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In a case where a bank used two different arbitration agreements for a group of account holders, a Mississippi federal court ruled that the broadly worded arbitration agreement applied to a mortgage dispute but found that the mortgage dispute was outside of the other arbitration agreement because its scope was limited to disputes “concerning the depository account.”
In Smith v. Coldwell Banker Real Estate Corp., No. 4:05cv166, 2007 WL 2725826 (D. Miss. Sept. 14, 2007), eleven plaintiffs opened bank accounts with State Bank and Trust as part of the process for obtaining a home mortgage. Incidental to opening an account at State Bank was signing a stand-alone arbitration agreement.
Three plaintiffs, Burch, Coleman, and West, signed one type of arbitration agreement, while the other eight plaintiffs, Bush, et al., signed a different arbitration agreement. Collectively, the plaintiffs filed suit against State Bank for fraudulent conduct regarding their mortgages.
State Bank filed a motion to compel arbitration pursuant to the arbitration agreements. The Court noted that in determining whether to compel arbitration, there are two main considerations: (1) whether there is a valid agreement to arbitrate; and (2) whether the dispute falls within the scope of the arbitration agreement.
Determination of whether there is a valid agreement to arbitrate is based upon ordinary contract principles. The plaintiffs argued that they did not understand that by signing the arbitration agreement they were giving up their right to sue in court. The Court rejected this argument and determined that even if plaintiffs did not read, or understand, what they were signing, the arbitration agreement was a stand-alone document and therefore was not unwittingly signed. The Court determined that a valid agreement to arbitrate did exist.
Next, the Court examined whether the dispute was within the scope of the arbitration agreement. The arbitration agreement that Burch, Coleman, and West signed was narrow. This agreement applied only to disputes “concerning the depository account.” According to the Court, under the language of this arbitration agreement, the plaintiffs would not expect the agreement to apply to their claims of mortgage fraud. Therefore, the Court denied the motion to compel arbitration with respect to Burch, Coleman, and West.
Conversely, the arbitration agreement signed by Bush, et al., was broader in scope. This agreement applied to all claims arising from, or relating to any matter, including the deposit account. Due to the lack of limiting language in this agreement, the Court concluded that the agreement applied to the mortgage fraud claims against State Bank. Thus, the Court granted State Bank’s motion to compel arbitration with respect to Bush, et al.
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