Boyd v. Allied Home Mortg. Capital Corp.

• Decision Date: 20 November 2007
• Docket Number: No. 3:07 CV 1192.,3:07 CV 1192.
• Citation: Boyd v. Allied Home Mortg. Capital Corp., 523 F.Supp.2d 650 (N.D. Ohio 2007)
• Parties: Marvin BOYD, Plaintiff, v. ALLIED HOME MORTGAGE CAPITAL CORPORATION, et al., Defendant.
• Court: U.S. District Court — Northern District of Ohio

Page 650

523 F.Supp.2d 650

Marvin BOYD, Plaintiff, v. ALLIED HOME MORTGAGE CAPITAL CORPORATION, et al., Defendant.

No. 3:07 CV 1192.

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

November 20, 2007.

James S. Timmerberg, John T. Murray, Leslie O. Murray, Murray & Murray, Sandusky, OH, for Plaintiff.

Thomas C. O'Connell, Terrence L. Seeberger, Stark & Knoll, Akron, OH, James S. Wertheim, McGlinchey Stafford, Beachwood, OH, for Defendants.

MEMORANDUM OPINION

DAVID A. KATZ, District Judge.

This matter is before the Court on the motion to stay proceedings and compel arbitration (Doc. 8) and the motion for attorney's fees, costs, and expenses (Doc. 16) filed by Defendant Allied Home Mortgage Capital Corporation ("Allied"). This Court has jurisdiction pursuant to 28 U.S.C. § 1332.

I. Background

On September 10, 2005, Allied entered into an agreement to provide mortgage-related services (e.g., seek a lender for a mortgage) to Plaintiffs Marvin and Barbara Boyd. One of the documents signed by the Boyds in the execution of this agreement was an arbitration agreement. The arbitration agreement provided that "if [the parties] are not able to resolve [their] differences informally, [the parties] agree that any dispute, regardless of when it arose, shall be settled ... by arbitration." Doc. 8, Ex. A. The agreement further provides: "If either party, you or we, fails to submit to arbitration following a proper demand to do so, that party shall bear all costs and expenses, including reasonable attorney's fees, incurred by the other party compelling arbitration." Agreement for the Arbitration of Disputes, Doc. 8, Ex. A. The Boyds executed a promissory note for a mortgage with Defendant, Bank United, FSB, on October 4, 2005. On April 23, 2007, Plaintiffs filed a complaint in this Court against Allied and defendant Bank United, alleging breach of fiduciary duty, conspiracy, and other state law claims.

II. Standard of Review and Applicable Law

"A written agreement to arbitrate disputes arising out of a transaction in interstate commerce `shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.'" Higgs v. Automotive Warranty Corp. of America, 134 Fed. Appx. 828, 830 (6th Cir.2005) (citing 9 U.S.C. § 2). To enforce this mandate, the Federal Arbitration Act "provides for a stay of proceedings when an issue is referable to arbitration and for orders compelling arbitration when one party has failed or refused to comply with an arbitration agreement." Id. (citing Javitch v. First Union Securities, Inc., 315 F.3d 619, 624 (6th Cir.2003)); 9 U.S.C. §§ 3 & 4.

The issue of whether an arbitration clause is valid and enforceable is a decision for a court to make, not an arbitrator. Haga v. Martin Homes, Inc., 1999 WL 254530, 119 Ohio App. LEXIS 1740 (Ohio App.1999). A court determines whether in fact the parties agreed to settle a dispute through arbitration prior to compelling arbitration. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985); Stout v. Byrider, 228 F.3d 709 (6th Cir. 2000). The Federal Arbitration Act provides that an arbitration clause in a contract "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2.

A party aggrieved by the ... refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court ... for an order directing that such arbitration proceed in the manner provided for in such agreement.... The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith 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.... If the making of the arbitration agreement ... be in issue, the court shall proceed summarily to the trial thereof.

Great Earth Companies, Inc. v. Simons, 288 F.3d 878, 888 (6th Cir.2002) (citing 9 U.S.C. § 4); Cook v. All State Home Mortg., Inc., 2006 WL 2252538, 2006 U.S. Dist. LEXIS 54621 (N.D.Ohio 2006).

State contract law applies to determine whether an arbitration agreement is valid and whether defenses to its formation or enforcement apply. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995); Walker v. Ryan's Family Steak Houses, Inc., 400 F.3d 370, 377 (6th Cir.2005).

III. Discussion

Plaintiffs argue that no agreement was properly formed or the agreement is invalid, alleging that: Defendant did not sign the arbitration agreement; Plaintiffs' waiver of constitutional rights was unknowing; Defendant misrepresented facts and fraudulently induced Plaintiffs' signatures; the arbitration agreement is unconscionable; and the agreement is inapplicable to this dispute.

A. Signature not required

The Sixth Circuit has enforced arbitration clauses that were not signed. See Higgs, 134 Fed.Appx. at 829. As a court in this District has previously held, in Ohio "[t]here is no requirement that an arbitration agreement be signed in order to be valid and enforceable.... What is required to validate the arbitration agreement and make it contractual is an offer and acceptance, supported by consideration." Dantz v. Apple Ohio LLC, 277 F.Supp.2d 794, 801 (N.D.Ohio 2003) (Dowd, J.) (citing Brumm v. McDonald & Company Securities, Inc., 78 Ohio App.3d 96, 603 N.E.2d 1141 (Ohio App. 4., 1992)). Plaintiffs cannot show, nor do the above-stated facts support, a lack of an offer, acceptance, or consideration in the formation of this agreement. Furthermore, the text of the arbitration agreement does not require a signature by Allied; it explicitly requires a signature by the borrower but merely provides a space for the lendor's "name," where Allied's name appears. Defendant's failure to sign the agreement does not affect its validity or enforceability.

B. No lack of knowledge

Plaintiffs argue that by signing the arbitration agreement they unknowingly forfeited their constitutional right to trial by jury. As an initial matter, "[i]t is elementary that the Seventh Amendment right to a jury is fundamental and that its protection can only be relinquished knowingly and intentionally.... Indeed, a presumption exists against its waiver." National Equipment Rental, Ltd. v. Hendrix, 565 F.2d 255, 258 (2nd Cir.1977) (citing Johnson v. Zerbst, 304 U.S. 458, 58 S.Ct. 1019, 82 L.Ed. 1461 (1938); Heyman v. Kline, 456 F.2d 123, 129 (2d Cir.1972), cert. denied, 409 U.S. 847, 93 S.Ct. 53, 34 L.Ed.2d 88 (1972); Aetna Insurance Co. v. Kennedy, 301 U.S. 389, 393, 57 S.Ct. 809, 81 L.Ed. 1177 (1937)). The Sixth Circuit has noted that "the constitutional right to jury trial may only be waived if done knowingly, voluntarily and intentionally, and [] whether this standard was met in a given case is a constitutional question separate and distinct from the operation of rules of substantive contract law...." K.M.C. Co., Inc. v. Irving Trust Co., 757 F.2d 752, 755-56 (6th Cir.1985). The question, therefore, is whether Plaintiffs in this matter knowingly and voluntarily waived their constitutional right to a trial.

"Factors to consider in determining the validity of a purported contractual waiver include the clarity of the contractual language itself, the relative bargaining power of the parties, and the mortgagor's ability to understand the provisions of the contract." Mountain Village, 424 F.Supp. at 825 (citing United States v. Wynn, 528 F.2d 1048, 1050 (5th Cir.1976)). Courts have applied these factors variously. See K.M.C., 757 F.2d at 757 (no waiver where oral statements by defendant varied from written terms of contract), comparing Fuentes v. Shevin, 407 U.S. 67, 95, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972) (invalid waiver where waiver not bargained over, unequal bargaining power, contract of adhesion and "fine print ... relied upon as a waiver of constitutional rights"); National Equipment Rental, 565 F.2d at 258 (no waiver where unequal bargaining power, clause buried "deeply and inconspicuously in the contract"); and Dreiling v. Peugeot Motors of America, Inc., 539 F.Supp. 402, 403 (D.Col.1982) ("Defendants have presented no evidence that the waiver provision was a bargained for term of the contract, was mentioned during negotiations, or was even brought to the plaintiffs' attention. In fact, the defendants have failed to show that the plaintiffs had any choice other than to accept the contract as written,"); with D.H. Overmyer Co., Inc. v. Frick Co., 405 U.S. 174, 186-87, 92 S.Ct. 775, 31 L.Ed.2d 124 (1972) (valid waiver where sophisticated parties, equal bargaining power, and consideration exchanged for waiver); N. Feldman & Son, Ltd. v. Checker Motors Corp., 572 F.Supp. 310, 313 (S.D.N.Y.1983) (valid waiver where provision clearly visible and agreement bargained over); United States v. Mountain Village Co., 424 F.Supp. 822, 825 (D.Mass.1976) (valid waiver where sophisticated parties, consideration exchanged for waiver); and Global Industries, Inc. v. Harris, 376 F.Supp. 1379, 1382 (N.D.Ga. 1974) (valid waiver where equal bargaining power, contract prepared by party seeking to avoid waiver).

The agreement is titled, in bold lettering, "AGREEMENT FOR THE ARBITRATION OF DISPUTES." Doc. 8, Ex. A. It states, also in bold font, "NETHER [Plaintiffs] NOR [Defendant] WILL HAVE THE RIGHT TO LITIGATE THAT DISPUTE IN COURT OR TO HAVE A JURY TRIAL ON THAT DISPUTE." Id. The one-page agreement indicated that it was an arbitration agreement that waived the right to a jury trial and instead adopted arbitration as a resolution for certain disputes. However, Plaintiffs allege that there was unequal bargaining power between the parties and that representatives of Defendant "fanned" a stack of papers in front of Plaintiffs and told them to sign...