Opinion
No. 1:02-cv-311
August 11, 2003
MEMORANDUM AND ORDER
This case is before the Court the defendants', Countrywide Home Loans, Inc. ("Countrywide"), Full Spectrum Lending, Inc. ("Full Spectrum"), and America's Wholesale Lender ("America's Wholesale"), motion and renewed motion to dismiss, stay, or compel arbitration. [Court File Nos. 3 13]. The plaintiff, Sharon Dakota Johnson ("Johnson"), opposes these motions. [Court File No. 15].
The defendants' motions [Court File Nos. 3 13] will be resolved as follows: The Court will RESERVE ruling to the extent that the defendants request that the Court compel arbitration. Defendants' motions will be GRANTED to the extent that Johnson's claims falling outside of the agreement will be STAYED. Defendants' motions will be DENIED to the extent that they move to dismiss Johnson's claims.
I. Background
The plaintiff's claims arise from a series of events involving a home mortgage and the subsequent refinancing of that mortgage. Johnson asserts claims pursuant to the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 and enabling Regulation Z, 12 C.F.R. § 226; The Home Ownership and Equity Protection Act of 1994 ("HOEPA"), 15 U.S.C. § 1602; the Racketeer Influenced and Corrupt Organizations Act ("RICO") 18 U.S.C. § 1962; the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. § 6101; the Tennessee Consumer Protection Act of 1977, TENN. CODE. ANN. § 47-18-101; and Tennessee Common Law. [Court File No. 8]. For the purpose of resolving these motions, the facts will be view in the light most favorable to the plaintiff.
The plaintiff asserts these claims against Countrywide, which also does business under the names Full Spectrum and America's Wholesale. On February 9, 1999, Johnson entered into a mortgage agreement with the America's Wholesale to refinance her Chattanooga, Tennessee home. The loan amount was $60,000 at a rate of 11.875%. In October 1999, Johnson was in an automobile accident and she states that she was unable to make her payment by the due date. She alleges that she contacted an employee of America's Wholesale who told her that the only consequence would be that the Johnson would owe a late fee. The plaintiff asserts that on November 29, 1999, she mailed a check to the defendants in the amount of the payment due and the late fee.
On December 17, 1999, the America's Wholesale instituted foreclosure proceedings. The plaintiff asserts that the defendants refused to end the foreclosure proceedings until she had paid the sum of $3,711.00 which represented attorneys fees, an empty house inspection fee, and other charges.
Johnson asserts that she was then contacted by a Countrywide representative who told her she was qualified for a reduced interest rate mortgage and that the loan would be through Full Spectrum. Johnson claims that Derrick Lee ("Lee"), a Countrywide employee told her to make no more loan payments and that her new loan would be for $72,500.00 at 10.625% with her receiving some money to pay off medical bills.
During the month of November, the plaintiff recounts several contacts with Countrywide. On November 11, 2000, Johnson was contacted by a Countrywide employee stating that she was again in foreclosure. The plaintiff contacted Lee who told her it was a mistake. On November 24, 2000, another Countrywide representative again told her she was in foreclosure and Lee again told her that he would resolve the problem
Johnson states that on November 24, 2000, she received closing documents which were significantly different from the figures previously provided. When she contacted Lee, she claims that she was told she must sign the documents to avoid foreclosure. The plaintiff asserts that she signed the loan papers but not the arbitration agreement.
The defendants' have submitted a copy of an arbitration agreement relating to the second mortgage which appears to bear Johnson's signature.
II. Analysis
The Federal Arbitration Act ("FAA") provides that "an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, 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. When one party seeks another forum, the act provides that "[a] party aggrieved by the alleged failure, neglect, or 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." 9 U.S.C. § 4.
The Supreme Court has recognized that federal statutory claims may be resolved through arbitration and has enforced such agreements. See Rodriguez de Quijas v. Shearson/American Exp., Inc., 490 U.S. 477 (1989). When the ability to enforce such an agreement is called into question, "a district court's consideration of a motion to compel arbitration is limited to determining whether the parties entered into a valid agreement to arbitrate, and does not meet the merits of the parties claims." Burden v. Check Into Cash of Kentucky, LLC, 267 F.3d 483, 487 (6th Cir. 2001). "Allegations concerning the validity of an arbitration agreement should ordinary be decided in the trial court before the final resolution of a motion to compel arbitration". Id. at 493 (citations and internal quotations omitted). To serve this purpose, the FAA provides that the validity of an agreement to arbitrate may be determined in a jury trial. 9 U.S.C. § 4.
The Fifth Circuit has noted that "[t]he party resisting arbitration bears the burden of showing that he is entitled to a jury trial under Sec. 4 of the Arbitration Act." Dillard v. Merrill Lynch Pierce, Fenner, Smith Inc., 961 F.2d 1148, 1154 (5th Cir. 1992) (internal citations and quotations omitted). The court explained as follows: "The party must make some showing that under the prevailing law, he would be relieved of his contractual obligation to arbitrate if his allegation proved to be true. In addition he must produce at least some evidence to substantiate his factual allegations. Id. (citation omitted).
In support of their motions to dismiss, stay, or compel arbitration, the defendants submit a copy of an arbitration agreement purported to contain Johnson's signature. In response the plaintiff suggests three theories attacking the validity of the arbitration agreement: fraud, forgery, and unconscionability. Johnson asserts that she is entitled to a jury trial on the issue of enforcement of the arbitration agreement, as well as any claims falling outside the agreement either due to the timing of the events or the language of the agreement. The plaintiffs arguments shall be addressed in turn.
A. Fraud
The plaintiff asserts that the arbitration agreement is void due to fraudulent inducement to sign the agreement. The Sixth Circuit has recognized that this right did not extend where the plaintiffs "fail to identify, in connection with the alleged fraudulent scheme, any misrepresentation particular to the arbitration agreements, separate from the loan agreements." Burden, 267 F.3d at 491. Similarly, the Fifth Circuit has explained that "[a]lthough the FAA permits parties to demand a jury trial to resolve factual issues surrounding the making of an arbitration agreement, . . . it is well established that `[a] party to an arbitration agreement cannot obtain a jury trial merely by demanding one." American Heritage Life Ins. Co. v. Orr, 294 F.3d 702, 710 (5th Cir. 2002) (quoting Dillard, 961 F.2d at 1154).
In this case, the plaintiff states that she "has alleged separate though related fraud and misrepresentation with regard to the Arbitration Agreement itself." [Court File No. 15, p. 9]. The plaintiff, however, does not direct the Court's attention to these separate allegations in relation to her claim of fraud in the inducement. In fact, the plaintiff's amended verified complaint states that she did not sign the arbitration agreement, rather than asserting that she was fraudulently induced to sign the agreement. [Court File No. 8, p. 7, 8]. The Court will consider Johnson's claim of forgery in the next section, but finds that the plaintiff has failed to identify any evidence suggesting fraud in the inducement and which relates to the arbitration agreement separate from the rest of the documents which create the loan contract.
B. Forgery
The plaintiff alleges that the signatures of both herself and her husband that appear on the arbitration agreement are forgeries. In support of this allegation, the plaintiff relies only on her amended verified complaint and the attached documents related to the loan transaction. [Court File No. 15, p. 14]. Johnson contends in her amended verified complaint that "her purported signature and that of her husband allegedly attached tot he (sic) said document are forgeries . . ." [Court File No. 8, p. 8].
A verified complaint carries "the same force and effect" an affidavit. Williams v. Browman, 981 F.2d 901, 905 (6th Cir. 1992). In this case, the plaintiff's statement is sufficient to create an issue of fact regarding the validity of the arbitration agreement such that the plaintiff is entitled to a jury trial on this issue as contemplated by 9 U.S.C. § 4.
C. Unconsionability
The plaintiff asserts that the Arbitration Agreement the defendants seek to enforce is unconscionable. The plaintiff asserts that she is living on income from Social Security and would be unable to pay arbitration costs. The plaintiff also claims that the agreement requires her to arbitrate claims, but does not require the defendants to submit any claim they might have to arbitration and that the agreement limits plaintiff's ability to obtain discovery.
The plaintiff cites to a Supreme Court decision stating that the costs of arbitration may preclude an indigent party from presenting his claims and would then be unenforceable. Green Tree Financial Corp. — Alabama v. Randolph, 531 U.S. 79, 92 (2000). The plaintiff also correctly notes that the Supreme Court places the burden of demonstrating the plaintiff's inability to pay on the plaintiff. Id. Although Johnson correctly cites to this standard, she has failed to meet it. Aside from the mere mention in her memorandum that she lives on income from Social Security, the plaintiff has not suggested by argument or evidence that she lacks the funds to proceed with arbitration. More importantly, it appears from the arbitration agreement, that the plaintiff would have only a minimal financial obligation if she pursued her claims through arbitration. The arbitration agreement in question [Court File No. 8, exh. 8] provides that the plaintiff pay an initial fee of $125 and that Countrywide alone would be responsible for arbitration fees incurred during the first day of arbitration. Only if the arbitration lasts more than one day could the plaintiff be assessed additional fees, and these would only be incurred if she was the non-prevailing party. [Court File No. 8, exh. 8]. The plaintiff has provided no evidence or fact based argument in support of her claim that the agreement is unconscionable due to her inability to pay arbitration costs.
Notably, the filing fee for this civil case was $150, which is $25 more than the plaintiff would have been required to pay to arbitrate her claim under the agreement. See generally, 28 U.S.C. § 1914 (setting the filing fee in civil cases).
The plaintiff also asserts that the terms of the agreement are unconscionable because only her claim, and not the defendants', would be required to enter arbitration. Although the plaintiff suggests that the defendants would not be forced to arbitrate any claim against her under this agreement, the plaintiff's argument is no more specific than this assertion. The arbitration agreement lists excluded claims, however, as to the included claims, it expressly applies to all parties to the transaction. [Court File No. 8, exh. 8].
Finally, Johnson argues that she will be limited in her ability to obtain discovery. The arbitration agreement provides that "[a]fter a demand for arbitration is made, You and We may conduct a limited number of depositions (including the production of documents) by mutual agreement or as permitted by the arbitration. Any disagreements over depositions will be resolved by the arbitrator." [Court File No. 8, exh. 8]. The plaintiff has failed to present any argument or evidence which suggests that her access to discovery would be meaningfully limited by submission to the arbitration process as described.
D. Claims Outside of the Arbitration Agreement
The plaintiff requests that any claims not covered by the arbitration agreement be decided by the same jury which a determines whether the arbitration agreement is valid. In contrast, the defendants seek to stay any claims that potentially fall outside of the arbitration agreement pending the completion of arbitration. The parties agree that this matter lies within the discretion of this Court. See generally, Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 20 n. 23 (1983).
In an effort to allow the orderly progression of this case, the Court now exercises it's discretion to STAY any of Johnson's claims which fall outside of the arbitration agreement pending a jury verdict determining whether the arbitration agreement may be enforced.
IV. Conclusion
For the reasons stated above, the Court RESERVES ruling on the defendants' motions [Court File Nos. 3 13] to compel arbitration pending a jury trial on the question of forgery. Defendants' motions are GRANTED to the extent that Johnson's claims falling outside of the agreement will be STAYED. Defendants' motions are DENIED to the extent that they move to dismiss Johnson's claims.
SO ORDERED.