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In upholding an arbitration agreement that barred class-wide proceedings, the Maryland Court of Special Appeals rejected an argument that the arbitration agreement violated the public policy of Maryland by functioning as an exculpatory clause. The Court found the agreement to be fair and not unconscionable.
In Doyle v. Finance America, LLC, No. 540, 2007 WL 765211 (Md. Ct. Spec. App. Mar. 15, 2007), Doyle bought a new home using a mortgage loan from Finance America. On the closing date, Finance America required Doyle to sign an arbitration agreement that barred class-wide proceedings.
Finance America allegedly failed to disburse the loan proceeds until the day after the closing. Doyle subsequently sued Finance America to recover interest pursuant to Maryland law. In response, Finance America filed a motion to compel arbitration. The trial court granted the motion.
On appeal, Doyle argued that arbitration agreement was unenforceable because it was "a thinly veiled exculpatory agreement" and thus violated the public policy of Maryland. The Court rejected this argument as a "policy-based assault" on arbitration that may be pursued only before a legislature. Moreover, as the Court noted, Maryland "stands firm in the majority" of courts upholding arbitration agreements that bar class-wide proceedings. See Walther v. Sovereign Bank, 872 A.2d 735 (Md. 2005).
Doyle also argued that the arbitration agreement was unconscionable and therefore unenforceable. Maryland law requires both procedural and substantive unconscionability, so the Court first addressed the question of procedural unconscionability.
The Court found that circumstances presented at least some degree of procedural unconscionability because Finance America waited until the closing date to present Doyle with the arbitration agreement and required him to sign the agreement before disbursing the loan proceeds.
On the question of substantive unconscionability, Doyle argued that the costs of arbitration would exceed the value of his claim, which totaled $1,539. The Court rejected this argument because Doyle presented no evidence demonstrating that arbitration was cost-prohibitive.
By its holding, the Court recognized that arbitration agreements may require claims to be brought individually and that class actions are not necessary to allow parties to vindicate their legal rights. The requirement of individual arbitration maintains arbitration as an affordable, expeditious, and fair means of dispute resolution for consumers and businesses alike.
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