Vasquez-Lopez v. Beneficial Oregon, Inc., 021010108.

• Decision Date: 31 January 2007
• Docket Number: 021010108.,A125270.
• Citation: 210 Or. App. 553,152 P.3d 940
• Parties: Panfilo VASQUEZ-LOPEZ and Maria C. Dominguez, husband and wife, Plaintiffs-Respondents Cross-Appellants, v. BENEFICIAL OREGON, INC., dba Beneficial Mortgage Corp., a foreign company, Defendant-Appellant Cross-Respondent.
• Court: Oregon Court of Appeals

152 P.3d 940

210 Or. App. 553

Panfilo VASQUEZ-LOPEZ and Maria C. Dominguez, husband and wife, Plaintiffs-Respondents Cross-Appellants, v. BENEFICIAL OREGON, INC., dba Beneficial Mortgage Corp., a foreign company, Defendant-Appellant Cross-Respondent.

021010108.

A125270.

Court of Appeals of Oregon.

Argued and submitted June 20, 2006.

Decided January 31, 2007.

Scott G. Seidman, Portland, argued the cause for appellant-cross-respondent. With him on the briefs were Terry W. Baker, David S. Aman, Portland, and Tonkon Torp LLP.

Phil Goldsmith argued the cause for respondents-cross-appellants. With him on the briefs were Maureen Leonard, Mark E. Griffin, and Hope Del Carlo, Portland.

David F. Sugerman, Portland, and Paul & Sugerman, PC, and Deborah M. Zuckerman, Washington, D.C., filed the brief amicus curiae for AARP Foundation, National Association of Consumer Advocates, Oregon Consumer League, and Oregon Trial Lawyers Association.

Justin M. Baxter, Portland, and Baxter & Baxter, LLP, filed the brief amicus curiae for United Mexican States.

Hardy Myers, Attorney General, Mary H. Williams, Solicitor General, and Kaye E. McDonald, Assistant Attorney General, filed the brief amicus curiae for State of Oregon.

Before SCHUMAN, Presiding Judge, and LANDAU^* and ORTEGA, Judges.

SCHUMAN, P.J.

Plaintiffs, immigrants who neither read nor speak English, brought this action against defendant Beneficial Oregon, Inc., a mortgage company, alleging that defendant engaged in predatory lending practices by fraudulently inducing them to borrow money at extremely disadvantageous interest rates and lying to them about what their monthly payments would cover. Defendant filed a motion to compel arbitration pursuant to an arbitration rider to the loan contract, but the trial court denied the motion on the ground that the arbitration rider was unconscionable. At the subsequent trial, the jury found in favor of plaintiffs and awarded them economic, noneconomic, and punitive damages, as well as attorney fees. The court remitted the punitive damages award, lowering it from $500,000 to $237,592.50.

Defendant appeals, assigning error to four trial court rulings: the denial of defendant's motion to compel arbitration; the grant of a directed verdict against two of defendant's affirmative defenses; the failure to further remit the punitive damages award to $100,000; and the award of enhanced attorney fees.¹ Plaintiffs cross-appeal, arguing that the punitive damages award should not have been remitted at all. We hold that the court correctly ruled that the arbitration rider was unconscionable and that defendant's affirmative defenses lacked merit as a matter of law. Regarding punitive damages, we hold that the trial court erred in remitting the jury's award. Finally, we hold that the trial court did not abuse its discretion in its award of enhanced attorney fees. We therefore affirm on appeal and, on cross-appeal, we reverse and remand.

I. FACTS

The following facts are either uncontested or, where contested, consistent with the court's and the jury's conclusions. Ball v. Gladden, 250 Or. 485, 487, 443 P.2d 621 (1968). Plaintiffs, who are husband and wife, immigrated to the United States from Mexico in the late 1980s. Since that time both have worked in the same Portland factory, where, at the time of trial, each earned approximately $7.75 per hour. With help from family and friends, plaintiffs purchased a house in 1996. In 1999, after consulting with Ferran, a Spanish-speaking mortgage consultant known in the Latino community and not affiliated with defendant, they were able to refinance their home through Continental Savings Bank at a yearly interest rate of seven percent, which was lower than the interest rate on their original loan. The Continental loan was a prime loan, which reflected plaintiffs' favorable credit rating. Their monthly payment on the Continental loan was $612.08 plus an additional amount to pay mortgage insurance and taxes.

After lending plaintiffs money to finance the purchase of a vacuum cleaner, defendant began sending them advertisements for home loans. In the fall of 2000, because plaintiffs were in need of a new roof for their home, they contacted defendant for an appointment, hoping to obtain between $5,000 and $6,000 in financing. They met with senior account executive Joel Higgins, also a native of Mexico, who explained to plaintiffs in Spanish that they would be wise to obtain a second mortgage large enough to cover both the roof and other outstanding debts, allowing them to make only one payment per month. As a result, plaintiffs received a second mortgage from defendant in the amount of $17,948.44. The annual interest rate on that second mortgage was 23.23 percent.

Shortly thereafter, in January 2001, Higgins advised plaintiffs that they could refinance their first mortgage and consolidate it with their second mortgage. Based on Higgins's representations about the new loan, plaintiffs believed that the interest rate would be lower than the rate they were then paying on their existing mortgages and that, if plaintiffs were to divide their monthly payment into two payments per month, their interest rate would drop even lower and they would pay off the balance of the loan in 17 years, as opposed to the standard 30 years. Higgins also told plaintiffs that their monthly payment would remain the same and that automatic payments for insurance and taxes would continue. Because they understood defendant's refinancing terms to be more favorable than those of their loan through Continental, plaintiffs were "convinced" by Higgins to enter the new loan arrangement. According to plaintiffs, Higgins reviewed with them the documents—all of which were in English—without explanation of the interest rate. The annual interest rate on the loan from defendant was 12.987 percent, and the monthly payment, without any withholding for property taxes or insurance, was $1,212.36.

Defendant's "Loan Repayment and Security Agreement" included an arbitration rider that provided, in part:

"By signing this Arbitration Rider, you agree that either Lender or you may request that any claim, dispute, or controversy (whether based upon contract; tort, intentional or otherwise; constitution; statute; common law; or equity and whether pre-existing, present or future), including initial claims, counter-claims, and third party claims, arising from or relating to this Agreement * * *, including the validity or enforceability of this arbitration clause, any part thereof or the entire Agreement (`Claim'), shall be resolved, upon the election of you or us, by binding arbitration * * *.

"* * * * *

"If you file a Claim, the filing costs shall be paid as follows: (a) Lender agrees to pay for the initial cost of filing the Claim up to the maximum amount $100.00[.] * * * The cost of up to one full day of arbitration hearings will be shared equally between us. Fees for hearings that exceed one day will be paid by the requesting party."

The arbitration rider required that any award resulting from arbitration "shall be kept confidential," and it prohibited class action claims. Like the rest of the "Loan Repayment and Security Agreement," it was written in English. Higgins explained some, but not all, of the terms of the arbitration rider to plaintiffs; he told them that the agreement required them to arbitrate any disputes, but that they "could go to court after going through arbitration."

In January 2002, plaintiffs received a bill from Multnomah County showing that they owed money for their property taxes. Plaintiffs consulted a family member, who translated the bill. They then sought advice from Ferran, the mortgage consultant who had helped plaintiffs with their Continental loan. Ferran explained the terms of the loan from defendant, at which point plaintiffs for the first time understood several of its disadvantageous terms. She recommended that plaintiffs pay the tax bill quickly. To further that objective, she helped plaintiffs find refinancing for their mortgage loan again, this time through Homestreet Bank, with a yearly interest rate of seven percent and an established escrow account for property taxes and insurance.

Thereafter, plaintiffs filed suit against defendant, claiming, among other things, that defendant, through Higgins, told them that the interest rate was at most 7.8 percent when he knew it was actually much higher, and told them that the monthly payment included taxes and insurance when he knew that it did not. Defendant's answer included a number of affirmative defenses, including two that were based on allegations that plaintiffs, by giving defendant inaccurate tax returns, fraudulently induced defendant into making the loan. Defendant filed a motion to compel arbitration pursuant to the arbitration rider, but the trial court denied the motion on the ground that the arbitration agreement was unconscionable and therefore unenforceable.

A jury trial ensued. At the close of the evidence, plaintiffs moved for and were granted a directed verdict against defendant's affirmative defenses. The jury subsequently returned a verdict awarding plaintiffs $26,639.73 in economic damages, $5,000 in noneconomic damages, and $500,000 in punitive damages on their fraud claim, in addition to $28,544 in money damages on their claim under 15 USC sections 1635 to 1640, provisions of the federal Truth in Lending Act (TILA). Defendant then filed a motion for a new trial on the basis of its affirmative defenses and a motion to remit the punitive damages award to $100,000. The court denied the motion for a new trial but partially allowed the motion to remit, reducing the punitive damages in a supplemental judgment to $237,592.50. A second supplemental judgment was thereafter issued awarding plaintiffs $182,107.50 in attorney fees under their TILA claim, to which defendant unsuccessfully objected. This appeal and cross-appeal followed.

II. ...