I N T H E CIRCUIT COURT OF KANAWHA COUNTY, WEST VIRGINIA

Plaintiff,
v.

COMlMUNITY HOME MORTGAGE, LLC, d/b/a COMMUNITY MORTGAGE GROUP, a limited liability company, OPTION ONE MORTGAGE CORPORATION, and BONNIE SUE FLElMING, Defendants.

COMPLAINT
INTRODUCTION
1,

This action arises out of the practice characterized by the United States Department of

Housing and Urban Development as predatory len&ngy1whereby a large national lender solicits unsophisticated consumers with significant equity in their homts to enter into unwise high-interest home loans. The defendant lender in.this case conspired with a broker to induce the plaintiff into a high-interest home loan with an exploirive balloon payment and a prepayment penalty, and which includes finance charges as principal, thereby compounding interest upon interest in violation of West Virginia law.

PARTIES
2.
The is a single mother on a fixed income with two children,

ages seven and six months. She is unsophisticated in financial matters.

See HUD-TREASURY NATIONAL PREDATORY LENDING TASKFORCE, JOINT REPORT: HOME MORTGAGELENDING,(visited April 13, 2002) <http://www.hud.gov/library/bookshelf18/pressrel/pr00142.htmb.
CURBING~REDATORY

3.

The defendant, Option One Mortgage Corporation ("Option One") is a California

Corporation, licensed to do business in West Virginia. Its principal place of business is 3 ADA, Irvine, California, 92618. 4.
(a)

The defendant, Community Home Mortgage, LLC, is a Virginia limited Liability

company doing business as Community Mortgage Group ("CMG"), and who is licensed to do business in West Virginia as a credt service organization and operating out offices, among other places, at One Stewart Plaza, Suite B, Dunbar, West Virginia, 25064.
(b)

At all times relevant hereto, the defendant, CMG, extended or offered broker services,

and/or extended or serviced consumer loans for which a finance charge is or may be imposed or is in more than four installments.

5.

The defendant, Bonnie Sue Fleming is a solo practioner, who conducts a real estate

closing practice. She is licensed in West Virginia and practices law out of her office at 414 11th Street, n, Suite 100, ~ G n t i n ~ t oWest Virginia, 25701. The defendant, Ms. Fleming, closed the loan the is the subject of this action.

STATEMENT OF FACTS
6.
The plaintiff, owns her home. In the Summer to Fall of 1999, her

home was financed with a thirty year fixed mortgage.

7.

(a)

In or around the Fall of 1999, the plaintiff was solicited by Kimberly Hays, who

at the time worked as a loan agent for the defendant, CMG.

(b)

Hays represented that the defendant, CMG, was "running a special," and she could

consolidate the plaintiffs bills and "save [the plaintifq money in the long run."
8.

(a)

Hays directed the plaintiff to come into CMG's loan office in Princeton.

@)

An application was taken, but the plaintiff did not receive or sign any papers at that time.

(c)

Hays represented that she would obtain a loan to pay off her bills and give the plaintiff

some money for a new roof.

9.
close the loan. (b)

(a)

Weeks later Hays directed the plaintiff to come down to CMG's office and to

The closing took about fifteen to twenty minutes. The defendant, Bonnie Sue Fleming,

went over only one document entitled "Closing Checklist,." rather than all the documents the plaintiff was directed to sign. The defendant then flipped through the papers from across a table and had the plaintiff sign them without si,pificant explanation or opportunity to fully review them. (c) (d) (e) At no time did anyone mention that the loan included a balloon payment. At no time did anyone mention the loan included a prepayment penalty. At *o time did anyone mention the inclusion of an arbitration clause. Indeed, the
. .

plaintiff does not even know what arbitration is.

10.

(a)

The plaintiff informed the defendant, Bonnie Sue Fleming that she received her

child support payments in the middle of the month and told her that she'wo-uldhave to have a payment date on the fifteenth of the month.
(b)
'

The defendant, Bonnie Sue Fleming wrote the plaintiffs request on a post it note and

stated that having payment o n the fifteenth of the month would be "no problem." (c) Included among the loan papers was a typed up application backdated to October 22,

1999.
(d) The Settlement Statement provides a charge for six months hazard insurance. However,

the defendant, Option One, did not escrow insurance payments, and the plaintiff had insurance on the home and was responsible for making her insurance payments independently. (e) The plaintiff was provided only one copy of the notice of right to cancel.

1 1.

Under applicable West Virginia law, the "principal," see W. V;i. CODES46A-1-1O2(36),

in the loan includes the following: (a) the net amount paid on behalf of the debtor: First Century Bank City National First Century Cash to borrower Taxes - 1999 Total:

(b)

plus additional charges permitted by the chapter, see K'. VA. CODE 5 46A-3-109(a)(5),

ie., reasonable closing costs, see W. VA.CODE $ 46A-1-102(7):

(a)

(b) (d) (e)

'

Title examination Title insurance Closing fee Recording fees Appraisal fee

.. .

Subtotal:

Total Principal: (c) Defendant cannot include in the principal the following charges: Broker fee (CMG) Processing fee (CMG) Tax service contract (Option One) Funding Fee (Option One) Underwriting fee (Option One) Flood certification fee (Option One) Interest (14 days) Settlement fee (Bonnie Sue Fleming) Courier fee (Bonnie Sue Fleming)

Total

2,962.90

The charges listed immediately above Fall within the definition of "loan finance charge."

See M.V;\.

CODE5 46A-1- 1O2(26) ("[Clharges . . . imposed directly or indirectly by the lender as an incident to the extension of credit.").
(d)
12.

O n information and belief certain fees and charges were not reasonable or bona fide. (a) The contract rate of interest is 11.150%.

(b)

Application of the contract rate of interest to the principal yields a lower monthly and

total payment stated in the Note and &sclosures (c) By including finance charges as principal, the defendants are charging the plaintiff

interest uDon interest. 13. The loan documents the following contradictory and confusing disclosures:

DOCUMENT
.

APR
.

FINANCE CHARGE None $63,376.36 None None $63,242.16

AMOUNT FINANCED
$ 38,250.00

TOTAL OF

PAYMENTS
None 398,511.26 None None $698,511.26

3-Day Good Faith Estimate

11.250% 12.392% 11.150% None 12.336%

"loan amount" .$35,134.80 ..

$ 38,250.00 "principal"

TIL Disclosure
Statement (1 1/3/99) Note Deed of Trust

$38,250.00 "principal" $35,269.10

TIL Disclosure
Statement 14. (a)

After fifteen years of monthly payments of $368.61 (totaling $65,951.19), a

massive balloon payment of $32,530.07, which is very close to the amount initial paid out for the borrower's benefit, comes due.
@)

The plaintiff has no ability to make such a payment and would never have signed the

loan had she known she would be required to make such a large payment.

-5-

(c) Virginia law,

The Note fails to provide the appropriate disclosures required for balloon notes by West

1 .

Also included in the loan is a prepayment penalty, which penalizes the plaintiff six

months interest if she prepays the loan in the first five years.
16.

Before the first payment was made, the plaintiff contacted the defendant, Option One,

and explained because she received her child support payments in the middle of the month, she needed to make payments on the fifteenth of the month. The defendant, Option One, refused to accommodate the plaintiff. The women the plaintiff spoke with responded curtly, "Are you gonna pay this or not?"
17.

The defendant, Option One, refused to except the plaintiffs payment unless transmitted

by Western Union, which unnecessarily cost the plaintiff additional time and expense.
18.
(a)

Because the plaintiff did not receive her child support check until the fifteenth,

she had mfficulty making the payment by the eleventh of the month, which, after the ten day grace period, was when the payment was due.
(b)

The plaintiff contacted the defendant, Option One, in an effort to work this out and to any

keep her payments current. The defendant, Option One, refused to accommodate the way.

19.

(a)

The defendant, Option One, repeatedly harassed the plaintiff and sent her

offensive and threatening letters.

(b)

The defendant, Option One, at times would call the plaintiff fifteen times a day up to

as late as 11:OO at night. The plaintiff would begin receiving calls three days after the first of the month, even though the grace period for payments had not expired. (c) O n at least three occasions, the defendant, Option One, sent individuals out to the

plaintiffs home in an attempt to harass her.

COUNT I - ILLEGAL MORTGAGE SOLICITATION

20.
21. The plaintiff incorporates paragraphs one through nineteen by reference. The defendant CbIG - with respect to the extension of credit by others and in return

for the payment of money - has represented it can obtain an extension of credit, within the meaning

t of V e ~L7i@wu Code section 46A-6C-2(a)(2).

22.
(a) The defendant broker failed to provide the plaintiff with a written broker

agreement she could keep that was consistent with West Virginia law, and thereby failed to disclose adequately to the plaintiff the following: (i) (ii) (iii) The services to be performed by the defendant broker; The cost of the broker services to be performed; and Notice of cancellation rights of the broker services.
.
.

23.

(a)

The defendant lenders knew or should have known that the defendant brokers

had not complied with West Virginia Code section 46A-6C-5.

(b)

The defendant lenders failed to seek or obtain any evidence that the defendant brokers

had complied with the requirements of West Virginia law. (e) The defendants brokering and lending activities were in violation of IVest Virginia Code

section 46A-6C-6 & -7.

WHEREFORE, the plaintiff respectfully requests the following relief:

(a)

A declaration that the defendants violated Vest Virginia Code section 46A-6C-1 et seq.

(b)

A declaration that because the defendants violated West V i ~ i n i Code section 46A-6C-1 a
et seq., the loan agreement or the illegal portions thereof are void and unenforceable
pursuant to West Virginia Code section 46A-2-121;

Civil penalties of $3,600 for each plaintiff pursuant to W e ~ Viryinh C d section t oe 4GA-5-101(1) 5( -106; Actual damages, not less than the broker fees, and punitive damages, pursuant to I V ~ J J ~

Viginia Code sections 46A-2-101 e 46A-6C-9; (

Reasonable attorney Fees and the cost of this litigation pursuant to West L7iginia Code sections 46A-2-104 & 46A-6C-9; and Such other relief as this Court deems equitable and just.

COUNT I1 - BREACH OF FIDUCIARY DUTY

The plaintiff incorporates paragraph one through twenty-three by reference. The defendant, CMG owed a fiduciary duty to the plaintiff as her broker (a) to disclose the existence and terms of the broker relationship; @) to act on the plaintiffs behalf and to obtain and pursue loans with the best available terms; (c) to provide a wri'tten agreement disclosing the services to be performed and the total cost thereof; (d) to provide notice and an opportunity to cancel the broker agreement; and (d) t o disclose to them the range of options and risks associated with their loanl 26.
'.

The defendant broker breached its fiduciary'duty to the plaintiff by engaging ira the

following activities (this list is not necessarily exhaustive) : (a) failing to disclose adequately, and in compliance with West Virginia law, the nature and terms of the agreement between the plaintiff and the defendant broker;

(b)
(c) (d)

charging the plaintiff excessive broker fees; obtaining credit terms without regard for the plaintiffs ability to pay; and suppressing terms ofthe loan, including the existence ofa balloon payment, prepayment penalty, and arbitration rider.

27.

The plaintiff was injured by the defendant broker's breach of its fiduciary duty when

she incurred excessive fees and costs and was induced into a loan agreement on terms favorable to the brolms and lenders without regard to terms more favorable to the plaintiff that may have been obtained from other lenders.

28.

As a direct and proximate result of the defendant broker's breach of its fiduciary duty,

the plaintiff suffered substantial monetary losses and damages to her property, including potential loss of her home.

WHEREFORE, the plaintiff respectfully requests the following relief:

(a) (b)

A declaration that the defendant broker had a fiduciary duty to the plaintiff; A declaration that the defendant broker breached its fiduciary duty to the plaintiff by,
inter alia, (i) failing to disclose adequately, and consistent with LVest Virginia law, the
nature and terms of the agreement between the plaintiff and the defendant broker; (ii) failing to seek out and obtain credit for the plaintiff on the best terms available; (iii) charging the plaintiff excessive broker fees; (iv) obtaining credit terms without regard for the plaintiffs ability to pay; and (vi) slippressing certain terms of the loan agreement.

(c)

A declaration that by breachng their fiduciary duty to the plaintiff, the defendant broker engaged in unconscionable conduct in the inducement of the loan agreement, and the loan is therefore void and unenforceable pursuant to Vest Virginia Code section 46A-2-

121; (d)
(e) Actual and punitive damages; Reasonable attorney fees and the costs of this litigation; and Such other relief as this Court deems equitable and just.

('9

COUNT I11 FRAUD

29.

The plaintiff incorporates paragraphs one through twenty-eight by reference. The plaintiff is on a fised income and is unsophisticated in financial matters. (a) The defendants represented to the plaintiff that she could save her money on

30.
31.

her existing financing. (b) The defendants represented that the plaintiff could make her monthly payments on the

fifteenth of every month.

32.

(a)

In fact, the defendants suppressed the fact that the loan obtained had a balloon

payment, which would require a large payment, which was close to the amount of her current indebtedness, after fifteen years and over $65,000.00 in payments.
(b)

The defendants suppressed the fact that the loan included a prepayment penalty. The dsfendants refused to permit payments on the fifteenth of every month, as

(c) represented. 33.

The defendants".irisrepresentations suppressions of fact were material. and The defendants' misrepresentations and suppressions of fact were intentional.

34. 35.

The plaintiff reasonably relied upon the defendants' misrepresentations and suppressions

of fact when entering into the loan agreement. 36. material facts. The plaintiff was harmed by the defendants' misrepresentations and suppressions of

WHEREFORE, the plaintiff respectfully requests the following relief:

(a)

A declaration that the intentional suppression of material terms of a consumer loan

agreement constitutes fraud under West Virginia law;

(b)

A declaration that the defendants in this case engaged in fraud;

(c) (d) (e)

Actual and punitive damnges; Reasonable attorney fees and the cost of this litigation; and Such other relief as this Court deems equitable and just.

COUNT IV - UNAUTHORIZED PRACTICE OF LAW

37.
38.
The plaintiff incorporates paragraphs one through thirty-six by reference. O n information and belief, the defendant, Option One, prepared the loan documents,

including the Deed of Trust, the Note, and the disclosures, in connection with the plaintiffs loan.

39.

O n information and belief, no lawyer licensed in West Virginia prepared the documents

used in the plaintiffs loan.

40.

The disclosures and the calculation of interest in the loan do not comply with West

Virginia law.

41.

By preparing documents that do'not comport with West Virginia law for a real estate

transaction in West Virginia, the defendant, Option One, engaged in the unauthorized practice of law.
42.

The defendant's unauthorized pracrice of law directly and proximately 'caused the

plaintiff to suffer actual damages, included but not limited to improper finance charges on their loan.

WHEREFORE, the plaintiff respectfully requests the following relief:

(a)

A declaration that the failure to use a lawyer licensed in West Virginia to prepare loan
documents for a real estate transaction - which are not consistent with West Virginia law - amounts to the unauthorized practice of law;

(b)
(c)

Actual and punitive damages; and Such other relief as the Court deems equitable and just.

COUNT V - ILLEGAL BALLOON PAYMENT

43.
The plaintiff incorporates paragraphs one through forty-two by reference.

44.

With respect to the balloon payment, in order to have a valid consumer loan, state law

provides as follows: With respect to a . . . consumer loan whenever any schedule payment is at least twice as large as the smallest of all earlier scheduled payments other than any down payment, any writhg purporting to contain the agreement of the parties shall contain the following language typewritten or printed in a conspicuous manner. THIS CONTRACT IS NOT PAYABLE IN INCREMENTS OF EQUAL AMOUNTS: Followed, if there is only one installment which is at least twice as large as the smallest of all earlier scheduled payments, other than any down payment, by: AN INSTALLMENT OF f . . . will be due o n . . . (The amount of every such installment and its due date shall be inserted).

45.

(a) (a)

The plaintiffs loan agreement (the note) did not contain this required disclosure. The defendants' requirement of balloon payments without the specific disclosure

46.

pursuant to West Virginia Code section 46A-2-105(2) is illegal and thereby unconscionable in violation

of West Virginia Code section 46~-2-121. (b)

These balloon payment contracts are adhesive, have inherently unfair terms which

constitute an unfair surprise to the borrower, lead to almost certain loss of home or, are the product of
'

other coercive lending practices between parties of unequal bargaining power and are unconscionable, in violation of West Virginia Code section 46A-2-121.

WHEREFORE, plaintiff respectfully requests the following relief:

(a) The Court declare the balloon payment violates WeftVirginiaCode sections 46A-2-105 (2) and 46A-2-121 and are therefore unenforceable;

() b

The Court declare that loan contract including the illegal balloon payments are unconscionable, in violation of IV~J-~ Kirginia Code section 4612-2-121, and is therefore unenforceable;

(c)

Actual damages;

(d) (e)

Civil penalties of $3,600 pursuant to West L'iqj~~k section 46A-5-101(1); Code Reasonable attorney's fees and the cqsts of this Litigation; and Such other relief the Court deems equitable and just.

( 0
47.
45.

COUNT VI PREDATORY LENDING

The plaintiff incorporates paragraphs one through forty-six by reference. The defendant broker and lender have engaged in a pattern of predatory lending

practices to make illegal loans in order to transfer home equity from homeowners to the defendants.
49.

The plaintiff is an unsophisticated consumer with little experience in financial matters. The loan that is the subject of this action was closed in a hurried manner, with no

50.

explanation to &e plaintiff of what she was signing.

51.

The following substantively unfair'terms were included in the plaintiff's loan agreement,

without her knowledge, and constituted an unfair surprise to the plaintiff: (a) Excessive fees and costs; Massive balloon payment;
.

(b)
(c)

Prepayment penalty;

(d)

Finance charges that were represented to the plaintiff to be principal, thereby mahng their interest charges higher than represented; and

(e)

Payment for insurance escrow when the plaintiff already had insurance. The loan issued by the defendants left the plaintiff far worse off than she was with her

52.

existing home financing, and put her in jeopardy of losing her home.

53.

The mortgage broker payments were illegal and unconscionable in violation of West

Vrii Code section 46A-2-121(b). igna

54.

The defendants unconscionably induced the plaintiff to enter into a substantively unfair

Code agreement, in violation of [Vest Vigim~ section 46A-2-121.

55. The loan issued the plaintiff was unconscionable, under all circumstances alleged, at the

time i t was made and/or was induced by unconscionable conduct, and therefore was unenforceable under Irest Virginia Coh section 46A-2-121. W H E R E F O R E , the plaintiff respectfully requests the following relief: (a)

A declaration that plaintiffs loan was induced by unconscionable conduct, in violation

of [Vest Viiginia Code section 46A-2-121.

(b)

A declaration that finance charges represented to be principal, thereby making their

interest charges higher than represented, is per se unconscionable under West Virginia law;

(c)

A declaration 'that the loan agreement is void and unenforceable pursuant to West Virginia Code section 46h-2-121;

(d)

Actual damages.and a civil penalty of $3,600 pursuant to West Virginia Code sections 46A-5-101(1) & -106;

(e)

Virginia Code Reasonable attorney fees and the cost of this litigation pursuant to We~t
section 46A-5-104; and

(9
56. 57.

Such other relief as the Court may deem equitable and just.

COUNT VII - NEGLIGENCE

The plaintiff incorporates paragraphs one through fifty-five by reference. The defendant, Bonnie Sue Fleming, had a duty to the plaintiff to ensure that her loan

closing was conducted with the skill and care required of an ordnary lawyer conducting home loan closings in West Virginia.

58.

The defendant, Bonnie Sue Fleming, breached her duty to the plaintiff by, among other

things, the following acts or omissions: (a) Failing to explain certain loan terms, such as the existence of a balloon payment, prepayment penalty, and arbitration clause;

(b)

Including finance charges in the principal, thereby permitting the compounding of interest in violation of West Virginia law;

(c)

Having the plaintiff enter into a loan agreement in which the documents that were prepared by an out-of-state finance company and that failed to comply with West Virginia law;

(d)
(e)

Charging the plaintiff for escrow of insurance when no such escrow existed; and Representing payments could be made on the fifteenth. The plaintiff was damaged as a pioximate result of the defendant's breach of her duty.

59.

W H E R E F O R E , the plaintiff respectfully requests the following relief: (a)

A declaration that the defendant had a duty to the plaintiff and breached that'.duty;
Actual damages; and

(b)
(c)

Such other relief as the Court deems equitable and just.

COUNT VIII - BREACH O F DUTY OF GOOD FAITH AND FAIR DEALING

60. 61.
The plaintiff incorporates paragraphs one through fifty-nine by reference. The defendant, Option One, had an implied duty to act in good faith in the performance

of the contract between the parties.

62.

(a)

The defendant, Option One, refused to permit the plaintiff to make payments

on the fifteenth of the month, despite representations to the contrary by its agents.

Allowing the plaintiff to make her payments on the fifteenth of the month would not

impose any significant burden or cost on the defendant, but would avoid substantial burden to the plaintiff. 63.
*

The defendant, Option One, demanded that the plaintiff submit payments via Western

Union, which imposed additional and unnecessary cost and hardship on the plaintiff. 64. (a)

By refusing to adjust the plaintiffs payment date to the date consistent with the

representation of its agents, the defendant breached its duty of good faith and fair dealing. (b)

By insisting that the plaintiff make payments via Western Union, the defendant breached

its duty of good faith and fair deahg. (c) faith. O n information and belief, the defendant failed to service the plaintiffs loan in good

65.
wanton.
66.

The defendant's breach of the its duty of good faith was intentional, willful, and/or

The plaintiff suffered damages proximately caused by the defendant's breach of its duty

of good faith and fair dealing.

WHEREFORE, the plaintiff respectfully request the following relief:

(a) Actual and punitive damages; Reasonable attorney's fees and the cost of this litigation; and Such other relief as the Court deems equitable and just.

(b)
(c)

COUNT IX - UNLAWFUL DEBT COLLECTION

67.
The plaintiff incorporates paragraphs one through sixty-six by reference.

68.

(a)

The defendant, Option One, in attempting to collect a debt, called the plaintiff

up to fifteen times a day, sometimes as late as 11:00 atnight, with the intent to harass and/or annoy the plaintiff'.

(b)

The defendant, in attempting to collect a debt, sent threatening letters and during phone

conversations made threats to foreclose on the plaintiffs home. (c) the loan.
69.

The plaintiff began its harassing and oppressive collection tactics in the first month of

The defendant, Option One, used unconscionable, oppressive, and unfair means to collect

a debt by repeatedly and continuously contacting the plaintiff with the intent to annoy, harass, and threaten the plaintiff violation of W c ~ Vitginirr Cod section 46A-2-125. t WHEREFORE, plaintiff respectfully requests the following relief:
(a)

Actual damages and a civil penalties of $3,600 for each violation pursuant to West

Vi~girzia Code section 46A-2-101(1) & 106.

(b)
(c)
.

Reasonable attorneys fees and the costs of this litigation; and Such other relief as the Court deems equitable and just.

..

COUNT X - FRAUD AND CONSPIRACY

70. 71. The plaintiff incorporates paragraphs one though sixty-nine by reference. The defendants intentionally sought and obtained an appraisal indicating that the market

value of the property was $5 1,000.00.

72.
amount.

This amount was false. The true market value of the home is si,@ficantly less than this

73.

The defendants intentionally employed an appraiser to misrepresent the market value

of the plaintiffs property for the purpose of inducing the plaintiff into the contract.

74.

The defendant lenders and broker and the appraiser conspired to fraudi~lently

misrepresent the market value of the plaintift's home.

75.
and material.

The defendants' misrepresentation of the market value of the property was intentional

76.

The plaintiff reasonably relied upon the misrepresentations of the defendants when

entering into the loan agreement. 77. The plaintiff has been damaged by the defendants' fraudulent appraisal.

WHEREFORE, the plaintiff respectfully requests the following relief:

(a)
@)

A declaration that the defendants' appraisal was fraudulent;

Actual and punitive damages; Reasonable attorneys fees and the cost of this litigation; Such other relief as the Court may deem equitable and just.

(c) (d)

COUNT XI - JOINT VENTURE, CONSPIRACY, AND AGENCY 78.

79.
Each defendant had.a pecuniary interest in the loan transaction with the plaintiff. The defendants combined their money, skill, and knowledge to carry out the enterprise,

that is the home loan to the plaintiff.

80.

O n information and belief, each defendant had an agreement - written, oral,

constructive, or otherwise - with one another to close the loan.

81.

Each of the acts of the defendants, hereinbefore and hereinafter alleged, were done in

furtherance of a joint venture in which each of the acts of each of the defendants was pursued with a joint purpose. 82. The defendants conspired to commit the unlawful acts, or lawful acts by unlawful means,

hereinbefore and hereinafter alleged, and each is responsible for all acts alleged herein.

83.

Each of the defendants' acts were conducted as a part of the principal-agency

relationship between the defendants.

COUNT XI1 - DENIAL OF IMPARTIAL TRIBUNAL

54.

The plaintiff incorporates paragraphs one through eightythree by reference. Among the papers signed by the plaintiff was a document labeled "Arbitration

85.

Agreement." The so-called arbitration rider or clause contains an exclusion, whch permits the lender to proceed with certain remedies in Court.

86.

(a)

Said arbitration rider purports to require all disputes, claims or controversies

arising from the loan to be resolved by a binding arbitration conducted by the American Arbitration Association ("M").

(b)

The judges are paid on a fee per case basis, receiving payment for their services based

solely on the number of cases they handle. This system encourages judges to rule in favor of the creditors in an attempt to garner future appointments from creditors. This system permits creditors to exercise significant influence over the arbitrators in the M. (c)
..
.

Pursuant to the Arbitration Agreement, the plaintiff would be required to arbitrate this s Commercial Rules. Under the U ' s Commercial Rules, the minimum fhng fee

dispute under M

for a claimant is 8500, and filing fees then quickly escalate as the amount of the claim increases. In this case, it would be likely that the plaintiffwould have to submit a $1250 filing fee and pay an additional $750 in case service fees. She would also have to pay one half of the fees of the arbitrator(s) handling the case. AAA arbitrators frequently charge fees of $300 to $400 per hour and more for each hour spent on the matter, including research and preparation. (d) The total fees billed by AAA for arbitrations conducted under its commercial rules are

often very hgh:

(i)

In one case, a claimant was required to pay 3'18,260 to M. When she did not prevail

on the claim, the A M Arbitrator assessed the claimant $207,271 for the defendant employer's attorneys' fees. (ii)' In another case, a claimant was required to pay $1 5,000 to AAA, even though she waited

for more than four years for the arbitrator even to hold a hearing on the merits of her claim. (iii) In a dispute in Mississippi, A h l informed the plaintiff he would be required to pay a

minimum of $1 2,000 to have his claim heard. (iv) In a personal injury case in Connecticut, two homeowners were charged $7,000 each to

arbitrate their claims. (e) As a result of such high AAA arbitration fees, many consumers are unable to pursue

their claims against corporations such as the defendant lender.

87.

(a)

The plaintiff is entitled by the state constitution and law to have any legal

disputes that they may have with the defendants resolved according to law by a genuinely unbiased, neutral, independent decision maker.

(b)

The defendant's form agreement compels arbitration before an arbitrator - the AAA

- with very strong incentives to be biased in its favor. AL4 is very sympathetic to and favorable

towards corporate defendants. (c) AAA's arbitrators know that there are numerous other providers of arbitration services,

and a ' s development staff directly competes for corporate business with other providers such as

JAMS and the National Arbitration Forum. All or nearly all of the business for AAA's for-profit
arbitrators comes from having corporations designate AAA as the arbitration service provider for the corporations' customers in their standard form contracts. AAA has a development team that focuses upon convincing corporations to select it as the corporations' arbitration service providers.

(d)

A M ' S arbitrators know that if they were to rule for consumers too often by the

standards of the corporations selecting them or their defense lawyers, or enter awards for consumers that were too large by the standards of these corporations and their defense lawyers, these companies would cancel or not renew their contracts with the M A , and the arbitrators would lose this lucrative business. (e) In addtion to the filing fees that AAA receives when cases are lodged with it, and the

arbitrators' fees that its arbitrators receive for handling particular cases, A A A also receives regular and substantial cash stipends, retainers, or payments from a large number of corporations.

(9

AAA

regularly files amicus briefs with courts that support the efforts of corporate

defendants to force individuals to submit their claims to arbitration. In a series of cases before the United States Supreme Court and other courts, AAA has filed supposedly "neutral" amhis briefs that were purportedly in support of neither party. In each'of these cases, a corporate defendant was attempting to compel an individual claimant to arbitrate his or her claims, and the individual claimant was seeking to pursue his or her constitutional right to have his or her day in court and right tb a trial by jury. In each case, despite M ' s chims of neutrality, M ' s amirtir brief set forth legal and/or factual arguments in support of compelling arbitration in these cases, which was the ultimate position sought by the corporate defendant and opposed by the inchidual plaintiff. After AAA filed an ostensibly neutral brief with the Supreme Court in a recent case involving employment dsputes, one

A M arbitrator wrote AAA that "Taking the strong position the Association took in this brief, where
half of its clients in the employment arena unseemly, but destroys M
-

claimants

take the opposing position, is not only

s hard earned neutrality." MichaelJoe, Embattled Brit$ AAA Faces Ct;;ticism

from Two ( I t s Ownfir Weighing In On a Mandatory A D R Case, THE RECORDER, September 27, 2000
(quoting Oakland arbitrator R. Elaine Leitner).

rirL4 also sometimes assists corporations in their efforts to pitch their mandatory

arbitration clauses to individual consumers and/or employees. In a case involving Red Lobster Restaurants, for example, a man identified as Bruce Chapin, an AiA arbitrator, appeared in a corporateproduced video tape aimed at convincing employees to accept Red Lobster's new mandatory arbitration policy. When an employee (or an actor pretending to be an employee) asks about the right to a jury trial, Mr. Chapin states: "Certainly anyone who is ever charged with a crime should insist upon a jury trial. But in a civil setting, a dispute in the workplace, for instance, this is not a matter that would be best tried in front of a jury." Thus, A4.A is so eager to help corporate clients impose mandatory predispute arbitration upon individuals that its representatives will urge those individuals to conclude that it is "best" for them to waive their constitutional rights.
Q

In a number of cases with mandatory pre-dispute arbitration clauses specifying AAA as

'the arbitration service provider, individual claimants have initiated the arbitration process against corporations only to have A4.A select an arbitrator who was in the same business as the corporate defendant or who represented ,other corporations in that business, or to identify a list of potential arbitrators primarily or solely composed of such individuals. (i) The plaintiff is informed and believes that M ' s arbitrators are overwhelmingly and

disproportionately drawn from the ranks of attorneys who principally represent corporations in defending actions brought by individuals. (j)

AAA places such an emphasis on developing new lucrative corporate business that in

its San Francisco office Paul Loon, the Regional Vice President of AAA, on January 14,2000, sent a memorandum to all AAA arbitrators in that area asking for the arbitrators' help, as "[part of our marketing effort for 2000 will be to develop business contracts with corporations headquartered in Northern California." He asked the arbitrators to "make the introduction for us" to any contacts they

might have with any corporation listed on an attachment to the memo. This memorandum was circulated despite the fact that M ' s Code of Ethics, for Arbitrators in Commercial Disputes states, Canon I at B, that "[ilt is inconsistent with the integrity of the arbitration process for persons to solicit appointment for themselves."
(k)

AAA represents that individuals forced to arbitrate their claims before it will have their

rights protected by its Consumer Due Process Protocol, a set of rules that AAA asserts will protect the rights of consumers required to take part in mandatory arbitration. In fact, despite its representations to the contrary, AAA regularly administers arbitrations or otherwise endorses the validity of mandatory pre-dispute arbitration clauses that do not comply with its Due Process Protocol. In at least one case,

AAA refused to even respond to correspondence from individuals facing a motion to compel arbitration
(or to correspondence from state and elected officials writing on the indviduals' behalf) that requested that AhA state that it would not administer arbiuation pursuant to an arbitration clause that did not comply with M ' s Consumer Due Process Protocol. In February of 2000, one M A representative
..
.

publicly announced t h a t M had never yet refused to administer arbitration under an arbitration clause on the grounds that it did not comply wish.its Dug ~ r o c e s s Protocol.
( ) AAA holds securities, stocks and/or other financial interests in a number of finance l

companies that appear before the AAA for arbitration.

88.

Said compulsory arbitration form purports to: (a) take away the consumer's constitutional right to a jury trial; take away the consumer's right to pursue class claims; subject the consumer to creditor friendly arbitrator; and take away from the consumer any meaningful right to judicial review and appeal.

(b)
(c)

(d)

89.

A mutual and impartial decision maker is an essential element of due process and
art. W. V.i. COPU'ST. I11 lo.

fundamental fairness implicit therein. 90.

The lcnders' form compulsory arbitration clause or rider - which mandates that all

claims arising out of a consumer transaction be submitted to a lender-designed decision maker lacking neutrality and impartiality,when the compensation for individual decision makers encourages judgment in favor of lenders is unconscionable and in violation of West Vi'ginin Code section 46A-2-121 and therefore unenforceable as a matter of West Virginia law.

WHEREFORE, the plaintiff respectfully prays for judgment as follows:

(a) That this Court enter declaratory judgment that the so-called arbitration clause

is void and unenforceable.

(b)

That this Court award a civil penalty in the amount of $3500, as prescribed by

'West Vi~inio sections 46-A-2-101 (1) & (106). Code

(c)

That this Court award attorney's fees and costs and such other relief as it may
.. .

deem reasonable and just.

COUNT XI11 - LACK OF MUTUALITY OR AGREEMENT

9 1.

The plaintiff incorporates paragraphs one though ninety by reference. (a) The plaintiff had no understanding of tlus form compulsory arbitration

92.

agreement or of its contents, let alone its drastic legal ramifications, such as waiver of her legal rights.
@)

There was never any discussion, negotiation, or even mention of the arbitration

agreement. Indeed, the plaintiff does not even know what arbitration is.

93.

The so-called arbitration rider purports to require the plaintiff to submit all claims to

arbitration but permits the defendants to pursue legal remedies without arbitration in certain circumstances.

94.

The plaintiff does not possess equal bargaining power with the defendants. The

defendants are sophisticated, predatory home-equity lcnders who use agents to solicit long-term, lowrisk home equity loans on terms clearly unfavorable to borrowers. The defendants specifically target unsophisticated consumers like the plaintiff. ,

95.

There is no independent enforceable compulsory arbitration clause that is or was part

of the agreement between the parties.

WHEREFORE, the plaintiff respectfully prays for judgment as follows:

(a) That this Court enter declaratory judgment that the so-called arbitration clause

is void and unenforceable. @) That this Court award attorney's fees and costs and such other relief as it may

deem reasonable and just.

COUNT XIII - UNCONSCIONABLE TERMSAND INDUCEMENT

96.
The plaintiff incorporates paragraphs one through ninety-five by reference.
..
,

97.

The so-called compulsory arbitration clause standing alone is unconscionable and in

igna violation of West Vrii Code section 46A-2-121 (l)(a) because of the unequal bargaining power
between the parties and other terms and conditions which were induced by unconscionable conduct.

WHEREFORE, the plaintiff respectfully prays for judgment as follows:

(a) That this Court enter declaratory judgment that the compulsory arbitration clause

is void and unenforceable.

@)

That this Court award a civil penalty of $3500, attorney's fees and costs and such

other relief as it may deem reasonable and just.

COUNT XI11 - THE SO-CALLED ARBITRATION CLAUSE CONTRAVENES PUBLIC POLICY

98.

The plaintiff incorporates paragraphs one through ninety-seven by reference.

99.

Thc ctcfendants' so-called compulsory arbitration clause standing alone is so one-sided

and is used in a context not involving consensual transactions between merchants of equal bargaining power but rather transactions between a large lender and much weaker and less knowledgenble consumers, and therefore it does not further any policy favoring arbitration and it is' against the public policy of the State of West Virginia and therefore void and unenforceable. W H E R E F O R E , the plaintiff respectfully prays for judgment as follows: (a) That this Court enter declaratory judgment that the so-called arbitrarion clause

is void and unenforceable;

(b)

That this Court award attorney's fees and costs and such other relief as it may

deem reasonable and just.

PLAINTIFF DElMANDS A TRIAL BY JURY ON ALL ISSUES SO TRIABLE.

,-

By Counsel.

'Bren J. Pomponio (WV Bar ID # 7774) Mountain State Justice, Inc. 922 Quarrier Street, Suite 525 Charleston, West Virginia 25301 (304) 344-3144 (304) 344-3 145 fax