Motive Behind Arbitration Agreement Irrelevant to Its Enforceability

The Northern District of Mississippi granted a motion to compel arbitration, noting that fraud is an issue for the arbitrator absent proof that the arbitration clause itself is a product of fraud.

In Murry v. Coldwell Banker Real Estate Corp., No. 4:04CV174, 2006 WL 1626596 (N.D. Miss. June 7, 2006), Equifirst moved to compel arbitration of RICO claims brought by Murry, who had signed a loan agreement that included an arbitration clause.

Murry first argued that the arbitration clause violated his constitutional right to a jury trial. The Court declined Murry’s invitation to strike down the Federal Arbitration Act as unconstitutional and reminded the parties that the right to a jury trial can be waived, which is precisely what Murry did in signing the arbitration agreement.

Next, Murry argued that the arbitration agreement was unenforceable because Equifirst’s motive underlying the arbitration clause was to conceal its fraudulent activity from a judicial forum. As support for this argument, Murry noted that the people who allegedly induced the signing of the loan agreement had been charged with federal crimes pertaining to mortgage loan fraud.

The Court rejected this argument because Murry presented no evidence showing that the fraudulent activities induced his consent to the arbitration clause itself. Rather, the alleged fraud related to the contract as a whole, which is an issue for the arbitrator to decide.

Lastly, the Court concluded that Equifirst’s motive for including an arbitration clause in the loan agreement was irrelevant to the enforceability of the clause. Accordingly, the Court granted Equifirst’s motion to compel arbitration.