions of SMHLA, section 3.

Moreover, the court later denied Pugliese's request for attorney

fees because it could not discern whether the jury had premised

its verdict exclusively on SMHLA, section 3, the only one of the

three statutes presented to the jury which does not authorize fee

shifting. See infra pt. II.B.

We agree with the district court that no mere

"technical" violation of SMHLA, section 3, could give rise to a

common-law cause of action for restitution.8 Nevertheless, we

conclude that the SMHLA, holistically construed, creates a

8Pugliese based this implied private cause of action on

Karamanou v. H.V. Greene Co., 80 N.H. 420, 423, 124 A. 373, 375

(1922), which held that a person who sustains damages under a
prohibited contractual provision may, "after the transaction is
finished and completed [,] . . bring [an] action and defeat the
contract." (Citation omitted). In Karamanou and its progeny,

however, the defendants committed criminal violations of statutes

designed to protect the plaintiffs. Pugliese pursued no such
allegation, nor did he make it the subject of a special inter-
rogatory. See infra note 17.

10

statutory cause of action for so-called "technical" violations of

section 3. First, a jury determination that Roberts violated

SMHLA, section 3, necessarily would entail a concomitant

violation of SMHLA, section 2 (also read to the jury), which

states in pertinent part:

The allowable rate of interest computed on

the unpaid balance that any person may
directly or indirectly charge, take or

receive for a second mortgage loan secured by

property which is occupied in whole or part
at the time said loan is made as a home by
any obligor on the mortgage debt or by any
person granting or releasing any interest
under said mortgage shall be the rate agreed

upon in the note between the borrower and

lender, and following the sixth month of any
period in which a loan has been in continuous
default not more than 1-1/2 percent per month
[18% annual] on any unpaid balances.

(Emphasis added.) The synergism between sections 2 and 3 of the

SMHLA derives from their shared use of the term "rate of

interest." Under section 2, a lender may not compute (hence, may

not receive) interest at a "rate" not "agreed upon in the note."

Thus, a covered lender's receipt of interest charges based on a

note which discloses no rate of interest violates both sections 2

and 3. Furthermore, SMHLA, section 7, provides in pertinent

part:

Any loan made in violation of [section] 398-

A:2 by any person shall be discharged upon

payment or tender by the debtor or any person
succeeding to his interest in such real
estate of the principal sum actually
borrowed. The superior court shall have
jurisdiction of all suits arising under RSA

398-A:2 and if a finding is made that such

loan secured by any such mortgage violates
said section such borrower shall be entitled

as part of his costs to a reasonable fee for

11

the services of his attorney in such suit.

(Emphasis added.) Accordingly, as the New Hampshire Legislature

inarguably afforded borrowers a right of action for restitution

of the interest paid in excess of the interest "agreed upon in

the note,"9 SMHLA, 2, even a jury verdict based exclusively on

a so-called "technical" failure to disclose the rate of interest

would comport with the applicable New Hampshire law as instructed

by the district court.10

2. "Unfair or Deceptive Act or
Practice" Under CPA, Section 2

Appellants contend that it was reversible error to

instruct the jury that the mere omission of the rate of interest

9We ascribe no controlling significance to the jury's
failure to award Pugliese the entire amount of interest paid on
the $75,000 note. A lender who commits a "technical" violation
of a credit disclosure statute may be entitled to set off the
reasonable value of the goods or money advanced while in the
possession of the buyer or borrower. See, e.g., General Motors

Acceptance Corp. v. Kyle, 351 P.2d 768, 774 (Cal. 1960).

10Appellants argue that a "technical" violation of a lending
disclosure statute should not invariably result in the voidance
of a loan contract or in the borrower's right to recover the
interest paid on the note. Cf. DeCato Bros., Inc. v.

Westinghouse Credit Corp., 129 N.H. 504, 529 A.2d 952 (1987)

(analogous case under 399-B); First Fed. Sav. & Loan Ass'n v.

Le Clair, 109 N.H. 339, 253 A.2d 46 (1969) (same); American Home

Improvement, Inc. v. MacIver, 105 N.H. 435, 201 A.2d 886 (1964)

(same). Unlike the SMHLA, however, 339-B explicitly provides
only one statutory remedy criminal penalties. In DeCato, for

example, the court addressed the limited question "whether a
consequence [i.e., restitution of an undisclosed prepayment

remedy] beyond the one prescribed by the statute [i.e., criminal

penalties for the lender] should attach [to the violation]."
DeCato, 129 N.H. at 509, 529 A.2d at 955. These cases form no

basis for the proposition that a "technical" violation of the
SMHLA could not support a jury verdict depriving appellants of
the benefit of their bargain (i.e., the undisclosed interest), a

remedy explicitly authorized in SMHLA, 7.

12

from the notes would constitute an "unfair or deceptive act or

practice in the conduct of any trade or business" within the

meaning of CPA, section 2, which provides, in pertinent part:

It shall be unlawful for any person to use
any unfair method of competition or any
unfair or deceptive act or practice in the

conduct of any trade or commerce within this

state. Such unfair method of competition or
unfair or deceptive act or practice shall
include, but is not limited to, the following
[list of thirteen acts] . . . .

(Emphasis added.) Appellants argue that: (1) the New Hampshire

Legislature has amended several other consumer protection

statutes so as to make their violation a simultaneous violation

of the CPA, section 2, while prior SMHLA amendments contain no

similar cross-referencing provision, and (2) the evidence adduced

at trial was insufficient to entitle Pugliese to such an instruc-

tion, since the jury reasonably could not have inferred that he

was treated unfairly or otherwise deceived by appellants'

omissions.

The current version of section 2 lists thirteen unfair

or deceptive acts or practices, but the listing is expressly made

non-exhaustive. Although the statute provides no further

explication and New Hampshire caselaw is sparse, consultation

with both federal and Massachusetts precedent is encouraged.11

11The CPA itself provides that courts should "be guided by
the interpretation and construction given Section 5(a)(1) of the
Federal Trade Commission Act (15 U.S.C. 45(a)(1)), by the Federal
Trade Commission and the federal courts." N.H. Rev. Stat. Ann.
358-A:13. The New Hampshire courts have invited interpretive
comparisons with the "well developed" caselaw construing the
analogous Massachusetts "unfair and deceptive practices" act,
Mass. Gen. Laws ch. 93A. See Chase v. Dorais, 122 N.H. 600, 602,

13

"[W]hether a party has committed an unfair or deceptive

act, within the meaning of [the consumer protection act], is a

question of fact." Brennan v. Carvel Corp., 929 F.2d 801, 813

(1st Cir. 1991) (citing USM Corp. v. Arthur D. Little Sys., Inc.,

28 Mass. App. Ct. 108, 124, 546 N.E.2d 888, 897 (1989)) (emphasis

added); see also Pan American World Airways, Inc. v. United

States, 371 U.S. 296, 306-07 (1963) (meaning of Federal Trade

Commission Act term "unfair" must be left to case-by-case

determination). A practice is "unfair" if (1) it is "within at

least the penumbra of some common-law, statutory, or other

established concept of unfairness," (2) "it is immoral,

unethical, oppressive, or unscrupulous," or (3) "it causes

substantial injury to consumers." Rizzuto v. Joy Mfg. Co., 834

F.2d 7, 8 (1st Cir. 1987) (quoting Purity Supreme, Inc. v.

Attorney General, 380 Mass. 762, 777, 407 N.E.2d 297, 301

(1980)); see also In re Pfizer, Inc., 81 F.T.C. 23, 61 (1972)

(same standard under Federal Trade Commission Act). "A practice

may be 'deceptive' . . . if it 'could reasonably be found to have

caused a person to act differently from the way he otherwise

would have acted.'" Kazmaier v. Wooten, 761 F.2d 46, 51 (1st

Cir. 1985) (quoting Purity Supreme, 380 Mass. at 777, 407 N.E.2d

at 301). The CPA is a "comprehensive statute designed to

regulate business practices for consumer protection," and its

terms should be "broadly applied." Gilmore v. Bradgate Assocs.,

448 A.2d 390, 391-92 (1982) (applying Massachusetts courts'
definition of statutory term "trade and commerce").

14

Inc., 135 N.H. 234, 235, 604 A.2d 555, 557 (1992) (citation

omitted); see also Nei v. Burley, 388 Mass. 307, 313, 446 N.E.2d

674, 678 (1983) ("Legislature intended the terms 'unfair and

deceptive' to grow and change with the times.").

Given these expansive premises, appellants' arguments

fail. First, even if a technical violation of SMHLA, section 3,

would not afford Pugliese an independent right of recovery, a

proposition we reject, the factfinder nonetheless would have been

free to find that appellants' conduct came within the "penumbra"

of a statute (i.e., SMHLA) designed to protect consumers from

"unfair" lending practices, and that appellants' failure to

disclose the rate of interest in the two notes went against

established concepts of fairness upon which SMHLA is premised.

See, e.g., Schubach v. Household Fin. Corp., 375 Mass. 133, 137,

376 N.E.2d 140, 142 (1978) (though the illegality of the

challenged conduct is a relevant inquiry, even a lawful practice

may be unfair or deceptive in some circumstances); PMP Assocs.

Inc. v. Globe Newspaper Co., 366 Mass. 593, 595, 321 N.E.2d 915,

917 (1975) (common law violation need not be shown under FTCA);

Commonwealth v. De Cotis, 366 Mass. 234, 241, 316 N.E.2d 748, 754

(1974) ("unfair" acts under FTCA not limited to practices

forbidden at common law or by criminal statute).12 If conduct

12Massachusetts caselaw is replete with decisions holding
that a failure to disclose a material fact may constitute an
unfair or deceptive practice. See, e.g., Heller v. Silverbranch

Constr. Corp., 376 Mass. 621, 382 N.E.2d 1065 (1978) (failure to

disclose drainage problem to home buyer); York v. Sullivan, 369

Mass. 157, 338 N.E.2d 341 (1975) (failure to disclose imminent
rental increase).

15

that is not proscribed by any statute may be found "unfair" under

CPA, section 2, conduct squarely within the proscriptive penumbra

of a consumer protection statute surely satisfies the

"unfairness" requirement.

Second, the jury had ample evidence from which to

determine that appellants' failure to disclose the rate of

interest was a "deceptive" practice under CPA, section 2. In

1981, when New Hampshire largely deregulated the mortgage loan

industry and eliminated the usury laws applicable to these

transactions, see, e.g., N.H. Rev. Stat. 218.1, these "full

disclosure" statutes took on increased significance as consumer

protection provisions. Although disclosure of the dollar amount

of interest charged would no doubt put many borrowers on notice

of the rate of interest, the statute presumes that it will be

difficult for the average borrower to calculate the percentage

rate from the dollar figures; accordingly, the statute places the

burden on the lender to express the rate of interest. Cf. DeCato

Bros., 129 N.H. at 508-09, 529 A.2d at 954 (fact that "the rate

of interest . . . could be readily ascertained by simple

comparison of the principal amount financed with the face amount

of the notes . . . does not vitiate noncompliance" with non-

disclosure statute); American Improvement v. MacIver, 105 N.H.

435, 438, 201 A.2d 886, 887 (1964) (noting that analogous lending

disclosure statute, 399-B, was enacted to inform "average

individuals who have neither the capability nor the strength to

calculate the cost of the credit that has been extended to

16

them"). Indeed, SMHLA, section 3, was amended in 1967, even

before deregulation, specifically to eliminate the option

previously allowed the lender to express the interest charge

either by percentage, "or by its equivalent in money." N.H. Rev.

Stat. 258:5.13

We conclude that the appellants' failure to disclose

the percentage interest rate as required under SMHLA, section 3,

was sufficient to form a predicate "unfair or deceptive practice

or act" under CPA, section 2, and that the plaintiff was entitled

to such an instruction.14

3. "Willfulness" Instruction

Appellants argue that the district court misinstructed

13Interestingly, several witnesses made widely divergent
calculations of the percentage rate appellants charged Pugliese
ranging from 36% to 52%. Additionally, Pugliese testified
that he would have "thought about [the loan] a little more," and
was "not sure" he would have agreed to its terms, had he been
informed that the annual interest rate on the $75,000 loan was
45%. See, e.g., Southwest Sunsites, Inc. v. FTC, 785 F.2d 1431,

1435 (9th Cir.) (plaintiff need not prove actual deception, but
only that representation had capacity to mislead), cert. denied,

479 U.S. 828 (1986); Montgomery Ward & Co. v. FTC, 379 F.2d 666,

670 (7th Cir. 1967) (same); Goodman v. FTC, 244 F.2d 584, 602

(9th Cir. 1957) (same).

14Appellants cite Welch v. Fitzgerald-Hicks Dodge, Inc., 121

N.H. 358, 430 A.2d 144 (1981), for the proposition that a
violation of CPA, 2, cannot be established absent a showing of
bad faith on the part of the defendant. In Welch, the court

found no evidence that the defendants "acted in bad faith,
dishonestly, or in any way attempted to take unfair advantage . .
." Id. at 362, 430 A.2d at 147 ("We fail to see how the good

faith attempts of the defendants to comply with the terms of a
standard warranty can be classified as an unfair or deceptive
practice.") In Welch, however, the defendants complied with the

literal requirements of their warranty; in this case, it is
undisputed that appellants did not comply with the interest rate
disclosure requirements of SMHLA, 2 & 3.

17

the jury that appellants' conduct could be determined "willful"

if appellants knew that the rate of interest was not stated in

the notes. Since the complaint alleged a violation of SMHLA,

section 3, and a "willful" violation of section 3 would expose

appellants to criminal penalties, see N.H. Rev. Stat. Ann. 398-

A:7a, see infra p. 19, appellants argue that the court should

have given the jury some sort of mens rea instruction, requiring

that appellants have had specific knowledge that their conduct

violated a statute.

The substantive provisions of the New Hampshire

statutes which were read to the jury (SMHLA 2 & 3, CPA 2 &

10 [first clause] and UCPA 2 & 3) do not state a "willfulness"

requirement. Thus, the court's extraneous instruction defining

"willfulness"15 ultimately imposed a more stringent mens rea

requirement than required by the statutory language. Davet v.

Maccarone, 973 F.2d 22, 26 (1st Cir. 1992) ("harmless error"

standard of review applicable to jury instruction challenge); see

15The court gave the following instruction to the jury:

If you find that either Armand Roberts or Golden
Investment, or [their] Attorney . . . had actual
knowledge or notice of the violations of [the SMHLA]
and of the bar against collecting interest contained in

that law and they went ahead with the foreclosure

anyway in an attempt to collect more interest, then you
should find that they violated [the CPA].

(Emphasis added.) Thus, in the event the jury considered whether
appellants' conduct constituted a criminal violation of the SMHLA
(as opposed to a non-willful "technical" violation), the quoted
instruction insulated the jury charge from appellants' challenge
that a finding of specific intent was required. Veranda Beach

Club Ltd. Partnership v. Western Sur. Co., 936 F.2d 1364, 1384

(1st Cir. 1991) (jury charge to be viewed "as a whole").

18

also, e.g., Smith v. Brady, 390 F.2d 176, 177 (4th Cir. 1968)

(jury instruction on damages which had no effect on verdict held

"harmless").

The gratuitous instruction on willfulness conceivably

could have had relevance to two statutory provisions, SMHLA,

section 7a, and CPA, section 10, neither of which was read to the

jury. The SMHLA provides but two remedies for violations of

SMHLA, section 3. If a lender knowingly16 omits the rate of

interest from a promissory note willfully or otherwise the

borrower may maintain a private cause of action under SMHLA,

sections 2, 3 and 7, to recover any interest received by the

lender in excess of the interest rate "agreed upon in the note."

See supra pt. II.A.1. If the section 3 violation was "willful,"

however, the lender is subject to criminal penalties as well.

SMHLA, section 7a, provides:

Any person who wilfully violates any

provision of this chapter [SMHLA] shall be
guilty of a misdemeanor if a natural person,
or guilty of a felony if any other person,
for each such violation.

(Emphasis added.)

The special verdict form reflects a jury finding that

appellants "knowingly" failed to disclose the rate of interest.

Since the "willfulness" element (i.e., appellants' knowledge or

disregard of the statutory requirement that the rate of interest

16As the notes were prepared by Roberts' attorney, the jury
was asked to determine whether Roberts had notice that the
percentage rates of interest were omitted, and whether these
omissions had the capacity to deceive, within the meaning of CPA,
2.

19

be stated in the note) would be relevant only to the imposition

of a criminal penalty under section 7a (section 7a never having

been read to the jury), the failure to give a "specific intent"

instruction was "harmless" error at most;17 at best, the jury

instruction amounted to beneficial error, as it placed on the

plaintiff a more difficult burden of proof.

The only other statute to which a determination of

"willfulness" would have been relevant is CPA, section 10, which

provides that "[i]f the [factfinder] finds that the use of the

method of competition or the act or practice was a willful and

knowing violation of this chapter, it shall award as much as 3

times, but not less than 2 times, such amount." (Emphasis

added.) Like SMHLA, section 7a, this portion of CPA, section 10,

was never read to the jury.18 The special verdict form did not

request a finding as to whether plaintiff's "damages" should be

doubled or trebled, and the district court did not in fact double

or treble the award. Any error in the "willfulness" instruction

was therefore harmless.

4. "Incidental" Exemption Instruction

SMHLA, section 10(II), exempts from its coverage

"individuals or corporations who make mortgage loans incidental

17In closing argument, plaintiff's counsel never referred to
a "criminal" violation of the SMHLA. Moreover, the jury instruc-
tion simply referred to a "violation" of SMHLA, 3, not a
"criminal violation."

18Prior to the jury charge, plaintiff's counsel disclaimed
double or treble damages.

20

to the conduct or the operation of another business, such as real

estate or construction." (Emphasis added.) The jury was

instructed to determine: (1) whether "the principal activity of

Golden Investment Corporation" was real estate investment and (2)

if so, whether these loans were "incidental" to its real estate

investment business. The district court defined the term

"incidental" to encompass a matter which "inseparably depends on,

pertains to, and is subordinate to the main or principal project

[of the business]."

Appellants argue that the court improperly required a

threshold determination that the principal activity of Golden

Investment was real estate investment, thereby disenfranchising

its defense if the jury found that general investment was Golden

Investment's principal business activity. We disagree.

Section 10 itself restricts the exemption to a limited

category of businesses; namely, those already engaged in real

estate-related activities "such as" real estate construction or

investment. In real estate-related activities, there exists a

greater business need to afford mortgage loan financing to cus-

tomers as an ancillary commercial service. Cf. Moore v. New

Hampshire Ins. Co., 122 N.H. 328, 333, 444 A.2d 543, 546 (1982)

(defining plain meaning of term "incidental"; "'a hardware store

dealing in paint and wallpaper would commonly rent equipment for

removal of wallpaper and a reasonable person . . . would assume

such rental is incidental to the operation of the store.'")

(emphasis added) (citation omitted). The necessary nexus was not

21

lost on the district court; its instruction required the jury to

consider whether the loans "inseparably depend[ed]" on appel-

lants' main business activity.19

Appellants claim that the jury should have been in-

structed that "incidental" means "occurring merely by chance or

without intention or calculation, or being likely to inure as a

minor consequence." To the extent appellants suggest a

definition based on mere fortuity, it clearly does not comport

with the statutory context, or the legislative intent, underlying

the section 10 exemption.20 Moreover, we see no significant

difference between the language utilized in the jury instruction

("subordinate to the main or principal project") and the second

element in the definition proposed by appellants ("minor conse-

quence"), as both require the jury to determine whether the

second mortgage lending activity on which Pugliese's cause of

action is predicated constituted a relatively minor aspect of

appellants' overall business activity. We find further support

for our interpretation of the term "incidental" in the opinion

previously rendered by the New Hampshire Supreme Court in this

case:

19We note further that appellants did not produce sufficient
evidence to support their contention that Golden Investment was
formed to engage in general investment. The two mortgage loans
to Pugliese were the only significant business conducted by

appellants during the entire time period at issue in the case.

20The first element in the proposed definition seems
especially discordant in the present context, as few loans
totalling $95,000 could ever be found to have been made "without
intention or calculation."

22

[L]oans made by a corporation formed to
engage in real estate investment are exempt

from the requirements of RSA chapter 398-A,
assuming they are "incidental" to the conduct
of that business. . . . [W]e do not ignore
the improbability that a loan advanced for
purposes of posting bail or purchasing a boat
trailer could ever be considered incidental
to the business of a corporation formed to
engage in real estate investment.

Chroniak v. Golden Inv. Corp., 133 N.H. 346, 352, 577 A.2d 1209,

1214 (1990) (emphasis added). The evidence not only showed that

these loans were not a subordinate or minor activity of Golden

Investment, the evidence disclosed that Golden Investment's only

significant income-generating activity during the entire relevant

period derived from these two loans to Pugliese.

We conclude that the jury instruction on SMHLA, section

10, did not constitute reversible error.21

21Appellants raise four other unsuccessful claims on appeal,
based generally on their characterization of the jury
instructions as "confusing." First, appellants failed to
preserve their claim that the jury may have been misled when the
district court read CPA, 10, out of sequence (i.e., between its

reading of SMHLA, 3, and SMHLA, 10). When asked by the court
whether the provision of photocopies of these statutes to the
jury in the correct sequential order would satisfy appellants'
objections, defense counsel responded in the affirmative.
Second, appellants maintain that the statutes were
inherently confusing, and should not have been read verbatim to
the jury. We do not conclude that the statutes are inherently
confusing; moreover, even such a conclusion would not benefit
appellants since the jury was guided by the special verdict form,
which described the essential findings required under the three
statutes. See supra p. 7.

Third, appellants argue that the court should have
defined the statutory term "ordinary course of business," a
relevant term under both the CPA and the UCPA. In Chase v.

Dorais, 122 N.H. 600, 448 A.2d 390 (1982), the court held that

the CPA does not apply "'where the transaction is strictly
private in nature, and is in no way undertaken in the ordinary
course of a trade or business.'" Id. at 602, 448 A.2d at 391-92

(quoting Lantner v. Carson, 374 Mass. 606, 610, 373 N.E.2d 973

23

B. The Pugliese Cross-appeal

Pugliese claims he was entitled to recover attorney

fees because the jury must have based its award on one of the

three fee shifting statutes (SMHLA, 2 & 7; CPA, 10; UCPA,

4).22 The district court denied an attorney fee award

because it could not exclude the possibility that the jury

verdict was based on a violation of SMHLA, section 3, which does

not authorize attorney fees. As we have determined that a viola-

tion of SMHLA, section 3, would necessarily entail a violation of

SMHLA, section 2, see supra pt. II.A.1, we are able to conclude

that the jury verdict was based on a fee shifting statute, either

SMHLA, 2 & 7, CPA, 2 & 10, or UCPA, 2 & 4. Accordingly,

we remand for reconsideration of the motion for an award of

attorney fees.

(1978)). UCPA, 1, likewise provides in pertinent part:

IV. "Creditor" means a person who in the ordinary

course of business engages in consumer credit

transactions with consumers.

(Emphasis added.) We do not believe the term "ordinary course of
business" was used in any technical sense, or required further
explanation by the court. The special verdict form adequately
formulated the essential distinction raised by appellants'
defense whether appellants were engaged in a "business"
activity when they loaned these funds to Pugliese, or whether the
loans were between "private" individuals.
Finally, appellants incorrectly assert that the district
court did not read the statutory definition of "creditor"
appearing in UCPA, 1(IV). See Tr. at 771-72.

22Pugliese theorized that the jury must have found that the
$27,000 note contained a $7,000 prepayment penalty, which con-
stituted an independent violation of SMHLA, 2. See supra p. 3.

We need not address this issue.

24

The district court judgment is affirmed on the merits

and the case is remanded for reconsideration of the motion for an

award of attorney fees.

25