Johnson v. Wells Fargo Home Mortgage Inc.

• Decision Date: 15 February 2011
• Docket Number: Nos. 09–15937,09–16815.,s. 09–15937
• Citation: 635 F.3d 401
• Parties: Wes JOHNSON, Plaintiff–Appellee,v.WELLS FARGO HOME MORTGAGE, INC., a California corporation, DBA America's Servicing Company; Does 1 Through 20, Inclusive, Defendants–Appellants.Wes Johnson, Plaintiff–Appellant,v.Wells Fargo Home Mortgage, Inc., a California corporation, DBA America's Servicing Company, Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

635 F.3d 401

11 Cal. Daily Op. Serv. 2090

2011 Daily Journal D.A.R. 2510

Wes JOHNSON, Plaintiff–Appellee,

v.WELLS FARGO HOME MORTGAGE, INC., a California corporation, DBA America's Servicing Company; Does 1 Through 20, Inclusive, Defendants–Appellants.Wes Johnson, Plaintiff–Appellant,

v.Wells Fargo Home Mortgage, Inc., a California corporation, DBA America's Servicing Company, Defendant–Appellee.

Nos. 09–15937

09–16815.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 8, 2010.Filed Feb. 15, 2011.

Daniel F. Polsenberg (argued) and Jennifer B. Anderson, Lewis and Roca LLP, Las Vegas, NV, for Wells Fargo Home Mortgage, Inc.Tory M. Pankopf (argued), Law Offices of Tory M. Pankopf, Reno, NV, for Wes Johnson.Appeal from the United States District Court for the District of Nevada, Robert A. McQuaid, Magistrate Judge, Presiding. D.C. No. 3:05–cv–00321–RAM.Before: STEPHEN REINHARDT and MARSHA S. BERZON, Circuit Judges, and LOUIS H. POLLAK, Senior District Judge.^*

OPINION

BERZON, Circuit Judge:

The District Court, believing it was implementing an agreement between the parties, did not review an arbitrator's award when presented with motions to confirm and to vacate the award under the Federal Arbitration Act, 9 U.S.C. § 1 et seq. It instead passed initial review of the award onto this appellate court. We should not, and will not, permit the Congressionally-established structure of the federal courts to be so circumvented. We therefore reverse and remand to allow the lower court to review the arbitrator's award before we do so ourselves. We also address on the merits issues pertaining to Wes Johnson's claims under the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq., and the common law of negligence.

I. THE FACTS AND PROCEDURAL HISTORY

Plaintiff Wes Johnson is a real estate professional who, beginning in the mid– 1970's, purchased 200 to 300 properties across the country. Johnson's strategy consisted of purchasing undervalued properties and then refurbishing, renting, and selling them. He financed his ventures by taking out subprime, adjustable-rate mortgages. Johnson's business model was risky, among other reasons because it was highly dependent on his ability to obtain credit. Nonetheless, Johnson avers, he “was going along fine, until my legs were cut out from underneath me, and that was done by Wells Fargo.”

In July 2004, Wells Fargo Home Mortgage, Inc. (“Wells Fargo”), doing business as America's Servicing Company, began servicing Johnson's mortgages on two properties, located on Adriatic Avenue and on Fessenden Street, in Portland, Oregon. The parties refer to those loans as loans 55 and 56 respectively, a synecdoche derived from the last two digits of Wells Fargo's account numbers for the loans. In September 2004, Johnson's wife sent in two payments on loan 56 but inadvertently noted on the checks that they were intended to pay off loan 55. Wells Fargo, accordingly, applied the checks to loan 55, which it mistakenly believed was in arrears. As a result of the misapplied payment, loan 56 became delinquent. The arbitrator in this case described the ensuing chain of events as follows:

[Wells Fargo] contacted Mr. Johnson about the problem, and he assured [Wells Fargo] that both the 55 and 56 loans were current. While he was working with one customer service section of [Wells Fargo], his attempts to juggle financing for his business and personal projects led him to apply for new loans. However, when the prospective lenders ran credit checks, they found that [Wells Fargo] had reported a late payment on the 56 loan.

Thus began a series of telephone calls and letters by Mr. Johnson to try and get matters straightened out. Part of the problem seems to be the fact that there are multiple sections of staff that deal in customer service for these types of issues, and where a complainant is relegated depends on whether he or she has complained over the telephone (one personnel section), or by letter (another section), or[made] a complaint through a [credit reporting agency] (still another section). Additionally, there are personnel who act as sort of an appellate court, and a foreclosure department that apparently functions in a totally independent fashion. The arbitrator finds that Mr. Johnson had to deal with the “Missing Payment Team,” “Customer Relations,” “Mortgage Services,” and the “Executive Communications Department.”

Eventually, the arbitrator found, two Wells Fargo employees “arriv[ed] at the truth” and “admit[ted] [Wells Fargo] had been wrong all along.”

But, for Johnson, it was too late. In April 2005, Wells Fargo had commenced foreclosure proceedings on the Fessenden Street property (loan 56), and it had also reported Johnson's supposed delinquencies on both loans to credit reporting agencies. Before the foreclosure sale could take place, Johnson sold both the Fessenden Street and Adriatic Avenue properties and repaid the loans in full. By then, however, according to Johnson, the unfavorable credit reports had already begun to take their toll: Johnson was unable to obtain loans to make new purchases or to refinance existing mortgages. As his credit dried up, Johnson's various business ventures came crashing down. Johnson summed up his view of events to counsel for Wells Fargo in a deposition: “You put me out of business. You cut my income to zero, and that's where I'm at today.”

Johnson filed this suit approximately a month after Wells Fargo commenced foreclosure proceedings. He brought claims under the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq. (“RESPA”), the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. (“FCRA”), the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (“FDCPA”), and the law of negligence (mercifully, no acronym).

After almost a year of discovery, the parties consented to the reassignment of the case, for all purposes, to a magistrate judge.¹ Wells Fargo moved for summary judgment, and the District Court granted its motion as to all of Johnson's claims except his FCRA claim. The Court explained that Johnson's negligence claim, insofar as it was otherwise viable, was preempted by FCRA; that RESPA did not apply to loans 55 or 56 because they were “business purpose loans”; and that FDCPA did not apply because Johnson's debt was “business in nature, not consumer in nature,” and that, in any case, Wells Fargo was not a “debt collector” within the meaning of the statute. Johnson has filed a cross-appeal of that order as to the dismissal of his RESPA and negligence claims only.

The parties engaged in discovery for a few months more,² after which Wells Fargo again moved for summary judgment on Johnson's surviving FCRA claim. The District Court issued a 40–page opinion on that motion. The Court first reiterated its earlier ruling that the question of Wells Fargo's liability under FCRA should go to a jury. It then analyzed Johnson's approximately sixteen theories of damages individually: Most of Johnson's claimed damages related to his inability to secure credit to pursue his business ventures. The District Court held that those damages were therefore not consumer losses recoverable under FCRA. As to some of Johnson's theories of damages, the District Court ruled that Johnson had failed to put forward any evidence linking his alleged harm to Wells Fargo's erroneous reports to credit reporting agencies. Finally, the District Court denied summary judgment as to approximately six of Johnson's theories of damages and set the case for trial. After a different magistrate judge held a settlement conference three weeks before the trial's scheduled start date, the parties stipulated to binding arbitration of Johnson's FCRA claim. The District Court entered the parties' stipulation as an order.

What exactly that stipulation and order meant to provide, and what it lawfully could provide, are among the central issues raised by this appeal. For now, suffice it to say that the stipulation stated that the “parties shall participate in a binding arbitration with appeal rights”; that the Federal Rules of Evidence and Civil Procedure, as well as “the Federal Arbitration Act ... shall apply to the arbitration proceedings”; and that, within thirty days after the arbitrator made an award, either party would be able to apply to the court for an order confirming the award in accordance with the Federal Arbitration Act (“FAA”).

By mutual agreement, the parties selected Michael Nott, a retired justice of the California Court of Appeal, as the arbitrator. According to the terms of the stipulation, Justice Nott was to be bound by all previous rulings of the District Court. He was to resolve the remaining questions in the case, namely: (1) whether Wells Fargo was liable to Johnson under FCRA; (2) whether Johnson's remaining categories of claimed damages were “losses [he suffered] as a consumer, and not ... business losses”; (3) whether those damages were caused by Wells Fargo's violations of FCRA; and (4) the extent of any such damages.

Justice Nott found that Wells Fargo had violated FCRA and that Johnson should recover on approximately half of his remaining categories of claimed damages. Justice Nott awarded Johnson a total of $260,910 in damages, including $100,000 for emotional distress, as well as $464,808.11 in attorneys' fees, and $37,069.15 in costs.

After the arbitrator made his award, Johnson moved the District Court to confirm it. Wells Fargo then informed the District Court of an arithmetical error in the arbitrator's calculations. At a telephonic status conference on the motion, counsel for Wells Fargo told the District Court “Wells Fargo does intend on appealing this arbitrator's award, asking you to modify or vacate the award. So, how will—how do you want to deal with that?” The District Court responded by saying it would not review the arbitrator's award and that Wells Fargo should take its objections to the Court of...