In Johnson v Wells Fargo Home Mortgage, Inc, the Ninth Circuit addressed issues regarding a district court’s review of an arbitration award, as well as the substantive merits of the plaintiff’s Real Estate Settlement Procedures Act (“RESPA”) claims. 2011 WL 505016 (9th Cir. Feb. 15, 2011). The plaintiff, Wes Johnson, brought suit against Wells Fargo Home Mortgage, Inc. (“Wells Fargo”) alleging, inter alia, claims for violation of RESPA for Wells Fargo’s improper reporting to credit reporting agencies of Johnson’s delinquencies on two mortgage loans, which he secured as part of his business of purchasing undervalued properties and then refurbishing, renting, and selling them. The parties stipulated to binding arbitration. The arbitrator found in favor of Johnson awarding him damages. Wells Fargo then moved the district court to vacate the award. The district court directed that the appeal of the award should be heard directly by the appellate court, and without reviewing the award, confirmed it.
The Ninth Circuit first recognized that while there is no direct appellate jurisdiction over arbitral awards, because the district court did enter judgment confirming the award, the appellate court had jurisdiction over the district court’s judgment. However, to avoid circumvention of the district court, the Ninth Circuit refused to review the award in the first instance, and instead remanded the award back to the district court for review. The Ninth Circuit held that it was procedurally improper for the district court to decline to review the award in the first instance for two reasons: (1) the parties did not agree to such a procedure, and (2) even if the parties had, neither the district court nor the parties were empowered to authorize such a procedure. In so holding, the Court recognized that Section 9 of the Federal Arbitration Act directs that a district court must confirm an arbitration award unless the award is vacated, modified or corrected. Further, the Ninth Circuit held that the district court did not have the power under the federal rules to “override the basic structure of federal courts by passing off cases to a court of appeals without conducting the review contemplated by statute.” Thus, the Ninth Circuit remanded the case to the district court to reconsider the motions to confirm and vacate the arbitration award.
The Ninth Circuit also advised that the district court should review the award pursuant to the Federal Arbitration Act, as the parties agreed that it was this law that should govern in the arbitration proceedings stipulated to by the parties. The Court noted that nothing in the parties’ stipulation indicated that anything other than the ordinary Federal Arbitration Act standard of judicial review should apply. The Court directed that the district court apply the standard of judicial review provided for in the Federal Arbitration Act. To note, the Court also confirmed the use of the “manifest disregard” standard in the Ninth Circuit.
The Ninth Circuit also reviewed district court’s grant of summary judgment as to Wells Fargo’s RESPA claims, which was granted prior to the arbitration proceedings. The district court granted summary judgment on the RESPA claims holding that RESPA was inapplicable because Johnson did not take out the loans as a consumer. In affirming the district court’s decision, the Ninth Circuit reviewed the language of RESPA, Regulation X, Regulation Z, and the Official Staff Commentary on Regulation Z to determine that because Johnson’s properties were non-owner-occupied rental properties, they fell within Regulation Z’s definition of a business-purpose loan, and therefore RESPA was inapplicable to the loans. The Court rejected Johnson’s arguments that the Official Staff Commentary on Regulation Z was not part of Regulation Z and that the interpretation was only intended to interpret the Truth in Lending Act.