Doyle v. Finance America, LLC

THIEME, J. This case arises from a dispute over the collection of interest associated with a mortgage loan. Appellants, Richard A. Doyle and Ruth M. Doyle, brought suit against appellee, Finance America, LLC, to recover the interest. 1 II.III.IV.V.VI.The Circuit Court for Montgomery County granted appellee’s motion to compel arbitration and stayed appellants’ suit pending arbitration. Appellants challenge the court’s ruling that arbitration is required and present a series of questions to this Court, which we have consolidated and rewritten as follows: 2 ³⁷⁴ I. Does the plain language of the arbitration agreement prevent litigation from being pursued before a circuit court?

II

Does the arbitration agreement permit appellants to choose whether to proceed in arbitration or in court?

III

Is the arbitration agreement void on policy grounds? Is the arbitration agreement unconscionable? Finding no error, we shall affirm the decision of the circuit court. FACTUAL AND PROCEDURAL HISTORY Appellants secured a mortgage loan from appellee for the purchase of a new home.

Settlement for the residence was to take place on April 26, 2004. On that day, the parties executed a Dispute Resolution Agreement (the “Agreement”), which states, in part: Maintaining good relationships with our loan applicants and borrowers, is very important to us at Finance America, LLC (hereinafter referred to as “Lender”). We ask you to contact us immediately if you have a problem with a loan application or loan transaction with us. Often, a telephone call to us will resolve the matter amicably and as quickly as possible.

However, if you and we are not able to resolve our differences informally, you and we agree that any dispute, regardless of when it arose, shall be resolved, at your option or ours, by arbitration in accordance with this agreement. ³⁷⁵ Only disputes involving you and us may be addressed in the arbitration. The arbitration shall not address any dispute on a “class wide” basis nor shall it be consolidated with any other arbitration proceeding. This means that the arbitration will not address disputes involving other persons that may be similar to the disputes between you and us. Appellants assert that appellee failed to disburse the loan proceeds until April 27, 2004 — the day following settlement.

Appellants filed suit in circuit court to recover damages from appellee, pursuant to Maryland Code Annotated (1974, 2003 Repl.Vol.), § 7-109 of the Real Property Article. Appellee filed a motion to dismiss and motion to compel arbitration. After a hearing on the motions, appellee’s motion to compel arbitration was granted and the case was stayed, pending an outcome in arbitration. This appeal followed.

STANDARD OF REVIEW The circuit court’s order, compelling arbitration, is appropriate where a valid and enforceable arbitration agreement exists. Holmes v. Coverall North America, Inc., 336 Md. 534, 546 , 649 A.2d 365 (1994). As a question of law, whether a valid and enforceable arbitration agreement exists will be reviewed de novo. Holloman v. Circuit City Stores, Inc., 391 Md. 580, 588 , 894 A.2d 547 (2006).

DISCUSSION The Agreement states that “arbitration shall be governed by the Federal Arbitration Act.” The Federal Arbitration Act (“FAA”) is set forth under Title 9 of the United States Code. Section 2 of the Act states that an arbitration clause will not be enforceable where “any grounds ... for the revocation of any contract” apply. Because state courts “are not bound by the federal procedural provisions of the FAA,” our enforcement of Section 2 requires that we “look to the pertinent Maryland law” for guidance. Walther v. Sovereign Bank, 386 Md. 412, 423 , 872 A.2d 735 (2005).

The Maryland Uniform Arbitration Act (“MUAA”) is codified under Mary ³⁷⁶ land Code Annotated (1974, 2006 Repl.Vol.), §§ 3-201 et seq. of the Courts and Judicial Proceedings Article (“CJ”). I. Plain Language of the Agreement The interpretation of a contract is a question of law and subject to de novo review. United Servs. Auto.

Ass’n v. Riley, 393 Md. 55, 79 , 899 A.2d 819 (2006). On review, we shall examine the language of the contract objectively. 8621 Ltd. P’ship v. LDG, Inc., 169 Md.App. 214, 226 , 900 A.2d 259 (2006). “ “Where the language of the contract is unambiguous, its plain meaning will be given effect. There is no need for further construction.’ ” Spengler v. Sears, Roebuck & Co., 163 Md.App. 220, 239 , 878 A.2d 628 (2005). Appellants argue that the Agreement is a contract of adhesion and thusjnust be viewed with heightened scrutiny; any ambiguity must be resolved against appellee. 3 Appellants assert that the plain language of the Agreement does not require arbitration of their claim for two reasons.

First, the Agreement requires the parties to attempt an “informal resolution” prior to arbitration. This failed to occur. Second, the Agreement does not prohibit class actions from being pursued in the circuit court. ³⁷⁷ A. Informal Resolution The introductory paragraph of the Agreement reads as follows: Maintaining good relationships with our loan applicants and borrowers, is very important to us at Finance America, LLC (hereinafter referred to as “Lender”). We ask you to contact us immediately if you have a problem with a loan application or loan transaction with us.

Often, a telephone call to us will resolve the matter amicably and as quickly as possible. However, if you and we are not able to resolve our differences informally, you and we agree that any dispute, regardless of when it arose, shall be resolved, at your option or ours, by arbitration in accordance with this agreement. (Emphasis added.) Appellants assert that the word “if’ creates a condition that must be satisfied prior to arbitration; specifically, an attempt must be made to informally resolve any problems that arise, prior to arbitration. We do not read the Agreement to contain such a requirement.

When all four sentences of the introductory paragraph are read together, it is clear that the Agreement recommends, but does not require, that disputes be resolved through informal means. The first sentence acknowledges appellee’s desire to maintain “good relationships” with its borrowers. The second sentence simply “ask[s],” aggrieved borrowers to contact appellee when a problem arises — it does not “require” borrowers to contact appellee. The third sentence suggests that placing a telephone call to appellee might “resolve the matter amicably” — it does not require borrowers to place a telephone call.

The fourth sentence merely recognizes that problems are not always resolved informally and, if the borrower and appellee “are not able to resolve [their] differences informally,” arbitration must proceed. We also note that appellants are the moving party in this case and chose to initiate formal proceedings in the circuit court. Contrary to the advice and suggestion in the Agree ³⁷⁸ ment, appellants determined to forgo any attempts at resolving the matter amicably through informal means and filed a complaint against appellee. In essence, appellants have waived their ability to challenge the arbitration provision on this ground.

Appellants rely on Wells v. Chevy Chase Bank, F.S.B., 863 Md. 232 , 768 A.2d 620 (2001), for the proposition that a condition precedent contained in an arbitration agreement must be satisfied prior to proceeding with arbitration. Because we have already determined that the Agreement between appellants and appellee does not contain a condition precedent, Wells is inapposite. 4 B. Class Action Law Suits Are Barred Appellants also claim that arbitration is not required because they are properly pursuing a class action in the circuit court. Appellants assert that the Agreement only limits their opportunity to file a class action in arbitration, leaving open the option to file a class action in the circuit court. The portion of the Agreement relating to class action proceedings states as follows: Only disputes involving you and us may be addressed in the arbitration.

The arbitration shall not address any dispute on a “class wide” basis nor shall it be consolidated with any other arbitration proceeding. This means that the arbitration will not address disputes involving other persons that may be similar to the disputes between you and us. This paragraph must be read in conjunction with the sentence that requires arbitration: “[Y]ou and we agree that any dispute, regardless of when it arose, shall be resolved, at your ³⁷⁹ option or ours, by arbitration in accordance with this agreement.” The plain language of the Agreement requires that any dispute arising out of or in any way related to the loan shall be resolved by arbitration. 5 Therefore, if the Agreement bars the filing of a class action claim in arbitration, there can be no filing of a class action claim at all. Appellants contend that, without a blanket or general restriction on class action suits, they may proceed with a class action in the circuit court.

Although it may have been wise to expressly include a “no-class-action” provision in the Agreement, 6 we cannot say that appellee’s failure to do so renders the class action provision in the Agreement any less clear.

II

Arbitration Is Not Permissive Appellants contend that the arbitration provision “is permissive” because it “allows either party to sue or arbitrate.” This contention is simply incorrect. The Agreement pellucidly states that “any dispute ... shall be resolved ... at your option or ours, by arbitration.” (Emphasis added.) Appellants’ argument clings for life to the word “option” as though its very presence in the Agreement allows them to bring a suit in the circuit court. Like Hannibal, “Aut viam inveniam aut faciam.” 7 To the contrary, either party has the option to proceed in arbitration and once that option is exercised, arbitration is required. ³⁸⁰ As the moving party, appellants elected to file a lawsuit in the circuit court, which they were entitled to do pursuant to the Agreement. Had appellee preferred that venue, it could have proceeded in circuit court.

Appellee desired arbitration, however, and under the plain language of the Agreement, any dispute shall be resolved by arbitration at the option of either party. Having exercised that option, arbitration must proceed. Appellants take their argument one step further. CJ § 3-207(a) states: Refusal to arbitrate. — If a party to an arbitration agreement described in § 3-202 of this subtitle refuses to arbitrate, the other party may file a petition with a court to order arbitration.

(Emphasis added in bold.) Appellants interpret this provision as requiring appellee to make two requests for arbitration; the first request must be denied by appellants and only after they refuse to arbitrate may the court properly rule on appellee’s second request. 8 We are convinced that CJ § 3-207(a) has been satisfied. We shall not require the parties to jump hurdles that are nonessential to proceed in arbitration, particularly when arbitration is patently mandated under the plain meaning of the Agreement. Under CJ § 3-207(c), “[i]f the court determines that the agreement [to arbitrate] exists, it shall order arbitration. Otherwise, it shall deny the petition.” Having found that an arbitration agreement exists, the court ordered arbitration.

We concur with that determination. ³⁸¹ III. Policy Considerations An arbitration agreement is valid and enforceable unless grounds exist that would render the arbitration agreement revocable as a contract. CJ § S-206(a). Appellants assert that the Agreement is invalid and unenforceable for two reasons.

First, the Agreement is repugnant to the public policy of Maryland. Second, the Agreement is procedurally and substantively unconscionable. We shall address the unconscionability claim in Part IV of this opinion. Appellants argue that the Agreement is “nothing more than a thinly veiled exculpatory agreement” that denies consumers access to the courts while preserving appellee’s ability to file certain claims in court.

In support of their policy argument, appellants note that “the nation’s largest funders and guarantors of home loans ... have ... banned the use of pre-dispute arbitration provisions.” This argument is, in essence, nothing more than a policy-based assault on the shortcomings of arbitration. Déjá vu. In Bel Pre Med. Ctr., Inc. v. Frederick Contractors, Inc., 21 Md.App. 307, 319-20 , 320 A.2d 558 (1974), we stated: The Uniform Arbitration Act constitutes a radical departure from the common law.

Executory agreements to arbitrate are to be deemed “valid, irrevocable and enforceable,” and suits to compel arbitration or to stay the action of a court pending arbitration may now be brought. The prime purpose of these provisions is to discourage litigation and to foster voluntary resolution of disputes in a forum created, controlled and administered according to the parties’ agreement to arbitrate. Thus, by its enactment, the General Assembly established a policy in favor of the settlement of disputes through the arbitration process and ended the ambivalence of courts under the common law. Not only suits to enforce an arbitrator’s award, but also suits to compel arbitration and suits to stay court action pending arbitration, are now to be viewed as “favored” actions.

(Internal citations omitted.) Since our announcement in Bel Pre Med., 21 Md.App. 307 , 320 A.2d 558 , this Court and the Court of Appeals have ³⁸² continued to recognize the legislative policy favoring enforcement of arbitration agreements. See Questar Homes of Avalon, LLC v. Pillar Constr., Inc., 388 Md. 675, 684 , 882 A.2d 288 (2005) (The MUAA “expresses the legislative policy favoring enforcement of agreements to arbitrate.” (internal cite omitted)); Holmes , 336 Md. at 541 , 649 A.2d 365 (“The same policy favoring enforcement of arbitration agreements is present in both” the MUAA and the FAA.); The Redemptorists v. Coulthard Servs., Inc., 145 Md.App. 116, 150 , 801 A.2d 1104 (2002) (Maryland law “reflect[s] a strong public policy in favor of arbitration.”); Howard County Bd. of Educ. v. Howard County Educ. Ass’n, Inc., 61 Md.App. 631, 641 , 487 A.2d 1220 (1985) (recognizing the legislative policy “in favor of’ arbitration agreements); Southern Maryland Hosp. Ctr. v. Edward M. Crough, Inc., 48 Md.App. 401, 406 , 427 A.2d 1051 (1981) (“Arbitration is a ‘favored’ process in Maryland.”).

We are keenly aware of the opposition to arbitration agreements taken by consumers and consumer-advocates. Nonetheless, arbitration agreements enjoy “favored” status in Maryland. “ ‘The Legislature makes the laws[ and] the Judiciary expounds them. . . . ’ ” Schisler v. State, 394 Md. 519, 582 , 907 A.2d 175 (2006) (quoting City of Baltimore v. State, 15 Md. 376, 456 (1860)). The law on this issue is clear, leaving us with nothing to decipher. We shall not entertain a debate that should be directed to the General Assembly.

IV

Unconscionability Unconscionability is an “extreme unfairness” in the formation or substance of a contract. See Black’s Law Dictionary 1560 (8th ed.2004). 9 The Uniform Commercial Code allows a court to modify a contract if the contract, or any of its terms, is unconscionable. U.C.C. § 2-302 (2001). It is problematic, however, that the U.C.C. does not define unconscionability, nor does it provide any guidance as to the factors, circumstances, and standards that should be employed in making such a finding. “Unconscionability is an amorphous ³⁸³ concept that evades precise definition.

Indeed, it has been said that ‘[i]t is not possible to define unconscionability. It is not a concept but a determination to be made in light of a variety of factors not unifiable into formula.’ ” Coady v. Cross County Bank, No.2005AP2770, 2007 WL 188993 at ¶ 26 (Wis. App. Jan.25, 2007). The doctrine of unconscionability contains two components, substantive and procedural aspects.

Procedural unconscionability concerns deceptive practices employed at the bargaining table. See Holloman, 391 Md. at 603 , 894 A.2d 547 . Thus procedural unconscionability looks to how the agreement was reached. It relates to the individualized circumstances surrounding each contracting party at the time of contracting.

Substantive unconscionability concerns the actual terms of the contract. Id. “The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.” Id. (internal cite omitted). This is also the position taken in Maryland.

See, e.g., Walther, 386 Md. at 431 , 872 A.2d 735 . A. Procedural Unconscionability Certain elements of the bargaining process tend to indicate the presence of procedural unconscionability: “overwhelming bargaining strength or use of fine print or incomprehensible legalese may reflect procedural unfairness in that it takes advantage of or surprises the victim of the clause.” 8 Richard A. Lord, Williston on Contracts § 18:10 (4th ed.1999). Additional factors include, but are not limited to: age, education, intelligence, business acumen and experience, relative bargaining power, who drafted the contract, whether the terms were explained to the weaker party, whether alterations in the printed terms would have been permitted by the drafting party, and whether there were alternative providers of the subject matter of the contract. Wisconsin Auto Title Loans v. Jones, 290 Wis.2d 514, 534-535 , 714 N.W.2d 155, 165 (2006).

That the arbitration agree ³⁸⁴ ment was presented as an adhesion contract is also significant. 10 See Holloman, 391 Md. at 603 , 894 A.2d 547 ; Walther, 386 Md. at 453 , 872 A.2d 735 . Appellants claim that the Agreement is procedurally unconscionable because they were only made aware of the need to sign the Agreement on the settlement date, after their loan had already been approved. Because the proceeds of the loan were needed to effectuate the closing, appellants argue that they were constrained to sign the loan, which was presented on a take-it-or-leave-it basis. A similar argument was presented to the Court of Appeals in Walther, 386 Md. 412 , 872 A.2d 735 . 11 Petitioners claimed that they “were provided no opportunity to review the [arbitration agreement] on the night of the closing and were provided no opportunity to review the [arbitration agreement] beyond a cursory perusal.” Id. at 428 , 872 A.2d 735 .

They also