Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-3_06-cv-00899/USCOURTS-almd-3_06-cv-00899-1/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 09:0004 U.S. Arbitration Act

---

1. Citifinancial Mortgage’s complaint also named

Vera Smith, but she was dismissed from this case on July

19, 2007 (Doc. No. 28).

IN THE DISTRICT COURT OF THE UNITED STATES FOR THE

MIDDLE DISTRICT OF ALABAMA, EASTERN DIVISION

CITIFINANCIAL MORTGAGE )

COMPANY, INC., a/k/a, )

CITIMORTGAGE, INC., )

)

Plaintiff, )

) CIVIL ACTION NO.

v. ) 3:06cv899-MHT

) (WO) 

ALPHA SMITH, )

)

Defendant. )

OPINION

Plaintiff Citifinancial Mortgage Co. Inc., filed this

action against defendant Alpha Smith to compel him,

pursuant to the Federal Arbitration Act (FAA), 9 U.S.C.

§§ 3 and 4, to arbitrate his state-court fraudulent

misrepresentation, promissory fraud, negligent

misrepresentation, and negligence claims against the

mortgage company.1

 This court has jurisdiction over this

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case pursuant to 28 U.S.C. § 1332 (diversity of citizenship).

Currently before the court is Citifinancial

Mortgage’s motion for summary judgment. For the reasons

set forth below, the motion will be granted. 

I. SUMMARY-JUDGMENT STANDARD

Summary judgment is appropriate “if the pleadings,

depositions, answers to interrogatories, and admissions

on file, together with the affidavits, if any, show that

there is no genuine issue as to any material fact and

that the moving party is entitled to a judgment as a

matter of law.” Fed. R. Civ. P. 56(c). Under Rule 56,

the court must view the admissible evidence in the light

most favorable to the non-moving party and draw all

reasonable inferences in favor of that party. Matsushita

Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587

(1986).

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II. FACTS

On April 11, 1989, Smith and his wife executed a

second mortgage with First Capital Mortgage on their

home. The Smiths believed that, under the terms of the

loan, they were to make monthly payments of $ 312.00

until April 2004, when their loan would be paid off. In

November 2000, their mortgage was finally assigned to

Citifinancial Mortgage.

On March 11, 2004, Smith executed a personal-loan

transaction and arbitration agreement with Citifinancial

Corporation, LLC, which is an affiliate of Citifinancial

Mortgage. In the arbitration agreement, Smith agreed to

arbitrate any “claim” against Citifinancial and its

“affiliates” that relate to any “credit transaction.”

“Credit transaction,” as defined in the arbitration

agreement, is “any one or more past, present, or future

extensions, applications, or inquiries of credit

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2. The March 2004 arbitration agreement provided

that:

“In consideration of Lender making the

extension of credit described in the

instrument evidencing your loan (‘Note’)

and other good and valuable

consideration, the receipt and

sufficiency of which is acknowledged by

both parties, You or We have an absolute

right to demand that any Claim be

submitted to an arbitrator in accordance

with this Arbitration Agreement. If

either You or We file a lawsuit,

counterclaim, or other action in court,

the other party has the absolute right

to demand arbitration following the

filing of such action.

***

“‘You’ or ‘Your’ means any or all of

Borrower(s) listed above and NonObligor(s) who execute the Note, and

their heirs, survivors, assigns, and

representative.

“‘We’ or ‘Us’ or ‘Our’ means the Lender

under the Note listed above, its past,

present or future respective parents,

subsidiaries, affiliates, predecessors,

assignees, successors, and their

respective employees, agents, directors,

(continued...)

4

forbearance of payment such as a loan, retail credit

agreement, or otherwise from any of Us to You.”2

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2. (...continued)

and officers (whether acting in their

corporate or individual capacity).

“‘Credit Transaction’ means any one or

more past, present or future extensions,

applications, or inquiries of credit or

forbearance of payment such as a loan,

retail credit agreement, or otherwise

from any of Us to You.

“‘Claim’ means any case, controversy,

dispute, tort, disagreement, lawsuit, or

claim now or hereafter existing between

You and Us. A Claim includes, without

limitation, anything related to ... Any

Credit Transaction ....”

5

On April 17, 2004, the Smiths made what they believed

was their last loan payment to Citifinancial Mortgage.

However, Citifinancial Mortgage informed them that they

still owed $ 8,300.00. 

On April 18, 2005, Smith filed a Chapter 13 voluntary

bankruptcy petition. Citifinancial made several

appearances in the bankruptcy court defending its

interests in the proceeding. 

On April 17, 2006, the Smiths filed a lawsuit in an

Alabama state court against Citifinancial Mortgage,

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alleging fraudulent and negligent misrepresentation,

promissory fraud, negligence, and breach of contract

regarding the April 1989 second mortgage. 

On May 17, Citifinancial Mortgage removed the statecourt action to bankruptcy court, but, on August 23, the

bankruptcy court remanded it. During discovery in the

bankruptcy proceedings, Citifinancial Mortgage discovered

the March 2004 loan and arbitration agreement with

Citifinancial Corporation where Smith agreed to arbitrate

“past” credit transactions. 

Consequently, on October 5, 2006, Citifinancial

Mortgage filed this lawsuit in federal court seeking to

compel Smith to arbitrate his claims in the state-court

lawsuit.

III. DISCUSSION

A. The FAA

The FAA provides that, “A party aggrieved by the

alleged failure, neglect, or refusal of another party to

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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.

Section 4 goes on to provide that, “upon being satisfied

that the making of the agreement for arbitration or the

failure to comply therewith is not in issue, the court

shall make an order directing the parties to proceed to

arbitration in accordance with the terms of the

agreement.” Id.

As a general matter of federal policy, “where the

contract contains an arbitration clause, there is a

presumption of arbitrability in the sense that an order

to arbitrate a particular grievance should not be denied

unless it may be said with positive assurance that the

arbitration clause is not susceptible of an

interpretation that covers the asserted dispute.” AT&T

Technologies, Inc. v. Communications Workers of America,

475 U.S. 643, 651 (1986) (reviewing dispute arising under

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the Labor Management Relations Act) (internal quotation

omitted); see also Ruby-Collins, Inc. v. City of

Huntsville, Alabama, 748 F.2d 573, 576 (11th Cir. 1984)

(“Federal policy requires that we construe arbitration

clauses generously, resolving all doubts in favor of

arbitration.”).

While federal policy favors arbitration, “arbitration

is a matter of contract and a party cannot be required to

submit to arbitration any dispute which she has not

agreed so to submit.” Steelworkers v. Warrior & Gulf

Nav. Co., 363 U.S. 574, 582 (1960). Accordingly, “the

question whether the parties have submitted a particular

dispute to arbitration, i.e., the ‘question of

arbitrability,’ is ‘an issue for judicial determination

unless the parties clearly and unmistakably provide

otherwise.’” Howsam v. Dean Witter Reynolds, Inc., 537

U.S. 79, 83 (2002) (quoting AT&T Technologies, Inc. v.

Communications Workers, 475 U.S. 643, 649 (1986)).

Issues to be decided by the court “include certain

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gateway matters, such as whether the parties have a valid

arbitration agreement at all or whether a concededly

binding arbitration clause applies to a certain type of

controversy.” Green Tree Fin. Corp. v. Bazzle, 539 U.S.

444 (2003).

A. Application of the FAA

Citifinancial Mortgage’s argument in support of its

motion for summary judgment is straightforward: that the

agreements between it and Smith included a written

agreement to arbitrate. Therefore, it argues, the court

is required to compel arbitration under the FAA. 9

U.S.C. §§ 3 & 4.

On the other hand, Smith does not dispute that in

March 2004 he signed an agreement to arbitrate claims

against Citifinancial Corporation and its affiliates, nor

does he dispute that the March 2004 agreement contains

language that requires arbitration of any of his “past”

credit transactions with Citifinancial Corporation and it

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affiliates, which include Citifinancial Mortgage.

However, he argues that when he executed agreement he had

no intention to be bound by the arbitration agreement for

purposes of his 1989 mortgage with First Capital. He

contends that the arbitration agreement is

unconscionable, and, to support this contention, he

submits that (1) he had no choice but to agree to the

clause or else he would not have received his loan; (2)

the terms of the agreement unreasonably favor

Citifinancial Mortgage; (3) he is being forced to

arbitrate based on a contract he signed 15 years after

the original mortgage was initiated; (4) there was

unequal bargaining power; (5) he is being denied his

right to a jury trial; and (6), as a Chapter 13 debtor,

he cannot afford to pay the costs of arbitration.

Section 2 of the FAA provides that written

arbitration agreements "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.A.

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§ 2. "Thus, generally applicable contract defenses, such

as fraud, duress, or unconscionability, may be applied to

invalidate arbitration agreements without contravening

§ 2." Doctor's Associates, Inc. v. Casarotto, 517 U.S.

681, 687, 116 S.Ct. 1652, 1656 (1996). "Because Alabama

law allows unconscionability to invalidate contracts

generally, this defense may also invalidate the

arbitration agreement in his case if [Smith] proves

unconscionability by substantial evidence." Bess v.

Check Express, 294 F.3d 1298, 1307 (11th Cir. 2002).

The Alabama Supreme Court has defined an

unconscionable contract as one “‘such as no man in his

sense and not under delusion would make on the one hand,

and as no honest and fair man would accept on the

other.’” Layne v. Garner, 612 So. 2d 404, 408 (Ala.

1992) (quoting Hume v. United States, 132 U.S. 406, 411

(1889)). Traditionally, that court has applied four

factors to decide if a contract is unconscionable: "(1)

whether there was an absence of meaningful choice on one

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party's part, (2) whether the contractual terms are

unreasonably favorable to one party, (3) whether there

was unequal bargaining power among the parties, and (4)

whether there were oppressive, one-sided or patently

unfair terms in the contract." Layne, 612 So.2d at 408.

"For ease of discussion," the Alabama Supreme Court

"reduce[d] the Layne v. Garner test further to one

comprised of two essential elements: (1) terms that are

grossly favorable to a party that has (2) overwhelming

bargaining power." American Gen'l Fin., Inc. v. Branch,

793 So.2d 738, 748 (Ala. 2001). As this court has

previously observed, "at a minimum, a party cannot rely

on an abstract principle or theory of unfairness of a

bargain to make a case for unconscionability; it must

still be gauged by the actual circumstances of the case,

and not in the abstract." Roberson v. Money Tree of

Alabama, Inc., 954 F. Supp. 1519, 1525 (M.D. Ala. 1997)

(Thompson, J.).

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This court will therefore pose as its first question,

What exactly has Smith unwillingly or unwittingly

sacrificed or lost when he signed the March 2004

arbitration agreement that is so patently unfair and

unreasonable as to be unconscionable? In answering this

question, the court must limit its review to the terms of

the arbitration clause itself and how they are

unconscionable to him: “The precise question in this

case ... is whether the arbitration clause is so

unfavorable to [Smith] that it simply would not have been

reasonable for him knowingly to accept it, given any

meaningful choice,” Roberson, 954 F. Supp. at 1525, and

whether he “cannot obtain through arbitration the very

same relief that would be otherwise available in a court

action.” Id. at 1526. A court must be wary of finding

a contract unconscionable where the plaintiff is “left

with some place to go.” In re Elkins-Dell Mfg. Co., 253

F. Supp. 864, 870 (E.D. Pa. 1966) (Lord, J.).

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Smith has provided no evidence that enforcement of

the arbitration agreement would cause him a specific

injury; nor has he demonstrated that enforcement of the

clause will strip him of a remedy that he could access

through adjudication of his claims by a court. In other

words, Smith does not argue that the relief he seeks is

unavailable to him through arbitration. See Roberson,

954 F. Supp. at 1526 (“[the plaintiffs] have not argued

that an arbitrator cannot hear liability claims against

the defendants or cannot award the full panoply of relief

available in state courts under Alabama law.”). Thus,

the court cannot conclude that the arbitration clause

here is unconscionable.

Smith contends that requiring him to resolve his

disputes with Citifinancial Mortgage through arbitration

would deprive him of his Seventh Amendment right to a

trial by jury. Once again, the court finds his

contention unconvincing. In order to demonstrate that

his jury-trial right was violated, a plaintiff must show

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that the arbitration clause itself is unconscionable,

such that "the arbitrator cannot hear his claims against

[the defendants], or cannot award the full panoply of

relief available in state courts under Alabama law.”

Goodwin v. Ford Motor Credit Co., 970 F. Supp. 1007, 1015

(M.D. Ala. 1997) (Thompson, J.). Absent such a showing,

federal arbitration policy, as announced by the Supreme

Court in Allied-Bruce Terminix Cos., Inc. v. Dobson, 513

U.S. 265, 280-82 (1995), requires the court to presume

that, by signing the agreement, the plaintiff knowingly

and intelligently waived his right to a jury trial.

Because the court has already concluded that the

arbitration agreement Smith signed in conjunction with

his 2004 loan transaction with Citifinancial Corporation

was not unconscionable, it cannot conclude that Smith’s

right to a jury trial was unlawfully abridged.

Smith argues that, as a Chapter 13 debtor, he cannot

afford the cost of arbitration. However, he provides

nothing to support this contention. Arbitration is

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generally considered a less expensive method of resolving

disputes. See, e.g., Allied-Bruce, 513 U.S. at 280

(“Indeed, arbitration's advantages often would seem

helpful to individuals, say, complaining about a product,

who need a less expensive alternative to litigation. ...

The advantages of arbitration are many: it is usually

cheaper and faster than litigation; it can have simpler

procedural and evidentiary rules; it normally minimizes

hostility and is less disruptive of ongoing and future

business dealings among the parties; it is often more

flexible in regard to scheduling of times and places of

hearings and discovery devices...") (internal citations

and quotations omitted). Yet, Smith does not indicate

how arbitration will be more expensive than litigating

his claims in state court. Smith has not demonstrated

any circumstances particular to his case that the costs

associated with arbitration would render his agreement to

arbitrate clause unconscionable so as to preclude

arbitration of his claims.

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Smith asserts that Citifinancial Mortgage has already

waived its right to arbitrate. For sure, “[a]n agreement

to arbitrate, ‘just like any other contract ..., may be

waived.’” Ivax Corp. v. B. Braun of America, Inc., 286

F.3d 1309, 1315 (11th Cir. 2002) (quoting Burton-Dixie

Corp. v. Timothy McCarthy Const. Co., 436 F.2d 405, 407

(5th Cir. 1971)). Indeed, the FAA provides that

litigation may be stayed pending arbitration only if “the

applicant for the stay is not in default in proceeding

with such arbitration,” 9 U.S.C. § 3, and the Eleventh

Circuit has “clarified that the term ‘default’ carries

the same meaning as ‘waiver.’” Ivax Corp., 286 F.3d at

1315 n.17. 

The Eleventh Circuit Court of Appeals has established

a two-part test to determine whether a party has waived

its right to arbitrate. First, the court must decide

“if, ‘under the totality of the circumstances,’ the party

‘has acted inconsistently with the arbitration right.’”

Ivax Corp., 286 F.3d at 1315-16 (quoting S & H

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Contractors, Inc. v. A.J. Taft Coal Co., 906 F.2d 1507,

1514 (11th Cir. 1990)). Smith argues that Citifinancial

Mortgage acted inconsistently with its right to

arbitration when it appeared in the bankruptcy court and

when it removed the state-court proceeding to bankruptcy

court. In the state-court and bankruptcy proceedings,

Citifinancial Mortgage raised its right to arbitrate in

each of its responsive pleadings and motions, including

its notice of removal, answer, and response to Smith’s

motion to remand. Additionally, it did not discover the

2004 arbitration agreement with Citifinancial Corporation

until September 2006, and, at that time, it promptly

informed Smith of its intent to seek arbitration. Up

until that time, only limited discovery had been

commenced; neither party had taken any depositions, and

Smith has never answered any of Citifinancial Mortgage’s

discovery requests. The court concludes that

Citifinancial did not act inconsistently with its intent

to arbitration.

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Second, to find waiver to arbitrate, the court looks

at whether the party seeking arbitration has in some way

prejudiced the other party. Ivax Corp., 286 F.3d at

1316. There must therefore be some evidence that Smith

has been prejudiced by Citifinancial Mortgage’s failure

to seek arbitration earlier. Even if the court were

convinced that Citifinancial Mortgage acted

inconsistently, that inconsistency has not prejudiced

Smith. Smith says that he has been prejudiced because he

has expended time and financial resources litigating this

case in both state and federal court; he contends that

Citifinancial Mortgage has been forum shopping for the

past seven months at his expense. However, as soon as

Citifinancial Mortgage discovered the 2004 arbitration

agreement, it notified Smith of its intent to seek

arbitration. Moreover, even before Citifinancial

Mortgage discovered the 2004 agreement, it preserved its

right to seek arbitration in its pleadings. The court

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cannot find any prejudice to Smith traceable to

Citifinancial Mortgage’s alleged inconsistency.

Finally, Smith has failed to show that Citifinancial

Mortgage had "overwhelming bargaining power." American

Gen'l Fin., 793 So.2d at 748. It is undoubtedly true

that Citifinancial Mortgage has greater resources than

does Smith and that the mortgage company would be

unlikely to bend to his demands in negotiation. However,

in discussing the "overwhelming bargaining power" element

of its test for unconscionability, the Alabama Supreme

Court framed the inquiry as "whether the consumer has the

ability to obtain the product made the basis of the

action without signing an arbitration clause." Id. at

750 (internal quotation omitted). The court would not be

surprised if most mortgage-company agreements were

subject to arbitration provisions, but Smith has made no

showing on this issue.

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In sum, Smith has not established that the March 2004

arbitration agreement between Citifinancial Mortgage and

him is unconscionable under Alabama law.

***

For the foregoing reasons, Citifinancial Mortgage’s

motion for summary judgment will be granted. An

appropriate judgment will be entered to that effect.

DONE, this the 20th day of August, 2007.

 /s/ Myron H. Thompson 

UNITED STATES DISTRICT JUDGE

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