Opinion
NO. CIV. S-08-2612 LKK/EFB.
January 27, 2009
ORDER
Plaintiff purchased a home and obtained a mortgage, which was subsequently foreclosed upon. He has brought suit against Bank of America, the bank with which he made his mortgage agreement, Neighborhood Assistance Corporation of America ("N.A.C.A."), a non-profit organization that facilitated the plaintiff's purchase of his home, and Regional Trustee Services, a company that conducted the foreclosure sale.
N.A.C.A. presently moves to dismiss plaintiff's causes of action against it on the grounds that there is a binding arbitration agreement that deprives the court of jurisdiction. Bank of America and Regional Trustee Services move for dismissal of the first and second causes of action pursuant to Federal Rule of Civil Procedure 12(b)(6). The court grants both defendants' motions.
I. BACKGROUND AND FACTS
A. Allegations of the First Amended Complaint
All allegations are taken from the First Amended Complaint and are taken as true for the purposes of the pending motions only.
Defendant N.A.C.A. requests the court take judicial notice of decisions from other courts related to the enforceability of arbitration provisions that are purportedly identical to that at issue here. Per Federal Rule of Evidence 201, the court must take judicial notice of these decisions, as the copies of them have been provided by N.A.C.A. Nevertheless, given the absence of information in the decisions as to the contents of the arbitration agreements at issue in those case, the court cannot conclude that the decisions are relevant to the instant dispute.
According to the First Amended Complaint, in September 2007, plaintiff entered into an agreement with N.A.C.A. whereby N.A.C.A. provided various types of assistance to plaintiff as he tried to prevent foreclosure of his home. N.A.C.A. also agreed to allow plaintiff access to a fund for mortgage payment advances. Through N.A.C.A., plaintiff also entered into a contract with Bank of America, which set forth a payment schedule governing plaintiff's mortgage payments. Plaintiff alleges that N.A.C.A. represented to plaintiff that by entering into this forbearance agreement, he would prevent his home from being foreclosed upon although, according to plaintiff, N.A.C.A. knew this to be untrue. Plaintiff also alleges that N.A.C.A. knew that by entering into the agreement, plaintiff would be unable to refinance his home later, thus losing the benefit of his equity in it.
In October 2007, plaintiff entered into a agreement with Bank of America to refinance the mortgage on the house. As part of this transaction, plaintiff signed a "Pre-Modification Agreement," which plaintiff now alleges was flawed by omitting several necessary pieces of information, including plaintiff's right to cancel and the interest rate and total sale price. Plaintiff alleges that these omissions were intentional.
In May 2008, N.A.C.A. allegedly instructed Regional Trustee Services to sell plaintiff's house in a foreclosure sale. It also allegedly told plaintiff to make his May 28, 2009 mortgage payment, which plaintiff attempted to do but was refused by Bank of America based upon N.A.C.A.'s instructions. Plaintiff alleges that N.A.C.A.'s and Bank of America's actions were motivated by plaintiff's homosexuality. The plaintiff's home was sold on June 2, 2008 by Regional Trustee Services, though, according to plaintiff, without the proper foreclosure documents. Afterwards, plaintiff alleges that he suffered a severe asthma attack as a result of his distress from the sale.
The plaintiff alleges that this conversation occurred on May 1, 2008 or on May 13, 2008. First Amended Complaint ¶¶ 30, 38.
Plaintiff has brought five causes of action against the defendants. In the first, he seeks to have the foreclosure vacated on the grounds that he was fraudulently induced into entering the forbearance agreement with N.A.C.A. and Bank of America. His second cause of action alleges that the wrongful foreclosure constituted intentional infliction of emotional distress. His third cause of action alleges that Bank of America and N.A.C.A. violated plaintiff's due process rights by failing to follow statutory requirements in foreclosing on his house. His fourth cause of action seeks recision of the refinancing agreement. His fifth cause of action alleges that defendants' conduct violated California's Unfair Competition Law.
B. Plaintiff's Contract With N.A.C.A.
N.A.C.A. contends that plaintiff has a duty to arbitrate this dispute with N.A.C.A., which arises under the Membership Agreement plaintiff entered into with N.A.C.A.
The Membership Agreement is a fifteen-page document signed by plaintiff. See Declaration of Chris Selig in Support of N.A.C.A.'s Mot. to Dismiss Exh. 1 ("Membership Agreement"). It describes in plain language the relationship between plaintiff and N.A.C.A. See id. N.A.C.A. is described as a non-profit Massachusetts organization providing services to persons who may be affected by predatory lending practices, for the purpose of obtaining home loans and preventing home foreclosures for its members. Id. at 1-6. Members of N.A.C.A. agree to abide by N.A.C.A.'s policies and deadlines, participate in neighborhood stabilization efforts, reside in the house they are financing with N.A.C.A.'s assistance, and pay membership fees, among other requirements. Id. at 7-8.
The agreement also contains an arbitration provision. Id. at 14. It is in a separate section of the agreement titled, "EXPRESS WAIVER OF LIABILITY AGAINST NACA, AND REQUIREMENT OF ARBITRATION OF ANY AND ALL CLAIMS." Id. Like the headings of the other sections of the agreement, this heading is underlined and in bold font; unlike the other headings, it is in all capital letters.Id.
In the first paragraph of this section, the agreement recites that the member understands the risks associated with "purchasing, refinancing, renovating and owning a home" and agrees to hold harmless N.A.C.A. and its affiliates from any claims arising from the member's "application, membership, or participation in NACA." Id.
The second paragraph of this section provides for arbitration. It states that "the Member agrees that should there ever arise a controversy or claim with NACA" resulting from or related to "the NACA Program, the purchase, financing, refinancing, [or] renovation of the Member's home" or the member's membership in or relationship with NACA, that claim will be arbitrated. Id. It states that the "Member knowingly, willingly, and after having time to consult with legal counsel waives the right to trial by jury" and agrees to submit the dispute to arbitration. Id. (emphasis in original). Arbitration will be conducted by the American Arbitration Association "or other arbitration service agreed to by the parties" and arbitration would proceed "in accordance with its rules and procedures." Id.
Arbitration would be conducted in Boston, Massachusetts, or another "convenient" location chosen by N.A.C.A. upon a written demand. Id. The venue provision is severable if found to be unlawful. Id. The arbitrator's judgment is "final and binding on all parties." Id. "Each party required to participate shall be personally responsible for their share of the costs of arbitration (or those required by the arbitration tribunal); provided, however, that if NACA prevails in any such arbitration [it] shall . . . be entitled to an award of its reasonable attorneys fees and costs." Id. at 15-16.
II. STANDARDS
A. Standard for Dismissal Pursuant to Federal Rule of Civil Procedure 12(b)(6)
On a motion to dismiss, the allegations of the complaint must be accepted as true. See Cruz v. Beto, 405 U.S. 319, 322 (1972). The court is bound to give the plaintiff the benefit of every reasonable inference to be drawn from the "well-pleaded" allegations of the complaint. See Retail Clerks Intern. Ass'n, Local 1625, AFL-CIO v. Schermerhorn, 373 U.S. 746, 753 n. 6 (1963). Thus, the plaintiff need not necessarily plead a particular fact if that fact is a reasonable inference from facts properly alleged. See id.; see also Wheeldin v. Wheeler, 373 U.S. 647, 648 (1963) (inferring fact from allegations of complaint).
In general, the complaint is construed favorably to the pleader. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). The court may not dismiss the complaint if there is a reasonably founded hope that the plaintiff may show a set of facts consistent with the allegations. Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1967-69 (2007). In spite of the deference the court is bound to pay to the plaintiff's allegations, however, it is not proper for the court to assume that "the [plaintiff] can prove facts which [he or she] has not alleged, or that the defendants have violated the . . . laws in ways that have not been alleged." Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 526 (1983).
B. Standard for Motion to Stay or Dismiss Pending Arbitration
When confronted with a motion to stay or dismiss pending arbitration, the court must first determine if a valid arbitration agreement bars the plaintiffs claims. Sparling v. Hoffman Const. Co., Inc., 864 F.2d 635, 638 (9th Cir. 1988). If that is the case, the court has discretion to either stay or dismiss the case pending arbitration. Id.; 9 U.S.C. § 3. The party seeking to enforce an arbitration agreement has the burden to produce prima facie evidence of the existence of a valid arbitration agreement. Rosenthal v. Great Western Fin. Sec. Corp., 14 Cal. 4th 394, 413-14 (1996). If it does so, the burden then shifts to the party opposing arbitration to prove by preponderance of the evidence that the arbitration agreement is unenforceable. Id.
III. ANALYSIS
Defendant N.A.C.A. has moved to dismiss plaintiff's action against it and compel arbitration. Plaintiff opposes the motion on the grounds that the membership agreement between the parties is unenforceable. Defendant Bank of America moves to dismiss certain of plaintiff's causes of action under Rule 12(b)(6), which plaintiff also opposes. The court considers each motion in turn.A. Motion to Dismiss and Compel Arbitration
The Federal Arbitration Act (FAA) governs arbitration agreements that concern interstate commerce. 9 U.S.C. § 2. The purpose of the FAA is to "place such agreements upon the same footing as other contracts," and thus represents Congress's intent to favor the enforceability of arbitration agreements.Volt Information Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior University, 489 U.S. 468, 474-75 (1989) (internal citations omitted). Generally courts apply state contract law in determining the enforceability of an arbitration agreement that falls within the ambit of the FAA. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995); Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1170 (9th Cir. 2003).
Here, the contract at issue concerns interstate commerce because the defendant's business operated in several states and because lending agreements generally implicate interstate commerce. See The Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56-58 (2003). Plaintiff does not dispute the applicability of the FAA to the arbitration agreement at issue. Pl.'s Opp'n to Mot. to Compel Arbitration at 4. Accordingly, the court turns to California law in considering plaintiffs' arguments that the agreement is unenforceable.
As described above, the arbitration provision N.A.C.A. seeks to enforce was contained in a membership agreement between it and the plaintiff. The plaintiff argues that the arbitration provision is unenforceable because the entire contract is unenforceable due to its substantive unconscionability. Under California law, a contract is unconscionable where there are elements of procedural and substantive unconscionability, though each need not be present to the same degree. Ferguson v. Countrywide Credit Indus., Inc., 298 F.3d 778, 783 (9th Cir. 2002); Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 114 (2000). Procedural unconscionability is typically understood as one party lacking the opportunity to meaningfully negotiate the terms of the contract and as certain contract terms being hidden within the document. Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1171 (9th Cir. 2003) (applying California law). A contract is substantively unconscionable when its terms are so one-sided as to shock the conscience. Ingle, 328 F.3d at 1172; Kinney v. United HealthCare Serv., Inc., 70 Cal. App. 4th 1322, 1330 (Cal.Ct.App. 1999).
The crux of plaintiff's position is that through the "one-sided Membership Agreement N.A.C.A. has reserved to itself all the benefits of its contract and none of the risk" and therefore the entire contract is substantively unconscionable. Pl.'s Opp'n to Mot. to Compel Arbitration at 7, 9. Plaintiff rests his argument on several provisions in the contract. First, plaintiff observes that the contract required him to pay a membership fee, but that N.A.C.A. retained absolute discretion to determine whether to grant plaintiff initial or continued membership. Membership Agreement at 1, 6, 9-10. N.A.C.A.'s decisions in this regard are final and not subject to litigation or arbitration.Id. at 7. Second, plaintiff notes that the agreement provides that if the member receives assistance from N.A.C.A., the member must promise to repay N.A.C.A. "on such terms as N.A.C.A. may establish." Id. at 4. This agreement must be incorporated into the member's mortgage application. Id. It would be enforced even if not specifically executed as a lien or a promissory note. Id. at 5. By the membership agreement, the member authorized N.A.C.A. to monitor his mortgage payments. Id.
Third, the membership agreement states that the member's dues are non-refundable and non-transferable, and that the member may "from time to time" be required to pay additional "special assessments," over and beyond the dues. Id. at 9. Fourth, the plaintiff takes issue with the provision of the contract that releases and holds harmless N.A.C.A. for "any and all damages, liability, or claims of any kind resulting from the Member's participation in the NACA program." Id. at 8; see also id. at 14 (same). Finally, plaintiff asserts that it is substantively unconscionable for the membership agreement to provide that only N.A.C.A. would recover attorney's fees if it prevailed at arbitration, without there being a comparable provision for the member's benefit. See id. at 14-15.
The provisions to which the plaintiff directs the court's attention are, in the least, troubling, and do suggest a problematic one-sidedness in the membership agreement. Plaintiff's argument fails, however, for two reasons.
First, plaintiff's argument addresses only the purported substantive unconscionability of the membership agreement, in that he takes issue with the alleged unfairness of the contract's terms. In order for a contract to be unenforceable on the basis of unconscionability, California law requires that the party resistant to the application of the contract show that the contract is both substantively and procedurally unconscionable. See, e.g., Armendariz, 24 Cal. 4th at 114; Stirlen v. Supercuts, Inc., 51 Cal. App. 4th 1519, 1533 (1997). Even where there is strong evidence of substantive unconscionability, there must be at least some evidence of procedural unconscionability in order for the contract to be unenforceable. Stirlen, 51 Cal. App. 4th at 1531. Here, although plaintiff has tendered evidence that may tend to demonstrate the membership agreement's substantive unconscionability, he has tendered no evidence establishing that it was procedurally unconscionable. This is fatal to his argument.
The plaintiff directs the court to California Civil Code § 1695.13, which makes it unlawful for a person to take "unconscionable advantage" of certain residential properties in foreclosure. Preliminarily, the plaintiff has not shown that this section applies to the property at issue here. See Cal. Civ. Code § 1695.1 (defining a "residence in foreclosure" as used in § 1695.13). Moreover, plaintiff has not indicated that "unconscionable advantage" suggests a different definition of unconscionability utilized by the California courts in other contexts, nor has the court found any such authority. Where a statutory term is undefined and that term has a legal meaning, the term is interpreted to be consistent among similar statutes.See Pac. Gas Elec. Co. v. County of Stanislaus, 16 Cal. 4th 1143, 1152 (1997).
More importantly, however, because the plaintiff seeks to invalidate the entire contract, rather than just the arbitration agreement contained within it, the question of the contract's unconscionability must be determined by the arbitrator. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444-46 (2006);Sanford v. Memberworks, Inc., 483 F.3d 956, 963 (9th Cir. 2007);Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1263-64 (9th Cir. 2006). The Supreme Court has explained that the FAA strictly provides that a federal court must order arbitration unless "the making of the agreement for arbitration or the failure to comply therewith is . . . in issue." Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, 403-404 (1967) citing 9 U.S.C. § 4. Accordingly, a federal court has jurisdiction to determine whether an arbitration provision within a contract is enforceable, but when confronted with a facially enforceable arbitration agreement, the court does not have jurisdiction to consider the validity or enforceability of the contract generally. Id. The Court explained that this limitation comports with the "unmistakably clear congressional purpose that the arbitration procedure, when selected by parties to a contract, be speedy and not subject to delay and obstruction in the courts." Id. at 404.
Here, the plaintiff does not challenge the enforceability of the arbitration agreement itself. Instead, plaintiff contends that the entire Membership Agreement is unenforceable due to the one-sidedness of its terms. He has not argued, let alone convinced the court, that the elements of the arbitration agreement within the contract are unenforceable. Because the arbitration agreement appears on its face to be valid and to apply to the dispute at issue, see A.T. T. Tech., Inc. v. Commc'n Workers of America, 475 U.S. 643, 650 (1986), the court is bound to dismiss the plaintiff's action against N.A.C.A. and order the parties to participate in arbitration. See Buckeye Check Cashing, 546 U.S. at 444-46; Sanford, 483 F.3d at 963;Nagrampa, 469 F.3d at 1263-64.
B. Motion to Dismiss Under Rule 12(b)(6)
Defendants Bank of America and Regional Trustee Services seek to dismiss plaintiff's first and second causes of action on the grounds that they are inadequately pled under Federal Rule of Civil Procedure 12(b)(6). The court grants this motion.
In his first cause of action, the plaintiff alleges that all of the defendants committed fraud and discriminated against him. First Amended Complaint ¶¶ 21-34. He alleges that N.A.C.A. induced him to enter into a forbearance agreement with Bank of America in September 2007. Id. ¶ 22. According to plaintiff, at the time he entered this agreement, N.A.C.A. and Bank of America knew that once the plaintiff entered into this agreement, he would not be able to refinance his home, losing the equity he had built. Id. ¶ 24. He also alleges that N.A.C.A. and Bank of America refused to accept mortgage payments from him, and that at the time he entered into the forbearance agreement, the defendants did not disclose this possibility to plaintiff. Id. ¶¶ 25, 31. He alleges that Bank of America was N.A.C.A.'s "partner" in this inducement. Id. ¶ 26. He alleges that the defendants' actions against him were based on plaintiff's homosexuality and that he suffered financial loss and anxiety as a result of defendants' wrongful foreclosure on his home. Id. ¶¶ 28, 29, 33.
Plaintiff's second cause of action is based on the same allegations, alleging that the wrongful foreclosure of his home constituted intentional infliction of emotional distress. Id. ¶¶ 35-43. His only allegation in this cause of action that specifically relates to Bank of America's conduct is that the bank refused to accept plaintiff's mortgage payments, knowing that this would result in the foreclosure of plaintiff's home.Id. ¶ 41. Specific to Regional Trustee Services, he alleges that one of its employees ordered the foreclosure sale of plaintiff's home without proper documents. Id. ¶ 38.
1. Rule 9 Pleading
Defendants Bank of America and Regional Trustee Services first seek to dismiss both causes of action on the grounds that, to the extent that they allege fraud, they have been inadequately pled. The court agrees. Under Federal Rule of Civil Procedure 9(b), in alleging fraud the plaintiff "must state with particularity the circumstances constituting fraud or mistake." This requirement applies to causes of action for fraud that are based in state law. Vess v. Ciba-Giegy Corp. USA, 317 F.3d 1097, 1103 (9th Cir. 2003). In order to satisfy Rule 9, the plaintiff's allegations must include "the who, what, when, where, and how of the misconduct charged." Id. at 1106.
Here, plaintiff has not satisfied Rule 9 with respect to allegations of fraud by Bank of America or Regional Trustee Services. He alleges that he was induced into entering a contract by certain omissions of material information and that, subsequently, his home was wrongfully foreclosed upon. See First Amended Complaint ¶¶ 21-43. However, he does not allege with any specificity what Bank of America's or Regional Trustee Services' involvement in this alleged deception was, aside from conclusorily alleging that each was N.A.C.A.'s "partner" and "agent." Id. ¶¶ 7, 26. This does not rise to the level of specificity required by Rule 9 nor does it provide Bank of America or Regional Trustee Services adequate notice upon which they may defend against the claim. See Twombly, 127 S. Ct. at 1967-69; Vess, 317 F.3d at 1106.
2. Intentional Infliction of Emotional Distress
Defendants Bank of America and Regional Trustee Services also move to dismiss plaintiff's second cause of action on the grounds that it does not allege conduct sufficiently extreme so as to give rise to the cause of action. The court agrees.
Under California law, in order to make a prima facie claim for intentional infliction of emotional distress, the plaintiff must produce evidence of, inter alia, "extreme or outrageous conduct by the defendant with the intention of causing, or with reckless disregard of the probability of causing, emotional distress."Cervantez v. J.C. Penney, Co., 24 Cal. 3d 579, 593 (1979). Outrageous conduct is that which is "so extreme as to exceed all bounds of that usually tolerated in a civilized community." Id.;Alcorn v. Anbro Eng'g, Inc., 2 Cal. 3d 493, 499 n. 5 (1970). An allegation of discrimination based on one's characteristics as a member of a protected class alone does not suffice to allege extreme or outrageous conduct for a claim of intentional infliction of emotional distress. See Washington v. Honeywell, Inc., 94 F.3d 654, 654 n. 1 (9th Cir. 1996) (unpublished, applying California law); Woods v. Rainbow Acres, No. B153844, 2002 WL 1980744, at *4 (Cal.Ct.App. Aug. 29, 2002). Although the defendant's position of trust or power over the plaintiff may inform an intentional infliction of emotional distress claim,Newby v. Alto Riviera Apartments, 60 Cal. App. 3d 288, 297 (1976), that alone does not suffice as the grounds of the claim. Instead, the plaintiff must allege that the defendant engaged in outrageous conduct within the context of that relationship. See,e.g., Trerice v. Blue Cross of Cal., 209 Cal. App. 3d 878, 883-85 (1989) (intentional infliction of emotional distress claim against plaintiff's employer failed because plaintiff had not shown that the employer's conduct surrounding plaintiff's termination was outrageous).
Here, the plaintiff has not alleged that Bank of America or Regional Trustee Services engaged in any conduct that was outrageous, sufficient to give rise to the tort or intentional infliction of emotional distress. He alleges only that these two defendants were somehow involved in the improper foreclosure on his home and that this was motivated by discriminatory animus. Without more, plaintiff's claim fails to allege facts sufficient to state a cause of action. See Trerice, 209 Cal. App. 3d at 883-85; Alcorn, 2 Cal. 3d at 499 n. 5. Plaintiff's second cause of action is dismissed with leave to amend.
IV. CONCLUSION
For the reasons stated herein, the court ORDERS as follows:
1. Defendant Neighborhood Assistance Corporation of America's motion to dismiss is GRANTED. Neighborhood Assistance Corporation of America is DISMISSED from this action. Plaintiff and Neighborhood Assistance Corporation of America are ORDERED to participate in arbitration in accordance with the terms set forth in the parties' Membership Agreement, as described herein.
2. Defendants Bank of America and Regional Trustee Services' motion to dismiss is GRANTED, with leave to amend. Plaintiff is granted thirty (30) days from the date of this order to file an amended complaint.
IT IS SO ORDERED.