United States District Court, W.D. Wisconsin
OPINION AND ORDER
D. PETERSON DISTRICT JUDGE.
David Anderson alleges that defendant Select Portfolio
Services (SPS), his mortgage servicer, charged him illegal
late fees, and failed to provide him certain statutorily
required account history disclosures when asked. He filed
this proposed class action, asserting claims under the Real
Estate Settlement Procedures Act (RESPA), 12 U.S.C. §
2601 et seq., and Wisconsin common law.
moved to compel arbitration under the Federal Arbitration
Act, 9 U.S.C. § 1 et seq., citing a binding
arbitration clause in the mortgage agreement between the
parties. Dkt. 16. Anderson concedes that he signed the
arbitration agreement in question but contends that its
provisions are unconscionable.
court concludes that Anderson has failed to show that the
arbitration agreement is unconscionable, so it will grant
defendant's motion. Defendant asks that the case be
stayed during the pendency of the arbitration, but this court
typically dismisses cases without prejudice when all of the
claims raised are subject to arbitration. See Olstad v.
Chase Auto Fin. Corp., No. 17-cv-236, 2018 WL 501611, at
*3 (W.D. Wis. Jan. 22, 2018). If either side wishes to
confirm or challenge the arbitration decision at the
conclusion of the proceedings, that party may move to reopen
the case then.
entered into a mortgage agreement with Citicorp Trust Bank,
FSB in 2002. In 2017, the mortgage was transferred from
Citcorp to SPS, Anderson's current servicer. The terms of
the mortgage agreement remained unchanged. The agreement
contained the following arbitration clause:
Notice of Arbitration Provision. This arbitration provision
provides that all disputes between borrower and lender,
except those specified below, will be resolved by mandatory,
binding arbitration. You thus give up your right to go to
court to assert or defend your rights (except for matters
that are excluded from arbitration as specified below). Your
rights will be determined by a neutral arbitrator and not a
judge or jury. You are entitled to a fair hearing, but the
arbitration procedures are simpler and more limited than the
rules applicable in court.
Dkt. 11-1, at 5. The agreement specifies three types of
excluded claims-actions necessary to obtain a judicial order
for the purpose of foreclosing, repossessing, or otherwise
establishing title for a property interest; non-class actions
seeking $15, 000 or less in total monetary relief; and
non-class actions brought in small claims court.
other provisions of the arbitration agreement are relevant to
Anderson's unconscionability arguments. First, the
agreement contains a class action waiver. Second, it provides
that arbitration fees, costs, and expenses may be shifted to
the mortgagor “if the arbitrator determines that the
Claim was made in bad faith or lacks any justification on
[the borrower's] part.” Id. Third, the
agreement provides that the arbitrator will decide
jurisdictional and arbitrability disputes. Fourth, it
provides that the party initiating arbitration may choose
between one of three arbitration firms: JAMS, the American
Arbitration Association (AAA), and the National Arbitration
Forum (NAF). Fifth, it includes a severability provision,
which provides that if an arbitrator or court finds any
portion of the arbitration provision unenforceable, that does
not impair or affect the enforceability of the other terms of
the arbitration agreement.
the “saving's clause” of the Federal
Arbitration Act, 9 U.S.C. § 2, an arbitration agreement
may be invalid if it fails to satisfy “generally
applicable contract defenses, such as fraud, duress, or
unconscionability.” Epic Sys. Corp. v. Lewis,
138 S.Ct. 1612, 1622 (2018) (quoting AT&T Mobility
LLC v. Concepcion, 563 U.S. 333, 339 (2011)). Anderson
contends that his arbitration agreement with SPS is invalid
because it is unconscionable.
determine whether an arbitration agreement is unconscionable,
the court looks to the state law that governs contract
formation, Gibson v. Neighborhood Health Clinics,
Inc., 121 F.3d 1126, 1130 (7th Cir. 1997), which in this
case is Wisconsin. In Wisconsin, unconscionability means
“the absence of meaningful choice on the part of one of
the parties, together with contract terms that are
unreasonably favorable to the other party.” Wis.
Auto Title Loans, Inc. v. Jones, 2006 WI 53, ¶ 32,
290 Wis.2d 514, 714 N.W.2d 155. The doctrine exists to
prevent “oppression or unfair surprise, ” but not
“disturbance of allocation of risks because of superior
bargaining power.” Id. (quoting Richard A.
Lord, Williston on Contracts § 18.8, at 49-50
(4th ed. 1998)). “A contract is unconscionable when no
decent, fair-minded person would view the result of its
enforcement without being possessed of a profound sense of
injustice.” Hankee v. Menard, Inc., No.
07-C-661-C, 2002 WL 32357167 at *4 (W.D. Wis. Apr. 15, 2002)
(quoting Foursquare Props. Joint Venture I v.
Johnny's Loaf & Stein, Ltd., 116 Wis.2d 679,
681, 343 N.W.2d 126 (Ct. App. 1983)).
assessing whether a contractual provision is unconscionable,
a court weighs procedural and substantive factors on a
case-by-case basis. Jones, 2006 WI 53, ¶¶
29, 33. Procedural unconscionability requires the court to
examine the contract's formation “to determine
whether there was ‘a real and voluntary meeting of the
minds.'” Clemins v. GE Money Bank, No.
11-CV-00210, 2012 WL 5868659, at *4, (E.D. Wis. Nov. 20,
2012) (quoting Jones, 2006 WI 53, ¶ 34).
Relevant factors include the “age, education,
intelligence, business acumen and experience, relative
bargaining power, who drafted the contract, whether the terms
were explained to the weaker party [and] whether alterations
in the printed terms were possible.” Discount
Fabric House of Racine, Inc. v. Wis. Telephone Co., 117
Wis.2d 587, 602, 345 N.W.2d 417 (1984). Substantive
unconscionability refers to “fairness and
reasonableness of the contract provision subject to
challenge.” Jones, 2006 WI 53, ¶ 35.
“The balance tips in favor of unconscionability when
there is a certain quantum of procedural plus a certain
quantum of substantive unconscionability.”
Leasefirst v. Hartford Rexall Drugs, Inc., 168
Wis.2d 83, 88-89, 483 N.W.2d 585 (Ct. App. 1992). As the
party opposing arbitration, Anderson bears the burden of
establishing that the arbitration clause is unconscionable.
Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S.
79, 91 (2000).