Anderson v. Delta Funding Corp., 1:03CV0900.

• Decision Date: 24 January 2004
• Docket Number: No. 1:03CV0900.,1:03CV0900.
• Citation: 316 F.Supp.2d 554
• Parties: Aster ANDERSON, Plaintiff, v. DELTA FUNDING CORP., et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

316 F.Supp.2d 554

Aster ANDERSON, Plaintiff, v. DELTA FUNDING CORP., et al., Defendants.

No. 1:03CV0900.

United States District Court, N.D. Ohio, Eastern Division.

January 24, 2004.

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Jeffrey D. Dillman, Cleveland, OH, for Plaintiff.

David W. Thompson, McGlinchey Stafford, Beachwood, OH, Steven D. Baum, Woodbury, NY, Barbara Friedman Yaksic, McGlinchey Stafford, Cleveland, OH, Dominic Vitantonio, Mayfield Village, OH, for Defendants.

MEMORANDUM & ORDER

O'MALLEY, District Judge.

Plaintiff Aster Anderson ("Anderson") of Garfield Heights, Ohio, brings this lawsuit against Defendants Delta Funding Corporation ("Delta") of Woodbury, New York, Countrywide Home Loans, Inc. ("Countrywide") of California and Southeast Financial Services, Inc. ("Southeast") of Ohio, in connection with a mortgage loan she procured from Delta and which Delta later transferred to Countrywide. Defendant Southeast is a mortgage broker, which brokered the transaction in question. Anderson seeks rescission, statutory and actual damages pursuant to the Home Ownership and Equity Protection Act of 1994 ("HOEPA") and the Truth in Lending Act ("TILA"), as well as attorney fees. Anderson raises unconscionability and breach of fiduciary duty claims as well.

Delta and Countrywide now move to compel arbitration and stay all proceedings on grounds that a valid and binding arbitration agreement governs all disputes relating to the mortgage agreement at issue in this action. Southeast has not joined in that motion. Construing all allegations as true and drawing reasonable inferences in favor of the Plaintiff, the Court finds the defendants' motion well-taken. Thus, the Motion to Compel Arbitration and Stay All Proceedings is GRANTED; the Court ORDERS Delta and Countrywide to pay all filing, administrative, and hearing fees associated with arbitration. Though Southeast did not join in the Motion to Compel Arbitration, given the extent to which the claims against Southeast are intertwined with the other claims in the action, the Court STAYS Anderson's action against Southeast as well, pending the arbitration between Anderson and the other defendants.

I. STANDARD OF REVIEW

Granting a motion to compel arbitration effects a "summary disposition of the [factual] issue" of the existence of an arbitration agreement. Bertram v. Beneficial Consumer Discount Co., 286 F.Supp.2d 453, 456-57 (M.D.Pa.2003). The Court should therefore consider facts in the light most favorable to the Plaintiff when determining whether a valid and enforceable arbitration agreement exists and exercise its "wide discretion" to look beyond the complaint at pleadings and documents submitted by either party. See State Auto Fin. Acquisition Corp. v. State Auto. Mut. Ins. Co., No. C2-03-751, 2003 WL 22502355, at *2 (S.D.Ohio Oct.15, 2003); Bertram, 286 F.Supp.2d at 456-57; Johnson v. Universal Fin. Group, Inc., No. 02 C 1875, 2002 WL 1968388, at *1 (N.D.Ill. Aug.22, 2002). Ultimately, however, the Plaintiff bears the burden of proving by a preponderance of the evidence that he or she has asserted a cause of action that is properly cognizable in a court of law. State Auto., 2003 WL 22502355 at *2.

II. STATEMENT OF FACTS

On April 10, 2000, Anderson entered into a consumer credit transaction with Delta, whereby Delta acquired a security interest in Anderson's property in exchange for a loan in the amount of $80,750.00. (Compl.¶¶ 21-22). On the same day, and as part of the same transaction, the parties executed an Arbitration Agreement ("The Arbitration Agreement"), which states in pertinent part:

In consideration of Delta Funding Corporation's extension of credit, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by both parties, the parties, intending to be legally bound hereby, knowingly and voluntarily enter into this Arbitration Agreement ("Agreement")....

"Claim" means any claim, dispute, or controversy between you and us (except for any Excluded Claims, as defined below) arising from or relating to the Credit Transaction, including the validity, enforceability or scope of this Agreement, or the Credit Transaction. [T]he term "Claim" is to be given the broadest possible meaning and includes, by way of example and without any limitation, any claim, dispute or controversy that arises under or relates to the Truth in Lending Act, the Home Owners and Equity Protection Act and Regulation Z (including any purported election to rescind the Credit Transaction) ...; fraud or misrepresentation, including claims for failing to disclose material facts.

Federal Arbitration Act and Appeals. This Agreement is made pursuant to a transaction involving interstate commerce, and, notwithstanding any choice of law clause which may be contained in any other documents which are part of the Credit Transaction, shall be governed by the Federal Arbitration Act ("FAA"), 9 U.S.C. Sections 1 et seq.

Survival, Severability, Primacy. This Agreement shall survive ... any rescission by you or attempt by you to rescind the Credit Transaction pursuant to any applicable federal or state statute or regulation. If any portion of this Agreement is deemed invalid or unenforceable under any law or statute consistent with the FAA, it shall not invalidate the remaining portions of this Agreement or the Credit Transaction.

(Arb.Agrmt.Ex. 1). According to Anderson, Delta failed to furnish to Anderson all required HOEPA and TILA "material disclosures" three days prior to the transaction closing. (Compl.¶¶ 42-43). Anderson contends that this failure extended her right to rescind the transaction to a full three years after closing. See 15 U.S.C.A. § 1635(f). On February 19, 2003, just over a month before this three-year extended period expired, Anderson sent Delta and Countrywide a notice of rescission, purporting to rescind the mortgage transaction pursuant to TILA. (Compl. ¶ 31; see also Ltr. Pl. to Def.'s Ex. A).

After Defendants failed to reply, return loan payments, or otherwise acknowledge the termination of the security interest, Anderson filed the present action. (Compl.¶ 32). In her complaint, Anderson alleges that Defendants used their superior bargaining power to encourage her to sign a loan document containing obligations with which they knew she could not comply. (Compl.¶ 63). Anderson also alleges that the terms of the loan, as well as Defendants' failure to provide material disclosures three days before the loan transaction's closing, are unconscionable. (Compl.¶ 64).

Anderson seeks rescission, a declaration that the security interest is void, a release of the security interest, return of loan payments (including fees and finance charges), statutory damages, a declaration that Defendants violated TILA, HOEPA and Regulation Z, an injunction, attorney fees and costs, actual damages to be determined at trial, and any other relief deemed proper. (Compl.¶¶ 73(a)-(k)). Defendants deny Anderson's assertions and contend that she has no right to rescind her now long-standing loan agreement.

In their Motion to Dismiss for Lack of Subject Matter Jurisdiction, or in the alternative, to Compel Arbitration and Stay Proceedings, Delta and Countrywide argue that Anderson's claims are encompassed in the Arbitration Agreement and therefore subject to arbitration. (Def.'s Mem. Supp. Dismissal or Compel Arb. at 1). Anderson asserts that her notice of rescission automatically voids all aspects of her interactions with the defendants, including the Arbitration Agreement. (Pl.'s Mem. Opp. at 7). She also asserts that the Arbitration Agreement is itself invalid and unenforceable on the basis of unconscionability. (Id.). Anderson points to unequal bargaining power, lack of assistance of counsel, lack of understanding, the fact that the Arbitration Agreements is allegedly a "contract of adhesion," lack of mutuality and high arbitration costs in arguing that the Arbitration Agreement is unenforceable as unconscionable. (Id. at 7-11.). Delta and Countrywide assert in their reply brief arguments refuting each of Anderson's objections to arbitration, and state for the record that Defendants offer and agree to pay all filing, administrative and hearing fees associated with arbitration. (Def.'s Reply to Pl.'s Mem.).

III. DISCUSSION

The issues contained in this motion must be clarified before addressing applicable law. Anderson asserts two bases upon which she feels the Arbitration Agreement should be invalidated, either of which would subsequently submit the underlying causes of action contained in the complaint to the Court for consideration: (1) her purported rescission of the loan transaction under TILA automatically rescinds the Arbitration Agreement as well, and (2) even if her rescission notice does not invalidate the Arbitration Agreement, the unconscionability of that agreement under Ohio law renders it ineffective. Anderson need only prevail on one of these two arguments to avoid arbitration under the Arbitration Agreement.

A. The Federal Arbitration Act ("FAA")

The FAA provides that an arbitration clause in a "transaction involving commerce ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."¹ 9 U.S.C. § 2 (2003). If the Court determines that an issue brought before it is referable to arbitration under a written arbitration agreement, it shall, on the application of one of the parties, stay the proceedings until arbitration is completed. 9 U.S.C. § 3 (2003). Furthermore, the FAA mandates that, when the court is "satisfied that the making of the agreement for arbitration ... is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement," 9 U.S.C. § 4 (2003). The FAA establishes a liberal policy favoring arbitration agreements,...