Walther v. Sovereign Bank

• Citation: 386 Md. 412,872 A.2d 735
• Decision Date: 20 April 2005
• Docket Number: No. 61,61
• Parties: David G. WALTHER, et ux. v. SOVEREIGN BANK.
• Court: Court of Appeals of Maryland

872 A.2d 735

386 Md. 412

David G. WALTHER, et ux. v. SOVEREIGN BANK.

No. 61, September Term, 2004.

Court of Appeals of Maryland.

April 20, 2005.

E. David Hoskins (the Law Office of E. David Hoskins, L.L.C., Baltimore, MD), on brief, for petitioners.

James W. Bentz (Thomas L. Allen, Roy W. Arnold and John M. McIntyre of Reed, Smith, L.L.P., Pittsburgh, PA; Gerald J. Gaeng and Andrew H. Baida of Rosenberg, Martin, Funk & Greenberg, L.L.P., Baltimore, MD), all on brief, for respondent.

Argued before BELL, C.J., RAKER, WILNER, CATHELL, HARRELL, BATTAGLIA and GREENE, JJ.

CATHELL, Judge.

This case involves the enforceability of an arbitration agreement entered into as part of a second mortgage loan contract between David and Tamera Walther, petitioners, and Sovereign Bank, the assignee of the loan contract and respondent in the case at bar.

Petitioners present two questions for our review, which we rephrase for the sake of clarity as follows:

I. Is an arbitration clause contained in a "Direct Loan Note & Truth in Lending Disclosures" agreement between petitioner and a lender unconscionable and therefore unenforceable?

II. Did respondent waive the arbitration clause when it sought dismissal on the merits in addition to seeking an order to compel arbitration?

For the reasons discussed herein, we hold that the arbitration clause at issue is not unconscionable but is part of an enforceable agreement validly entered into by petitioners for the purpose of securing a second mortgage loan. We also hold that Sovereign Bank's action of seeking dismissal on the merits did not amount to a waiver of its right to arbitrate petitioners' claims against it.

I. Facts

On or about February 17, 1998, petitioners obtained a secondary mortgage loan¹ (the "Mortgage Loan") from an entity known as Empire Funding Corporation ("Empire"). The Mortgage Loan principal was $33,000.00 and it was secured by a lien on petitioners' residence. Under the terms of the Mortgage Loan agreement, petitioners were required to pay: a flood certificate fee of $12.00; an underwriting fee of $125.00; a settlement fee of $200.00; a title binder fee of $125.00; a document preparation fee of $125.00; an administrative fee of $230.00; a credit fee of $20.00; a courier fee of $30.00; and a mortgage broker fee of $1,980.00. As part of the Mortgage Loan transaction, petitioners signed a "Direct Loan Note & Truth in Lending Disclosure" (the "Disclosure Agreement"), which contained, inter alia, an agreement to arbitrate. That specific part of the Disclosure Agreement provided:

"BINDING ARBITRATION. The parties agree that any claim, dispute or controversy arising from or relating to this agreement or the relationships which result from this agreement, including the validity of this arbitration clause² or the entire agreement, shall be resolved by binding arbitration by and under the Code of Procedure of the National Arbitration Forum in effect at the time the claim is filed. This arbitration agreement is made pursuant to a transaction involving interstate commerce and shall be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16. Judgment upon the award may be entered in any court having jurisdiction. Nothing in this agreement shall be construed to limit the right of any party to 1) foreclose against real or personal property or other security by an exercised power of sale under a security instrument or applicable law, 2) exercise self-help remedies, or 3) obtain provisional or ancillary remedies with regard to such securities, including without limitation, injunctive relief, sequestration, attachment, garnishment, or the appointment of a receiver from a Court having competent jurisdiction before, during or after the pendency of any arbitration. The pursuit of any such remedy shall not constitute a waiver of the right of any party to have all other claims or disputes resolved by arbitration. The parties agree that any dispute subject to arbitration shall not be adjudicated as a class action or consolidated class proceeding. By signing this agreement, the parties acknowledge that they had a right or opportunity to litigate disputes through a court, but that they preferred to resolve any disputes through arbitration. The parties acknowledge that they are waiving their right to jury trial by consenting to binding arbitration." [Footnote added.]

At some time after the loan documents were signed, Empire assigned the note to its current holder and respondent in the case at bar, Sovereign Bank.

On December 23, 2002, petitioners filed a "Class Action Complaint and Demand for Jury Trial" in the Circuit Court for Baltimore County, alleging that Empire had violated the Maryland Secondary Mortgage Loan Law (the "SMLL"), Md. Code (1975, 2000 Repl. Vol.), §§ 12-401 et seq. of the Commercial Law Article, by charging petitioners $2,847.00 in illegal fees.³ Petitioners' "prayer for relief" included a "refund" of "the amount of all interest and illegal fees already paid on the notes," asserting that they were entitled to a $2,847.00 refund, plus any interest that they had paid to that date, an amount they claimed to be "$22,341.50 plus an additional $386.39 per month from the date of filing this Complaint until the date Judgment is entered." As stated, petitioners sought class-action status from the circuit court, believing there to be "hundreds of members" that had similarly been aggrieved by "predatory lending practices" relating to secondary mortgage loans sold or assigned to Sovereign Bank.

On March 10, 2003, Sovereign Bank responded to petitioners' complaint by filing in the circuit court a "Petition to Compel Arbitration and Motion to Dismiss or to Stay Proceedings." In its petition and supporting memorandum, Sovereign Bank stressed the fact that the Disclosure Agreement contained the aforementioned arbitration clause, which it argued made petitioners' claims subject to mandatory arbitration. Sovereign Bank also pointed out in its memorandum in support of its petition that petitioners explicitly had waived both their right to a class-action adjudication and their right to a jury trial by their action of signing the Disclosure Agreement.

On March 27, 2003, petitioners filed a memorandum in opposition to Sovereign Bank's petition and motion. In an affidavit filed with the memorandum, Mr. Walther claimed, inter alia, that he did not know that the Mortgage Loan included the charges at issue and that he "had no opportunity to review the" Disclosure Agreement "beyond a cursory perusal" before signing it, but that, "[h]ad I realized how [the arbitration clause] effected [sic] my rights to a jury trial and to bring any future claim relating to the loan as part of a class action, I would not have signed the document" (alteration added). Mr. Walther explained that "[a]t the closing, no one explained to me the full content of the agreement I was signing. In fact, a loan officer present at the closing urged me to sign what was `a usual and standard' loan agreement. The agents of the lender who were present at the closing simply handed me a large stack of documents, showed me where to sign, and urged me to sign the documents."

On April 2, 2003, the circuit court entered an order granting Sovereign Bank's petition to enforce arbitration, providing that "the claim of [petitioners] against defendant Sovereign Bank is referred to arbitration in accordance with the loan agreement ..." (alteration added).⁴ Petitioners thereafter timely appealed the decision to the Court of Special Appeals.

On May 26, 2004, the intermediate appellate court, in an unreported decision, found that "[t]he major issue to be decided in this case is whether an arbitration clause contained in a `Direct Loan Note & Truth in Lending Disclosure' agreement between a lender and the appellants, David and Tamera Walther, is unconscionable." In holding that the arbitration clause was not unconscionable, the Court of Special Appeals stated that petitioners were "legally responsible for reading the contents of any loan they signed," that the arbitration clause was "not completely one-sided" in favor of Sovereign Bank, the arbitration clause's limitation as to class action proceedings was valid and enforceable, the arbitration clause's fee arrangement was not likely to be prohibitively expensive, the waiver of a jury trial by petitioners was valid and enforceable, and that Sovereign Bank had never waived its right to arbitrate because of any filing it had made in the circuit court. Petitioners thereafter petitioned this Court for Writ of Certiorari. On August 25, 2004, we granted the petition. Walther v. Sovereign Bank, 382 Md. 688, 856 A.2d 724 (2004).

II. Standard of Review

A trial court's order to compel arbitration constitutes a final and appealable judgment. See Horsey v. Horsey, 329 Md. 392, 403, 620 A.2d 305, 310-11 (1993)

(stating that "an order compelling the parties before the trial court to submit their dispute to arbitration, thereby denying all relief sought in the trial court and terminating the action there, is a final appealable judgment"); see also Litton Bionetics v. Glen Constr. Co., 292 Md. 34, 437 A.2d 208 (1981).

Our role in reviewing the trial court's order to compel arbitration "`extends only to a determination of the existence of an arbitration agreement.'" Allstate Ins. Co. v. Stinebaugh, 374 Md. 631, 645, 824 A.2d 87, 95 (2003) (quoting Holmes v. Coverall North America, Inc., 336 Md. 534, 546, 649 A.2d 365, 370-71 (1994)). The trial court's conclusion as to whether a particular dispute is subject to arbitration is a conclusion of law, which we review de novo. See Wells v. Chevy Chase Bank, F.S.B., 363 Md. 232, 250, 768 A.2d 620, 629-30 (2001)

(stating, in a case concerning whether there existed a valid agreement to arbitrate, that "[t]he interpretation of a written contract is ordinarily a question of law for the court and, therefore, is subject to de novo review by an...