Weller v. HSBC Mortg. Servs., Inc.

• Decision Date: 11 September 2013
• Docket Number: Civil Case No. 13–cv–00185–REB–MJW.
• Parties: Jack WELLER, Gladys Wooden, and Matt Wooden, individually and on behalf of all others similarly situated, Plaintiffs, v. HSBC MORTGAGE SERVICES, INC., Assurant, Inc., American Security Insurance Company, and John Does 1–10, Defendants.
• Court: U.S. District Court — District of Colorado

971 F.Supp.2d 1072

Jack WELLER, Gladys Wooden, and Matt Wooden, individually and on behalf of all others similarly situated, Plaintiffs,

v.HSBC MORTGAGE SERVICES, INC., Assurant, Inc., American Security Insurance Company, and John Does 1–10, Defendants.

Civil Case No. 13–cv–00185–REB–MJW.

United States District Court,

D. Colorado.

Sept. 11, 2013.

Edward W. Ciolko, Shannon O'Neill Braden, Tyler Stephen Graden, Peter A. Muhic, Kessler Topaz Meltzer & Check, LLP, Radnor, PA, for Plaintiffs.

Lisa Marie Simonetti, Catherine Huang, Julia B. Strickland, Stroock, Stroock & Lavan, LLP, Los Angeles, CA, Holly R. Shilliday, Virginia L. Olmstead, Snell & Wilmer, LLP, Terence M. Ridley, Wheeler Trigg O'Donnell, LLP, Denver, CO, Brian Patrick Perryman, Franklin George Burt, William Glenn Merten, Jorden Burt, LLP, Washington, DC, for Defendants.

ORDER RE: MOTIONS TO COMPEL ARBITRATION

BLACKBURN, District Judge.

The matters before me are (1) the Motion of Defendant HSBC Mortgage Services, Inc. To Compel Arbitration and Stay Action as to Plaintiff Jack Weller's Claims [# 53],¹ filed May 10, 2013; and (2) Defendants Assurant, Inc. and American Security Insurance Company's Motion To Compel Arbitration and To Stay Proceedings [# 60], filed June 5, 2013.² I grant HSBC's motion and grant the Assurant defendants' motion to compel arbitration, but deny their motion to stay the remainder of these proceedings in the interim.

I. JURISDICTION

I putatively have jurisdiction over this matter pursuant to 18 U.S.C. § 1964(a) (civil RICO) and 28 U.S.C. § 1332(d)(2) (Class Action Fairness Act).

II. STANDARD OF REVIEW

The decision whether to enforce an arbitration agreement involves a two-step inquiry. First, I must determine whether the parties agreed to arbitrate the dispute. Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, 473 U.S. 614, 626, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985); Williams v. Imhoff, 203 F.3d 758, 764 (10th Cir.2000). Second, I must consider whether any statute or policy renders the claims non-arbitrable. Mitsubishi Motors Corp., 105 S.Ct. at 3355;Williams, 203 F.3d at 764.

III. ANALYSIS

This case involves the practice of including within mortgage loan contracts a provision allowing the lender or third-party servicer to “force place” insurance when the borrower fails to maintain insurance. The named plaintiffs are individuals who refinanced or purchased mortgages that are serviced by defendant HSBC Mortgage Services, Inc. (“HSBC”). Defendants Assurant, Inc. (“Assurant”), and American Security Insurance Company (“ASIC”) (collectively, “the Assurant defendants”) are insurance providers through which HSBC allegedly force places insurance and to which it outsources insurance tracking, monitoring, and processing.

Plaintiffs allege that HSBC imposes excessive, unauthorized, and unnecessary flood insurance coverage on the loans it services. Of particular relevance to the instant motions to compel arbitration, plaintiff Jack Weller alleges that in December 2009, three years into the life of his loan, HSBC altered its original determination that the property did not require flood insurance. Although Weller initially purchased flood insurance on his own (under protest), he ultimately could not maintain that insurance. In January 2012, HSBC provided Weller with force-placed flood insurance. Soon thereafter, Mr. Weller contacted the Federal Emergency Management Agency (FEMA) and learned that his property was not, in fact, located in a flood hazard zone and therefore did not require flood insurance.³ Although HSBC subsequently acknowledged that Mr. Weller's property was not required to carry flood insurance, it nevertheless refused to remove some of the charges for previously force-placed insurance.

Plaintiffs allege claims for relief against HSBC for breach of contract and breach of fiduciary duty and violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), the Truth in Lending Act (“TILA”), and the Colorado Consumer Protection Act (“CCPA”). The Assurant defendants are sued for unjust enrichment, aiding and abetting HSBC's breach of fiduciary duty, and violations of RICO and TILA. Plaintiffs seek monetary, declaratory, and injunctive relief. Both defendant groups filed motions to compel Mr. Weller to arbitrate his individual claims against them.

A. MR. WELLER'S CLAIMS AGAINST HSBC

In connection with the mortgage he purchased from HSBC in November 2006, Mr. Weller executed a $200,000 Note secured by a Deed of Trust on the property as security in favor of HSBC. At the same time, Mr. Weller signed an arbitration agreement with HSBC which allows either party to demand binding arbitration of “any Claim,” defined by the agreement as follows:

“Claim” is to be given the broadest possible meaning, and shall mean any claim, dispute, or controversy, whether based upon contract, tort (intentional or otherwise), constitution, statute, common law, regulation, ordinance or equity, and whether pre-existing, present or future, including ... claims seeking relief of any type, including damages and/or injunctive, declaratory or other equitable relief, arising from or relating to Your Loan with Lender or the Loan Agreement, or any products or services offered in connection with Your Loan with Lender or the Loan Agreement, including, but not limited to, any dispute or controversy concerning, the validity or enforceability of this Arbitration Agreement, any party thereof or the entire Loan Agreement, and whether or not the Claim is subject to arbitration.

(HSBC Motion App., Exh. 3 § 1 at 1.) ⁴ By its terms, the agreement is governed by the FAA. ( Id., Exh. 3 § 6 at 4.) Nevertheless, state law governs the initial inquiry whether the arbitration agreement is valid and enforceable. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 1924, 131 L.Ed.2d 985 (1995).⁵

Mr. Weller does not address the validity or scope of the arbitration agreement directly. Indeed, it facially appears that the arbitration agreement is valid, see Vescent, Inc. v. Prosun International, LLC, 2010 WL 4658862 at *2 (D.Colo. Nov. 9, 2010) (valid contract requires proof of “mutual assent to an exchange, between competent parties, with regard to a certain subject matter, for legal consideration”), and that Mr. Weller's claims fall within the broad ambit of that agreement. Instead, Mr. Weller argues that the agreement is unenforceable pursuant to section 1639c(e)(3) of the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd–Frank Act”), Pub.L. No. 111–203, 124 Stat. 1376,codified at15 U.S.C. § 1639c(e), and/or because it is unconscionable under Colorado state law. I examine each argument in turn.

1. APPLICABILITY OF THE DODD–FRANK ACT AMENDMENTS

The Dodd–Frank Act “imposes, among its many initiatives, the refinement and restriction of” the FAA's policy favoring arbitration of claims. Pezza v. Investors Capital Corp., 767 F.Supp.2d 225, 226 (D.Mass.2011) (quoting Preston v. Ferrer, 552 U.S. 346, 353, 128 S.Ct. 978, 169 L.Ed.2d 917 (2008)).⁶ In particular, section 1639c(e)(3), entitled “No waiver of statutory cause of action,” provides that

No provision of any residential mortgage loan or of any extension of credit under an open end consumer credit plan secured by the principal dwelling of the consumer, and no other agreement between the consumer and the creditor relating to the residential mortgage loan or extension of credit referred to in paragraph (1), shall be applied or interpreted so as to bar a consumer from bringing an action in an appropriate district court of the United States, or any other court of competent jurisdiction, pursuant to section 1640 of this title or any other provision of law, for damages or other relief in connection with any alleged violation of this section, any other provision of this subchapter, or any other Federal law.

Mr. Weller claims that this provision prohibits HSBC from compelling him to arbitrate his claims against it.

However, the effective date of the Dodd–Frank amendment is July 21, 2010, several years after the arbitration agreement at issue here was executed. Thus, the immediate issue is whether the provisions of the amendment should or must be applied retroactively. “Retroactivity is not favored in the law,” Bowen v. Georgetown University Hospital, 488 U.S. 204, 208, 109 S.Ct. 468, 471, 102 L.Ed.2d 493 (1988), most particularly when retroactive application of a statute “would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed,” Fernandez–Vargas v. Gonzales, 548 U.S. 30, 37, 126 S.Ct. 2422, 2427–28, 165 L.Ed.2d 323 (2006) (citation and internal quotation marks omitted). Determining whether a statute should apply retroactively when vested rights may be lost or new obligations imposed involves a tripartite, sequential process:

We first look to whether Congress has expressly prescribed the statute's proper reach, and in the absence of language as helpful as that we try to draw a comparably firm conclusion about the temporal reach specifically intended by applying our normal rules of construction[.] If that effort fails, we ask whether applying the statute to the person objecting would have a retroactive consequence in the disfavored sense of affecting substantive rights, liabilities, or duties [on the basis of] conduct arising before [its] enactment. If the answer is yes, we then apply the presumption against retroactivity by construing the statute as inapplicable to the event or act in question owing to the absen[ce of] a clear indication from Congress that it intended such a result.

Id., 126 S.Ct. at 2428 (internal citations and quotation marks omitted; alterations in original).

Mr. Weller does not contest that Congress did not specifically articulate a clear intent to give section 1639c(e)(3) of the Dodd–Frank Act retroactive effect.⁷See Landgraf v. USI Film...