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Anderson v. Select Portfolio Servicing, Inc.

United States District Court, W.D. Wisconsin

April 4, 2019




         Plaintiff 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.

         SPS has 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.

         The 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.


         Anderson 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.

         Five 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.


         Under 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.

         To 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)).

         In 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).

         A. Procedural ...

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