Court of Appeal Rules That Fannie Mae’s Arbitration Agreement Is Unlawful

Helmer Friedman LLP, announced today that the California Court of Appeal, Fourth Appellate District, has held that Fannie Mae’s arbitration agreement is substantively unconscionable and unenforceable. In this lawsuit, Los Angeles-based Helmer  Friedman LLP and Washington, D.C-based co-counsel Bernabei & Wachtel, PLLC, represent Cecelia Carter with respect to her claims of wrongful termination, race discrimination and retaliation. See Carter v. Fannie Mae, No. 30-2013-00647896-CU-WT-CJC (Orange County Sup. Ct., filed May 3, 2013). According to the Complaint, Ms. Carter reported her concern that several Fannie Mae REO Foreclosure Specialists in the Irvine, California office had allegedly solicited illegal kickbacks from brokers in exchange for assigning Fannie Mae REO listings to those brokers. Shortly after, Fannie Mae initiated an investigation into Ms. Carter’s performance and then, on May 4, 2011, terminated her without explanation. On March 26, 2013, a federal grand jury charged Armando Granillo, one of the REO Foreclosure Specialists from the Irvine office, with three counts of “honest services” wire fraud for allegedly soliciting kickbacks from a real estate broker in Tucson, Arizona, in exchange for providing him with foreclosed properties to sell on behalf of Fannie Mae. On August 4, 2014, Mr. Granillo was sentenced to 15 months in federal prison for his role in the kickback scheme. For more information about Mr. Granillo’s conviction, see http://www.latimes.com/business/money/la-fi-fannie-kickbacks-sentencing-20140804-story.html

After Ms. Carter filed her Complaint, Fannie Mae moved to compel arbitration. The Superior Court denied Fannie Mae’s motion, holding that defendant failed to satisfy its burden of establishing that Ms. Carter and Fannie Mae entered into an arbitration agreement. The Superior Court found that, although the Offer Letter referenced the arbitration policy, Fannie Mae did not include the arbitration agreement with its Offer Letter and did not tell her where to find it; Fannie Mae then revoked the Offer letter; and Fannie Mae’s subsequent offer of employment did not contain or reference an arbitration provision. Fannie Mae appealed the decision to the Court of Appeal, Fourth District, Division Three.

The Court of Appeal upheld the lower court’s decision on other grounds, holding that Fannie Mae’s arbitration agreement was substantively unconscionable because it was inherently one-sided in that it exempted the types of claims likely to be filed by Fannie Mae, but included the types of claims likely to be filed by the employee. See Carter v. Fannie Mae, No. G049112, 2014 WL 4212622 (Cal. App. 4th Dist. Aug. 26, 2014). The arbitration agreement covered “all” claims an employee might make involving a legally protected right relating directly or indirectly to the employee’s employment, but exempted “any claim made in connection with workers’ compensation benefits, unemployment compensation benefits, or under any of Fannie Mae’s employee welfare benefits, ERISA, or pension plans, or to any claim of unfair competition, disclosure of trade secrets, or breach of trust or fiduciary duty.” During oral argument, Fannie Mae’s counsel emphasized the aspects of the agreement it claimed were beneficial to the employee. However, the Court of Appeal held that “

[i]t makes no difference that, arguably, the dispute resolution policy isn’t entirely one-sided” and found that the allegedly positive aspects of the agreement do not “save the agreement as a whole when it contains other provisions that have been clearly held to be unconscionable in the case law.”

“We are very pleased that the Court of Appeal rejected Fannie Mae’s attempt to force Ms. Carter into arbitration,” commented Ms. Loveless. “For years, employers have attempted to destroy one of our Country’s greatest institution – the jury trial – by forcing employees and consumers into secret tribunals that favor large corporations over individuals. The founders of our Country enshrined the right to a jury trial in our Constitution and corporations should not be allowed to take that right away.” The Court of Appeal’s decision may also significantly affect the ability of other Fannie Mae employees to bring their claims in court, rather than be forced into arbitration.

For a PDF copy of the Court of Appeal decision, click here.

For additional information or to report unlawful conduct on the part of Fannie Mae, contact:

Andrew H. Friedman