Archive for December, 2014

Florida First District Court of Appeal Says Scammed Customers Cannot Be Forced into Arbitration

December 13, 2014 Leave a comment

Court Says Scammed Customers Cannot Be Forced into Arbitration

December 10, 2014

By Aidan O’Shea
Communications Specialist

In a case regarding a car dealership that misrepresented and marked up a fee in its contracts with customers, the Florida First District Court of Appeal has now written a thorough opinion outlining the reasons why those customers taking part in a class action suit against the dealership cannot be forced into arbitration. This follows a ruling to that effect earlier this year.

“This opinion clarifying why there was no agreement to arbitrate will be helpful to fellow consumer rights attorneys working to preserve access to civil justice for people who are cheated,” said Public Justice Executive Director Paul Bland, who argued the case before the court in early 2014.

While there are some situations in which the FAA overrides state laws that create defenses to arbitration agreements, in this case the Court held that there was no agreement to arbitrate in the first place. The court explained the key point that under the FAA, “challenges to formation or existence of a contract are resolved by the court.”

In this case, under Florida law, no agreement to arbitrate had ever been formed because of the way the defendant wrote the documents. “HHH Motors is being held to the language of its own concurrently-signed documents”, said the court. “If it intended for credit buyers to be subject to the arbitration clause, then it could have said so in the RISC, but did not.”

For at least four years, Florida car dealership conglomerate HHH Motors scammed its customers by misrepresenting a vendor’s fee for making a required government filing as the government’s fee, then drastically marked up that fee and pocketed the profits. HHH’s customers have filed a class-action lawsuit under Florida’s Deceptive and Unfair Trade Practices Act, which prohibits sellers from overcharging customers for government fees in an attempt to squeeze additional profits. The plaintiffs seek reimbursement and injunctive relief.

But HHH refuses to defend its conduct in court and is fighting to force its wronged customers into individual arbitration, where they could not be part of a class action. Without a class action, almost no consumers would bother to sue and those who did would be unable to find a lawyer who could afford to fight the case for recovery of about $100. HHH charged buyers $100 or in some cases more, for a fee that’s actually about $12, attorneys said.

“The defendants made a lot of money from a phony electronic funds transfer fee,” Brian W. Warwick, attorney for the plaintiffs, said. “It’s deceptive because the dealer made the fee look like it’s a government required fee, like a sales tax, but in fact it’s almost all profit. There’s no question that the consumers deserve to get their money back.”

Warwick is a partner with Florida law firm Varnell & Warwick. The case is Jenny Lee Holt and Kristopher Holt, etc. v. HHH Motors LLP., d/b/a/ Hyuandai of Orange Park, etc. 

The trial court denied HHH’s Motion to Compel Arbitration because the contracts its customers signed did not reflect a legally valid agreement to arbitrate. HHH has appealed that denial in Florida’s First District Court of Appeals, arguing that the Federal Arbitration Act calls for an arbitrator, and not the court, to decide whether there is an agreement to arbitrate.

Paul Bland successfully defeated the defendant’s argument that the Federal Arbitration Act essentially preempts the normal rules of state contract law relating to the formation of contracts. On May 27, 2014, the Florida First District Court of Appeal upheld the trial court’s decision that the car dealership could not enforce an arbitration clause and class action ban that appeared in its Retail Purchase Agreement where a second agreement to finance the car did not contain an agreement to arbitrate.

Plaintiffs’ attorney Janet Varnell, of Varnell & Warwick, emphasized the rare and precious nature of this spring’s victory for consumers in consumer contracts that involve an arbitration clause.

“Paul Bland was masterful in his argument, but it was his leadership and tenacity in educating and encouraging consumer protection lawyers to properly identify the last vestiges of opportunity amid the tsunami of pro-mandatory-arbitration opinions,” Varnell said. “Lawyers facing these same overreaching arguments about FAA preemption of state contract law should watch the video recording of Paul Bland’s oral argument in this case.”

The appellate court’s decision upheld the critical Florida precedent set in Duval Motors Co. v. Rogers (2011), which states that an agreement to arbitrate is only valid when the arbitration clause is in the particular document at issue in the case. In Holt, the challenged fee was in the financing agreement that contained an integration clause, while the agreement to arbitrate was in a separate purchase agreement. Had the appellate court done away with the Duval precedent, Varnell said, it would have left scammed Florida consumers with little hope of defeating arbitration challenges on the basis of contract formation, one of the last remaining lines of defense available to consumer attorneys.

“As it stands, the Plaintiffs in Holt now have the increasingly rare opportunity to bring a class action and to prove they were cheated in court,” she said.

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Fannie, Freddie Give Some Relief to Foreclosed Homeowners

December 3, 2014 Leave a comment

Fannie, Freddie Give Some Relief to Foreclosed Homeowners

Agencies Will Allow Homeowners in Foreclosure to Buy Back Properties at Market Value

Mortgage-finance giants Fannie Mae and Freddie Mac will allow homeowners who have been foreclosed upon to repurchase their homes at market value even if they owe more, reversing a policy that prohibited such transactions.

The change comes as Melvin Watt, the director of Fannie and Freddie’s regulator, has come under increasing pressure from some groups to use the companies to provide more relief to struggling homeowners.

“This is a targeted, but important policy change that should help reduce property vacancies and stabilize home values and neighborhoods,” said Mr. Watt, the chief of the Federal Housing Finance Agency.

Previously, someone who lost a home through foreclosure and wanted to buy it back from Fannie or Freddie needed to pay the full amount owed on the mortgage, even if the market value of the home was less. That was intended to take away the motivation for homeowners to intentionally default in order to get the balance of their mortgages reduced.

In effect, that meant Fannie and Freddie had two standards where they would be willing to sell properties they owned to a new buyer at market prices when they wouldn’t do so for the former homeowner.

“There’s no reason why you shouldn’t be willing to sell a home to these borrowers on the same terms that you’re willing to sell it to someone else,” said Laurie Goodman, center director of the Housing Finance Policy Center at the Urban Institute.

The old policy drew the ire of some politicians and nonprofit groups, which argued that it encouraged homes to stay vacant and hurt neighboring property values. In June, Massachusetts Attorney General Martha Coakley sued Fannie and Freddie, alleging that the policy violated a Massachusetts state law that allowed market-value sales to foreclosed-upon homeowners in some circumstances. That lawsuit was dismissed in October.

On Tuesday, Ms. Coakley said the change “is encouraging news for homeowners in Massachusetts and across the country” while adding that she hoped the regulator would move further to reduce mortgage debt for some homeowners.

Elyse Cherry, chief executive of Boston Community Capital, a nonprofit group that provides financing to foreclosed-upon homeowners to buy their homes back, called the new policy “an encouraging step in the right direction. It makes sense for homeowners and it makes sense for neighborhoods.”

However, the impact of the change could be limited. It will only apply to the 121,000 homes that Fannie and Freddie have already foreclosed on and own, a provision that’s intended to curtail any incentive for borrowers in good standing to default. That narrow scope is unlikely to quiet the drumbeat for the FHFA to make bigger changes intended to help a larger number of borrowers who owe more than their homes are worth.

Foreclosed-upon borrowers will also still need to find the cash or financing to buy the old home back at market value, a tall order for those with tarnished credit histories.

“This is a ‘feel-good’ type of policy. It’s directionally helpful to a small number of homeowners that ran into trouble, but at the end of the day, I don’t look to this to have a major policy impact,” said Clifford Rossi, a finance professor at the University of Maryland.

Since Mr. Watt took office in January, many politicians and nonprofit groups have asked that he allow Fannie and Freddie to reduce the principal of mortgages for borrowers who owe more than their homes are worth, a step that he has so far avoided taking.

At a Senate Banking Committee hearing last week, Sen. Elizabeth Warren (D., Mass.) criticized Mr. Watt for not allowing principal reduction. Mr. Watt at the hearing said that principal reduction was “the most difficult issue that I’ve faced as director.”

The new policy in effect reduces mortgage principal, albeit for a small number of foreclosed-upon borrowers. Some nonprofit groups said that Fannie and Freddie would be better served to reduce the borrower’s principal before a foreclosure.

“It would make more sense to do a mortgage modification with principal reduction earlier in the process and prevent foreclosure in the first place,” said Kevin Whelan, national campaign director for the Home Defenders League, a nonprofit that has advocated for widespread principal reduction.

A Fannie Mae spokesman declined to comment beyond Mr. Watt’s statement.

“Our ongoing practice has been to sell homes at current market price to minimize losses to Freddie Mac and maximize opportunities to stabilize home prices in communities while fostering homeownership opportunities,” said a Freddie Mac spokesman.

Supreme Court case tests limits of free speech on Facebook

December 1, 2014 Leave a comment

Supreme Court case tests limits of free speech on Facebook

National Constitution Center

Next Monday, the Supreme Court will hear oral arguments in a case originating near Bethlehem, Pennsylvania, that asks the Justices to decide when violent posts on social media are protected by the First Amendment.

In Elonis v. United States, 30-year-old Anthony Elonis is challenging a 44-month prison sentence he received for Facebook posts that appeared to threaten his ex-wife with violence.

One such post said, “If I only knew then what I know now … I would have smothered you’re [sic] a** with a pillow. Dumped your body in the back seat. Dropped you off in Toad Creek and made it look like a rape and murder.” Another declared, “Revenge is a dish that is best served cold with a delicious side of psychological torture.” (You can read more examples in the government’s brief.)

“I felt like I was being stalked,” his wife testified in district court. “I felt extremely afraid for mine and my children’s and my family’s lives.”

But as Constitution Daily reported in September, the case is complicated by Elonis’ claim that he is simply “an aspiring rapper” who liberally quoted from songs by Jay-Z, the Notorious B.I.G. (not to be confused with the Notorious R.B.G.) and Eminem on his Facebook profile.

“Art is about pushing limits,” Elonis wrote in one post. “I’m willing to go to jail for my constitutional rights.”

He may indeed get his wish. But first, the Supreme Court will have to decide whether it is enough that a “reasonable person” would view Elonis’ comments as a serious threat—the standard used to convict him—or if prosecutors have to prove that Elonis’ “subjective intent” was really to make threats.

Specifically, the Court will answer two questions: whether the federal law under which Elonis was convicted requires proof of subjective intent to threaten, and whether the First Amendment, especially in light of Virginia v. Black (2003), requires such proof as well.

The federal law in question, 18 U.S.C. § 875(c), says, “Whoever transmits in interstate or foreign commerce any communication containing any threat to kidnap any person or any threat to injure the person of another, shall be fined under this title or imprisoned not more than five years, or both.”

And in Black, three Virginia men were convicted of burning crosses on their neighbors’ property. They were all convicted under a state law that prohibits the burning of crosses altogether without regard to intent. On appeal at the Supreme Court, however, their convictions were overturned and the Virginia law was struck down as unconstitutional for assuming the act of burning a cross must be an act of intimidation in all cases.

The attorneys for Elonis answer both questions with resounding affirmation. The plain language of 875(c), they argue, as well as its legislative history and case law, together indicate that subjective intent must be considered. They also point out that, if intent is not considered, what amounts to simple “negligent speech” would be criminalized, leading to a violation of the First Amendment.

As you might expect, attorneys for the government take precisely the opposite positions, arguing that the statutory text only requires a “reasonable person” standard—that is, would a reasonable third-party observer find the speech threatening?—and that prohibiting such threats does not chill speech.

How the Supreme Court will ultimately rule is uncertain. Under Chief Justice John Roberts, the Court has apparently championed the First Amendment. But upon a second look, the record is not so clear.

Nicandro Iannacci is a web strategist at the National Constitution Center.

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