Noohi v. Toll Bros., Inc.

• Decision Date: 26 February 2013
• Docket Number: No. 12–1261.,12–1261.
• Citation: 708 F.3d 599
• Parties: Mehdi NOOHI, individually and on behalf of all others similarly situated; Soheyla Bolouri, individually and on behalf of all others similarly situated, Plaintiffs–Appellees, v. TOLL BROS., INC., for itself and all others similarly situated; Toll Land Corp. No. 43, for itself and all others similarly situated; Toll MD V Limited Partnership, for itself and all others similarly situated, Defendants–Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

708 F.3d 599

Mehdi NOOHI, individually and on behalf of all others similarly situated; Soheyla Bolouri, individually and on behalf of all others similarly situated, Plaintiffs–Appellees,

v.TOLL BROS., INC., for itself and all others similarly situated; Toll Land Corp. No. 43, for itself and all others similarly situated; Toll MD V Limited Partnership, for itself and all others similarly situated, Defendants–Appellants.

No. 12–1261.

United States Court of Appeals, Fourth Circuit.

Argued: Dec. 4, 2012.

Decided: Feb. 26, 2013.

ARGUED:Quincy Montgomery Crawford, III, DLA Piper U.S. LLP, Baltimore, Maryland, for Appellants. Tillman Finley, Marino Law PLLC, Washington, D.C., for Appellees. ON BRIEF:James D. Mathias, DLA Piper U.S. LLP, Baltimore, Maryland, for Appellants. Daniel Marino, Marino Law PLLC, Washington, D.C., for Appellees.

Before KING, SHEDD, and DAVIS, Circuit Judges.

Affirmed by published opinion. Judge DAVIS wrote the opinion, in which Judge KING and Judge SHEDD joined.

OPINION

DAVIS, Circuit Judge:

In this putative class action, prospective luxury home buyers allege that a real estate development company unlawfully refused to return deposits when the prospective buyers could not obtain mortgage financing. The named Plaintiffs–Appellees are Mehdi Noohi and Soheyla Bolouri (“Plaintiffs”), a husband and wife; Defendants–Appellants are Toll Bros., Inc., a real estate development company, and several of its subsidiaries (collectively, “Toll Brothers”). Plaintiffs contracted with a subsidiary of Toll Bros., Inc., for the construction of a luxury home in Maryland. The Agreement of Sale (“the Agreement”) required that Plaintiffs seek approval of a mortgage, and included an arbitration provision. Though Plaintiffs received a “Mortgage Loan Commitment” letter from at least one lender that was later rescinded, and though several other of their mortgage applications were all denied, Toll Brothers sought to keep $77,008 in Plaintiffs' deposits.

Plaintiffs sued Toll Brothers individually and on behalf of a class of other prospective buyers who allegedly lost deposits to Toll Brothers in a similar manner. The district court denied Toll Brothers' motion to dismiss or stay the suit pending arbitration, finding that the Agreement's arbitration provision lacked mutuality of considerationunder Maryland law because it required only the buyer—but not the seller—to submit disputes to arbitration. Toll Brothers appealed.

For the reasons that follow, we hold that this appeal is properly before us under 9 U.S.C. § 16(a), and that the Agreement's arbitration provision is unenforceable for lack of mutual consideration under Maryland law.

I.

We begin by setting out the facts Plaintiffs have alleged, which we take as true for purposes of this appeal, see Hill v. Peoplesoft USA, Inc., 412 F.3d 540, 543 (4th Cir.2005), although “the decision to deny [a] motion for stay and to compel arbitration is reviewed de novo,” Patten Grading & Paving, Inc. v. Skanska USA Bldg., Inc., 380 F.3d 200, 204 (4th Cir.2004) (citing MicroStrategy, Inc. v. Lauricia, 268 F.3d 244, 250 (4th Cir.2001)). See also Johnson v. Circuit City Stores, 148 F.3d 373, 377 (4th Cir.1998).

A.

Toll Brothers, a publicly traded real estate development company, sells luxury residences in a number of states, including Maryland. One of Toll Brothers' subsidiaries, TBI Mortgage Company (“TBI Mortgage”), provides mortgage banking primarily to buyers of Toll Brothers homes. Other subsidiaries contract with individual home buyers for the purchase of newly constructed or planned homes. One such subsidiary, Toll Land Corp. No. 43, is the General Partner in Toll MD V Limited Partnership, with whom Plaintiffs contracted to purchase a home.

On February 17, 2008, Plaintiffs made an “initial reservation deposit” of $5,000. On February 24, 2008, they entered into the Agreement with Toll MD V to purchase a preconstruction home in Glenelg, Maryland, for $1,006,975. Plaintiffs made an additional deposit of $45,348 and later deposited another $26,660. By February 28, 2008, the deposit total had reached $77,008.

The Agreement contained a number of relevant provisions. Section 2 of the Agreement provided that Toll Brothers would hold the deposit until it was either refunded or forfeited by Plaintiffs. Section 4 dealt with mortgage application obligations, and directed Plaintiffs to complete the mortgage approval process within 60 days. In order to do so, Plaintiffs agreed to make a good-faith, “truthful and complete application to TBI Mortgage and any other lender of [their] choosing,” accept a loan commitment, and comply with all terms imposed by the lender. Compl. ¶ 35; J.A. 49.¹ Plaintiffs agreed “to be responsible for and bear the risk of meeting all terms and conditions” of the loan commitment, and the Agreement further provided that “the termination or expiration of the mortgage commitment after it is received, for any reason, shall not release [them] of [their] obligations under the Agreement.” J.A. 49. If Plaintiffs were not approved for a mortgage after 60 days, Toll Brothers could either extend the mortgage application period in order to submit a mortgage request on behalf of Plaintiffs, or declare the Agreement “null and void” and refund Plaintiffs their deposit. Compl. ¶ 36; J.A. 49. Section 13 of the Agreement comprised an arbitration provision, and Plaintiffs initialed under each of its paragraphs.

Plaintiffs applied to TBI Mortgage on February 25, 2008, but their application was rejected. On Toll Brothers' recommendation, Plaintiffs then applied for a mortgage with First Preferred Financial, Inc., which provided them with a “Mortgage Loan Commitment” letter for $906,275 on April 24, 2008. Though Plaintiffs accepted the letter, First Preferred Financial informed Plaintiffs on June 13, 2008, that it could no longer provide them with financing in light of a recent Maryland law prohibiting “stated income” loans. Plaintiffs also sought to secure a mortgage from GMAC, but were unsuccessful.

On July 24, 2008, Plaintiffs sent a letter to Toll Brothers, informing them that they were unable to secure a mortgage, and demanding a refund of their deposit pursuant to the Agreement of Sale. On August 21, 2008, Toll Brothers responded to Plaintiffs by asserting that the First Preferred Financial commitment letter, although now terminated, had satisfied the mortgage contingency and Plaintiffs were still obligated to perform under the Agreement. The response further stated that Toll Brothers would retain Plaintiffs' deposit if they did not submit additional mortgage applications and proceed to closing. Specifically, the letter suggested that Plaintiffs contact APEX Funding Group.

On August 27, 2008, Plaintiffs wrote to Toll Brothers, stating that they would continue to work to receive a mortgage. On September 22, 2008, APEX Funding Group gave Plaintiffs a loan commitment letter but then declined to approve them for a mortgage. Plaintiffs also sought mortgage approvals from other lenders, but were unable to secure financing.

Plaintiffs further allege that Toll Brothers has neither begun construction on the lot in question, nor incurred expenses toward the construction of the home. Plaintiffs claim that because Toll Brothers refused to refund their deposits after the failure of their repeated good-faith attempts to secure a mortgage, Toll Brothers breached the Agreement.

B.

Plaintiffs sued, filing a class action complaint against Toll Brothers on March 3, 2011, on behalf of themselves and home buyers around the country who they alleged lost their deposits in a similar manner. Federal jurisdiction was founded on the Class Action Fairness Act; the complaint asserted an amount in controversy of over $5 million, and at least one member of the putative class is a citizen of a different state from one of the defendants. See28 U.S.C. § 1332(d)(2). The complaint contained four causes of action: (1) breach of contract; (2) breach of the duty of good faith and fair dealing; (3) unjust enrichment; and (4) unfair and deceptive trade practices, in violation of Md.Code Ann., Commercial Law § 13–301 et seq.

Toll Brothers filed a motion to dismiss or stay Plaintiffs' complaint pending arbitration based on the Agreement's arbitration provision, Section 13. After a hearing, the district court issued an order and memorandum opinion denying the motion. See Noohi v. Toll Bros., Inc., 2012 WL 273891 (D.Md. Jan. 30, 2012). The court noted that state contract formation law determines the validity of arbitration agreements, and that under Maryland law as articulated in Cheek v. United Healthcare of Mid–Atlantic, Inc., 378 Md. 139, 835 A.2d 656 (2003), an arbitration provision is treated as a severable contract that must be supported by adequate consideration. After determining that the arbitration provision required only Plaintiffs—but not Toll Brothers—to submit disputes to arbitration, the court relied on Cheek to hold that Section 13 of the Agreement was unenforceable for lack of consideration. The court did not, however, address the possibility that the rule set forth in Cheek was preempted under AT&T Mobility LLC v. Concepcion, ––– U.S. ––––, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), which held that the Federal Arbitration Act (“FAA”) preempted California's judicial rule regarding the unconscionability of class arbitration waivers in consumer contracts. Toll Brothers appealed.

II.

Plaintiffs first argue that we lack jurisdiction over this interlocutory appeal from the district court's denial of Toll Brothers' motion to dismiss or stay pending arbitration.

As we recently reiterated, “[c]ourts of appeal ordinarily may review only final decisions of district courts.” Rota–McLarty v. Santander Consumer USA, Inc., 700 F.3d 690, 696 (4th Cir.2012). See also28 U.S.C. § 1291. “Although [a] district court's order denying [a] motion to compel arbitration and stay proceedings is not a final decision, we may...