Johnson v. Wells Fargo Home Mortgage, Inc.

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

WES JOHNSON, 
Plaintiff-Appellee,
v.
No. 09-15937
WELLS FARGO HOME MORTGAGE,
INC., a California corporation,  D.C. No.
DBA America’s Servicing 3:05-cv-00321-RAM
Company; DOES 1 THROUGH 20,
INCLUSIVE,
Defendants-Appellants.


WES JOHNSON, 
Plaintiff-Appellant,
v. No. 09-16815
WELLS FARGO HOME MORTGAGE,  D.C. No.
3:05-cv-00321-RAM
INC., a California corporation,
DBA America’s Servicing OPINION
Company,
Defendant-Appellee.

Appeal from the United States District Court
for the District of Nevada
Robert A. McQuaid, Magistrate Judge, Presiding

Argued and Submitted
October 8, 2010—San Francisco, California

Filed February 15, 2011

2491
2492 JOHNSON v. WELLS FARGO HOME MORTGAGE
Before: Stephen Reinhardt and Marsha S. Berzon, Circuit
Judges, and Louis H. Pollak, Senior District Judge.*

Opinion by Judge Berzon

*The Honorable Louis H. Pollak, Senior United States District Judge
for the Eastern District of Pennsylvania, sitting by designation.
2496 JOHNSON v. WELLS FARGO HOME MORTGAGE

COUNSEL

For Wells Fargo Home Mortgage, Inc.: Daniel F. Polsenberg
(argued) and Jennifer B. Anderson, Lewis and Roca LLP, Las
Vegas, Nevada.

For Wes Johnson: Tory M. Pankopf (argued), Law Offices of
Tory M. Pankopf, Reno, Nevada.
 JOHNSON v. WELLS FARGO HOME MORTGAGE 2497
OPINION

BERZON, Circuit Judge:

The District Court, believing it was implementing an agree-
ment between the parties, did not review an arbitrator’s award
when presented with motions to confirm and to vacate the
award under the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq.
It instead passed initial review of the award onto this appellate
court. We should not, and will not, permit the
Congressionally-established structure of the federal courts to
be so circumvented. We therefore reverse and remand to
allow the lower court to review the arbitrator’s award before
we do so ourselves. We also address on the merits issues per-
taining to Wes Johnson’s claims under the Real Estate Settle-
ment Procedures Act, 12 U.S.C. §§ 2601 et seq., and the
common law of negligence.

I. THE FACTS AND PROCEDURAL HISTORY

Plaintiff Wes Johnson is a real estate professional who,
beginning in the mid-1970’s, purchased 200 to 300 properties
across the country. Johnson’s strategy consisted of purchasing
undervalued properties and then refurbishing, renting, and
selling them. He financed his ventures by taking out sub-
prime, adjustable-rate mortgages. Johnson’s business model
was risky, among other reasons because it was highly depen-
dent on his ability to obtain credit. Nonetheless, Johnson
avers, he “was going along fine, until my legs were cut out
from underneath me, and that was done by Wells Fargo.”

In July 2004, Wells Fargo Home Mortgage, Inc. (“Wells
Fargo”), doing business as America’s Servicing Company,
began servicing Johnson’s mortgages on two properties,
located on Adriatic Avenue and on Fessenden Street, in Port-
land, Oregon. The parties refer to those loans as loans 55 and
56 respectively, a synecdoche derived from the last two digits
of Wells Fargo’s account numbers for the loans. In September
2498 JOHNSON v. WELLS FARGO HOME MORTGAGE
2004, Johnson’s wife sent in two payments on loan 56 but
inadvertently noted on the checks that they were intended to
pay off loan 55. Wells Fargo, accordingly, applied the checks
to loan 55, which it mistakenly believed was in arrears. As a
result of the misapplied payment, loan 56 became delinquent.
The arbitrator in this case described the ensuing chain of
events as follows:

[Wells Fargo] contacted Mr. Johnson about the
problem, and he assured [Wells Fargo] that both the
55 and 56 loans were current. While he was working
with one customer service section of [Wells Fargo],
his attempts to juggle financing for his business and
personal projects led him to apply for new loans.
However, when the prospective lenders ran credit
checks, they found that [Wells Fargo] had reported
a late payment on the 56 loan.

Thus began a series of telephone calls and letters
by Mr. Johnson to try and get matters straightened
out. Part of the problem seems to be the fact that
there are multiple sections of staff that deal in cus-
tomer service for these types of issues, and where a
complainant is relegated depends on whether he or
she has complained over the telephone (one person-
nel section), or by letter (another section), or [made]
a complaint through a [credit reporting agency] (still
another section). Additionally, there are personnel
who act as sort of an appellate court, and a foreclo-
sure department that apparently functions in a totally
independent fashion. The arbitrator finds that Mr.
Johnson had to deal with the “Missing Payment
Team,” “Customer Relations,” “Mortgage Services,”
and the “Executive Communications Department.”

Eventually, the arbitrator found, two Wells Fargo employees
“arriv[ed] at the truth” and “admit[ted] [Wells Fargo] had
been wrong all along.”
 JOHNSON v. WELLS FARGO HOME MORTGAGE 2499
But, for Johnson, it was too late. In April 2005, Wells
Fargo had commenced foreclosure proceedings on the Fessen-
den Street property (loan 56), and it had also reported John-
son’s supposed delinquencies on both loans to credit reporting
agencies. Before the foreclosure sale could take place, John-
son sold both the Fessenden Street and Adriatic Avenue prop-
erties and repaid the loans in full. By then, however,
according to Johnson, the unfavorable credit reports had
already begun to take their toll: Johnson was unable to obtain
loans to make new purchases or to refinance existing mort-
gages. As his credit dried up, Johnson’s various business ven-
tures came crashing down. Johnson summed up his view of
events to counsel for Wells Fargo in a deposition: “You put
me out of business. You cut my income to zero, and that’s
where I’m at today.”

Johnson filed this suit approximately a month after Wells
Fargo commenced foreclosure proceedings. He brought
claims under the Real Estate Settlement Procedures Act, 12
U.S.C. §§ 2601 et seq. (“RESPA”), the Fair Credit Reporting
Act, 15 U.S.C. §§ 1681 et seq. (“FCRA”), the Fair Debt Col-
lection Practices Act, 15 U.S.C. §§ 1692 et seq. (“FDCPA”),
and the law of negligence (mercifully, no acronym).

After almost a year of discovery, the parties consented to
the reassignment of the case, for all purposes, to a magistrate
judge.1 Wells Fargo moved for summary judgment, and the
District Court granted its motion as to all of Johnson’s claims
except his FCRA claim. The Court explained that Johnson’s
negligence claim, insofar as it was otherwise viable, was pre-
empted by FCRA; that RESPA did not apply to loans 55 or
56 because they were “business purpose loans”; and that
FDCPA did not apply because Johnson’s debt was “business
in nature, not consumer in nature,” and that, in any case,
Wells Fargo was not a “debt collector” within the meaning of
1
The subsequent references to the rulings of the “District Court” are
therefore to the magistrate judge’s pronouncements.
2500 JOHNSON v. WELLS FARGO HOME MORTGAGE
the statute. Johnson has filed a cross-appeal of that order as
to the dismissal of his RESPA and negligence claims only.

The parties engaged in discovery for a few months more,2
after which Wells Fargo again moved for summary judgment
on Johnson’s surviving FCRA claim. The District Court
issued a 40-page opinion on that motion. The Court first reit-
erated its earlier ruling that the question of Wells Fargo’s lia-
bility under FCRA should go to a jury. It then analyzed
Johnson’s approximately sixteen theories of damages individ-
ually: Most of Johnson’s claimed damages related to his
inability to secure credit to pursue his business ventures. The
District Court held that those damages were therefore not con-
sumer losses recoverable under FCRA. As to some of John-
son’s theories of damages, the District Court ruled that
Johnson had failed to put forward any evidence linking his
alleged harm to Wells Fargo’s erroneous reports to credit
reporting agencies. Finally, the District Court denied sum-
mary judgment as to approximately six of Johnson’s theories
of damages and set the case for trial. After a different magis-
trate judge held a settlement conference three weeks before
the trial’s scheduled start date, the parties stipulated to bind-
ing arbitration of Johnson’s FCRA claim. The District Court
entered the parties’ stipulation as an order.

What exactly that stipulation and order meant to provide,
and what it lawfully could provide, are among the central
issues raised by this appeal. For now, suffice it to say that the
stipulation stated that the “parties shall participate in a bind-
ing arbitration with appeal rights”; that the Federal Rules of
Evidence and Civil Procedure, as well as “the Federal Arbitra-
tion Act . . . shall apply to the arbitration proceedings”; and
2
During this time, Wells Fargo accused Johnson of having destroyed
documents in discovery. The District Court awarded Wells Fargo a jury
instruction that would ask the jury to decide if any documents were
destroyed and would create an inference that any destroyed documents
were favorable to Wells Fargo. Johnson has appealed that sanction order.
 JOHNSON v. WELLS FARGO HOME MORTGAGE 2501
that, within thirty days after the arbitrator made an award,
either party would be able to apply to the court for an order
confirming the award in accordance with the Federal Arbitra-
tion Act (“FAA”).

By mutual agreement, the parties selected Michael Nott, a
retired justice of the California Court of Appeal, as the arbi-
trator. According to the terms of the stipulation, Justice Nott
was to be bound by all previous rulings of the District Court.
He was to resolve the remaining questions in the case,
namely: (1) whether Wells Fargo was liable to Johnson under
FCRA; (2) whether Johnson’s remaining categories of
claimed damages were “losses [he suffered] as a consumer,
and not . . . business losses”; (3) whether those damages were
caused by Wells Fargo’s violations of FCRA; and (4) the
extent of any such damages.

Justice Nott found that Wells Fargo had violated FCRA and
that Johnson should recover on approximately half of his
remaining categories of claimed damages. Justice Nott
awarded Johnson a total of $260,910 in damages, including
$100,000 for emotional distress, as well as $464,808.11 in
attorneys’ fees, and $37,069.15 in costs.

After the arbitrator made his award, Johnson moved the
District Court to confirm it. Wells Fargo then informed the
District Court of an arithmetical error in the arbitrator’s calcu-
lations. At a telephonic status conference on the motion,
counsel for Wells Fargo told the District Court “Wells Fargo
does intend on appealing this arbitrator’s award, asking you
to modify or vacate the award. So, how will — how do you
want to deal with that?” The District Court responded by say-
ing it would not review the arbitrator’s award and that Wells
Fargo should take its objections to the Court of Appeals. In
the Court’s words: “Well, it’s my understanding that what you
stipulated to was, that everybody stipulated, that following
this arbitration award, if somebody wanted to, they could take
it directly to the Ninth Circuit.” Counsel for Wells Fargo pro-
2502 JOHNSON v. WELLS FARGO HOME MORTGAGE
tested, pointing out that the stipulation read “ ‘unless this
Court vacates, modifies or corrects.’ So that was where I got
the fact that I didn’t know if we would have to file something
with you before, you know – – ” Magistrate Judge McQuaid
interjected: “Oh, I don’t believe so, because I’m going to
enter this judgment today.” He entered judgment and an order
confirming the award later that day.

Shortly thereafter, Wells Fargo filed a motion to vacate,
modify, or amend the award pursuant to Fed R. Civ. P. 52(b),
59(e) and 60(b), and a second motion to vacate or modify the
award pursuant to the Federal Arbitration Act, contending that
the arbitrator “demonstrated a manifest disregard for law.”
The District Court was not pleased by the motions, pronounc-
ing that it was “not only mystified, I’m a little miffed about
what’s going on here.” The Court explained that it believed
the parties had agreed to arbitration with “appeal rights,” and,
in the Court’s understanding,

that meant . . . following the arbitration the Court
would approve the arbitrator’s award, enter judg-
ment, and whichever party was unhappy at that point
could appeal the record to the Ninth Circuit, and the
issues would not be raised with the district court, and
all the parties agreed that all issues would be pre-
served for the Ninth Circuit.

As it explained, the District Court understood that after it
ordered the arbitration, the parties would “get the arbitrator’s
decision, the Court [would], in essence, rubber stamp the arbi-
trator’s decision, and whichever party [was] unhappy [could]
then appeal it directly to the Ninth Circuit.”

Both parties timely appealed.

II. WELLS FARGO’S APPEAL

Wells Fargo’s appeal raises two related questions about the
judicial review of arbitral awards: First, can judicial review of
 JOHNSON v. WELLS FARGO HOME MORTGAGE 2503
arbitral awards begin in a federal court of appeals? Appar-
ently assuming this initial question can only be answered
“yes,” neither party has addressed it. Because we believe the
question implicates this Court’s jurisdiction as well as the
appropriate division of labor between trial and appellate
courts, we raise it nostra sponte, answer it in the negative on
non-jurisdictional grounds, and remand to the District Court
with instructions to review the arbitrator’s award. See Sym-
antec Corp. v. Global Impact, Inc., 559 F.3d 922, 923 (9th
Cir. 2009).

The second question goes to the standard of judicial
review: As we are remanding for the District Court to review
the arbitrator’s award, and as the parties dispute the standard
on which a court should review that award, we explain what
the proper standard is. Specifically, Wells Fargo contends that
the parties agreed, and the District Court ordered, that the
arbitrator’s award would be reviewed according to the same
standards applied to a bench trial. We do not reach the ques-
tion whether the parties or the District Court could provide for
such a standard of judicial review; we conclude only that they
did not, and that the ordinary standard of review under the
Federal Arbitration Act applies.

Before embarking on our analysis, we note that some states
have instituted procedures that allow parties to select and
compensate a private individual at the trial court level, that is,
an arbitrator whose rulings are directly reviewed by appellate
courts as if they were decisions of a trial court. See Cal. Code
Civ. Proc. §§ 638 et seq.; Tex. Civ. Prac. & Rem. Code
§§ 151.001 et seq.; Supreme Court of Nevada, Order of June
23, 2010, In the Matter of the Amendment of the Nevada
Short Trial Rules to Provide for Alternate Trials, ADKT No.
447. As Wells Fargo acknowledges, its argument that this
Court of Appeals should review the arbitrator’s award in the
first instance and on the same standard as it would review a
bench trial amounts to asking this Court to sanction such a
practice in the federal system. Our holding today makes clear
2504 JOHNSON v. WELLS FARGO HOME MORTGAGE
that we will not permit a privately-selected arbitrator to act as
a private judge whose rulings are directly reviewed by this
Court. And this is so even if the parties stipulate to such a role
for the arbitrator.

A.

The first question, as noted, is whether the District Court
could properly decline to review the arbitrator’s award but
nonetheless enter an order confirming that award in the
expectation that review would begin in this Court. We con-
clude that it could not. Although we also conclude that this
procedural error does not deprive this Court of jurisdiction,
we decline to review the arbitrator’s award ourselves and then
affirm or reverse the District Court’s order on the alternative
ground of the award’s substantive merits. Instead, we exercise
our power to remand the case to the District Court with direc-
tions to rule on the motion to vacate, as it should have done
in the first instance.

1.

[1] The parties allege that this Court has jurisdiction pursu-
ant to 28 U.S.C. § 1291. That familiar statute gives this Court
jurisdiction “of appeals from all final decisions of the district
courts . . . .” This Court assuredly does not have jurisdiction
over an appeal taken directly from a private arbitrator. “[T]wo
things are necessary to create jurisdiction” in an inferior fed-
eral court: “[t]he Constitution must have given to the court the
capacity to take it, and an act of Congress must have supplied
it.” Teledyne, Inc. v. Kone Corp., 892 F.2d 1404, 1408 (9th
Cir. 1989) (quoting The Mayor v. Cooper, 73 U.S. 247, 252
(1867)). No act of Congress supplies a federal court of
appeals with jurisdiction to review an arbitrator’s award
directly, similar to the direct jurisdiction we do have over
many petitions for review of federal agency action. See, e.g.,
21 U.S.C. § 360g; 29 U.S.C. § 660(a); 33 U.S.C. § 1369(b).
 JOHNSON v. WELLS FARGO HOME MORTGAGE 2505
[2] Because there is no direct appellate jurisdiction over
arbitral awards, when this Court reviews arbitrators’ deci-
sions, it is technically reviewing a district court’s decision
confirming or vacating an arbitrator’s award. See, e.g., Bosack
v. Soward, 586 F.3d 1096, 1102 (9th Cir. 2009). In such
cases, this Court has jurisdiction under 28 U.S.C. § 1291. See,
e.g., id. at 1101; see also 9 U.S.C. § 16(a) (setting forth orders
relating to arbitration from which “[a]n appeal may be
taken”). The Court does review such district court decisions
de novo (and so, in effect, directly engages with the arbitra-
tor’s ruling on its own terms), see Johnson v. Gruma Corp.,
614 F.3d 1062, 1065 (9th Cir. 2010), but the interposed “final
decision” of the district court is nonetheless essential to this
Court’s jurisdiction under § 1291.

In this case, the district judge refused to hear Wells Fargo’s
motion to vacate the arbitrator’s award, because he believed
that his role was “in essence, [to] rubber stamp the arbitrator’s
decision.” After that, the District Court believed, “whichever
party [was] unhappy [could] then appeal [the arbitrator’s deci-
sion] directly to the Ninth Circuit.” But the District Court did,
in fact, enter orders confirming the arbitrator’s award and
denying Wells Fargo’s motion to vacate the arbitrator’s
award. Because the District Court has also entered judgment
in the case, there can be no doubt that this Court has jurisdic-
tion over the District Court’s orders and has the power to
reverse or affirm them.

A different, and slightly more difficult, question is the fol-
lowing: Once we conclude, as we do, that the District Court’s
decision not to review the arbitrator’s award was erroneous,
should we review the arbitrator’s award and then reverse or
affirm the District Court’s confirmation of the award, consid-
ering on their merits the grounds for vacating the award that
the District Court did not address? Such affirmance (or rever-
sal) of the District Court on the alternate ground that the arbi-
trator’s decision merited (or did not merit) confirmation
would, as a practical matter, work a circumvention of the
2506 JOHNSON v. WELLS FARGO HOME MORTGAGE
jurisdictional statutes that generally limit this Court to decid-
ing appeals of district court decisions (or petitions for review
of agency determinations). For if we reviewed the arbitrator’s
award to determine whether there is an alternative basis for
upholding the District Court’s confirmation of the award, we
would give effect to precisely what the District Court improp-
erly intended: judicial review in the first instance in the Court
of Appeals.

[3] To avoid the circumvention just described, we will not
now review the award in the first instance, but remand to the
District Court for it to do so. Before we explain the basis for
so proceeding, we address the two reasons it was procedurally
improper for the District Court to decline to review the arbi-
trator’s award: First, the parties did not agree to such a proce-
dure; and, second, even if they had, neither the District Court
nor the parties were empowered to authorize it.

2.

[4] Read as a whole, the parties’ agreement to arbitrate
does not provide that judicial review of the arbitration award
was to take place pursuant to any procedure other than the
standard one under the Federal Arbitration Act. The Federal
Arbitration Act provides in part:

If the parties in their agreement have agreed that a
judgment of the court shall be entered upon the
award made pursuant to the arbitration, and shall
specify the court, then at any time within one year
after the award is made any party to the arbitration
may apply to the court so specified for an order con-
firming the award, and thereupon the court must
grant such an order unless the award is vacated,
modified, or corrected as prescribed in sections 10
and 11 of this title.

9 U.S.C. § 9. Section 10 of the FAA provides that “the United
States court in and for the district wherein the award was
 JOHNSON v. WELLS FARGO HOME MORTGAGE 2507
made may make an order vacating the award upon the appli-
cation of any party to the arbitration” in any of four enumer-
ated situations. In similar terms, Section 11 permits district
courts to “modify[ ] or correct[ ]” an award in any of three
enumerated situations.

Here, the parties’ stipulation and agreement to arbitrate
provides that the parties may apply to “this Court” for an
order confirming the arbitration award “in accordance with
the provisions of the Federal Arbitration Act.” The agreement
was filed with the District Court and begins with the caption
“UNITED STATES DISTRICT COURT DISTRICT OF
NEVADA,” so there can be no doubt as to what is meant by
“this Court.” The agreement’s explicit reference to the Fed-
eral Arbitration Act as governing judicial review of the arbi-
tral award and its designation of the U.S. District Court for
the District of Nevada as the court where that review should
begin, demonstrate that the District Court—the “court so
specified,” 9 U.S.C. § 9—not the Court of Appeals, was to
confirm the arbitrator’s award “unless the award is vacated,
modified, or corrected.”3 Id.
3
We further note that the FAA, by its terms, supplies only district courts
with the authority to vacate and modify arbitral awards. See 9 U.S.C. § 10
(providing that “the United States court in and for the district wherein the
award was made” may vacate an arbitrator’s award under certain circum-
stances); 9 U.S.C. § 11 (same for modification of arbitral awards). Section
9 of the FAA, pertaining to confirmation of arbitral awards, is possibly
more ambiguous. Once again, it provides that:
If the parties in their agreement have agreed that a judgment of
the court shall be entered upon the award made pursuant to the
arbitration, and shall specify the court, then at any time within
one year after the award is made any party to the arbitration may
apply to the court so specified for an order confirming the award.
9 U.S.C. § 9.
We need not determine whether this provision allows for anything more
than a choice of venue among different districts, see generally Cortez Byrd
Chips, Inc. v. Bill Harbert Const. Co., 529 U.S. 193 (2000), because the
2508 JOHNSON v. WELLS FARGO HOME MORTGAGE
Clear as the arbitration agreement’s provisions are when
read as a whole, Wells Fargo raises an inventive argument,
which we next address.4 The contention is that the District
Court exercised its case management authority, under the
Federal Rules of Civil Procedure and the Nevada District
Court’s Local Rules, to authorize a departure from the ordi-
nary process of judicial review of arbitral awards. If this were
so, then the parties’ agreement may not be dispositive of how
judicial review of the arbitration award was to proceed.

In Hall Street Associates v. Mattel, Inc., 552 U.S. 576
(2008), the Supreme Court speculated that an arbitration
agreement entered into in the course of litigation and adopted
by a district court as an order might “be treated as an exercise
of the District Court’s authority to manage its cases under
Federal Rule[ ] of Civil Procedure 16.” Id. at 591. If so, the
Supreme Court hypothesized, the FAA might not provide the
exclusive permissible standard for judicial review of arbitra-
tion awards. See id. at 591-92.5

[5] Wells Fargo argues that “the arbitration agreement here
embodies the very alternative contemplated by Hall Street,”
contending that the District Court authorized the arbitration
pursuant to its “independent case management powers under

parties unambiguously selected the U.S. District Court for the District of
Nevada as the court where confirmation of the award should be sought.
Moreover, quite apart from what is procedurally proper under the FAA,
a federal court of appeals might well lack jurisdiction over an application
to confirm an arbitration award filed directly with the court of appeals. See
Hall St. Assocs. v. Mattel, Inc., 552 U.S. 576, 581-82 & 582 n.2 (2008)
(noting that the FAA does not “bestow[ ]” jurisdiction, “but rather requir-
[es] an independent jurisdictional basis”).
4
As previously mentioned, neither party directly briefed the propriety of
judicial review commencing in the court of appeals. Nonetheless, Wells
Fargo’s argument as to the proper standard of judicial review has implica-
tions for the propriety of skipping district court consideration.
5
We discuss Hall Street in greater detail in Section II.B, infra.
 JOHNSON v. WELLS FARGO HOME MORTGAGE 2509
the federal and local rules, including Rules 16, 53 and Nevada
Local Rule 16-5.”6 This thesis, clever though it may be, has
no basis in the record: The District Court did not once refer-
ence its independent case management powers in approving
the arbitration agreement or in confirming the resulting
award. This omission alone makes Wells Fargo’s “case man-
agement” assertion dubious. Entirely fatal to that assertion is
that under the Federal Rules of Civil Procedure, a district
court only has the power “to manage its cases.” Hall St., 552
U.S. at 591 (emphasis added). Nothing in Federal Rules of
Civil Procedure 16 or 53, much less Nevada Local Rule 16-5,
6
Fed. R. Civ. P. 16 provides, inter alia, that:
At any pretrial conference, the court may consider and take
appropriate action[, including] . . . (H) referring matters to a mag-
istrate judge or a master; (I) settling the case and using special
procedures to assist in resolving the dispute when authorized by
statute or local rule; . . . (L) adopting special procedures for man-
aging potentially difficult or protracted actions that may involve
complex issues, multiple parties, difficult legal questions, or
unusual proof problems; . . . (P) facilitating in other ways the just,
speedy, and inexpensive disposition of the action.
Fed. R. Civ. P. 53 provides, inter alia, that:
Unless a statute provides otherwise, a court may appoint a master
only to:
(A) perform duties consented to by the parties;
(B) hold trial proceedings and make or recommend find-
ings of fact on issues to be decided without a jury if appoint-
ment is warranted by:
(i) some exceptional condition; or
(ii) the need to perform an accounting or resolve a difficult
computation of damages; or
(C) address pretrial and posttrial matters that cannot be
effectively and timely addressed by an available district
judge or magistrate judge of the district.
Nevada Local Rule 16-5 provides that “[t]he court may, in its discretion
and at any time, set any appropriate civil case for settlement conference,
summary jury trial, or other alternative method of dispute resolution.”
2510 JOHNSON v. WELLS FARGO HOME MORTGAGE
grants a district court the power to override the basic structure
of federal courts by passing off cases to a court of appeals
without itself conducting the review contemplated by statute.
The District Court was therefore without power to abdicate
entirely its role in reviewing the arbitrator’s award, either
because of the terms of the parties’ agreement or under the
applicable court rules.

[6] Finally, we note that, despite the FAA’s use of the
seemingly permissive term “may,” the statute did not grant
the District Court discretion to decline to consider the motion
to vacate the arbitral award. Section 10 of the FAA provides
that a district court “may make an order vacating” an arbitral
award in any of four enumerated circumstances. 9 U.S.C.
§ 10(a) (emphasis added). Although “[t]he word ‘may[ ]’ . . .
usually implies some degree of discretion[, t]his common-
sense principle of statutory construction . . . can be defeated
. . . by obvious inferences from the structure and purpose of
the statute.” United States v. Rodgers, 461 U.S. 677, 706
(1983); see Cortez Byrd Chips, Inc. v. Bill Harbert Constr.
Co., 529 U.S. 193, 198 (2000) (“[T]he mere use of ‘may’ is
not necessarily conclusive of congressional intent to provide
for a permissive or discretionary authority.”).

[7] Here, the statute as a whole defeats any notion that dis-
trict courts may decline to consider motions to vacate, mod-
ify, or correct arbitration awards filed in response to a motion
to confirm. Section 9 of the FAA provides that a district court,
upon timely application, “must” confirm an arbitration award
“unless the award is vacated, modified, or corrected as pre-
scribed in sections 10 and 11.” 9 U.S.C. § 9. If § 10’s use of
“may” were read as permitting a district court, at its discre-
tion, not to consider a motion to vacate an arbitral award, it
would follow that Congress authorized district judges to con-
firm, at their discretion, awards that met the statutory standard
for vacatur (for example, “where the award was procured by
corruption, fraud, or undue means.” 9 U.S.C. § 10(a)(1)). But
Congress could not have meant to authorize district courts to
 JOHNSON v. WELLS FARGO HOME MORTGAGE 2511
confirm corrupt awards, especially where one of the parties
had properly objected to the award’s illegality. Thus, on the
only sensible combined reading of § 9 and § 10, a district
judge faced with proper and timely motions to vacate and to
confirm an arbitral must consider both motions according to
the statutory standards and rule on them accordingly.7

3.

We have explained why the District Court erred in not
reviewing the arbitrator’s award. We have also explained that
the error does not deprive this Court of jurisdiction. We now
explain why we have raised this procedural error even though
neither party has raised it and our ordinary rule is that “non-
jurisdictional issues not properly raised in appellate briefing
will not be considered.” Gov’t Emps. Ins. Co. v. Dizol, 133
F.3d 1220, 1225 (9th Cir. 1998) (en banc). We also clarify the
nature of our authority to decline to review the award our-
selves in the first instance, even though we review district
court rulings concerning such awards de novo when they are
properly before us.

The problem we face is similar to, although not exactly par-
allel to, the one considered by the Supreme Court in Thomas
v. Arn, 474 U.S. 140 (1985). Thomas upheld the Sixth Cir-
cuit’s exercise of its supervisory powers to establish the rule
that failure to file a written objection to a magistrate’s report
with a district judge would bar appellate consideration of the
objection.8 Weighing in favor of the rule’s validity, the
7
We have no occasion to decide whether § 10’s use of “may” has some
other significance. “[M]ay make an order vacating,” followed by the list
of permissible bases for such an order, could portend only that an order
vacating “may” be made in the circumstances specified, but not in any
other. Alternatively, as the Supreme Court has suggested, Congress’s use
of the word “may” might only indicate the permissive nature of venue
under the FAA. See Cortez Byrd, 529 U.S. at 198-99, 204.
8
The supervisory powers of the federal courts of appeals include “the
power . . . to mandate procedures deemed desirable from the viewpoint of
2512 JOHNSON v. WELLS FARGO HOME MORTGAGE
Supreme Court noted, was the fact that, absent the rule, a
court of appeals might be forced to “consider claims that were
never reviewed by the district court . . . .” Id. at 148. The
Supreme Court described this concern as one of judicial effi-
ciency, id., using that concept in a broad sense—that is, as not
only promoting the use of fewer judicial resources but as also
incorporating the appropriate division of the appellate and
trial court functions.

[8] Our decision not to review the arbitrator’s award our-
selves is motivated by similar concerns about the appropriate
division of appellate and trial court roles. As Thomas’s analy-
sis suggests, courts of appeals “are entitled to the benefit of
the district court’s judgment . . . .” Beckford v. Portuondo,
234 F.3d 128, 130 (2d Cir. 2000); see also Couveau v. Am.
Airlines, Inc., 218 F.3d 1078, 1081 (9th Cir. 2000)
(“Appellate review is a particularly difficult process when
there is nothing to review.”). But unlike in Thomas, we need
not invoke our supervisory powers to create the rule that a
district court is obliged to consider the propriety of an arbitra-
tion award when faced with proper motions to confirm and
vacate the award under the FAA; the FAA, as we have
explained, already imposes that duty. But just as in Thomas,
we have the power—whether it be termed “supervisory” or
otherwise—to “regulate practice in a particular case,” Fed. R.
App. P. 47(b), and so to decline to hear an appeal when that
obligation is not fulfilled.

[9] Here, the fault in the district court was not that of the
appealing party, Wells Fargo. So it would not do to refuse to
hear the appeal entirely, as the Sixth Circuit did in Thomas.

sound judicial practice although in nowise commanded by statute or by the
Constitution.” Thomas, 474 U.S. at 146-47 (quotation omitted); see also
Fed. R. App. P. 47(b) (permitting a court of appeals to “regulate practice
in a particular case in any manner consistent with federal law”). This
supervisory power of the courts of appeals “rests on the firmest ground
when used to establish rules of judicial procedure.” Thomas, 474 U.S. at
147 n.5.
 JOHNSON v. WELLS FARGO HOME MORTGAGE 2513
Instead, we remand the case to the District Court to obtain its
judgment. This Court and other courts of appeals have simi-
larly remanded to a district court where “a district court’s
decision . . . is simply too spare to serve as a basis for . . .
review,” Beckford, 234 F.3d at 130, even where the court of
appeals ordinarily would review the district court’s decision
de novo. See, e.g., id. (summary judgment); Zalaski v. City of
Bridgeport Police Dep’t, 613 F.3d 336, 341 (2d Cir. 2010)
(summary judgment); Van Bourg, Allen, Weinberg & Roger
v. NLRB, 656 F.2d 1356, 1358 (9th Cir. 1981) (per curiam)
(summary judgment); Valdez v. California, 439 F.2d 1405,
1406 (9th Cir. 1971) (per curiam) (habeas corpus); Finley v.
Drew, 453 F.2d 1240, 1240 (3d Cir. 1971) (per curiam)
(habeas corpus); see also Jang v. Boston Scientific Corp., 532
F.3d 1330, 1335 (Fed. Cir. 2008) (collecting cases).

Here, the District Court’s decision is not simply “spare”; it
is purposely non-existent: The District Court expressly stated
that it would not review the arbitrator’s award. We therefore
vacate the judgment and remand the case with instructions for
the District Court to reconsider the motions to confirm and to
vacate the arbitrator’s award under the appropriate standard of
review, which as we now explain, is the ordinary standard of
review under the FAA.9
9
We also reject Johnson’s contention that Wells Fargo failed timely to
object to confirmation of the arbitrator’s award. Counsel for Wells Fargo
stated its intent to file a motion to vacate at the telephonic status confer-
ence on Johnson’s motion to confirm the award. The Court emphatically
replied that there was no point in doing so, as the District Court would not
review the arbitrator’s award before confirmation; that Wells Fargo should
take its objection to the Court of Appeals; and that the District Court was
going to—and then did—confirm the award and enter judgment that same
day. On reconsideration, the District Court reiterated that it never intended
to review on the merits any substantive issue concerning the validity of the
arbitration award. It is therefore evident that the District Court made no
adverse timeliness ruling, and that no substantive objection to the award,
whenever raised, would have been entertained on its merits.
2514 JOHNSON v. WELLS FARGO HOME MORTGAGE
B.

The parties also dispute the standard on which a court
should review the arbitrator’s award in this case.

[10] The Federal Arbitration Act sets forth standards on
which a federal court may vacate an arbitrator’s award. The
Act provides in pertinent part:

(a) In any of the following cases the United States
court in and for the district wherein the award was
made may make an order vacating the award upon
the application of any party to the arbitration—

(1) where the award was procured by cor-
ruption, fraud, or undue means;

(2) where there was evident partiality or
corruption in the arbitrators, or either of
them;

(3) where the arbitrators were guilty of mis-
conduct in refusing to postpone the hearing,
upon sufficient cause shown, or in refusing
to hear evidence pertinent and material to
the controversy; or of any other misbehav-
ior by which the rights of any party have
been prejudiced; or

(4) where the arbitrators exceeded their
powers, or so imperfectly executed them
that a mutual, final, and definite award
upon the subject matter submitted was not
made.

9 U.S.C. § 10. As is apparent from the language, these stan-
dards are highly deferential to the arbitrator.
 JOHNSON v. WELLS FARGO HOME MORTGAGE 2515
[11] Here, Wells Fargo moved the District Court to vacate
the arbitrator’s award on the ground the arbitrator “demon-
strated a manifest disregard for law.” Although the words
“manifest disregard for law” do not appear in the FAA, they
have come to serve as a judicial gloss on the standard for
vacatur set forth in FAA § 10(a)(4). See Kyocera Corp. v.
Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 997 (9th
Cir. 2003) (en banc); Bosack, 586 F.3d at 1104; see also Hall
St., 552 U.S. at 585.10

As to whether private parties may vary that standard, we
concluded in an en banc decision, Kyocera Corp. v.
Prudential-Bache Trade Services, Inc., 341 F.3d 987 (9th Cir.
2003), that they may not. The Supreme Court later in large
part agreed, but left open for future decision whether judicial
review of arbitration awards may ever be subjected to a stan-
dard other than those provided by the FAA.

Specifically, Kyocera held that “Congress [in the FAA] has
specified the exclusive standard by which federal courts may
review an arbitrator’s decision . . . [and, therefore,] private
parties may not contractually impose their own standard on
the courts.” 341 F.3d at 994.

In Hall Street, the Supreme Court largely adopted Kyoc-
era’s conclusion, holding that the FAA has “textual features
at odds with enforcing a contract to expand judicial review
following the arbitration.” 552 U.S. at 586. But, as previously
discussed, the Court qualified that holding, noting that “we do
not purport to say that [the FAA] exclude[s] more searching
10
Courts may also vacate awards that are “completely irrational . . . with
respect to the contract.” Bosack, 586 F.3d at 1107; Comedy Club, Inc. v.
Improv West Assocs., 553 F.3d 1277, 1288 (9th Cir. 2009). For reasons not
entirely apparent, we have understood that standard as another, separate
gloss on the standard set forth in FAA § 10(a)(4). See Kyocera, 341 F.3d
at 997. Because Wells Fargo did not move to vacate the award on the
ground that it was completely irrational, we confine our discussion to the
manifest disregard standard.
2516 JOHNSON v. WELLS FARGO HOME MORTGAGE
review based on authority outside the statute.” Id. at 590. The
Court surmised that because the arbitration agreement in the
case before it had been entered into in the course of litigation
and had been adopted by the district court as an order, it was
possible that the “agreement [should] be treated as an exercise
of the District Court’s authority to manage its cases under
Federal Rule[ ] of Civil Procedure 16.” Id. at 591. Because
potentially authorized other than pursuant to the FAA, judicial
review of such an arbitral award might conceivably be more
searching than that pursuant to the FAA. The Supreme Court
noted the question “implicate[d] issues of waiver and the rela-
tion of the FAA both to Rule 16 and the Alternative Dispute
Resolution Act of 1998,” see 28 U.S.C. § 651, and remanded
the question, “express[ing] no opinion on these matters.” Hall
St., 552 U.S. at 592.11

Wells Fargo argues that “the arbitration agreement here
embodies the very alternative contemplated by Hall Street.”
The company contends that, as in Hall Street, the agreement
11
We note that the Supreme Court later expressed some doubt as to
whether the “ ‘manifest disregard’ [standard] survive[d] [its] decision in
Hall Street . . . .” Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct.
1758, 1768 n.3 (2010); cf. Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d
349, 358 (5th Cir. 2009) (“abandon[ing] and reject[ing]” the “manifest dis-
regard” standard). But in this Circuit the “manifest disregard” standard has
survived Hall Street intact, and so we are bound to apply it. See Comedy
Club, 553 F.3d at 1290-91.
For purposes of this case, we also assume, without deciding, that Hall
Street constitutes intervening authority with regard to Kyocera’s conclu-
sion that “a federal court may only review an arbitral decision on the
grounds set forth in the Federal Arbitration Act . . . .” Kyocera, 341 F.3d
at 1000 (emphasis added). Finally, we observe that, although U.S. Life Ins.
Co. v. Superior Nat’l Ins. Co., 591 F.3d 1167 (9th Cir. 2010), stated that
Hall Street “ruled that § 10 lists the exclusive grounds for vacating an
arbitration award,” id. at 1173, that statement necessarily meant that § 10
lists the exclusive grounds for vacating an arbitration award under the
FAA. Hall Street did, as noted in the text, leave open the possibility of a
different standard of review “based on authority outside the statute.” 552
U.S. at 590.
 JOHNSON v. WELLS FARGO HOME MORTGAGE 2517
to arbitrate was entered into in the course of litigation; it also
contends that the District Court “explicitly approved the par-
ties’ agreement subject to full judicial review,” and that the
District Court was authorized to ensure “full judicial review”
“by its independent case management powers under the fed-
eral and local rules, including Rules 16, 53 and Nevada Local
Rule 16-5.”

Whatever the merits of the Fed. R. Civ. P. 16 theory as to
which Hall Street speculated, it does not apply to this case.
Wells Fargo’s argument, even if otherwise viable, is untena-
ble in the face of the parties’ stipulation and the District
Court’s statements.12

[12] The parties’ stipulation to arbitrate expressly provides
that “the FAA . . . shall apply to the arbitration proceedings.”
The stipulation then largely incorporates the language of the
FAA in describing how the District Court, upon application
by the parties, “must” enter an order confirming the arbitra-
tion award “unless this Court vacates, modifies or corrects the
arbitration award, and enter a judgment in accordance with
the provisions of the Federal Arbitration Act.” See 9 U.S.C.
§ 9 (using similar language). Nothing in the agreement sug-
gests that anything other than the ordinary FAA standard of
judicial review should apply.

Wells Fargo points out that the stipulation provides that
“the parties shall participate in a binding arbitration with
appeal rights.” (Emphasis added). But the phrase “appeal
rights” says nothing about the standard of review. After all,
parties have a right to judicial review, including appellate
review, under the FAA, but that review is only for manifest
12
We, like the Supreme Court, therefore express no opinion as to the
viability of the case-management theory of judicial review of arbitration
awards alluded to in Hall Street.
2518 JOHNSON v. WELLS FARGO HOME MORTGAGE
disregard of the law by the arbitrator, or for one of the other
highly deferential standards contained in the statute.13

Moreover, the District Court did not once cite, or by impli-
cation refer to, its case management authority under the Fed-
eral Rules in adopting the stipulation as an order, and never
indicated any intent to vary the standard of review. As the
alternative thesis suggested in Hall depends on the district
court’s invocation of its case management authority under
Rule 16 to vary the review standard, the thesis has no applica-
tion here.

Wells Fargo also suggests that the “arbitrator memorialized
the parties’ agreement [concerning the standard of judicial
review] in his award,” and that his recitation may have rele-
vance here. The arbitrator did state in his written opinion that,
under the parties’ agreement to arbitrate, “the parties will
retain the same appellate rights that they would be afforded
under Federal law had they gone to a court or jury trial.” This
statement is the only record support for Wells Fargo’s posi-
tion that the standard of appellate judicial review of the arbi-
trator’s award was meant to be the same as the review of a
bench trial.

But the statement cannot carry any weight. The parties
never manifested an intent for the arbitrator to decide the stan-
dard of judicial review nor does Wells Fargo argue they did
(or that their doing so would have any relevance). The District
Court similarly did not delegate to the arbitrator authority to
decide the scope of judicial review. The arbitrator’s views on
13
One plausible explanation of the phrase “appeal rights” is that it was
inserted to make clear that the bar on appeal in the Alternative Dispute
Resolution Act, 28 U.S.C. §§ 651 et seq., was not intended to apply to the
confirmation of the arbitration award. See 28 U.S.C. § 657(a) (providing
that when a district court confirms an arbitration award pursuant to the
Alternative Dispute Resolution Act, “the judgment shall not be subject to
review in any other court by appeal or otherwise”).
 JOHNSON v. WELLS FARGO HOME MORTGAGE 2519
the standard by which courts would review his decision are
therefore irrelevant.

[13] In sum, there is just no persuasive evidence that the
District Court or the parties intended the arbitrator’s award to
be subject to anything other than the standard of judicial
review provided by the FAA. We therefore hold that the Dis-
trict Court should apply those standards on remand.

III. JOHNSON’S CROSS-APPEAL

Johnson cross-appeals the District Court’s grant of sum-
mary judgment to Wells Fargo on his claims under the Real
Estate Settlement Procedures Act and the common law of
negligence. For the reasons discussed below, we affirm.

A.

Congress enacted the Real Estate Settlement Procedures
Act in 1974 to protect consumers from abusive practices in
mortgage closings. See Schuetz v. Banc One Mortg. Corp.,
292 F.3d 1004, 1008 (9th Cir. 2002). Wells Fargo’s position,
accepted by the District Court, is that Johnson did not take out
loans 55 and 56 as a consumer and, therefore, RESPA does
not apply. We agree.

[14] RESPA does not “apply to credit transactions involv-
ing extensions of credit . . . primarily for business, commer-
cial, or agricultural purposes . . . .” 12 U.S.C. § 2606(a). To
determine what it means for a loan to be “primarily for a busi-
ness . . . purpose” requires an expedition through the Code of
Federal Regulations.

[15] The journey begins with so-called Regulation X, 24
C.F.R. § 3500.5, which provides in part:

(a) RESPA and this part apply to all federally related
mortgage loans, except for the exemptions provided
in paragraph (b) of this section.
2520 JOHNSON v. WELLS FARGO HOME MORTGAGE
(b) Exemptions

...

(2) Business purpose loans. An extension of credit
primarily for a business, commercial, or agricultural
purpose, as defined by Regulation Z, 12 C.F.R.
226.3(a)(1). Persons may rely on Regulation Z in
determining whether the exemption applies.

The parties do not dispute that loans 55 and 56 are “federally
related mortgage loans.” See 12 U.S.C. § 2602(1) (defining
“federally related mortgage loan”). Thus, following Regula-
tion X’s guidance, we look to Regulation Z to determine if
loans 55 and 56 were “business purpose loans.”

[16] Regulation Z, 12 C.F.R. §§ 226.1 et seq., “is [a regu-
lation] issued by the Board of Governors of the Federal
Reserve System to implement the federal Truth in Lending
Act.” 12 C.F.R. § 226.1. The provision of Regulation Z
explicitly referenced by Regulation X provides only that Reg-
ulation Z does not apply to “[a]n extension of credit primarily
for a business, commercial or agricultural purpose.” 12 C.F.R.
§ 226.3(a)(1). In other words, Regulation Z does not define “a
business . . . purpose” loan; it just recites the same terms also
contained in Regulation X.

The interpretations of § 226.3 in the Official Staff Com-
mentary on Regulation Z are much more expansive. See 12
C.F.R. Pt. 226, Supp. I. We have been directed to treat these
official staff interpretations of Regulation Z as controlling
“[u]nless demonstrably irrational.” Ford Motor Credit Co. v.
Milhollin, 444 U.S. 555, 565 (1980); see Chase Bank USA, N.
A. v. McCoy, No. 09-329, Slip Op. at 16 (U.S. Jan. 24, 2011).

[17] Doing so, we find the staff interpretations dispositive.
One part of the Commentary is directly applicable to loans 55
and 56. That portion provides in pertinent part:
 JOHNSON v. WELLS FARGO HOME MORTGAGE 2521
4. Non-owner-occupied rental property. Credit
extended to acquire, improve, or maintain rental
property (regardless of the number of housing units)
that is not owner-occupied is deemed to be for busi-
ness purposes. . . .

12 C.F.R. Pt. 226, Supp. I, Cmt. 3(a)(4) (West 2011). Johnson
does not dispute that the properties on Adriatic Avenue and
on Fessenden Street were non-owner-occupied rental proper-
ties. Loans 55 and 56, the mortgages on those properties, thus
fall within Regulation Z’s definition of a business-purpose
loan, and, so, RESPA does not apply to them.

There is certainly nothing “demonstrably irrational” in
regarding a loan to acquire, improve, or maintain non-owner
occupied rental property as a loan for a business purpose.
That conclusion should be—indeed, is—the end of the matter.
But Johnson makes a number of contentions to the contrary,
which we address in turn and, in turn, reject.

1.

First, Johnson argues that the Court, in interpreting Regula-
tion X, should not look to the Official Staff Commentary on
Regulation Z because (1) the latter is not part of Regulation
Z, and (2) the Federal Reserve Board, in issuing the official
staff interpretations, did not intend to interpret RESPA, but,
instead, intended only to interpret the Truth in Lending Act.
Neither of these contentions has merit.

In directing those seeking a definition of the term “primar-
ily for a business . . . purpose” in Regulation X to Regulation
Z, Regulation X necessarily includes a direction to the staff
interpretations of Regulation Z. Regulation Z itself does not
expand at all on Regulation X’s use of the phrase “primarily
for a business . . . purpose,” but the staff interpretations do.
So if Regulation X did not incorporate the staff interpretations
2522 JOHNSON v. WELLS FARGO HOME MORTGAGE
of Regulation Z, its reference to Regulation Z would, as a
practical matter, accomplish exactly nothing.

Further, Congress explicitly required that agency regula-
tions ensure that RESPA’s exemption for “credit transactions
involving extensions of credit primarily for business . . . pur-
poses” “be the same as the exemption . . . under [the Truth in
Lending Act].” 12 U.S.C. § 2606(b). Because Regulation Z
implements the Truth in Lending Act, see 12 C.F.R. § 226.1,
and Congress has mandated that the business-purpose exemp-
tion under RESPA be the “same as” as that under the Truth
in Lending Act, it does not matter whether the Federal
Reserve Board “intended” to interpret RESPA in issuing Reg-
ulation Z. What matters is Congress’s expressed intent in
enacting RESPA, and RESPA’s regulation implementing that
intent.

2.

Next, Johnson seizes upon a variation within the statutory
and regulatory language and attempts to wrench meaning out
of it. While the identified variation in language may be mean-
ingful in some circumstances, it has no significance for our
purposes.

Johnson begins by observing that Regulation X first identi-
fies RESPA as applying “to all federally related mortgage
loans, except for the exemptions provided in paragraph (b) of
this section.” 24 C.F.R. § 3500.5(a). Paragraph (b) of that sec-
tion then lays out a number of scenarios to which RESPA
does not apply, including the exception for “[a]n extension of
credit primarily for a business, commercial, or agricultural
purpose . . . .” 24 C.F.R. § 3500.5(b)(2) (emphasis added).
The business-purposes exception provision in Regulation Z
uses the same language as that in Regulation X. See 12 C.F.R.
§ 226.3 (providing that Regulation Z does not apply to “[a]n
extension of credit primarily for a business, commercial or
agricultural purpose”) (emphasis added). RESPA itself, how-
 JOHNSON v. WELLS FARGO HOME MORTGAGE 2523
ever, uses the same language but adds the summary term
“credit transactions”: It provides that the statute does not
apply to “credit transactions involving extensions of credit . . .
primarily for business, commercial or agricultural purposes.”
12 U.S.C. § 2606(a) (emphasis added). The term “credit trans-
action” does not appear anywhere in RESPA other than the
provision of the statute setting out the business purpose
exemption. The term “federally related mortgage loan,” by
contrast, appears throughout RESPA.14

But after pointing to these differences in language, John-
son’s argument sputters out. True, courts ordinarily apply a
presumption that variations in statutory language are mean-
ingful. See, e.g., Corley v. United States, 129 S. Ct. 1558,
1567 (2009). But here, although the statutory exemption (i.e.,
“credit transactions involving extensions of credit”) may be
broader than the general statutory coverage (i.e., “federally
related mortgage loans”), it cannot possibly be narrower: All
federally related mortgage loans are surely credit transactions
involving the extension of credit.15 And the descriptions of the
business-purpose exemption in Regulations X and Z, both of
which use the term “extension of credit,” map onto the statu-
tory exemption for “credit transactions involving extensions
of credit”: An “extension of credit” is assuredly a “credit
transaction involving an extension of credit.” The upshot is
that the exemptions in RESPA and the two pertinent regula-
tions are co-extensive (if not co-terminous), and all three
apply to Johnson’s loans.
14
Indeed, almost all of RESPA’s substantive provisions state that they
apply to federally related mortgage loans (and, by implication, nothing
else). See, e.g., 12 U.S.C. §§ 2603(a), 2604(a), 2605(a); 2605(a),
2605(b)(1), 2605(c)(1), 2605(d), 2607(a), 2607(b), 2608(a); see also 12
U.S.C. § 2602(1) (defining “federally related mortgage loan”).
15
That the variation between RESPA’s general use of “federally related
mortgage loan” and § 2606(a)’s use of the phrase “credit transactions” is
not of any significance in this case does not mean, of course, that the vari-
ation is not of some significance in some other circumstance.
2524 JOHNSON v. WELLS FARGO HOME MORTGAGE
3.

Next, and most vigorously, Johnson argues that use of the
comments on Regulation Z to interpret Regulation X “auto-
matically amend[s] Section 2602 [of RESPA] by redefining
‘federally related mortgage loans.’ ” The section of RESPA to
which Johnson alludes provides that “federally related mort-
gage loan” refers to mortgages meeting certain requirements
and secured by property “designed principally for the occu-
pancy of from one to four families.” 12 U.S.C. § 2602. Com-
ment 3(a)(5) of the official staff interpretations of Regulation
Z provides, in pertinent part:

5. Owner-occupied rental property. If credit is
extended to acquire, improve, or maintain rental
property that is or will be owner-occupied within the
coming year, different rules apply:

i. Credit extended to acquire the rental property is
deemed to be for business purposes if it contains
more than 2 housing units.

ii. Credit extended to improve or maintain the rental
property is deemed to be for business purposes if it
contains more than 4 housing units. . . .

12 C.F.R. Pt. 226, Supp. I, Cmt. 3(a)(5) (West 2011). Johnson
argues that applying Comment 3(a)(5) to interpret the
business-purpose loan exception of RESPA would conflict
with other provisions of RESPA.

Once again, the argument does not advance Johnson’s
cause. Comment 3(a)(5) is inapplicable to loans 55 and 56.
The Fessenden Street and Adriatic Avenue properties were
not owner-occupied. It is Comment 3(a)(4), not Comment
3(a)(5), that demonstrates that the loans for those properties
are for a business purpose.
 JOHNSON v. WELLS FARGO HOME MORTGAGE 2525
4.

Finally, Johnson argues that Wells Fargo was required to
comply with RESPA as a matter of contract. The deeds of
trust for loans 55 and 56 both provide that lenders and ser-
vicers will abide by many of the requirements of RESPA.
Both deeds of trust also state that “ ‘RESPA’ refers to all
requirements and restrictions that are imposed in regard to a
‘federally related mortgage loan’ even if the Loan does not
qualify as a ‘federally related mortgage loan.’ ”

Johnson did not plead a claim for breach of contract. After
the District Court had ruled on Wells Fargo’s second motion
for summary judgment and set the case for trial, Johnson
moved for leave to amend his complaint to add a claim for
breach of contract. The District Court denied the motion as
untimely. Johnson does not challenge on appeal the order
denying the motion. Johnson’s breach of contract claim is
therefore not properly raised on this appeal.

B.

Johnson also cross-appeals the District Court’s grant of
summary judgment to Wells Fargo on his common-law negli-
gence claim. The District Court held that Oregon tort law’s
economic loss doctrine bars Johnson’s negligence claim, in
part, and that FCRA preempts the remainder. We agree with
the former conclusion and reverse the District Court’s holding
as to the latter.

[18] With regard to the negligence claim, Johnson’s com-
plaint alleges only that Wells Fargo “negligently, carelessly,
and without reasonable care failed to comply with” RESPA
§ 2605 and FCRA § 1681s-2. These allegations appear to be
invoking one of the exceptions to the Oregon economic loss
doctrine. Under that doctrine, Oregon negligence law does not
allow recovery of purely economic losses except when there
is an injury to person or property or where there is a special
2526 JOHNSON v. WELLS FARGO HOME MORTGAGE
duty to the plaintiff,. See Lowe v. Phillip Morris USA, Inc.,
183 P.3d 181, 186 (Or. 2008).16 Johnson relies on the sections
of RESPA and FCRA cited as creating the requisite duty for
purposes of Oregon law.

[19] We have looked for Oregon cases premising the statu-
tory duty exception to the economic loss doctrine on a federal,
as opposed to a state, statute, and have found none, leaving us
skeptical that Oregon law would cross jurisdictions for these
purposes. Even if it would, the District Court was certainly
correct that the reliance on a duty derived from RESPA can-
not suffice. RESPA, as we have explained, created no duty to
16
The parties presume that Oregon law applies, because the choice-of-
law clauses in the security instruments for both loans 55 and 56 provide
that the “Security Instrument[s] shall be governed by federal law and the
law of the jurisdiction in which the Property is located.” We agree that
Oregon law applies.
A federal court applying state substantive law is bound to follow the
choice-of-law rules of the forum state. See Klaxon Co. v. Stentor Elec.
Mfg. Co., 313 U.S. 487, 496-97 (1941); Day & Zimmerman, Inc. v. Chal-
loner, 423 U.S. 3, 4 (1975). Under Nevada law, Oregon law should deter-
mine whether the contractual choice-of-law provisions adopt Oregon law
for purposes of a negligence suit. Engel v. Ernst, 724 P.2d 215, 216-17
(Nev. 1986); Weil v. Morgan Stanley DW Inc., 877 A.2d 1024, 1032 &
1032 n.15 (Del. Ch. 2005), aff’d 894 A.2d 207 (Del. 2005). But we are
aware of no Oregon case or statutory provision indicating whether Oregon
courts would read the contractual choice-of-law provisions as incorporat-
ing a related tort claim. See Or. Rev. Stat. § 81.102 (stating that Oregon’s
statutory choice-of-law provisions do not apply to any contract to which
a financial institution is a party).
Still even if the contractual provisions do not adopt Oregon tort law,
Oregon law would apply. Nevada courts follow “the Second Restate-
ment’s most significant relationship test [to decide] choice-of-law issues
in tort actions unless another, more specific section of the Second Restate-
ment applies to the particular tort.” Gen. Motors Corp. v. Eighth Judicial
Dist. Court, 134 P.3d 111, 116 (Nev. 2006). Under that open-ended test,
we would conclude that Oregon has the most significant relationship to the
occurrence and the parties. See RESTATEMENT (SECOND): CONFLICT OF LAWS
§§ 6, 145 (1971).
 JOHNSON v. WELLS FARGO HOME MORTGAGE 2527
Johnson with regard to loans 55 and 56 because they were
commercial loans.

[20] As to the hypothesis that FCRA could supply the
missing duty, the parties agree that the District Court rejected
this possibility on the basis of a misreading of the complaint:
The District Court thought Johnson’s negligence claim was
premised on violations of the provisions of FCRA codified at
15 U.S.C. §§ 1681g & 1681h, and held that the claim was
therefore preempted under 15 U.S.C. § 1681h(e), the narrower
of the two arguably applicable FCRA preemption provisions.17
In fact, Johnson made no such § 1681g or § 1681h allega-
tions, relying instead on provisions with similar numbering in
FDCPA, a different statute. We therefore cannot affirm the
District Court’s holding regarding FCRA preemption.

[21] We do have authority to affirm district courts on
grounds raised below but not reached, see United States v.
Johnson Controls, Inc., 457 F.3d 1009, 1022 (9th Cir. 2006),
but we decline to do so here. The two FCRA preemption pro-
visions are opaque, and as noted, in some tension with each
other. See note 17, supra. The parties appear to us quite possi-
bly to misread the preemption provision they do discuss: Both
assume that 15 U.S.C. § 1681h(e) preempts “defamation,
invasion of privacy, or negligence” causes of action based on
disclosure of information in violation of FCRA §§ 1681g,
1681h, and 1681m, all of which require disclosure of certain
information in specified circumstances. But the section actu-
ally preempts actions “based on information disclosed pursu-
ant to” those sections, 15 U.S.C. § 1681h(e) (emphasis
added), saying nothing about any alleged violation of them.
17
The other, considerably broader FCRA preemption provision, 15
U.S.C. § 1681t, is, oddly, not mentioned by either party or by the District
Court. See Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1165-67
(9th Cir. 2009) (discussing the apparent tension between § 1681h(e) and
§ 1681t, and laying out, without choosing among, possible bases for rec-
onciling the two provisions).
2528 JOHNSON v. WELLS FARGO HOME MORTGAGE
That could mean that there is preemption whether there is a
violation of those sections or not, so long as the factual basis
of the claim is information disclosed pursuant to the cited lan-
guage.18 To decide the preemption claim, we would first have
to decide whether that is what § 1681h(e) means, and if so,
whether the factual basis for Johnson’s negligence claim came
from disclosures pursuant to specified sections. As the parties
have briefed neither question, we are hard pressed to proceed
with Wells Fargo’s FCRA preemption challenge beyond con-
cluding that the District Court’s basis for rejecting it was in
error.

Although Wells Fargo puts forward other bases for affirm-
ing the dismissal of the negligence claim, those bases substan-
tially overlap with the issues before the arbitrator and so
cannot sensibly be addressed unless and until the arbitration
award is final.19

C.

[22] Finally we turn to the sanction order. The District
Court awarded Wells Fargo a jury instruction after it found
that “the evidence . . . tends to show [Johnson] . . . willfully
reformat[ted] his hard drives,” thereby destroying documents
that Wells Fargo was seeking in discovery. The instruction
would ask the jury to determine if documents had been
destroyed by Johnson and, if the jury so found, the instruction
would “creat[e] a presumption in favor of [Wells Fargo] that
the spoliated evidence was unfavorable to [Johnson]. . . .”

“We review the district court’s imposition of spoliation
18
We are not deciding the meaning of § 1681h(e), but only pointing out
that its language is susceptible to such an interpretation.
19
We note that because Wells Fargo has, as far as we are aware, never
contended that Johnson’s negligence claim is preempted under FCRA’s
second, broader preemption provision, § 1681t, we would not reach that
question on this appeal in any event.
 JOHNSON v. WELLS FARGO HOME MORTGAGE 2529
sanctions for an abuse of discretion. . . . The district court’s
factual findings, including findings of bad faith and prejudice,
are reviewed for clear error.” Leon v. IDX Sys. Corp., 464
F.3d 951, 957-58 (9th Cir. 2006). “The district court’s credi-
bility determinations are entitled to special deference.” Id.
“[W]e do not disturb the district court’s choice of sanction
unless we have a definite and firm conviction that the district
court committed a clear error of judgment.” Id. at 961 (quota-
tion omitted).

[23] We cannot conclude that the District Court abused its
discretion or otherwise erred in ordering this sanction. Indeed,
the District Court’s sanction, which permits the jury to decide
if any documents were destroyed when Johnson’s hard drives
were reformatted, strikes us as precisely the kind of flexible
and resourceful sanction order that district judges should be
encouraged to craft. We therefore affirm the sanction order.

IV. CONCLUSION

[24] For the foregoing reasons, we reverse and remand
with instructions for the District Court to consider Johnson’s
motion to confirm the arbitrator’s award and Wells Fargo’s
motion to vacate it under the standards provided by the Fed-
eral Arbitration Act. We affirm the District Court’s grant of
summary judgment to Wells Fargo on Johnson’s RESPA
claim and on his negligence claim. We also affirm the sanc-
tion order.

Each side shall bear its own costs on this appeal.

AFFIRMED IN PART; REVERSED AND
REMANDED IN PART.