Delta Funding Corp. v. Harris, No. CIV.A. 02-4080JCL.

• Decision Date: 01 March 2004
• Docket Number: No. CIV.A. 02-4080JCL.
• Citation: 396 F.Supp.2d 512
• Parties: DELTA FUNDING CORPORATION Plaintiff, v. Alberta HARRIS Defendant.
• Court: U.S. District Court — District of New Jersey

396 F.Supp.2d 512

DELTA FUNDING CORPORATION Plaintiff, v. Alberta HARRIS Defendant.

No. CIV.A. 02-4080JCL.

United States District Court, D. New Jersey.

March 1, 2004.

Martin C. Bryce, Ballard Spahr Andrews & Ingersoll, LLP, Voorhees, NJ, for Plaintiff.

Madeline Levine Houston, Houston & Totaro, Bloomfield, NJ, for Defendant.

MEMORANDUM AND ORDER

LIFLAND, District Judge.

This matter concerns the validity and enforceability of an arbitration agreement, which encompasses certain statutory claims arising from the issuance of a mortgage loan. Plaintiff Delta Funding Corporation ("Delta") filed a complaint in the nature of a petition to compel arbitration and enjoin the prosecution of state court counterclaims and a third-party complaint brought by Defendant Alberta Harris ("Harris"). Harris moves for summary judgment dismissing Delta's petition, and Delta cross-moves to compel arbitration. For the reasons outlined below, Harris's motion for summary judgment will be denied and Delta's motion to compel arbitration will be granted.

I. FACTS AND PROCEDURAL BACKGROUND

In December 1999, Harris entered into a credit transaction with Delta, whereby she obtained a mortgage loan in the amount of $37,300. Delta is a sub-prime lender, meaning that it focuses on lending to individuals who generally have impaired or limited credit profiles, or higher debt-to-income ratios but with substantial equity in their homes. The loan is currently the subject of a pending foreclosure action in the Superior Court of New Jersey, Chancery Division, Essex County, which was instituted by Wells Fargo Bank, Minnesota N.A. ("Wells Fargo"), as trustee for the current holder of Harris's mortgage. In response, Harris filed an answer, counterclaim, and third-party complaint, naming Delta as a third-party defendant. Harris counterclaimed under, inter alia, the New Jersey Consumer Fraud Act, alleging that the loan in question was an equity-skimming loan (i.e., a loan made knowing that the borrower could not pay it back, thereby allowing the lender to take the borrower's house in payment), which was unconscionable in its entirety, that the entire loan should be declared void and unenforceable, and that treble damages should be assessed together with attorneys' fees.

Pursuant to the terms of an arbitration agreement executed in connection with the mortgage loan (hereinafter, "Arbitration Agreement"), Delta then filed the present petition to compel arbitration of Harris's state court claims. The foreclosure has been stayed, along with the counterclaim and third-party claims, by order of the Chancery Division pending a decision by this Court on the complaint to compel arbitration. Harris challenges the agreement to arbitrate and its specific components, alleging that it contains grossly unfair contractual terms, contravenes standards in the public interest, and unreasonably burdens the effective enforcement of her statutory rights.

II. ANALYSIS

A. Standard of Review

A grant of summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56. Rule 56(e) requires that when a motion for summary judgment is made, the non-moving party must set forth specific facts showing that there is a genuine issue for trial. Id.; see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. Only disputes over facts that might affect the outcome of the lawsuit under governing law will preclude the entry of summary judgment. Anderson, 477 U.S. at 247-48, 106 S.Ct. 2505. In evaluating a summary judgment motion, a court must view all evidence in the light most favorable to the non-moving party. Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir.1976).

As discussed below, the sole question presented in this matter is whether the Arbitration Agreement is enforceable. As there is no dispute over any material facts, this case is ripe for disposition as a matter of law.

B. Validity of Arbitration Agreement

An arbitration agreement in a contract involving interstate commerce is subject to the Federal Arbitration Act (the "FAA"). See 9 U.S.C. §§ 1-16; Perry v. Thomas, 482 U.S. 483, 489, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987).¹ Congress enacted the FAA in 1925 in response to the traditional judicial hostility to the enforcement of arbitration agreements. Alexander v. Anthony Int'l, L.P., 341 F.3d 256, 263 (3d Cir.2003). The FAA makes agreements to arbitrate "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. Before compelling an unwilling party to arbitrate, the FAA thus requires the court to engage in a limited review to ensure that the dispute is arbitrable: viz., that the agreement to arbitrate is valid and that the specific dispute falls within the substantive scope of that agreement. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626-28, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985); PaineWebber, Inc. v. Hartmann, 921 F.2d 507, 511 (3d Cir.1990). Harris does not dispute that she is a signatory to a written arbitration agreement, which purports to preclude her from pursuing her specific claims in a judicial forum. The precise issue here, then, is whether that agreement to arbitrate is valid and enforceable.

With the enactment of the FAA, "Congress precluded states from singling out arbitration provisions for suspect status, requiring instead that such provisions be placed `upon the same footing as other contracts.'" Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996) (quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 511, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974)). The enactment establishes the strong federal policy in favor of the resolution of disputes through arbitration. Alexander, 341 F.3d at 263. "Thus, federal law presumptively favors the enforcement of arbitration agreements." Harris v. Green Tree Fin. Corp., 183 F.3d 173, 178 (3d Cir.1999). Yet, notwithstanding the "liberal federal policy favoring arbitration agreements," Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), such agreements are not automatically enforceable; generally applicable contract defenses, such as the doctrine of unconscionability, may be applied to invalidate arbitration agreements without contravening the FAA. Alexander, 341 F.3d at 264 (citing Doctor's Assocs., 517 U.S. at 687, 116 S.Ct. 1652); Harris, 183 F.3d at 179 (same). It follows that courts must "remain attuned to well-supported claims that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds `for the revocation of any contract.'" Alexander, 341 F.3d at 264 (quoting Mitsubishi, 473 U.S. at 624, 105 S.Ct. 3346). "Although possibly relevant, considerations of public policy and the loss of state statutory rights are not dispositive in the unconscionability inquiry. The generally applicable standards of this contractual doctrine continue to dictate the result of any analysis." Id.

The party opposing arbitration bears the burden of proving that the claims at issue are not subject to arbitration. Green Tree Fin. Corp.Ala. v. Randolph, 531 U.S. 79, 91-92, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000). A federal court must generally look to the relevant state law on the formation of contracts to determine whether there is a valid arbitration agreement under the FAA. Alexander, 341 F.3d at 264; Blair v. Scott Specialty Gases, 283 F.3d 595, 603 (3d Cir.2002). Accordingly, the Court applies general contract principles of New Jersey law in determining whether the Arbitration Agreement is enforceable.

As a threshold matter, it is worth noting that the New Jersey legislature codified its endorsement of arbitration agreements, N.J.S.A. 2A:24-1, et seq., and that New Jersey courts have favored arbitration as a means of resolving disputes. See Martindale v. Sandvik, Inc., 173 N.J. 76, 84-85, 800 A.2d 872 (2002); Garfinkel v. Morristown Obstetrics & Gynecology Assocs., 168 N.J. 124, 131, 773 A.2d 665 (2001) (noting favored status accorded to arbitration, but stating that favored status is not without limits); Marchak v. Claridge Commons, Inc., 134 N.J. 275, 281, 633 A.2d 531 (1993) (stating that "arbitration is a favored form of relief" and that "arbitrators function with the support, encouragement, and enforcement power of the State"); Alamo Rent A Car, Inc. v. Galarza, 306 N.J.Super. 384, 389, 703 A.2d 961 (App.Div.1997) (recognizing "strong public policy in our state favoring arbitration as a means of dispute resolution and requiring a liberal construction of contracts in favor of arbitration"). In considering whether the agreement to arbitrate is enforceable, the Court is thus mindful of the strong national and state policies in favoring arbitration.

Harris argues that the Arbitration Agreement is an unenforceable contract of adhesion. A contract of adhesion is defined as "[a] contract where one party ... must accept or reject the contract [.]" Gras v. Assocs. First Capital Corp., 346 N.J.Super. 42, 48, 786 A.2d 886 (App.Div.2001) (quoting Rudbart v. North Jersey Dist. Water Supply Comm'n, 127 N.J. 344, 353, 605 A.2d 681, cert. denied, First Fid. Bank v. Rudbart, 506 U.S. 871, 113 S.Ct. 203, 121 L.Ed.2d 145 (1992)). "[T]he essential nature of a contract of adhesion is that it is presented on a take-it-or-leave-it basis, commonly in a standardized printed form, without opportunity for the `adhering' party to negotiate except perhaps on a few particulars." Id. ...