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The Alabama Supreme Court held that a loan dispute and any underlying questions of arbitrability were subject to arbitration, thus rejecting the borrower's three arguments in opposition to arbitration: (1) that the lender waived its right to arbitrate, (2) that the court must decide questions of arbitrability, and (3) that the costs of arbitration rendered the agreement unconscionable.
In CitiFinancial Corp., L.L.C. v. Peoples, 1051519, 2007 WL 1454441 (Ala. May 18, 2007), CitiFinancial Corp. (CFC) extended a loan to Peoples, secured by a parcel of land on which Peoples' house was allegedly located. According to Peoples, who later defaulted on the loan and was evicted from her home, the property described in the mortgage was an undeveloped adjacent lot.
When Peoples sued for wrongful foreclosure, CFC moved to compel arbitration. Peoples opposed the motion on three grounds, all of which the Court rejected.
First, Peoples argued that CFC waived its right to arbitrate because it had "substantially invoked" the litigation process in the foreclosure and eviction. The Court rejected this argument because the arbitration agreement specifically excluded actions to "effect" foreclosure. As such, participation in the eviction proceeding did not "bespeak [CFC's] intention to abandon the right [to arbitration] in favor of the judicial process."
Second, Peoples asserted that the court, not the arbitrator, should decide the question of arbitrability. Though the presumption is that courts decide questions of arbitrability, the Court noted that the question of "who decides" is ultimately determined by the intent of the parties.
More specifically, the Court stated that when "the plain language of the agreement unquestionably shows that the parties agreed to arbitrate the issue of arbitrability," it must be enforced. The Court found such an agreement in the incorporation of the Commercial Rules of the American Arbitration Association.
Third, and finally, Peoples claimed that she could not afford to pursue arbitration, rendering the agreement unconscionable. The Court disagreed, noting that the only cost Peoples was certain to pay was $125, that CFC would pay for the first day of arbitration (regardless of the outcome), and that only the losing party would pay costs after that.
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