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A federal court in Michigan rejected an argument that failure to specify rules of arbitration, including the method of arbitrator selection, rendered the arbitration agreement fatally indefinite; severed a provision for a distant venue as unconscionable because the defendant was aware the plaintiff was financially stressed and would be unable to travel; and cited precedent establishing that Credit Repair Organization Act claims are arbitrable.
In Vegter v. Forecast Financial Corp., No. 1:07-CV-279, 2007 WL 4178947 (W.D. Mich. Nov. 20, 2007), Barbara Vegter entered into a debt management contract with Forecast Financial. Vegter filed suit, claiming Forecast Financial violated federal and state credit and consumer protection acts, including the federal Credit Repair Organization Act (CROA).
Forecast Financial moved to compel arbitration based on the parties' contract. Vegter argued that the arbitration clause was invalid, unconscionable, and that CROA claims are not arbitrable.
First, The Court held that the agreement was not invalid due to the absence of specific terms. The Federal Arbitration Act provides for a method of arbitrator selection if the parties have not done so. See 9 U.S.C. § 5. The failure to include a method for arbitrator selection does not render the agreement invalid. Such a determination would "effectively read § 5 out of the United States Code."
Further, in distinguishing Floss, the Court determined that this agreement did not "give either party authority to define the nature of the arbitral forum." See Floss v. Ryan's Family Steakhouses, Inc., 211 F.3d 306 (6th Cir. 2000). Because neither party was given such authority, both parties are entitled to argue for their own definition of the arbitral forum.
Then, however, the Court went on to determine that the provision for arbitration in Florida was unconscionable. Forecast Financial was aware that Vegter was experiencing financial distress when she entered into the agreement. Due to her financial status, Vegter would be effectively unable to adjudicate her claim if required to travel from her home in Michigan to Florida. The Court severed that provision.
Finally, the Court determined that CROA claims are arbitrable. See Rex v. CSA-Credit Solutions of America, Inc., 507 F.Supp.2d 788 (W.D. Mich. 2007). It disregarded Vegter's alternative argument that even if CROA claims may be arbitrated, her specific claim is not arbitrable because the arbitration clause did not specifically apply a particular set of rules.
Accordingly, the arbitration agreement was enforced with the exception of the severance of the provision providing for arbitration in Florida.
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