California Court of Appeals Upholds Denial Against Fannie Mae

Bernabei & Wachtel is pleased to report that the Court of Appeal of California today affirmed the trial court's denial of Fannie Mae's motion to compel arbitration of whistleblower retaliation claims.

The plaintiff, Cecelia Carter, is represented by Lynne Bernabei and Pete Whelan (Bernabei & Wachtel, PLLC) and by Andrew Friedman and Andrea Loveless (Helmer Friedman). Fannie Mae is represented by Wendy Lazerson, Michelle Goodman, and Leah Abeles (Sidley Austin). Lynne Bernabei argued on appeal for Ms. Carter.

Ms. Carter's complaint alleged that Fannie Mae fired her after she reported criminal conduct by managers in its Irvine, Calif. office, including soliciting and receiving bribes from brokers who were trying to get Fannie Mae business in selling foreclosed properties. Fannie Mae responded to her state court complaint by seeking to compel arbitration. The Court of Appeal held that the arbitration agreement could not be enforced due to substantive unconscionability, i.e., an employee was required to arbitrate any and all claims she might have against Fannie Mae, while Fannie Mae was free to go to court on certain categories of claims:

"It makes no difference that, arguably, the dispute resolution policy isn't entirely one-sided, or in some ways offers a good deal for its employees. (For example, here and there Fannie Mae alludes to the provision that a plaintiff might still go to court if dissatisfied with the results of a given arbitration.) Fannie Mae offers no authority that positive aspects of the agreement somehow save the agreement as a whole when it contains other provisions that have been clearly held to be unconscionable in the case law."

Nor could the court blue-pencil the arbitration agreement:

"The contract before us is equally resistant to a severance remedy. We would have to rewrite the arbitration clause — which we cannot do — or somehow choose 'what to leave in, what to leave out' which is also beyond our mandate." (quoting Bob Seger, Against the Wind, 1980).

The Court of Appeal also noted Fannie Mae's failure to provide an accurate recitation of the relevant facts:

"While the revocation of the offer is buried in a passing reference in Fannie Mae's briefing, it is conspicuously missing in Fannie Mae's statement of facts at the point where one would expect to find it. While we certainly do not think Fannie Mae's counsel has any intention of misleading this court (see Di Sabatino v. State Bar (1980) 27 Cal.3d 159, 162-163 ["concealment of material facts is just as misleading as explicit false statements, and according, is misconduct calling for discipline"]), such omissions nevertheless are hardly confidence inspiring. Such omissions suggest that if the court had all the facts, an otherwise viable-looking appeal might be frivolous."

Since Fannie Mae is a sizable employer in California, due to all the foreclosures, this decision may have significant effect on other Fannie Mae employees in that state.