|
According to a federal district court in Ohio, the obligation to arbitrate claims pursuant to a valid agreement can survive the termination of the underlying contractual relationship, and a class action waiver within is enforceable without evidence of a lack of meaningful choice and a deprivation of remedies.
In Howard v. Wells Fargo Minnesota, NA, No. 1:06CV2821, 2007 WL 2778664 (N.D. Ohio, Sept. 21, 2007), Howard entered into a home loan agreement, later assigned to Wells Fargo, as well as a separate arbitration agreement. The arbitration agreement, with exceptions for certain claims and for small claims court actions, required the arbitration of any claim, dispute, or controversy arising from or relating to the loan.
Later, Howard sued Wells Fargo for monetary damages, alleging that Wells Fargo failed to fulfill its statutory obligation to record title once the loan was paid in full. Wells Fargo moved to stay the matter pending arbitration and for dismissal of class claims that Howard had asserted on behalf of similarly situated borrowers.
In opposing the motion, Howard argued that the complaint did not constitute a “claim” under the arbitration agreement because the contractual relationship was terminated when the loan was paid in full, that the complaint constituted an exempted claim to quiet title, and that the class action waiver within the agreement was unconscionable and unenforceable.
The Court first held that the obligation to arbitrate claims survived the termination of the contractual relationship. In reaching this holding, the Court found that Wells Fargo’s predecessor in interest, Delta, had specifically contracted for the post-termination arbitration of disputes by stating that the agreement survived the payment of the loan. Furthermore, the Court observed that “but for” the contractual relationship, the obligation to record title allegedly breached would not have arisen. Accordingly, that claim arose out of and was related to the loan agreement and must be arbitrated.
Next, the Court held that Howard’s complaint could not be accurately characterized as a claim to “quiet title,” in which case it would be excluded from the arbitration agreement. In reaching this holding, the Court found that Howard’s request for monetary damages was inconsistent with a quiet title action. In addition, Howard lacked standing to bring a quiet title action against Wells Fargo, since Howard no longer possessed the property in question.
Finally, the Court held that the class action waiver was not unconscionable. While acknowledging the unequal sophistication of the parties to a typical mortgage agreement, the Court noted that Howard presented no evidence that she was deprived of an opportunity to consult counsel, that the loan would have been denied without an arbitration agreement, or that other lenders were unwilling to contract without an arbitration agreement.
In closing, the Court opined that Howard was not “deprived of her remedies” through the class action waiver, and was “only limited to the forum in which she may establish her right to relief.” The Court also observed that, even with imposition of the class action waiver against complicated and costly actions, “small claims lawsuits are a viable option for enforcing a lender’s obligation to record a satisfaction of mortgage.”
Subscribe to a free weekly update on ADR case law and
legislation
|