Folands Jewelry Brokers, Inc v. City of Warren

O’Connell, J.

In this declaratory judgment action, plaintiff, Folands Jewelry Brokers, Inc., appeals as of right the grant of summary disposition pursuant to MCR 2.116(0(10) (no genuine issue of material fact) for defendant, City of Warren. We affirm.

Folands operates a licensed precious metal and gem dealership at 4100 Fourteen Mile Road in Warren, Michigan. As a dealer, Folands buys and sells precious metals and gems. Most of the precious metals and gems Folands purchases are sold *306to the general public. However, customers sometimes repurchase gems or metals at a substantially higher price, pursuant to a repurchase option offered by Folands.

The Warren city attorney issued an opinion stating that Folands’ jewelry business constituted pawnbroking and was, therefore, subject to regulation under the city’s pawnbroker ordinance. Folands filed suit, seeking a declaratory judgment that it was not a pawnbroker. In a well-reasóned opinion, the circuit court concluded that Folands was subject to regulation as a pawnbroker.

The sole issue on appeal is whether Folands falls within the statutory definition of a pawnbroker and is, therefore, subject to regulation as a pawnbroker. The Warren Code, art IV, § 30-47, which follows closely the language of §3 of Michigan’s pawnbroker act, MCL 446.203; MSA 19.583, provides as follows:

Any person who loans money on deposit or pledge of personal property or other valuable thing, other than securities or printed evidence of indebtedness, or who deals in the purchasing of personal property or other valuable thing on condition of selling the same back again at a stipulated price, is hereby defined to be a pawnbroker.

As noted, Folands purchases precious metals or gems from customers. At the time of sale, it grants the customer the right to repurchase the item at the full purchase price within fifteen days. However, Folands also extends a second type of repurchase option to certain customers. Within one week after the sale, select customers may buy a thirty-day option to repurchase their precious metal or gem at an eight to eleven percent premium over the original purchase price. The option itself also costs between eight and eleven percent *307of the original purchase price of the item. Further, the option may be renewed at the same cost, that is, eight to eleven percent, every thirty days for up to six months. In effect, Folands receives an annualized rate of return of between 96 and 132 percent, plus the eight to eleven percent premium charged.1

The city contends that both types of repurchase options constitute pawnbroking because both involve the sale of property "on condition of selling the same back again at a stipulated price.” Warren Code, art IV, § 30-47 and MCL 446.203; MSA 19.583. We agree.

When interpreting a statute, our goal is to ascertain and effectuate the intent of the Legislature. Farrington v Total Petroleum, Inc, 442 Mich 201, 212; 501 NW2d 76 (1993). We look first to the specific language of the statute, House Speaker v State Administrative Bd, 441 Mich 547, 567; 495 NW2d 539 (1993), resorting to judicial construction only where reasonable minds could disagree with regard to the statute’s meaning. Dep’t of Social Services v Brewer, 180 Mich App 82, 84; 446 NW2d 593 (1989). Additionally, when considering an ordinance, we apply the same rules of construction as when considering a statute. Albright v Portage, 188 Mich App 342, 350, n 7; 470 NW2d 657 (1991). Finally, our review of the lower court’s construction is de novo. Madison v Detroit, 208 Mich App 356, 358; 527 NW2d 71 (1995).

Turning to the statute and ordinance in issue, we find no express legislative recognition of repurchase transactions such as those conducted by Folands. We are also unaware of any Michigan precedent addressing the question whether these *308transactions constitute pawnbroking. However, while this question may be new to Michigan, it has been addressed by the Supreme Court of Connecticut.

In Rhodes v City of Hartford, 201 Conn 89; 513 A2d 124 (1986), the Supreme Court of Connecticut was faced with a factual situation remarkably similar to that at hand, and traced the history of "repurchase transactions” to 1911, when they were vilified as "[t]he greatest evil of the small money lending business.” Id., p 97, quoting S. Levine, A Treatise on the Law of Pawnbroking (1911), pp 115-116. That Court concluded as follows:

[T]he legislature indicated that it intended the statutes to regulate not only those transactions that take the classic form of a conventional pawnbroking loan, but also financing arrangements that, in substance if not in form, amount to any economic equivalents of such a loan. Accordingly, the statutes apply to any transaction, regardless of its label or form, in which a pawnbroker gives a customer money and, in return, receives the right to hold the customer’s property and the right to demand payment from the customer for the use of the money before allowing the customer to reclaim his property. (Id., p 96. Emphasis added.)

We conclude that the broad language used by our Legislature in MCL 446.203; MSA 19.583 evinces a similar intent to include activities such as those of Folands within the definition of pawnbroking.

Therefore, regardless of the legerdemain of denominating the transaction in issue a sale rather than pawnbroking, such transactions legally constitute pawnbroking.2 Accordingly, those engaging *309in such transactions must possess pawnbrokers’ licenses and may charge an effective interest rate not in excess of thirty-six percent a year, the maximum allowed by law for pawnbrokers. MCL 446.210; MSA 19.590.

We would note in passing that our Supreme Court’s recent decision in People v Lee, 447 Mich 552; 526 NW2d 882 (1994), does not control the matter presently before this Court. In Lee, the Supreme Court decided that transactions such as the ones in issue may not be considered loans, and, accordingly, may not be prosecuted as usurious.3 We conclude only that these transactions constitute pawnbroking and must be regulated as such. To extend the reasoning of Lee to the present situation would serve only to sound the death knell of pawnbroking and the concomitant compliance with the Pawnbroker Act,4 a result obviously at odds with the intent of our Legislature.

G. S. Allen, J., concurred.

By labeling this transaction a "sale” rather than a "pawn,” our Supreme Court in People v Lee, 447 Mich 552; 526 NW2d 882 (1994), has stated that this chicanery is not usurious.

As noted by the trial court in Rhodes, supra, p 92, “[o]ne should not be able to avoid a tax on shoes by calling shoes slippers.”

We would limit the application of Lee, supra, to criminal cases involving the charge of usury.

Which is to say, what individual would become a pawnbroker, thereby becoming subject to the Byzantine regulation pawnbroking entails, when one could simply engage in the type of transactions conducted by Lee and Folands, and thereby operate essentially unregulated with the freedom to, in effect, exact usurious rates of interest?