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Chapter 14 Fraudulent Spanish-Language Representations of

Mortgage Refinancing Terms (OR)

Phil Goldsmith has practiced consumer law in Portland, Oregon, for nearly 25 years,representing plaintiffs in class actions and individuals with financial institution problemsincluding predatory lending cases, at Law Office of Phil Goldsmith, 222 SW Columbia Street,Suite 1600, Portland, OR 97201, (503) 224-2301, Fax: (503) 222-7288, [email protected] 1987, he has been the principal in a one- or two-lawyer firm. He is a 1978 graduate of theYale Law School. He served as co-lead counsel in Vasquez-Lopez v. Beneficial Oregon, Inc., apredatory lending case which resulted in a jury verdict in January, 2004 that included $500,000in punitive damages. The punitives have subsequently been reduced on post-trial motions andthe case is currently on appeal. Other recent significant cases include: Bruce v. EarthLink , a classaction for degraded Internet service which resulted in a $2,000,000 settlement; Hutson v. US

Bank, National Association, a wage and hour class action which settled on terms favorable to theplaintiff class; and Rosted v. First USA Bank , a nationwide class action challenging a credit card

bait and switch scheme, which settled with non-monetary class relief valued by the court asbeing in excess of $86 million. He was a panelist at the 2004 NCLC predatory lending mini-conference session on trying predatory lending cases. He previously has spoken at NCLC andNACA conferences on credit card litigation and attorney fees in class actions. He is currently amember of NACA’s legislative committee.

Section 14.1 is a complaint against a mortgage lender for actual, statutory and punitivedamages for fraudulently misrepresenting in the consumers’ native language of Spanish theannual percentage rate and that the monthly payment included escrows for taxes and insurance ina refinancing of the consumer’s mortgage. Section 14.2 is a request for production of thelender’s documents regarding the loan and its lending policies. Section 14.3 is the consumers’memorandum of law arguing that arbitration should not be compelled as the lender’s arbitration

clause was unconscionable. Section 14.4 is the consumer’s affidavit in opposing arbitrationstating that the consumer did not read English, that the lender’s Spanish speaking did not informthem of the arbitration clause, and it would take six months to save the $1000 necessary toinitiate arbitration.

Section 14.5 is the consumers’ supplemental trial brief arguing that even if it is shownthat the consumer misrepresented information on the credit application given to the lender thatthe defense of in pari delicto does not necessarily apply. It argues that Truth in Lending (TIL)damages are available for the lender’s failure to rescind the transaction. It argues that an uncleanhands defense does not apply to a TIL claim and that the preponderance of evidence standardapplies to a TIL claim.

Section 14.6 is the consumers’ proposed jury instructions.

Section 14.7 is the consumers’ response to the lender’s post-trial motions. Theconsumers argued that the court properly directed a verdict against the lender’s defenses, that the jury could not infer that the consumers understood their tax returns when the consumers did notunderstand English, that the expert could not establish whether the lender relied on theconsumers’ tax returns in deciding to extend credit, and that $500,000 in .punitive damages wasnot excessive where actual damages awarded were $45,000 given the potential harm theyavoided by quick action.

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14.1 Complaint

IN THE CIRCUIT COURT FOR THE STATE OF OREGON

FOR THE COUNTY OF MULTNOMAH

[CONSUMER 1] and [CONSUMER 2], husband and wife;

Plaintiffs,

v.

BENEFICIAL OREGON, INC., dba BENEFICIAL MORTGAGE, CORP., a foreign company;

Defendant.

Case No.

SECOND AMENDED COMPLAINT

(Misrepresentation; Truth in Lending Act; ORS 86.720(1))

Not subject to mandatory arbitration

INTRODUCTION

1. [Consumer 1] and [Consumer 2] are a low-income couple with good credit who had a

first mortgage home loan at a prime rate. Beneficial Mortgage, Corp. is a subprime mortgagecompany that primarily serves people with imperfect credit records by making home loans atrates substantially above prime rates. After plaintiffs obtained a small second mortgage throughBeneficial, plaintiffs allege that Beneficial took advantage of their inability to read English byorally promising them in Spanish to consolidate their two mortgage loans into a single loan at a7.8% fixed rate, while having them sign documents in English for a loan at a 12.987% rate.Beneficial further falsely represented that the new loan provided for an escrow reserve accountthat would insure the prompt payment of taxes and insurance, which precipitated a financialemergency for them when they later received notice from Multnomah County that their taxes hadnot been paid.

The plaintiffs paid off their mortgage through Beneficial in April of 2002 by refinancing

with another lender. Following the pay-off, Beneficial did not reconvey their interest in theproperty to the plaintiffs within the time period required in ORS 86.140 and ORS 86.720(1).Beneficial also made six attempts, two of which were successful, to automatically deduct fundsfrom a checking account owned by [Consumer 2] after the loan had been paid off.

PARTIES

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2. The plaintiffs, [Consumer 1] and [Consumer 2], are natural persons. Plaintiffs own ahome located at [Address], Portland, Oregon, which is and has been at all times material to thisaction their principal residence.

3. Beneficial Oregon, Inc., operating under the assumed business name BeneficialMortgage, Corp. (“Beneficial”), is a foreign company authorized to do business in Oregon.

4. At all times relevant to this action, Beneficial regularly extended or offered to extendconsumer credit for which a finance charge is or may be imposed or which, by writtenagreement, is payable in more than four installments, making it a creditor under the Truth inLending Act (“TILA”), 15 USC § 1602(f) and Regulation Z, 12 CFR § 226.2(a)(17).

FACTUAL ALLEGATIONS

5. Plaintiffs were born in Mexico; Spanish is their native language. [Consumer 2] hasextremely limited spoken English skills, but cannot read or write English at all. [Consumer 1]has no ability to speak, understand, read or write English.

6. Prior to plaintiffs’ transactions with Beneficial, the purchase of their home was

financed through Continental Mortgage at a competitive prime rate.7. In approximately 1998, Beneficial began mailing plaintiffs unsolicited loan offers inthe form of checks payable to plaintiffs that would create a credit obligation in the plaintiffs if cashed (“live checks”). The offers were in English; a relative explained them to plaintiffs inSpanish. In response to Beneficial’s offers to lend them money, the plaintiffs contacted the localBeneficial office at 3671 SW Hall Blvd., Beaverton, Oregon, about borrowing funds to reroof their home.

8. In connection with each transaction between Beneficial and the plaintiffs, plaintiffswere assisted by a Beneficial employee named Joel Higgins (“Higgins”) who spoke with themexclusively in Spanish. At all material times, Higgins was an employee of Beneficial actingwithin the course and scope of his duties, for the benefit of his employer. Higgins knew thatplaintiffs could not read English and therefore would not understand the written disclosuresgiven to them in English by Beneficial.

9. On October 6, 2000, the plaintiffs signed papers on a loan with Beneficial secured bya second trust deed on the plaintiffs’ home. Plaintiffs borrowed $14,953.66, and were chargedloan fees of $990.66. The plaintiffs were sold single-premium credit life and disabilityinsurance, for which they paid premiums that totaled $2,948.78. The annual percentage rate(APR) disclosed in English on the Truth in Lending disclosure form given to plaintiffs inconnection with the loan was 23.23%.

10. Through Higgins, Beneficial approached the plaintiffs less than four months later,offering to consolidate the Beneficial loan made on October 6, 2000 with their existing firstmortgage, which was at an interest rate close to existing market rates. Higgins verballyrepresented that the consolidation loan Beneficial was offering had a fixed APR of 7.8%. Heassured them that their monthly payment would include amounts escrowed for the payment of property taxes and hazard insurance.

11. On January 25, 2001, plaintiffs signed papers for a Beneficial loan combining theirexisting mortgage with the October 6, 2000 Beneficial loan to create a consolidated loan securedby a first trust deed on their home (hereinafter the “consolidated loan”). In this transaction,plaintiffs borrowed $104,808.26, and were charged loan fees of $9,638.71. The plaintiffs wereagain charged for single-premium credit life insurance in the amount of $3,698.50. Contrary to

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Higgins’ verbal representations, the annual percentage rate (APR) disclosed in English on theTruth in Lending disclosure form given to plaintiffs in connection with the loan was 12.987%.

12. Plaintiffs’ payments on the consolidated loan, after it closed, were made bybimonthly automatic deductions from [Consumer 2]’s checking account held by U.S. Bank.

13. In November 2001, plaintiffs received a notice from the Multnomah County

assessor’s office that indicated that their property taxes had not been paid. A relative of theplaintiffs with facility in English translated the notice for plaintiffs. On their behalf, he calledBeneficial to determine why it had not paid the taxes from the amounts deposited in escrow. TheBeneficial representative informed the plaintiffs’ relative that Beneficial was not responsible forpaying the plaintiffs’ taxes, and that plaintiffs should “read their paperwork.”

14. The English-language documents signed by plaintiffs in connection with theconsolidated loan disclosed that it was a non-escrow loan.

15. Plaintiffs are wage-earners with minimal cash savings, whose home is their solesignificant asset. [Consumer 1] and [Consumer 2] make $7.50 and $7.21 per hour, respectively,working in manufacturing. When plaintiffs were making payments on the consolidatedBeneficial loan, their monthly principal and interest payment was $1212.36, not including annual

taxes of approximately $1700.00 and hazard insurance premiums. The monthly paymentequaled forty-four percent (44%) of the plaintiffs’ combined monthly gross wages as determinedby Beneficial.

16. On April 2, 2002, plaintiffs refinanced the consolidated Beneficial loan with a loanmade by another lender.

17. On April 1 and 16, and on May 1, 6, 17, and 22, 2002, Beneficial attempted towithdraw funds from [Consumer 2]’s checking account in the amount of the previous bi-monthlyautomatic payment withdrawals, though the consolidated loan had been paid off. Beneficialsuccessfully withdrew $1217.36 from [Consumer 2]’s account when it made the first twowithdrawals, but the rest were rejected due to insufficient funds.

18. Plaintiffs made a demand for the return of the funds wrongfully withdrawn from[Consumer 2]’s checking account. Beneficial refunded only one of the payments withdrawn, inthe amount of $608.17, prior to the filing of this lawsuit.

19. Beneficial’s trust deed against the plaintiffs’ property was reconveyed on July 24,2002, more than 90 days after plaintiffs paid off their loan. The reconveyance was recorded inMultnomah County on August 6, 2002.

FIRST CLAIM FOR RELIEF – MISREPRESENTATION

20. Plaintiffs reallege and incorporate by reference paragraphs 1 through 15.21. In his capacity as an employee of Beneficial, Higgins made the following false

verbal representations to plaintiffs in Spanish:A. The interest rate of the consolidated loan made to plaintiffs by Beneficial in

January 2001was fixed at 7.8%.B. Plaintiff’s monthly mortgage payment on that loan of $1212.36 included an

amount that would be set aside by Beneficial in an escrow account to pay theplaintiffs’ taxes and hazard insurance.

22. Higgins knew the representations alleged in paragraph 21 were false, and made thoserepresentations to induce the plaintiffs to enter into a loan transaction with Beneficial. Beneficialknew that the plaintiffs’ preexisting first mortgage included an escrow account for tax and

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insurance reserves. Plaintiffs would not have entered into the consolidated loan with Beneficialif they had known that either or both of the representations described in paragraph 21 were false.

23. After plaintiffs discovered the false representations, they obtained a commitment fora new first mortgage loan at a 7% note rate (“the replacement loan”). Beneficial demanded aprepayment penalty for the early payoff of the consolidated loan. The sum of the prepayment

penalty and the outstanding balance on the consolidated loan exceeded the amount thereplacement lender was willing to loan. Accordingly, plaintiffs had to hire a lawyer at their ownexpense to negotiate a waiver of the prepayment penalty.

24. Plaintiffs’ first mortgage loan with Continental was for less than 80% of theappraised value of their home. The payoff amount of the consolidated loan, even after waiver of the prepayment penalty, made the replacement loan exceed 80% of the appraised value of theirhome. As a result, plaintiffs are required to pay for mortgage insurance on the replacement loan,a $62 a month expense which they did not have prior to 2001.

25. As a result of Beneficial’s misrepresentations, plaintiffs suffered the following out-of-pocket losses:

A. $8574.00 for loan fees (points) charged by Beneficial on the consolidated loan.

B. $3698.50 for credit life insurance on the consolidated loan less $1,664.75 whichwas refunded to them when they paid off the consolidated loan in April 2002.C. $1699.95 for a product described on the loan settlement statement for the

consolidated loan as H & A.D. $1064.00 for loan closing costs on the consolidated loan.E. $1,891.71 in interest at the consolidated loan note interest rate on the items

alleged in the prior four subparagraphs between the origination of theconsolidated loan on January 25, 2001 and its payoff on April 2, 2002.

F. Prejudgment interest on the items alleged in the prior five subparagraphs fromApril 3, 2002 onward.

G. $5,079.24 in increased interest on the outstanding balance of the Continental firstmortgage loan between the origination of the consolidated loan on January 25,2001 and its payoff on April 2, 2002, together with prejudgment interest thereon.

H. $800.00 for the attorney fees alleged in paragraph 23 with prejudgment interestthereon.

I. $7600.00 for the mortgage insurance premiums alleged in paragraph 24, togetherwith prejudgment interest thereon.

26. The financial crisis that resulted from the unexpected need to pay taxes out of theirown funds caused both plaintiffs severe emotional distress. Following the discovery thatBeneficial had lied to plaintiffs about the existence of a tax and insurance reserve, both plaintiffsexperienced extreme stress. [Consumer 1] felt extremely angry and worried about whether heand [Consumer 2] would be able to pay their living expenses and the unexpected tax bill.[Consumer 2] suffers from preexisting health problems, including high blood pressure anddiabetes, and worried about the effect of the stress on these conditions. She also suffered boutsof depression and crying, and was too upset to work for two days following the discovery of Beneficial’s fraud. As a result, [Consumer 2] suffered general damages in the amount of $20,000.00; [Consumer 1] suffered general damages in the amount of $15,000.00.

27. Defendant’s misrepresentations to plaintiffs were made with malice; alternatively,defendant has shown a reckless and outrageous indifference to a highly unreasonable risk of

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harm and has acted with a conscious indifference to the welfare of others, warranting an awardof punitive damages in the amount of $1,000,000.00.

SECOND CLAIM FOR RELIEF – TRUTH IN LENDING ACT

28. Plaintiffs reallege and incorporate by reference paragraphs 1 through 15.29. Beneficial’s consolidated loan to plaintiffs was a consumer credit transaction subjectto the plaintiffs’ right of rescission pursuant to TILA, 15 USC § 1635, and Regulation Z, 12 CFR§ 226.23.

30. Beneficial failed to clearly and conspicuously deliver all material disclosuresrequired by TILA. At the consummation of the consolidated loan transaction, Beneficial’s agentverbally represented in Spanish an annual percentage rate that conflicted with the rate stated inthe English language TILA disclosure form presented to plaintiffs. Beneficial’s agent alsorepresented that tax and insurance impounds would be included in plaintiffs’ monthly mortgagepayments. Accordingly, Beneficial:

A. Failed to clearly and conspicuously disclose the annual percentage rate, in

violation of 12 CFR § 226.18(e) and 15 USC § 1638(a)(4); andB. Failed to clearly and conspicuously disclose the amounts of payments scheduledto repay the obligation, in violation of 12 CFR § 226.18(g) and 15 USC §1638(a)(6).

31. Pursuant to 15 USC §1635(a) and 12 CFR § 226.23(a)(3), the plaintiffs had acontinuing right to rescind the consolidated transaction until the third day after receivingaccurate, material disclosures described in paragraph 30. The plaintiffs never received accuratematerial disclosures.

32. On March 12, 2002, the plaintiffs rescinded the transaction by sending a notice of rescission to Beneficial via certified mail.

33. Beneficial received the notice of rescission on or about March 19, 2002. More than20 calendar days have passed since the defendant received a copy of plaintiffs’ notice of rescission.

34. On April 2, 2002, plaintiffs refinanced the consolidated loan with a new lender.Beneficial has failed to return to the plaintiffs the moneys required by 15 USC § 1635(b) and 12CFR § 226.23(d)(2).

35. As a result of the aforesaid violations of TILA, pursuant to 15 USC § 1635(a) and1640(a), Beneficial is liable to plaintiffs for:

A. Return of any money or property given by the plaintiffs to anyone in connectionwith this transaction, including all loan fees paid to Beneficial in connection withthe loan and all payments made by plaintiffs (approximately $26,612.00), plusprejudgment interest.

B. Statutory damages of $2,000.00.C. Reasonable attorney fees and costs.

THIRD CLAIM FOR RELIEF– ORS 86.720(1)

36. Plaintiffs reallege and incorporate by reference paragraphs 1 through 4, 11, 16, and19.

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37. Beneficial, as beneficiary of the trust deed executed by plaintiffs on January 25,2001, had an obligation under ORS 86.720(1) to request reconveyance of the instrument within30 days of discharge of the underlying obligation it secured.

38. On information and belief, Beneficial failed to timely request that the trusteereconvey its interest to the plaintiffs.

39. As a result of the foregoing violation, under ORS 86.720(1), 86.720(9), and 86.140,Beneficial is liable to plaintiffs for:A. A statutory penalty of $500.00.B. Reasonable attorney fees and costs.

WHEREFORE, plaintiffs pray for:1. On the First Claim for Relief, actual damages in the amount of $63,742.65 together

with prejudgment interest, and punitive damages in the amount of $1,000,000.00;2. On the Second Claim for Relief, damages in the amount of $28,612.00 together with

prejudgment interest;3. On the Third Claim for Relief, a statutory penalty in the amount of $500.00 together

with prejudgment interest;4. Attorneys fees pursuant to 15 USC § 1640(a)(3) and ORS 86.720(9);5. Reasonable costs of the action;6. Such other and further relief as the Court deems appropriate.

DATED this day of , 2004.

Attorneys for Plaintiffs

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14.2 Request for Production of Lender’s Loan Documents and Policies




Plaintiffs,

v.


Defendant.

Case No.

PLAINTIFFS’ FIRST REQUEST FOR PRODUCTION OF DOCUMENTS

INSTRUCTIONS

In accordance with ORCP 36 and ORCP 43, plaintiffs request that you produce forcopying and inspection by plaintiffs’ attorneys, in accordance with the definitions andinstructions set forth herein, the documents described below which are or have been in yourpossession, custody or control. These documents shall be produced 45 days after the service of the summons in this case at the Law Office of [Attorney for Plaintiffs] or at such other time and

place as counsel for the parties may agree.This request for production shall be deemed to be continuous through the trial of thiscase. In the event you create, receive or become aware of any document responsive to therequests below after the date set for production, you shall produce such document promptly.

In responding to these requests, documents shall be segregated by the request number towhich they are responsive. Any information responsive to these document requests which iscontained in any computer input, database or memory, including machine readable disks, tapesor cards, or any other medium, should be produced in the form of computer printouts and in anelectronic form that is easily readable. Whenever a computer printout or other output isproduced, a glossary of all computer symbols or codes appearing on such documents shall alsobe produced. All documents that respond, in whole or in part, to any portion of these requests

shall be produced in their original form and any non-identical copies.If any document was, but is no longer, in your position or subject to your control, statewhether it : (a) Is missing or lost; (b) Has been destroyed; (c) Has been transferred, voluntarily orinvoluntarily; and (d) Has been otherwise disposed of, and in each instance explain thecircumstances surrounding said disposition and state the date or approximate date.

If any document is withheld, in whole or in part, for any reason, including but not limitedto any claim of privilege, confidentiality or trade secret, set forth with respect to each document:(a) The nature of the document (e.g., memorandum, letter, computer tape, etc.); (b) The author or

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preparer; (c) The addressee of the document; (d) The present custodian of the document; (e) Thedate of the document; (f) The identity of all persons who have been shown a copy of thedocument; (g) The subject matter of the document; (h) A brief statement or synopsis of thematter dealt with in the document and the circumstances surrounding the making of thedocument; (i) Each and every basis in fact and law relied upon for withholding the document. If

you claim only a portion of a document is privileged, the remainder of the document must beproduced after excision of the privileged portion.

DEFINITIONS

The following definitions apply to the Request for Production set forth below. They areintended as an elaboration upon the terms used in the Request for Production. Thus, eachresponse must take cognizance of the defined terms in order to be complete, full and accurate.

1. The term “you” and “your” means Beneficial Mortgage, Corp., its present and formerofficers, directors, employees, agents and all other persons acting or purporting to act on itsbehalf.

2. “Documents,” as used in these requests, is a comprehensive term. It includes allprinted, graphic, or recorded items subject to production and inspection under ORCP 43 A, aslong as it is within your possession or control. Information stored or recorded electronically,optically, magnetically or on any form of tape is within the definition of “documents.”

3. “In the possession of the defendant” is a comprehensive term. It includes alldocuments within the possession or control of defendant or any of its officers, directors,employees, attorneys, other agents, principals, or affiliated entities.

4. “Mortgage” is defined for the purposes of this request to include any and all loansmade by you to a borrower in which you obtained a security interest in real property.

DOCUMENTS REQUESTED

1. All documents contained in your loan origination files for each mortgage loan madeby you to plaintiffs.

2. All loan applications, documents used to assess the creditworthiness of plaintiffs,property appraisals, instructions, notes, forms, and other documents in your possession B otherthan those contained in the loan origination files referred to in request number 1 — pertaining toany mortgage loans made by you to plaintiffs.

3. All disclosure statements or other notices of plaintiffs’ rights given by you to plaintiffsin connection with any mortgage loan made by you to plaintiffs.

4. All accountings, ledger cards, ledger sheets, or other documents, including computerdata, reflecting payments, charges, and costs incurred on any of plaintiffs’ mortgage loans.

5. All correspondence in your possession, custody, or control between anyoneconcerning any mortgage loan made by you to plaintiffs.

6. All telephone log sheets or other internal memoranda or notes in your possession,custody, or control concerning any of the mortgage loans made by you to plaintiffs.

7. All documents containing the statements, recollections, or impressions of witnesseswith knowledge of any aspect of any mortgage loan made by you to plaintiffs, whether preparedby your employees, customers or agents or others.

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8. All other notes, transcriptions, or voice recordings of communications between youand anyone else concerning any mortgage loan made by you to plaintiffs.

9. Personnel files of Joel Higgins and any other of your employees or agents who wereinvolved in the origination of any mortgage loan made by you to plaintiffs.

10. All documents indicating termination or discipline recommended, planned, or

effected concerning Joel Higgins.11. Records of any meetings between your employees and the plaintiffs, including butnot limited to calendars, schedules and time sheets.

12. Copies of any computer file, including email, that concerns any of the mortgageloans made by you to plaintiffs.

13. All documents relating to any internal procedures you used during January 2001:a. to insure that loan documents complied with the Truth in Lending Act;b. to insure that loan originating employees understood the Truth in Lending Act;c. to insure that loan originating employees’ verbal representations to borrowers

were made in compliance with the Truth in Lending Act;d. to insure that your borrowers had adequate income to meet their mortgage

payments and other obligations;e. to apprise you of possible violations of the Truth in Lending Act.14. All documents relating to your compliance with the Truth in Lending Act in

connection with the mortgage loans made by you to plaintiffs.15. Copies of both sides of each and every check issued by you in connection with any

mortgage loan made by you to plaintiffs, including but not limited to:a. Your check(s) made payable to plaintiff(s);b. Your check(s) made payable to Joel Higgins;c. Your check(s) made payable to Continental Mortgage;d. Your check(s) made payable to yourself.16. All documents reflecting commissions or bonuses paid to Joel Higgins (or any other

of your employees or agents) in connection with any of the mortgage loans made by you toplaintiffs.

17. Copies of every document you recorded with the Multnomah County recorder’soffice in connection with any mortgage loan made by you to plaintiffs.

18. Your creditworthiness standards for mortgage borrowers in effect in (a) Septemberand October, 2000 and (b) January, 2001, including but not limited to your maximumpermissible debt to income ratio.

19. Copies of all pages of Derek Warren’s notarial journal that include plaintiffs’signatures in connection with any mortgage loan made by you to them.

20. All documents not produced in response to any prior discovery request that relate toany of plaintiffs’ mortgage loans with you.

21. The promissory notes for all mortgage loans made by you between October 25, 2000and April 25, 2001 at an APR of 7.8% or lower.

22. A copy of any insurance agreement or policy under which a person transactinginsurance may be liable to satisfy part or all of a judgment which might be entered in this actionor to reimburse for payments made to satisfy the judgment.

23. A copy of the most recent complaint from every case which was filed in court againstyou by a mortgage borrower subsequent to January 1, 1999.

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24. A copy of the most recent counterclaim brought against you by any mortgageborrower in any case which you filed in court subsequent to January 1, 1999.

25. For every dispute in arbitration which was filed subsequent to January 1, 1999 inwhich a mortgage borrower has made claims or counterclaims against you, the documents bywhich that person raised those issues.

26. Any training manuals for your employees who interviewed potential mortgageborrowers or who were otherwise involved in the mortgage loan origination process that were inexistence in September or October, 2000.

27. Any training manuals for your employees who interviewed potential mortgageborrowers or who were otherwise involved in the mortgage loan origination process that were inexistence in January, 2001.

28. All policies and procedures that were in effect at any time between September 1,2000 and March 1, 2001 which defined the circumstances under which your contractualdocuments would be translated into a language other than English for either (a) those customersknown by you to be literate in that language but not English or (b) those customers with whomyou had orally communicated primarily or exclusively in that language.

29. All policies and procedures other than those produced in response to request no. 29that were in effect at any time between September 1, 2000 and March 1, 2001 to ensure that yourcontractual documents were consistent with the oral representations which had been made tocustomers who were not literate in English or with whom you had orally communicatedprimarily or exclusively in a language other than English.

30. All policies and procedures in effect at any time between September 1, 2000 andMarch 1, 2001 to ensure that any borrower who refinanced through you a pre-existing firstmortgage loan at an interest rate higher than the borrower had been previously paying was notacting out of mistake, misunderstanding or the like but instead understood the economicconsequences of refinancing.

Attorneys for Plaintiffs

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14.3 Consumers’ Brief Opposing Enforcement of Arbitration Clause as

Unconscionable




Plaintiffs,

v.


Defendant.

Case No.

PLAINTIFFS’ OPPOSITION TO DEFENDANT’S MOTION TO COMPEL

ARBITRATION

I. INTRODUCTION

Federal district courts in Washington and California have recently struck down asunconscionable the very arbitration rider which defendant Beneficial Oregon, Inc. (“Beneficial”)asks this Court to enforce. Luna v. Household Finance Corp., 236 F Supp 2d 1166, 2002 US

Dist LEXIS 21761 (WD Wash 2002); ACORN v. Household International, Inc., 211 F Supp 2d1160 (ND Cal 2002). Beneficial simply ignores these authorities. This memorandum will showthat Luna and ACORN are persuasively reasoned, so that Beneficial’s motion to compelarbitration should be denied.

The two points argued in Beneficial’s brief, while correct under existing law,1 ignore theheart of this controversy. The central issue is, as it was in ACORN and Luna, “whether there aregrounds 'at law or in equity' for not enforcing" Beneficial’s arbitration rider. ACORN , supra, 211F Supp 2d at 1167, citation and quotations omitted. See also Luna, supra, 2002 US Dist LEXIS21761 at *9-11.

The Federal Arbitration Act provides that an agreement to arbitrate can be invalidated“upon such grounds as exist at law or in equity for the revocation of any contract.” 9 USC §2.

In other words, “generally applicable contract defenses, such as * * * unconscionability, may beapplied to invalidate arbitration agreements.” Doctor’s Associates v. Casarotto, 517 US 681,687 (1996). As will be shown, Beneficial’s arbitration rider is unconscionable and thereforeunenforceable.

1 Plaintiffs contend that the United States Supreme Court in Southland Corp. v. Keating, 465 US 1 (1984),incorrectly decided that the Federal Arbitration Act applies to cases filed in state court, but recognize that theOregon courts are obligated to follow Southland .

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II. BENEFICIAL’S ARBITRATION RIDER IS UNCONSCIONABLE

A. INTRODUCTION

In determining whether an agreement to arbitrate is valid, courts "apply ordinary state-

law principles that govern the formation of contracts." First Options, Inc. v. Kaplan, 514 U.S.938, 944 (1995). Under Oregon law, unconscionability is determined “under the circumstancesexisting at the time of the making of the contract.” W.L. May Co. v. Philco-Ford Corp., 273 Or701, 707, 543 P2d 283 (1975), quoting Uniform Commercial Code §2-302, Comment 1.

In most jurisdictions, a party claiming unconscionability must establish both proceduraland substantive defects. E.g., ACORN , supra, 211 F Supp 2d at 1168 (California law). But

compare Luna, supra, 2002 US Dist LEXIS 21761 at *12 (under Washington law, eitherprocedural or substantive defects establish unconscionability). Because this issue has not beendecided under Oregon law,2 this memorandum will show that both elements exist here.3

B. PROCEDURAL UNCONSCIONABILITY

The procedural component of unconscionability “focuses on two factors: oppression andsurprise. Oppression arises from an inequality of bargaining power which results in no realnegotiation and an absence of meaningful choice. Surprise involves the extent to which thesupposedly agreed-upon terms of the bargain are hidden in a prolix printed form drafted by theparty seeking to enforce the disputed terms.” ACORN , supra, 211 F Supp 2d at 1168.

Many courts have held the procedural component is satisfied if the agreement is acontract of adhesion. E.g., id. (applying California law). But see Luna, supra, 2002 US DistLEXIS 21761 at *15 (contract of adhesion insufficient to establish procedural unconscionabilityunder Washington law).

4Under Oregon law, a contract drafted by a lender is a contract of

adhesion if the borrowers had “no opportunity to negotiate its terms.” Derenco, Inc. v. Benj.

Franklin Federal Savings & Loan Ass’n, 281 Or 533, 552, 577 P2d 477, cert denied , 439 US1051 (1978).

The language of the arbitration rider here (Exhibit 2 to Beneficial’s motion) is identical tothe text of the arbitration rider quoted in Luna, supra, 2002 US Dist LEXIS 21761 at *4-7. And

2 The Oregon Supreme Court last addressed the doctrine of unconscionability in detail more than 25 yearsago in W.L. May, before the procedural/substantive distinction had generally been recognized.

3 Although unconscionability is a question of law for the court, ORS 72.3020(2) directs that “the partiesshall be afforded a reasonable opportunity to present evidence as to [the] commercial setting, purpose and effect toaid the court in making the determination” of unconscionability. The time permitted for this response is too short toallow plaintiffs to obtain such evidence through discovery. For the reasons given in the text, plaintiffs believe thisCourt can conclude on the existing record that Beneficial’s arbitration rider is unconscionable. If this Court

disagrees, plaintiffs request that they be allowed to take discovery. 4 Jurisdictions which invalidate a procedurally unconscionable agreement that has no substantive defectsare less likely to accept that the existence of a contract of adhesion is enough to create procedural unconscionability.Jurisdictions which require both procedural and substantive elements use a balancing test so that “a contract that isninety-eight parts substantively unconscionable may require only two parts of procedural unconscionability torender it unenforceable and vice versa.” 1 White and Summers, Uniform Commercial Code, §4-7 at 231 (4th ed1995) (“White and Summers”). The latter jurisdictions are more willing to accept that a contract of adhesionsatisfies procedural unconscionability. While the Oregon appellate courts have not directly addressed this question, Blanchfill v. Better Builds, Inc., 160 Or App 527, 540 n8, 982 P2d 53 (1999) refers to “disparities in bargainingposition and use of standard form contracts” as “standard fare in unconscionability cases.”

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the Luna arbitration rider is the same as that involved in ACORN . 2002 US Dist LEXIS 21761 at*12. See also ACORN , supra, 211 F Supp 2d at 1172 n3 (“[d]efendants * * * have, since late1999 or early 2000, imposed the same arbitration agreement on all of their customers). Clearly,the arbitration rider is the kind of non-negotiable form which constitutes a

contract of adhesion under Oregon law.

In addition, the arbitration rider is written in English, a language which Beneficial knewneither plaintiff could read. Affidavit of [Consumer 1] at 1 (“[Consumer 1] Affidavit”);Affidavit of [Consumer 2] at 1 (“[Consumer 2] Affidavit”). A number of cases have foundprocedural unconscionability based “upon the consumer’s proven inability to read the languagein which the contract was printed.” 1 White and Summers, §4-3 at 216 and 216 n 20.

There are two ways a business can avoid the unconscionable surprise created by contractterms written in a language which the consumer cannot read. An employee of the business whospeaks the consumer’s language can translate the contract terms. Alternatively, the business canencourage the consumer to have a translator present at contract signing.

The plaintiffs’ affidavits establish that neither occurred here. The plaintiffs thus wereunaware of the substantively unconscionable elements of the arbitration rider until they consulted

a lawyer in 2002. In addition, they understood from the incorrect partial translation provided byBeneficial’s employee that arbitration did not prevent them from later going to court. [Consumer1] Affidavit at 1-2; [Consumer 2] Affidavit at 1-2.

In short, the arbitration rider is procedurally unconscionable both because its terms werenot negotiable and because Beneficial did not take the steps available to it to prevent theplaintiffs, who cannot read English, from being surprised by those terms.

C. SUBSTANTIVE UNCONSCIONABILITY

Substantive unconscionability “focuses on the harshness and one-sided nature of thesubstantive terms of the contract.” ACORN , supra, 211 F Supp 2d at 1169. Both ACORN and Luna concluded that the arbitration rider is substantively unconscionable for the followingreasons which are equally applicable here:

1. Costs of arbitration. The third paragraph of the arbitration rider requires theplaintiffs, in any arbitration they initiate, to pay half the forum filing fees (except the first $100),half the arbitrator costs for the first day of arbitration; and the entire arbitrator costs for anysubsequent proceedings.5 As a result, the cost of arbitration would likely exceed the cost of aproceeding in court by at least ten times. Luna, supra, 2002 US Dist LEXIS 21761 at *35-36 (“aborrower's cost for arbitration likely would exceed the cost of a court proceeding by at least afactor of ten”); ACORN , supra, 211 F Supp 2d at 1174 (“the cost of arbitration would beapproximately ten times the cost of bringing a similar action in State court”). Even Beneficial’scounsel has admitted that “in light of the provisions of the arbitration rider,” arbitration could be“quite expensive” for the plaintiffs. Motion to Compel Arbitration, Ex 3 at 1 (letter from TerryBaker to Phil Goldsmith dated December 23, 2002).

As a result, people of modest means like the plaintiffs are put “between the proverbialrock and a hard place [by] prohibit[ing] use of the judicial forum, where a litigant is not required

5 The first paragraph of the arbitration rider requires the arbitrator to be “a lawyer with more than ten yearsexperience or a retired or former judge.” According to the 2002 State Bar economic survey, the median hourly ratefor Portland lawyers having between 10-15 years experience is $180 an hour. Portland lawyers with greaterexperience have higher median hourly rates. Affidavit of Phil Goldsmith (“Goldsmith Affidavit”), Ex A at 4.

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to pay for a judge's services, and [imposing] prohibitive cost [which] substantially limit[s] use of the arbitral forum.” Shankle v. B-G Maintenance Managment , 163 F3d 1230, 1235 (10th Cir1999). If, for example, arbitrating this dispute would cost plaintiffs $1000, it would take themsix months to save this amount. [Consumer 1] Affidavit at 2; [Consumer 2] Affidavit at 2.

As the court said in Luna, supra, 2002 US Dist LEXIS 21761 at *38, “[b]ecause the costs

of arbitration are likely drastically to exceed the costs of pursuing the claims in court, theArbitration Rider's fee splitting provisions weigh heavily in favor of a finding of unconscionability.” Accord : ACORN , supra, 211 F Supp 2d at 1173-1174. See also Ting v.

AT&T, — F 3d —, 2003 US App LEXIS 2395 at *68 (arbitration scheme which “imposes onsome consumers costs greater than those a complainant would bear if he or she would file thesame complaint in court” is unconscionable as a matter of California law); Torrance v. Aames

Funding Corp., 2002 US Dist LEXIS 25566 at *26 (D Or 2002) (Stewart, MJ) (“[t]he fact thatthey are required to pay any arbitrator’s fee is sufficient to render the obligation unconscionable”under Oregon law), adopted , 2002 US Dist LEXIS 25461 at *4-5 (D Or 2002) (Haggerty, CJ).

2. Confidentiality of arbitration. The fourth sentence of the fourth paragraph of thearbitration rider directs that the arbitration “award shall be kept confidential.” This provision

works to Beneficial’s advantage, among other reasons, because “the unavailability of arbitraldecisions * * * may prevent potential plaintiffs from locating the information necessary to builda case of intentional misconduct or to establish a pattern or practice.” Luna, supra, 2002 US DistLEXIS 21761 at *32-33 (internal quotations and citation omitted). See also ACORN , supra, 211F Supp 2d at 1171-1172; Ting, supra, 2003 US App LEXIS 2395 at *70-71 (9th Cir 2003)(arbitration confidentiality provision unconscionable under California law); Torrance, supra,2002 US Dist LEXIS 25566 at *29-30 (arbitration confidentiality provision unconscionableunder Oregon law), adopted , 2002 US Dist LEXIS 25461 at *3-4.

Beneficial is an indirect subsidiary of Household International. See ACORN , supra, 211F Supp 2d at 1161. As a result of enforcement actions by the Attorney Generals of Oregon andother states based on “consumer complaints, * * * and examinations” concerning loansoriginated “during the period January 1, 1999 through September 30, 2002,” HouseholdInternational recently agreed to entry of a consent judgment “on behalf of itself, its direct andindirect subsidiaries” and others, which are collectively referred to in that judgment as“Household.” State ex rel Myers v. Household International, Marion County Circuit Court CaseNo. 02C21620, Consent Judgment at 1-3, Goldsmith Affidavit, Ex B (“state enforcementproceeding”).

That judgment contains an injunction which addresses, among other things, practicesplaintiffs allege they were subjected to. For example, paragraph 16 prohibits Household fromentering “into any real estate secured loan that does not provide a net tangible benefit to theBorrower.” Id. at 16. Paragraph 24 requires Household to “provide Spanish language loandocuments in all branch offices that are certified by Household to conduct Spanish languagetransactions.” Id. at 18.

This Court can infer from the state enforcement proceeding that the Attorney Generalfound evidence that Beneficial subjected other borrowers to the same practices which theplaintiffs complain of. The Court can further infer that Beneficial’s purpose in makingarbitration awards confidential was to protect corporate profits obtained through fraudulent orother illegal practices by creating barriers for the plaintiffs and others seeking to establishintentional misconduct or a pattern or practice. Such behavior is unconscionable.

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3. Class action ban. The last sentence of the sixth paragraph of the arbitration riderprovides that “[n]o class actions * * * are permitted in arbitration without the written consent of you and us.” As the Luna court recognized, the “prohibition of class actions would preventborrowers from effectively vindicating their rights for certain categories of claims,” particularlywhere “an individual consumer has so little at stake that she is unlikely to [otherwise] pursue her

claim.” 2002 US Dist LEXIS 21761 at *26. Since “the prohibition on class actions allows theArbitration Rider to be used as a sword to strike down access to justice,” its existence “weighsheavily in favor of a finding of substantive unconscionability.” Id. at *28 (internal quotationsand citation omitted). See also ACORN , supra, 211 F Supp 2d at 1170, following Szetela v.

Discover Bank , 97 Cal App 4th 1094, 118 Cal Rptr 2d 862, 868 (2002), cert denied , — US —,2003 US LEXIS 1522 (2003) (class action ban is unconscionable not only because it is “harshand unfair to Discover customers who might be owed a relatively small sum of money,” but alsobecause it “serves as a disincentive for Discover to avoid the type of conduct that might lead toclass action litigation in the first place” and “seriously jeopardizes customers' consumer rights byprohibiting any effective means of litigating Discover's business practices”); Ting, supra, 2003US App LEXIS 2395 at *65-67 (class action ban is unconscionable under California law).

The fact that the plaintiffs have chosen to bring this case only for themselves and not onbehalf of a class does not affect the unconscionability analysis. As Magistrate Judge Jelderkssaid in LeLouis v. Western Directory Co., 230 F Supp 2d 1214, 1221-1222 (D Or 2001),“unconscionability is determined on the basis of the circumstances at the time of contractformation, and whether the agreement was reasonable then” and not “[w]hether, in hindsight, theoutcome in this case would be different.”

This Court can infer from the consent judgment in the state enforcement proceeding that,when Beneficial required the plaintiffs to sign the arbitration rider in January, 2001, it wasengaged in a number of practices that arguably violated its customers’ rights. The Court canfurther infer that Beneficial inserted the class action prohibition in the arbitration rider to shieldsome of these practices from any effective challenge. As the court said in Luna, supra, the classaction prohibition “weighs heavily in favor of a finding of substantive unconscionability.” 2002US Dist LEXIS 21761 at *28.

D. THE ARBITRATION RIDER SHOULD BE INVALIDATED

When a court finds unconscionability, it “may refuse to enforce the contract, or it mayenforce the remainder of the contract without the unconscionable clause, or it may so limit theapplication of any unconscionable clause as to avoid any unconscionable result.” ORS72.3020(1). The ACORN and Luna courts concluded that the entire arbitration rider should beinvalidated, given that “the unconscionable provisions are interrelated and each serves tomagnify the one-sidedness of the others.” Luna, supra, 2002 US Dist LEXIS 21761 at *41.

That is to say, “[t]he prohibition on class actions eliminates the financial incentive tobring a claim, while the cost-splitting provision increases the disincentive to vindicate anyalleged violations. The individual plaintiff who is not deterred will find that the confidentialityprovision prevents him or her from becoming aware of prior arbitral precedent directly on point.” ACORN , supra, 211 F Supp 2d at 1174. The combined effect of these provisions demonstratesthat “the purpose of the arbitration agreement is not to transfer claims to a more expeditiousforum, but to deter Defendants' customers from bringing claims.” Id.

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Under these circumstances, the “unlawful provision[s] * * * taint [the] entire agreement,making judicial reformation inappropriate” and making the entire arbitration rider“unenforceable.” Luna, supra, 2002 US Dist LEXIS 21761 at *40-41. Accord : Torrance, supra,2002 US Dist LEXIS 25566 at *31-34 (arbitration agreement “so permeated byunconscionability so as to render it invalid”), adopted , 2002 US Dist LEXIS 25461 at *5.

III. CONCLUSION

Beneficial’s arbitration rider is unconscionable for the reasons given above.Accordingly, its motion to compel arbitration should be denied.

Respectfully submitted,

By:Attorneys for Plaintiffs

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14.4 Consumers’ Affadavit in Support of Opposition to Arbitration




Plaintiffs,

v.


Defendant.

Case No.

AFFIDAVIT OF [CONSUMER 1]

I, [Consumer 1] being first duly sworn, depose and say that:

I am one of the plaintiffs in this case and make this affidavit in opposition to defendantBeneficial Oregon, Inc.’s (“Beneficial”) motion to compel arbitration.

My native language is Spanish. I cannot speak or understand English. Beneficial knew

this. Their representative, Joel Higgins, spoke to me exclusively in Spanish. All their loandocuments, however, were only in English.When I got my last loan from Beneficial in January, 2001, Mr. Higgins translated some

of the terms of the loan documents, but not all of them. Nobody at Beneficial encouraged me tohave a translator present at the loan closing so that I would know all the loan terms.

Here are some of the terms that I did not know about before I retained a lawyer in 2002:1. That there are costs of the proceeding which I would have to pay in arbitration that I

would not have to pay if I went to court.2. That arbitration is confidential, so that I could not find out how others with similar

claims had done in arbitration.3. That I could not bring a class action in arbitration.

In addition, while Mr. Higgins told me that the agreement required us to arbitrate anydisputes we had with Beneficial, he added that we could go to court after going througharbitration.

In January, 2001, my hourly wage was $7.43 an hour and I was working 40 hours a week.My home is my only significant asset. The monthly loan payment to Beneficial equaled 48% of the combined monthly gross income of my wife and me.

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My current hourly wage is $7.75 an hour and I work 40 hours a week. If my wife and Ineeded to pay $1,000 in order to bring our claim against Beneficial, it would take us six monthsto save up this much money.

[Consumer 1]

SUBSCRIBED AND SWORN to before me this ___ day of _________, 20__.

Notary Public for Oregon

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14.5 Consumers’ Memo of Law on Consumer’s Unclean Hands and Burden

of Proof for TIL Claim




Plaintiffs,

v.


Defendant.

Case No.

PLAINTIFFS’ SUPPLEMENTAL TRIAL MEMORANDUM

This memorandum addresses the recently-added Thirteenth and Fourteenth AffirmativeDefenses, which were not discussed in Plaintiffs’ Trial Memorandum pending the Court’s rulingon the Plaintiffs’ Motion in Limine. It also is submitted in response to certain Truth in Lendingissues misstated in Defendant’s Trial Memorandum.

I. THIRTEENTH AFFIRMATIVE DEFENSE – UNCLEAN HANDS /IN PARI DELICTO

Unclean hands and in pari delicto are the legal and equitable sides of the same concept. McKinley v. Weidner , 73 Or App 396, 400, 698 P2d 983 (1985). This being a law action, theapplicable defense is in pari delicto. Id . In order to prevail, the defendant must prove that theplaintiffs’ losses were substantially caused by engaging in activities the law forbade them toengage in, and that they were as culpable as, or more culpable than, the defendant. Id . at 401.Since defendant alleges that plaintiffs committed fraud in the process of applying for a loan fromBeneficial, this defense must be proved by clear and convincing evidence.

In pari delicto in its application involves prudential principles. McKinley holds that evenwhen parties are found to be in pari delicto, whether to bar recovery by one or both parties is apublic policy question. The circumstances of a particular case may dictate that although both

parties engaged in wrongdoing, the defendant should still be held liable. Id.

II. FOURTEENTH AFFIRMATIVE DEFENSE – FRAUD IN THE INDUCEMENT

While plaintiffs have found no authority which specifically describes the use of fraud inthe inducement as a defense to a fraud claim, logically all the elements of a fraud claim (exceptdamages) and the standard of proof are applicable. These are discussed in plaintiffs’ trialmemorandum at page 5, lines 10 through 19.

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III. PLAINTIFFS’ TRUTH IN LENDING ACT CLAIM

A. PLAINTIFFS’ TILA CLAIM IS FOR DAMAGES

Defendant states in its trial memo that “[t]his is not an action for damages under 15 USC§1640, but rather for rescission.” Defendant’s Memo, p. 8, ln. 4. On this issue, defendantmisunderstands the law and plaintiffs’ TILA claim.

A creditor’s failure to comply with TILA rescission under 15 USC §1635, when it isproperly demanded by a borrower, is a violation of 15 USC §1640 that gives rise to damages.Fairbanks Capital Corp. v. Jenkins, 225 F Supp 2d 910, 913 (ND Ill 2002); Clay v. Johnson, 77F Supp 2d 879, 884 (N.D. Ill. 1999), rev’d on other grounds, 264 F3d 744, 2001 U.S. App.LEXIS 19678 (7th Cir 2001).

If Beneficial had complied with plaintiffs’ rescission demand in April of 2002, plaintiffscould not assert a damages claim. Since Beneficial did not comply, it has violated the damagesprovision of TILA as well as its rescission provisions. Plaintiffs are entitled to recover from

Beneficial the funds it should have returned to them when they demanded rescission, plus thestatutory damages, costs and attorney fees provided for in 15 USC §1640; Murray v. First

National Bank (In re Murray), 239 BR 728, 735 (Bankr ED Pa 1999).

B. DEFENSES BASED ON STATE LAW DO NOT APPLY TO TILA

Equitable defenses such as unclean hands, as well as other defenses grounded in state lawnot specifically adopted by the federal statute, do not apply to claims brought under the federalTruth in Lending Act. Purtle v. Eldridge Auto Sales, Inc., 91 F3d 797, 800-802 (6th Cir. 1996);Clay v. Johnson, 22 F Supp 2d 832, 842-843 (ND Ill 1998).

Defendant has cited Crevier v. Sullinger , 2003 WL 249349 (9th Cir 2003), an unpublishedNinth Circuit opinion, for the proposition that a creditor can assert unclean hands as a defense toa TILA claim. In addition to its dubious precedential value owing to its status as an unpublishedopinion, Crevier does not acknowledge the authority of Semar v. Platte Valley Fed. Sav. & Loan

Ass’n, 791 F2d 699, 704-705 (9th Cir 1986), a published opinion which holds that applyingequitable principles “would frustrate the very purpose of TILA. Congress did not intend forTILA to apply only to sympathetic consumers; Congress designed the law to apply to allconsumers, who are inherently at a disadvantage in loan and credit transactions.” Semar v. Platte

Valley Fed. Sav. & Loan Ass’n, 791 F.2d 699, 705 (US App. 1986). Crevier is furtherundermined by another unpublished Ninth Circuit opinion, which holds that the plaintiff’sfraudulent misrepresentations in applying for credit do not bar a TILA claim. Buie v. Palm

Springs Motors, Inc., 36 Fed Appx 328 (9th Cir 2002).

C. STANDARD OF PROOF UNDER TILA – PREPONDERANCE OF EVIDENCE

Defendant incorrectly asserts that here, plaintiffs’ TILA claim is subject to a clear andconvincing standard. Plaintiffs maintain that they must prove the elements of their claim underTILA by a preponderance of the evidence. United Companies Lending Corp. v. Skwonzinski (In

re Skwozinski), 2001 Bankr LEXIS 1306 (Bankr NH 2001).

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The Oregon courts have held that in consumer cases brought under the Unlawful TradePractices Act (“UTPA”), which makes businesses liable for conduct that might also be pled asfraud, the preponderance of the evidence standard should apply. State ex rel. Redden v. Discount

Fabrics, Inc., 289 Or 375, 384-386 (1980). By analogy, the Truth in Lending Act suppliesconsumers with a right of action that was designed to be different than fraud, in order to

effectuate its protective purposes. In re Porter , 961 F2d 1066, 1078 (3

rd

Cir 1992). It followsthat TILA claims, like UTPA claims should also be subject to the normal standard of proof forcivil cases.

Defendant is similarly incorrect in asserting that plaintiffs cannot make out a TILA claimwithout proving that Beneficial intentionally committed fraud with respect to plaintiffs’ loan.Plaintiffs’ first task, in showing that Beneficial violated TILA by failing to comply withplaintiffs’ request to rescind, is to prove that Beneficial did not give them “clear andconspicuous” disclosure of material loan terms. 15 USC §1632(a); Reg. Z, 12 CFR § 226.17(a).To show that defendant did not meet this statutory requirement, plaintiffs need only prove thatthe disclosures they were given about material terms were rendered inaccurate, or were madeconfusing or misleading, by additional inconsistent information delivered to them by the

defendant. Jenkins v. Landmark Mortgage, 696 F Supp 1089 (WD Va 1988), Baxter v. First Bank of Marietta, 1992 Ohio App. LEXIS 5956 (Ohio App.1992).This proof, as with all elements of TILA claims, need only be shown be a preponderance

of evidence; no proof of scienter or any other level of intent by the creditor is necessary, as TILAis a strict liability statute. In re Porter , 961 F2d 1066, 1078 (3rd Cir 1992).

DATED this ____ day of __________ 20___

By:Attorneys for Plaintiffs

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14.6 Proposed Jury Instructions on Fraud and TIL Claims

Instruction No. 1

Functions of the Court and Jury

It is your sole responsibility to make all the decisions about the facts in this case. Youmust evaluate the evidence to determine how reliable or how believable that evidence is. Whenyou make your decision about the facts, you must apply the legal rules to those facts and reachyour verdict.

Remember, however, that your power to reach a verdict is not arbitrary. When the courttells you what the law is on a particular subject or tells you how to evaluate certain evidence youmust follow these instructions.

Do not allow anything that the court has said or done during the course of this trial tosuggest that the court has formed any opinion about this case. Keep in mind that the court isrequired by law to give certain instructions in every case.

When the court has sustained objections to evidence, or ordered that evidence be strickenor excluded from your consideration, you must follow the court’s rulings. Do not consider suchmatters during your deliberations. Base your verdict on the evidence and these instructions. Theattorney’s statements and arguments are not evidence. If your recollection of the evidence isdifferent from the attorney’s recollections, you must rely on your own memory.

In deciding this case, you are to consider all the evidence that you find worthy of belief.It is your duty to weigh the evidence calmly and dispassionately and to decide this case on itsmerits. Do not allow bias, sympathy, or prejudice any place in your deliberations; all parties areequal before the law. Do not decide this case on guesswork, conjecture, or speculation.

Generally, the testimony of any witness whom you believe is sufficient to prove any factin dispute. You are not simply to count the witnesses, but you are to weigh the evidence.

Keep in mind that each party is entitled to the considered decision of each juror.Therefore, you should not give undue weight to another juror’s notes if those notes conflict withyour recollection of the evidence.

Instruction No. 2

Circumstantial Evidence

There are two types of evidence. One is direct evidence – such as the testimony of an eyewitness. The other is circumstantial evidence – the proof of a chain of circumstances pointing tothe existence or nonexistence of a certain fact. Proof may be either type or both.

Instruction No. 3Evaluating Witness Testimony

The term witness includes every person who has testified in this case. Every witness hastaken an oath to tell the truth and is assumed to speak truthfully. However, this assumption maybe overcome by:

1. The manner in which the witness testifies.

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2. The nature or quality of the witness’s testimony.3. Contradictory evidence that you find to be more probably true4. Evidence concerning the bias, motives or interests of the witness.

Instruction No. 4

Witness False in Part

If you find that any person has intentionally given false testimony in some part, you maydistrust the rest of that person’s testimony.

Instruction No. 5

Less Satisfactory Evidence

In evaluating the evidence, you may consider the power of each side to produce evidence.If weaker and less satisfactory evidence is offered by either party when it appears to you thatstronger and more satisfactory evidence was within the power of the party to produce, the

evidence offered should be viewed with distrust.

Instruction No. 6

Deposition Testimony

Certain testimony has been read into evidence from depositions. A deposition istestimony taken under oath before the trial and preserved in writing. You are to consider thattestimony as if it had been given by a live witness in court.

Instruction No. 7

Fault of Agent Imputed to Principal

An employer is liable for the acts of its employees. Joel Higgins and Derek Warren werethe employees of defendant Beneficial Oregon, Inc. Any fault of Joel Higgins or Derek Warren,during the period of their employment with Beneficial, is the fault of defendant BeneficialOregon.

Instruction No. 8

Fraudulent Misrepresentation – General

The plaintiffs have alleged that the plaintiffs were damaged as a result of the defendant’sfraud. To prevail the plaintiffs must prove each of the following elements by clear andconvincing evidence:

1. The defendant made a false representation of a material matter.2. The defendant knew that the representation was false;3. The defendant intended to mislead the plaintiff;4. The plaintiffs reasonably relied on the representation; and5. The plaintiffs were damaged as a direct result of their reliance on the representation.

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Instruction No. 9

Fraudulent Misrepresentation – Burden of Persuasion

The plaintiffs must prove the elements of their fraud claim by clear and convincing

evidence, that is, evidence which enables you to find that the truth of the facts asserted is highlyprobable.

Instruction No. 10

Fraudulent Misrepresentation – Material

A false representation of material matter is one that would be likely to affect the conductof a reasonable person with regard to a transaction with another person.

Instruction No. 11

Fraudulent Misrepresentation – Reasonable Reliance

It is essential that one who alleges fraud have actually relied on a representation and forthat person to have a right to rely on the representation.

In determining whether the plaintiffs’ reliance on the statements of the defendant wasreasonable, you are to examine the totality of the parties’ circumstances and conduct. You mayconsider such factors as:

1. Any information known or obvious to the plaintiffs to confirm or refute thedefendant’s statements;

2. The relative status, knowledge, sophistication and experience of the plaintiffs and thedefendant;

3. The previous experience of the plaintiffs and the defendant in similar transactions;4. Whether the statements were specific or general;5. Whether the statements were of fact or the expression of an opinion; and6. Whether or not the plaintiffs took reasonable precautions in protecting their interests

in the 2001 loan transaction.

Instruction No. 12

Fraudulent Misrepresentation – Burden of Persuasion – Damages

If you find that the plaintiffs have proved the elements of fraud by clear and convincingevidence then you must next consider the issue of the plaintiffs’ damages. The plaintiffs mustprove the economic and non economic damages they claim by a preponderance of the evidence.

Instruction No. 13

Fraudulent Misrepresentation – Economic Damages

In order to determine the amount of economic damages, if any, you are to consider theplaintiffs’ out-of-pocket loss. This is measured by the amounts the plaintiffs paid as a result of entering into the 2001 loan with Beneficial, which they would not have paid had they not taken

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out that loan. Your award of economic damages for the plaintiffs’ fraud claim may not exceed$26,639.73.

Instruction No. 14

Damages – Non Economic

Non economic damages are the subjective, non monetary losses that a plaintiff hassustained. The lawyers have referred to these as “emotional distress” damages throughout thetrial. You may award plaintiffs emotional distress damages if you find that emotional distress isa common and predictable result of the defendant’s fraud in these circumstances.The law does not furnish you with any fixed standard by which to measure the exact amount of non economic damages. However, the law does require that any award of non economicdamages be reasonable. You must apply your own considered judgment to determine theamount of non economic damages.

In order to determine the amount of non economic damages, if any, consider each of thefollowing:

1. The emotional distress that the plaintiffs have sustained from the time they wereinjured until the present; and2. Any inconvenience and interference with the plaintiffs’ normal and usual activities

(apart from activities in a gainful occupation) that you find the plaintiffs have sustained from thetime they were injured until the present.

The amount of non economic damages may not exceed the sum of $15,000 for[Consumer 1] and $20,000 for [Consumer 2].

Instruction No. 15

Punitive Damages

The final type of damage you are to consider with regard to plaintiffs’ fraud claim ispunitive damages. If you find plaintiffs have proven their fraud claim, you may, but are notrequired to, award punitive damages. Punitive damages must be proven by clear and convincingevidence.

Therefore, to recover punitive damages on plaintiff’s fraud claim, plaintiff’s must showby clear and convincing evidence that defendant has either:

1. Shown a reckless and outrageous indifference to a highly unreasonable risk of harmand has acted with a conscious indifference to the health, safety and welfare of others, or

2. Acted with malice.If you decide that the defendant has acted in one or the other ways I just described, you

have the discretion to award punitive damages. In exercising that discretion, you may considerthe importance to society in deterring similar misconduct in the future.

If you decide to award punitive damages, you may consider the following items in fixingthe amount:

1. The character of the defendant’s conduct;2. The defendant’s motive;3. The sum of money that would be required to discourage the defendant and others from

engaging in such conduct in the future; and4. The income and assets of the defendant.

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The amount of punitive damages you award may not exceed $1,000,000.00.

Instruction No. 16

Truth in Lending Act

The Truth in Lending Act (“TILA”) requires that disclosures given to a consumerborrower be clear and conspicuous. The requirement of clear and conspicuous disclosure isviolated when a creditor provides additional information, including a spoken statement, whichcontradicts the written TILA disclosures or misleads the consumer.

Instruction No. 17

TILA – Liability Instruction

The first issue for your consideration on the Truth in Lending claim is whether defendantviolated the clear and conspicuous disclosure requirement by providing additional informationwhich contradicts the written TILA disclosures (Joint Exhibit 210) given on the 2001 Beneficial

loan. To prevail, the plaintiffs must prove by a preponderance of the evidence that either:1. Defendant intentionally made an oral representation to plaintiffs that the annualpercentage rate (“APR”) on their 2001 Beneficial loan was different than 12.987%; or

2. Defendant intentionally made an oral representation to plaintiffs that their monthlypayments on their 2001 Beneficial loan included an amount to pay their taxes and insurance.

Instruction No. 18

Preponderance of the Evidence

Plaintiff’s must prove their Truth in Lending Act claim by a preponderance of theevidence. The term preponderance of the evidence means the greater weight of evidence. It issuch evidence that, when weighed with that opposed to it, has more convincing force and is moreprobably true and accurate. If, on any question in the case, the evidence appears to be equallybalanced, or if you cannot say on which side it weighs heavier, you must resolve that questionagainst the party on whom the burden of proof rests.

Instruction No. 19

TILA – Damages

If you find plaintiffs have proven Truth in Lending claim as set forth in InstructionNo. 16, you must next decide the amount of actual damages the plaintiffs suffered. Actualdamages consist of the total amount of fees, costs, and interest paid by the plaintiffs to thedefendant or to any third parties in connection with the 2001 loan, including amounts paid atclosing and over the life of the loan, but cannot exceed $28,544.00.

Instruction No. 20

Verdict

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When you return to the jury room, select one of your members to act as presiding juror.The presiding juror is to participate like any other juror and has no greater weight or voice thanany other juror. After selecting your presiding juror, deliberate until you reach your verdict.

You will have the following verdict form with you in the jury room: [read verdict form].This is a civil case. Nine or more of you must agree on your verdict. If your verdict is

for the plaintiffs, at least nine of the same jurors who agreed that the verdict should be for theplaintiffs must also agree on the amount of damages.When you have reached a verdict, your presiding juror should insert the answer on the

verdict form, sign and date the form, and then signal the bailiff.Court will then reconvene and receive your verdict.

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14.7 Consumers’ Response to Post-Trial Motions on Punitive Damages and

Consumers’ Unclean Hands




Plaintiffs,

v.


Defendant.

Case No.

PLAINTIFFS’ RESPONSE TO DEFENDANT’S POST-TRIAL MOTIONS

I. INTRODUCTION

As sections II and III of this memorandum show, most of defendant Beneficial Oregon,Inc.’s (“Beneficial”) post-trial motions repeat arguments that this Court has already rejected.Section IV demonstrates that the jury’s award of punitive damages falls well withinconstitutionally permissible limits. Accordingly, Defendant’s Beneficial Oregon, Inc.’s Motionfor New Trial or, Alternatively, Motion for Judgment Notwithstanding the Verdict/Remittitur

(“Post-Trial Motions”) should be denied in its entirety.

II. THIS COURT PROPERLY DIRECTED A VERDICT

ON THE AFFIRMATIVE DEFENSES

A. INTRODUCTION

Only three of the four reasons this Court gave for directing a verdict against Beneficial’sThirteenth and Fourteenth Affirmative Defenses are addressed in the Post-Trial Motions.Beneficial simply ignores this Court’s statement that “there has been no foundational showingthat the information in plaintiff’s [sic] tax returns would, in fact, create a potential tax liability.”

Excerpts from January 29 Trial Transcript (Exhibit 1 to Declaration of David S. Aman datedApril 13, 2004) (“January 29 TR”) at 80. Since a potential tax liability is a necessary element of Beneficial’s affirmative defenses, by itself the absence of this foundational showing suffices todefeat this post-trial motion. In addition, the following subsections show that it remains true that“[t]he evidence that defendant points to in the record to avoid” the other grounds for the“directed verdict * * * relies on an inference that would be based on speculation.” January 29TR at 79.

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B. SPECULATION ABOUT PLAINTIFFS’ KNOWLEDGE

Beneficial misstates tax law in claiming that the jury could reasonably infer fromplaintiffs’ signatures on multiple tax returns that the plaintiffs “were aware of the falserepresentations contained in the returns and of their related tax liabilities.” Post-Trial Motions at

4. Initially, the cases Beneficial cites only address knowledge of the contents of the returns.Beneficial cannot use them as a bootstrap to establish that plaintiffs had knowledge of potentialtax liability.

Moreover, an individual’s signature on a tax return is only “ prima facie evidence that thesignor knows the content of the return.” United States v. Romanow, 505 F2d 813, 814 (1st Cir1974), internal quotations and citation omitted. United States v. Bettenhausen, 499 F2d 1223(10th Cir 1974), makes clear that evidence to the contrary can dissipate such an inference. One of the issues there was whether Mr. Bettenhausen was insane. The court held that “the presumptionof sanity was not dissipated” only because he had made no contrary showing at the proper timeand manner. Id. at 1229.

It is undisputed that the plaintiffs cannot read English. Given this fact, the jury could not

conclude, as was possible with the corporate treasurer in Romanow, supra, 505 F2d at 814,“from nothing more than the presence of [their] uncontested signature[s] that [they] had in factread” the returns. Since Beneficial offered no other evidence to prove plaintiffs knew thecontent of the returns, there is no basis from which the jury could permissibly infer plaintiffs’knowledge that the returns contained false statements.

C. SPECULATION ABOUT BENEFICIAL’S RELAINCE

Gayle Barnes’s testimony establishes that the underwriting decision on plaintiffs’ loanwas made by Household Consumer Lending (“HCL”), not by Joel Higgins’s employer,Beneficial. January 29 TR at 21. But Barnes was not the underwriter. She did not know“whether the underwriter considered the income tax returns in assessing the plaintiff’s [sic]income.” Id. at 24. Nor did she know “whether there were any liability to the federalgovernment that were part of the consideration for the loan.” Id.

She did testify as to certain HCL policies. However, Beneficial mischaracterizes hertestimony as establishing that HCL “would have immediately stopped processing the loan had itbeen aware of the plaintiffs’ false income tax returns.” Post-Trial Motions at 4. What she said isthat policy dictates “stop[ping] the underwriting process” if the underwriter determines“information * * * might be misrepresented.” January 29 TR at 23. Here, the underwritercontinued the process after having received information that the plaintiffs were married as wellas tax returns in which both plaintiffs claimed to be heads of households. See Ex 119, page 7; Ex121, pages 1 and 5.

In short, Ms. Barnes only provided evidence of what underwriting policy was andacknowledged that she did not know what the underwriter for this loan actually did. Beneficialcites no authority establishing that the jury could permissibly infer from her testimony what theunderwriter did.

D. CONCLUSION

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Beneficial would be entitled to a new trial only if all four of this Court’s reasons forgranting a directed verdict were erroneous. But Beneficial does not challenge one of thosereasons and offers no authority to contradict this Court’s prior conclusion that, in the other threerespects, its case required the jury to engage in impermissible speculation. This Court properlydirected a verdict against these affirmative defenses.

III. PLAINTIFFS CAN RECOVER THE COST OF PRIVATE MORTGAGE

INSURANCE

Beneficial incorrectly asserts that “plaintiffs did not offer any evidence to prove that thetotal payout over the life of the Homestreet [sic] Loan was greater than the total combinedpayout under the 1999 Continental Loan and the 2000 Beneficial Loan.” Post-Trial Motions at 5n 1. The Truth in Lending disclosures for these three loans were exhibits 203, 205 and 216.Plaintiffs’ expert testified that the Total of Payments listed on each disclosure represents the totalpayments that would be made over the life of the loan if the loan were performed according to itsterms.

Ex 216 shows that the Total of Payments for the HomeStreet loan is $295,013.20.Mathematically, this is more than $10,000 greater than the sum of the Total of Payments for the1999 Continental loan, $220,348.80 (Ex 203), and the Total of Payments for the 2000 BeneficialLoan, $64,610,08 (Ex 205).6

But for the 2001 Beneficial loan, plaintiffs would have kept their 1999 Continental loan,which did not include private mortgage insurance. The private mortgage insurance charge on theHomeStreet loan is thus a proper item of damage.

IV. THE JURY’S PUNITIVE DAMAGE AWARD IS CONSTITUTIONAL

A. INTRODUCTION

Beneficial makes no claim that plaintiffs failed to prove, as required by ORS 18.537(1),by clear and convincing evidence that it “has acted with malice or has shown a reckless andoutrageous indifference to a highly unreasonable risk of harm and has acted with a consciousindifference to the health, safety and welfare of others.” Nor does Beneficial assert that the jury’s award of punitive damages is outside “the range of damages that a rational juror would beentitled to award based on the record as a whole, viewing the statutory and common-law factorsthat allow an award of punitive damages for the specific type of claim at issue in theproceeding.” ORS 18.537(2).

All Beneficial contends is that due process limits plaintiffs to $100,000 in punitivedamages. The next subsection shows that Beneficial’s argument, which focuses on the actualrather than the potential harm to the plaintiffs, is a classic example of reaching the wrongconclusion by beginning at the wrong starting point. Then in subsection C plaintiffs show thatBeneficial’s punishment is commensurate with its reprehensible behavior.

B. PROPORTIONALITY TO POTENTIAL HARM

6 It is irrelevant that plaintiffs’ monthly HomeStreet payment, including private mortgage insurance,initially is less than the combined payment on the Continental and 2000 Beneficial loans. The 2000 Beneficial loanwould have matured in 2015; the HomeStreet loan has a 2032 maturity.

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The United States Supreme Court in State Farm Mutual Automobile Insurance Co. v.

Campbell, 538 US 408 (2003) (“Campbell I ”) reaffirmed that a substantial ratio of punitivedamages to compensatory damages “may comport with due process where ‘a particularlyegregious act has resulted in only a small amount of economic damages.’” Id. at 425 (2003)

quoting in part from BMW of North America, Inc. v. Gore, 517 US 559, 582 (1996). See, e.g.,Swinton v. Potomac Corp., 270 F3d 794, 818 (9th Cir 2001), cert denied , 535 US 1018 (2002)(upholding $1,000,000 punitive damage award with $35,600 in actual damages in racediscrimination case).

In such circumstances, “[i]t is appropriate to consider” in determining the constitutionallypermissible punishment “the magnitude of the potential harm that the defendant’s conduct wouldhave caused to its intended victim if the wrongful plan had succeeded.” TXO Production Corp.

v. Alliance Resources Corp., 509 US 443, 460-462 (1993), emphasis in original (upholdingpunitive damages 526 times actual damages but twice potential harm). Beneficial’s schemeresulted in relatively small actual harm to the plaintiffs because they were able to quicklyextricate themselves once they discovered they had been defrauded. But escape from this trap

was not easy. The plaintiffs, who only communicate in Spanish, first had to find replacementfinancing. Then they had to obtain legal counsel capable of forcing Beneficial to drop itsprepayment penalty. Had they not been so resourceful and so fortunate, Beneficial’s schemewould have caused them substantially greater harm.

The TILA disclosures for the 2001 Beneficial loan (Ex 210) establish the potential harmthat plaintiffs faced. Had they remained in this loan until its conclusion, their Total of Paymentswould have been $436,449.60. The Finance Charge they would have paid was $326,751.57.Beneficial did not object to the jury being told, during closing argument, that the latter figurerepresents the profit which Beneficial stood to make on this loan.

In the words of TXO, supra, 509 US at 462, “when one considers the potential loss to[plaintiffs] * * * had [Beneficial] succeeded in its illicit scheme,” constitutional concernsdisappear. See also Mathias v. Accor Economy Lodging, Inc., 347 F3d 672 (7

thCir 2003) (post-

Campbell I decision upholding as constitutional $186,000 award in punitive damages with$5,000 compensatory damages recovery). Using either of the figures in the prior paragraph asthe measure of the potential harm, the jury’s punitive damage award is far smaller than the 3-1ratio which Beneficial admits is constitutionally permissible.

C. THE REPREHENSIBILITY OF BENEFICIAL’S BEHAVIOR

Beneficial erroneously characterizes its behavior as less blameworthy than thecircumstances before the Oregon Court of Appeals in Bocci v. Key Pharmaceuticals, Inc., 189 OrApp 349, 76 P3d 669, modified on reconsideration, 190 Or App 407, 79 P3d 908 (2003) and inWaddill v. Anchor Hocking, Inc., 190 Or App 172, 78 P3d 570 (2003). To begin with, the recordbelies Beneficial’s assertion that its conduct did not show “a reckless disregard for the health orsafety” of the plaintiffs. Post-Trial Motions at 7. Higgins’ lies left these low-income plaintiffswithout the means to pay their 2001 property taxes. [Consumer 1] testified that having their ownhome gave him and his wife a sense of safety. He further testified that, when they received the2001 tax bill, they were very worried that they would lose that house. This fear was entirelyrational, given their low income and the tax foreclosure process. Beneficial’s failure to accept

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that it acted without regard for plaintiffs’ safety is a further manifestation of the callous attitudewhich it showed toward them in 2001.

Beneficial is correct that it did not physically harm the plaintiffs. But the case lawrecognizes that physical and economic injuries lie along a continuum, with an economic injuryendangering personal security being “substantially more reprehensible” than the minor property

damage involved in Gore. Campbell v. State Farm Mutual Automobile Insurance Co., 2004 Ut34, — P3d —, 2004 Utah LEXIS 62 at *19 (2004) (“Campbell II ”) (callous betrayal of insured’sexpectation of peace of mind). See also In re Exxon Valdez, 296 F Supp 2d 1071, 1094 (D Alas2004) (oil spill tearing apart the social fabric of neighboring communities). The deliberatefinancial exploitation of low-income individuals is a quite reprehensible form of economicinjury.

Furthermore, Beneficial fails to recognize the reprehensibility of the two Gore factorswhich it does acknowledge, (a) its intentional malice, trickery and deceit and (b) plaintiffs’financial vulnerability. Beneficial argues that, if only two of the five factors are present, theconstitution only permits “a ratio in the low single digits.” Post-Trial Motions at 7. However, Bocci and Waddill teach that determining the constitutionally appropriate maximum ratio

requires the exercise of judicial judgment about the wrongfulness of the defendant’s actions, notthe application of grade school arithmetic.7 This is in line with the Supreme Court’spronouncement that “[t]he most important indicium of the reasonableness of a punitive damagesaward is the degree of reprehensibility of the defendant’s conduct.” Gore, supra, 517 US at 575.

Bocci teaches that “evidence of deceitful conduct” makes a defendant’s actions “morereprehensible and blameworthy” and thus justifies a larger ratio of punitive to compensatorydamages. 189 Or App at 360. Using language directly applicable to this case, Bocci states that“intentionally malicious conduct that produces only a small amount of compensatory damageswould justify a higher ratio” than 4-1. Id. See also Waddill, supra, 190 Or App at 182-183 (agreater ratio of punitive to actual damages is permitted when a defendant acts “with intentionalmalice or engage[s] in trickery or deceit”).8

Furthermore, Bocci holds that “‘particularly egregious,’ intentionally malicious acts * * *would justify a ratio in excess of single digits.” 189 Or App at 360. While Bocci does not giveexamples of such acts, it is reasonable to assume that the presence of a financially or otherwisevulnerable victim (absent in both Bocci and Waddill) increases the reprehensibility of adefendant’s actions and thus the constitutionally permissible punishment. Both social mores andthe law condemn the exploitation of the weak and vulnerable. See, e.g. United States SentencingCommission, Guidelines Manual, §3A1.1 at 287-288 (2002) (enhancing federal criminalsentence when victim of offense is vulnerable); OAR 213-008-0002(1)(b)(B) (same under statesentencing rules if the vulnerability increased the harm or threat of harm).

Greater punitive damages are allowed when the victim is vulnerable not only becausesuch behavior is more blameworthy and therefore warrants greater punishment. Additionally,financially vulnerable individuals are less likely to seek legal counsel to vindicate their rightsand, because they cannot pay hourly fees, are less likely to be able to retain counsel. These

7 Bocci and Waddill, while controlling precedent for this Court, are not necessarily the final word in thisfluid area of the law. Plaintiffs reserve the right to make different arguments on appeal to support theconstitutionality of the jury verdict, depending on the state of governing law at that time.

8 This language belies Beneficial’s contention that its conduct was “nowhere near as reprehensible as thedefendants’ conduct in * * * Waddill,” where the defendant did not act with intentional malice or engage in trickeryor deceit. Post-Trial Motions at 9.

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barriers to the assertion of rights are magnified for non-English speakers like the plaintiffs. AsJudge Posner explains in Mathias, supra, 347 F3d at 677, “[i]f a tortfeasor is ‘caught’ only half the time he commits torts, then when he is caught he should be punished twice as heavily inorder to make up for the times he gets away.”

Punitive damages are designed both to “punish[ ] unlawful conduct and [to] deter[ ]its

repetition.” Gore, supra, 517 US at 568. When a defendant knows that it will not be called toaccount for all its misbehavior, the Mathias approach ensures that such a defendant does notview the occasional award of punitive damages as simply a cost of doing business.

Finally, Beneficial disregards the teaching of Parrott v. Carr Chevrolet, Inc., 331 Or 537,17 P3d 473 (2001) and of Campbell I in asserting that the jury’s punitive damage award isdisproportionate to the maximum civil sanction applicable to Beneficial’s behavior. Parrott explains that the UTPA contains a “regulatory scheme of sanctions that includes interruption orclosure of business operations,” not just a fine capped at $25,000. Id., 331 Or at 564. Thisadministrative scheme, Parrott held, supported punitive damages exactly twice the amount the jury awarded here. Id.

Parrott is consistent with Campbell I . There, the Supreme Court endorsed a punitive

damage award of at least $1 million, the amount in Parrott , even though the most relevant civilsanction was capped at $10,000, less than half the maximum UTPA sanction. 538 US at 428-429. Accordingly, Beneficial is plainly wrong in contending that the maximum UTPA civilpenalty “show[s] that the [punitive damage] award [here] is excessive.” Post-Trial Motions at 9.

D. CONCLUSION

The jury verdict establishes that Beneficial, in the pursuit of corporate profit, exploitedthe trust the non-English speaking plaintiffs developed in a fellow countryman. It induced themto sign loan documents in a language it knew they could not read containing terms far differentthan what Higgins represented. It thereby put in jeopardy their only significant possession in theworld. Only by good fortune were they able to avoid hundreds of thousands of dollars of potential harm.

Beneficial does not dispute that a rational jury could impose a $500,000 sanction on it forsuch a callous and malicious act. The preceding subsections show this amount is also aconstitutionally permissible punishment for Beneficial’s egregious and reprehensible behavior.

IV. CONCLUSION

For the reasons given above, there is no merit in Beneficial’s Post-Trial Motions. Theyaccordingly should be denied.

DATED this day of ___________, 20___

By: Attorneys for Plaintiffs