Torrance v. Aames Funding Corp.

Citation242 F.Supp.2d 862
Decision Date25 November 2002
Docket NumberNo. CIV.02-592-ST.,CIV.02-592-ST.
PartiesScott TORRANCE and Andrea Torrance, Plaintiff's, v. AAMES FUNDING CORPORATION, Defendant.
CourtU.S. District Court — District of Oregon

Carl D. Crowell, Salem, OR, for Plaintiff's.

Carter M. Mann, Michelle K. McClure, Foster, Pepper & Shefelman, Portland, OR, for Defendant.

OPINION AND ORDER

HAGGERTY, Chief Judge.

On August 29, 2002, Magistrate Judge Stewart filed her Amended Findings and Recommendation recommending defendant's Motion to Stay Pending Arbitration be denied. Defendant has filed timely objections. Motions to stay proceedings to enforce arbitration provisions are non-dispositive pre-trial matters. See Touton, S.A. v. M.V. Rizcun Trader, 30 F.Supp.2d 508, 509 (E.D.Pa.1998); Herko v. Metropolitan Life Ins. Co., 978 F.Supp. 141, 142-43 n. 1 (W.D.N.Y.1997). The matter is now before the court pursuant to 28 U.S.C. § 636(b)(1)(A) and Fed.R.Civ.P. 72(a). When either party objects to any portion of a Magistrate Judge's Findings and Recommendation on a non-dispositive motion, the district court determines whether the Magistrate Judge's report is clearly erroneous or contrary to law. See 28 U.S.C. § 636(b)(1)(A); Fed.R.Civ.P. 72(a); McDonnell Douglas Corp. v. Commodore Business Machines, Inc., 656 F.2d 1309, 1313 (9th Cir.1981). For the reasons stated below, the court adopts the Amended Findings and Recommendation. Defendant's Motion to Stay Pending Arbitration (doc. # 4) is DENIED.

THE AMENDED FINDINGS AND RECOMMENDATION

The facts of this case are described in the Amended Findings and Recommendation and need not be repeated. The Magistrate Judge found three provisions in the Agreement to Arbitrate to be unconscionable: (1) the limitation on damages; (2) the confidentiality clause; and (3) the fact that plaintiffs would be required to pay a portion of the arbitrator's fee. Amended Findings and Recommendation at 21. The Magistrate Judge concluded that the Agreement was so permeated by these unconscionable factors as to preclude enforcement of any aspect of the agreement.

DISCUSSION

The Magistrate Judge's decision to deny the Motion to Stay Pending Arbitration was not clearly erroneous or contrary to law. First, defendant asserts that the limitation on damages provision imposes no actual limitation on plaintiffs' right to recovery because plaintiffs are not entitled to damages under Oregon's Unfair Trade Practices Act, O.R.S. 646.605 et. seq. (UTPA). As plaintiffs point out, however, Oregon law allows claims under the UTPA for loan services. Cullen v. Investment Strategies, Lie. 139 Or.App. 119, 911 P.2d 936 (1996). Therefore, the Magistrate's finding that the limitation on damages is unconscionable is proper. See Circuit City Stores, Inc. v. Adams, 279 F.3d 889 (9th Cir.2002), cert. denied, ___U.S.___, 122 S.Ct. 2329, 153 L.Ed.2d 160 (2002).

Second, defendant argues that the confidentiality clause is not unconscionable because the arbitration agreement will have little or no implications for the public at large. The Magistrate Judge concluded that defendant is similar to the defendant in Ting v. AT & T, 182 F.Supp.2d 902, 931 (N.D.Cal.2002), because defendant stands in a "vastly superior legal posture" and fails to give a rationale for the confidentiality provision. Her finding that the confidentiality clause is unconscionable based on these similarities is not clearly erroneous.

Third, defendant contends that plaintiffs failed to show they would be required to pay prohibitively expensive arbitration fees and argues that the Magistrate Judge could not, as a matter of law, find the Agreement to Arbitrate unconscionable because of its fee provisions. It is true that the Supreme Court ruled recently that plaintiffs opposing arbitration must at least make a showing that they would bear large arbitration costs. Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79, 90, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000). Unlike the situation in Green Tree, however, it is undisputed that plaintiffs would have owed at least $375 in arbitrator's fees. It is not "too speculative" that plaintiff's would have had to pay arbitrator's fees.

Additionally, the Magistrate found that Circuit City Stores v. Adams, in which the Ninth Circuit held an applicant for employment cannot be required to arbitrate claims if the agreement requires the applicant to pay part of the arbitrator's fees, applies in claims under other federal statutes, as well. See 279 F.3d at 895. The Ninth Circuit has not limited the holding of Circuit City Stores to employment disputes. Accordingly, the Magistrate's conclusion that the fee provision in the Arbitration Agreement was unconscionable withstands defendant's objections.

The Magistrate Judge concluded that these three provisions so permeated the Agreement to Arbitrate with unconscionability as to render it invalid. While defendant is correct that a court must resolve any doubts regarding the scope of arbitrable issues in favor of arbitration, the Magistrate Judge carefully evaluated the Agreement to Arbitrate and properly concluded that the agreement created a unified procedure for resolving disputes and that the three unlawful provisions are nonseverable. Her decision to refuse to enforce the Agreement to Arbitrate was not clearly erroneous or contrary to law.

CONCLUSION

The court adopts the Magistrate Judge's Amended Findings and Recommendation (doc. # 21). The Motion to Stay Pending Arbitration (doc. # 4) is DENIED.

IT IS SO ORDERED.

AMENDED FINDINGS AND RECOMMENDATION

STEWART, United States Magistrate Judge.

INTRODUCTION

On April 4, 2002, plaintiffs Scott Torrance and Andrea Torrance filed this action in the Circuit Court for the State of Oregon for the County of Lincoln, Case No. 021516, against defendant Aames Funding Corporation alleging claims for fraud, violation of the Unfair Trade Practices Act ("UTPA"), ORS 646.608(1)(Z), negligent misrepresentation, and violation of the Truth in Lending Act ("TILA"), 15 USC § 1601 et seq, and Federal Reserve Board Regulation Z, 12 CFR § 226. These claims all arise out of a refinancing transaction. On May 8, 2002, defendant timely removed this case to this court pursuant to 28 USC § 1441(b). This court has federal question jurisdiction over the TILA claim, 28 USC § 1331, and supplemental jurisdiction over plaintiffs' state law claims, 28 USC § 1367.

Now before this court is defendant's Motion to Stay Litigation Pending Arbitration (docket # 4). For the reasons set forth below, this court recommends that the motion be denied.

DISCUSSION
I. The Arbitration Clause

Plaintiffs sought refinancing from defendant of their single-wide manufactured home in Lincoln City ("Lincoln City property"). Complaint, ¶ 2. Defendant offered refinancing only as a package deal on both plaintiffs' Lincoln City property and their other double-wide manufactured home located in Cutler City ("Cutler City property"). Id, ¶¶ 3-9. Plaintiff's agreed and were in the process of signing the loan on the Cutler City property when defendant informed them that the loan for the Lincoln City property was not ready because it was being "farmed out." Id, ¶¶ 10-12. On July 10, 2001, plaintiffs signed the loan on the Cutler City property with the expectation that the loan on the Lincoln City property would be immediately forthcoming. Id, ¶ 13.

Among the documents signed by plaintiff's in connection with the refinancing of the Lincoln City property is a separate two-page Agreement to Arbitrate which provides in part as follows:

Arbitration. Lender and Borrower agree to arbitrate any and all (1) Claims (except Claims Excluded From Arbitration) and (2) Third Party Claims. The arbitration shall be (1) binding, and (2) governed by (i) the Federal Arbitration Act, 9 U.S.C. Section 1-9; (ii) the Expedited Procedures of the Commercial Arbitration Rules of the American Arbitration Association (the "Arbitration Rules") in effect at the time arbitration is requested, and (iii) this Agreement. Affidavit of Paul Thompson, Exhibit 1 ("Agreement to Arbitrate"), p. 1.

The Agreement to Arbitrate defines a "claim" as:

[A]ny case, controversy, dispute, tort, disagreement, lawsuit, claim, counterclaim, or any other matter in question between Lender and Borrower now or after the date of this Agreement. A Claim includes, without limitation, anything arising out of, in connection with, or relating to:

(a) (i) the terms of a Transaction, including without limitation the powers of the arbitrator under this Agreement, (ii) any representations or promises made about a Transaction, or (iii) the subject matter, applicability, meaning, validity, and enforceability of any documents relating to a Transaction ...

Id.

Within three days after signing, plaintiffs advised defendant that they would rescind the loan on the Cutler City property if they were unable to secure the loan on the Lincoln City property by July 13, 2001. Id, ¶ 14. That same day, defendant represented that plaintiffs were pre-approved for a loan on the Lincoln City property that would be processed upon plaintiff's providing a homeowners insurance binder and completion of an appraisal review. Id ¶ 15. In reliance on that representation, plaintiffs did not rescind the loan on the Cutler City property. Id, ¶¶ 17, 20. However, plaintiffs were not pre-approved for the loan on the Lincoln City property and that loan never materialized. Id, ¶¶ 16,18.

II. Enforceability of the Arbitration Clause

Defendant argues that the Agreement to Arbitrate signed by plaintiffs requires plaintiffs' claims to be submitted to arbitration because they all arise out of or relate to the refinancing of their manufactured home or the relationships created by it.

Plaintiffs counter that the Agreement to Arbitrate: (1) was not knowingly entered into by them and was specifically disclaimed by defendant at the time of signing; (2) is a contract of adhesion and unenforceable; and (3) is...

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