Opinion ID: 150389
Heading Depth: 2
Heading Rank: 2

Heading: The Complaint and the Motion To Compel Arbitration

Text: In April 2008, Fensterstock commenced the present action on behalf of himself and others similarly situated, asserting claims under California law (a) against EFP and ACS for breach of contract, fraud, and unfair business practices, and (b) against EFP for false and deceptive advertising practices. The complaint alleges that EFP engaged in a scheme of deception by intentionally failing to disclose to borrowers that unless their payments were received on the precise day of the month on which they were due, EFP and ACS would alter the Amortization Schedule's prescribed apportionment of the payment between interest and principal, divert[ing] the entire payment to themselves as interest and thereby prevent[ing] borrowers from paying off the principal of their loans. (Complaint ¶ 2.) The complaint alleges that, through December 2007, the amount of Fensterstock's payments that had been misallocated to interest totaled $263.19, and that if misallocations (referred to by Fensterstock as the hidden penalty or the Amortization Penalty ( e.g., id. ¶ 2 et seq. )) continued at that rate, Fensterstock would be required to make an enormous lump-sum payment at the end of his repayment period, amount[ing] to thousands of dollars, not $335.00 as stated in the Note. ( Id. ¶ 36.) Premising subject matter jurisdiction on class action diversity of citizenship, see 28 U.S.C. § 1332(d), the complaint alleges that the value of the aggregate claims of all class members will exceed $5 million. ( See Complaint ¶ 4.) The complaint alleges that the case should be certified as a class action because, inter alia, the class is so numerous that joinder of all members is impracticable and the relatively small amount of damages suffered by each class member may make it economically impractical for class members to prosecute individual actions. ( See id. ¶¶ 10, 15.) The complaint also alleges that although the Note contains an arbitration clause stating that `[c]laims made as part of a class action or other representative action [are subject to arbitration], and the arbitration of such Claims must proceed on an individual (nonclass, non-representative) basis' ( id. ¶ 39 (quoting Note, Terms and Conditions Statement at 4) (alterations in Complaint)), the clause is part of a contract of adhesion and should be declared void as against public policy ( see, e.g., Complaint ¶¶ 40-43). ACS, subsequently joined by EFP, moved for an order staying the action and compelling Fensterstock to submit his claims to arbitration and to pursue them on an individual, rather than a class, basis. It attached to its motion, inter alia, a copy of the Note, whose arbitration clause begins as follows: ARBITRATION OF DISPUTES. PLEASE READ THIS ARBITRATION PROVISION CAREFULLY. IT PROVIDES THAT EITHER YOU OR I CAN REQUIRE THAT ANY CONTROVERSY OR DISPUTE BE RESOLVED BY BINDING ARBITRATION (EXCEPT FOR MATTERS THAT ARE EXCLUDED FROM ARBITRATION AS SPECIFIED BELOW). ARBITRATION REPLACES THE RIGHT TO GO TO COURT, INCLUDING THE RIGHT TO A JURY AND THE RIGHT TO PARTICIPATE IN A CLASS ACTION OR SIMILAR PROCEEDING. (Note, Terms and Conditions Statement at 3.) To the extent pertinent here, the clause goes on to provide as follows: Agreement to arbitrate: You and I agree that either you or I may, without the other's consent, require that any Claims between you and me be submitted to mandatory, binding arbitration except for certain matters excluded below. This arbitration provision is made pursuant to a transaction involving interstate commerce, and shall be governed by, and enforceable under, the Federal Arbitration Act (the FAA), 9 U.S.C. § 1 et seq., and (to the extent State law is applicable), the State law governing this transaction. Claims subject to Arbitration include, but are not limited to: ....  Claims made as part of a class action or other representative action, and the arbitration of such Claims must proceed on an individual (non-class, non-representative) basis. If you or I require arbitration of a particular Claim, neither you, me [ sic ], nor any other person may pursue the Claim in any litigation, whether as a class action, private attorney general action, other representative action or otherwise. .... Severability, survival: .... If any portion of this arbitration provision is deemed invalid or unenforceable, the remaining portions shall nevertheless remain in force. ( Id. at 3-4.) Defendants contended that, in light of these provisions, the FAA required the court to stay the action and compel Fensterstock to submit his claims, individually, rather than on a class basis, to arbitration. Defendants disputed the complaint's allegations that the Note was a contract of adhesion whose terms Fensterstock had had no meaningful choice (Complaint ¶ 41) but to accept, and disputed his contention that the arbitration clause is unconscionable and against public policy. They pointed out, inter alia, that when Fensterstock entered into the loan agreement he was a practicing lawyer seeking to consolidate his existing loans, not a student whose education might be interrupted absent a loan. They also argued that Fensterstock was an unusually sophisticated borrower, submitting as evidence, inter alia, a June 2, 2008 printout of the description of Fensterstock on the internet website of the law firm with which he was associated, which stated as follows: Joshua G. Fensterstock practices primarily in the area of real estate law; including, negotiating contracts, drafting commercial leases, and representing clients at closings of purchases and sales of residential and commercial properties. Joshua is also involved in the firm's corporate practice. Before joining Isaacs & Associates, Joshua was employed as an associate at a firm where he represented lenders at the closings of purchases of residential and commercial properties. Prior to his work in the private sector, Joshua served as counsel to the Nassau County Comptroller. .... Joshua was admitted to practice law in New York (2d Dep't) in 2004 and received his B.S. magna cum laude from the State University of New York at Albany in 1999, where he majored in business administration. (Declaration of Edward K. Lenci dated June 5, 2008, Exhibit D; see also id. (June 2, 2008 printout of Fensterstock's description of himself on the LinkedIn website, stating that his [s]pecialties include diverse financing transactions including bridge loans, revolving credit facilities, sale-leasebacks, and leasehold mortgage loans).) Fensterstock opposed the motions, arguing principally that the arbitration clause is unconscionable. He also contended that ACS lacked standing to seek arbitration because it was not a party to the Note. ACS, in response, argued that the nature of Fensterstock's claims against ACSincluding breach of the contract between Fensterstock and EFPestopped him from making the standing argument.