Opinion ID: 1532391
Heading Depth: 4
Heading Rank: 1

Heading: Lack of Mutuality

Text: Petitioners contend that the arbitration clause is substantively unconscionable for numerous reasons, the first being that it requires that all disputes that the borrower may have must be arbitrated, but carves out the remedies that a lender or lender's assignee might pursue against a defaulting borrower from the operation of the provision.... There is no mutuality in the arbitration clause because there are no important remedies that a lender/assignee could pursue against the borrower that have not been excluded from arbitration. Petitioners claim that the language in the arbitration clause evidences the following: Nothing in this agreement shall be construed to limit the right of any party to 1) foreclose against real or personal property or other security by an exercised power of sale under a security instrument or applicable law, 2) exercise self-help remedies, or 3) obtain provisional or ancillary remedies with regard to such securities, including without limitation, injunctive relief, sequestration, attachment, garnishment, or the appointment of a receiver from a Court having competent jurisdiction before, during or after the pendency of any arbitration. [Emphasis omitted.] Petitioners overreach in their assessment of their lack of judicial remedies pertaining to possible disputes under the arbitration clause, which they claim amounts to an impermissible lack of mutuality in the arbitration agreement. In Cheek v. United Healthcare , supra, we recognized that [t]he determination of whether there is an agreement to arbitrate... depends on contract principles since arbitration is a matter of contract, and that [t]o be binding and enforceable, contracts ordinarily require consideration. Cheek, 378 Md. at 147, 835 A.2d at 661 (citing Harford County v. Town of Bel Air, 348 Md. 363, 381-82, 704 A.2d 421, 430 (1998)). Cheek involved whether a valid and enforceable arbitration agreement between an employer and an employee existed where the employer declared in a summary of its arbitration policy that it reserved the right to alter, amend, modify, or revoke the [arbitration agreement] at its sole and absolute discretion at any time with or without notice. Cheek, 378 Md. at 142-43, 835 A.2d at 658 (alteration added). We held that the arbitration agreement in that instance was not valid and enforceable because the employer's promise to arbitrate disputes was illusory under the language of the arbitration agreement. Id. at 144, 835 A.2d at 659. Of particular importance to the case sub judice is the following discussion in Cheek: [M]utual promises to arbitrate act as `an independently enforceable contract.' In an enforceable arbitration agreement... each party has promised to arbitrate disputes arising from an underlying contract, and `each promise provides consideration for the other.' Thus, in a motion to compel arbitration, a court must determine whether `there is a mutual exchange of promises to arbitrate,' and `[o]nce a court determines that the making of the agreement to arbitrate is not in dispute, its inquiry ceases, as the agreement to arbitrate has been established as a valid and enforceable contract.' Id. at 153-54, 835 A.2d at 665 (citations omitted). Petitioners argue that there is an oppressive lack of mutuality in the arbitration agreement because the clause provides the lender with an option  foreclosure or arbitration  that is not provided to the borrower. Mutuality, however, does not require an exactly even exchange of identical rights and obligations between the two contracting parties before a contract will be deemed valid. See Harford County v. Town of Bel Air, 348 Md. 363, 383, 704 A.2d 421, 431 (1998) (stating that `[i]t is well settled that the Courts of Law... will not inquire into the adequacy of the value exacted for the promise so long as it has some value') (quoting Blumenthal v. Heron, 261 Md. 234, 242, 274 A.2d 636, 640 (1971)). Therefore, there need not exist an identical mutuality of remedy between petitioners and Sovereign Bank before the arbitration agreement will be deemed valid. We do not find that the exceptions to the arbitration agreement, which allow Sovereign Bank to litigate certain specific claims instead of having to submit them to arbitration, are so unfairly oppressive as to make the agreement unconscionable. Unlike Cheek, the arbitration clause at issue here is not illusory  Sovereign Bank is bound to arbitrate certain disputes, just as are petitioners, instead of pursuing them in a judicial forum. The mere fact that the arbitration agreement does except from its purview, however, a foreclosure proceeding, does not destroy mutuality and make the arbitration agreement so one-sided as to make it unconscionable. An arbitrator cannot order foreclosure so the foreclosure action, of necessity, is preserved. See Harris v. Green Tree Financial Corp., 183 F.3d 173, 179-81 (3d. Cir.1999) (Third Circuit rejecting borrower's argument that an arbitration provision in a secondary mortgage contract was unconscionable because the lender retained the right to sue in court to enforce its security agreement). In Conseco Finance Servicing Corp. v. Wilder, 47 S.W.3d 335 (Ky.Ct.App.2001), the Court of Appeals of Kentucky had before it a case where the assignee of a sales contract and security agreement for mobile homes brought suit under the contract to repossess the mobile home of purchasers who had ceased to make payments on their mobile home. The mobile home owners filed suit to have the contract rescinded for breach of warranties and other various violations. The assignee responded to the suit by moving to compel arbitration pursuant to an arbitration clause in the contract. Arguing before the Kentucky appellate court, the mobile home owners urged, inter alia, that the arbitration clause was unconscionable because the lender had reserved under the arbitration agreement the right to seek judicial redress of its likeliest claims  foreclosure proceedings  while reserving the right to arbitrate any claim by the purchasers who defaulted on their payments. [7] In rejecting this argument, the court initially noted that there is no inherent reason to require that the parties have equal arbitration rights. Id. at 343. The court then stated: The exceptions ... are not unreasonable. Arbitration is meant to provide for expedited resolution of disputes, but the claims the agreement permits Conseco to litigate  basically claims asserting its security interest  may be litigated expeditiously. Such claims have come to be heavily regulated by statute, allowing for streamlined procedures and effective protections for both sides. It does not strike us as unreasonable, much less oppressive, to forego arbitration of such claims. Id. (footnote omitted). See also Torrance v. Aames Funding Corp., 242 F.Supp.2d 862, 872 (D.Or.2002) (holding that agreement to arbitrate not rendered unconscionable simply because [mortgage lender] is not required to arbitrate all claims) (alteration added). The valid justification for a mortgage lender to retain the right to pursue certain remedies in a judicial forum as exceptions to an agreement to arbitrate was also made clear by the Court of Appeals of South Carolina in Lackey v. Green Tree Financial Corp., 330 S.C. 388, 498 S.E.2d 898 (S.C.Ct.App.1998), where that court explained that such exemptions are understandably warranted based on business realities: Secured transactions allow lenders to take greater risks because their ability to protect a loan is enhanced by the legal right to recover and sell the collateral in the event of default. Judicial remedies for the recovery of property, such as ... the foreclosure action, provide specific procedures for protection of collateral and the parties during the pendency of the proceedings. These protections relate to both parties, and are facilitated by the enforcement procedures specified in the law. Thus, we conclude this [arbitration] clause does bear a reasonable relationship to the business risks. Id. at 401, 498 S.E.2d at 905 (alteration added). Maryland foreclosure proceedings, like those of both Kentucky and South Carolina, do not act solely to protect the interests of the mortgage lender against a defaulting debtor but instead provide protections for both sides. See Simard v. White, 383 Md. 257, 318, 859 A.2d 168, 204 (2004) (stating that our Court [has] recognized that while the mortgage is intended to secure the debt, both the interests of debtor and of creditor command certain protections, even in the event of default) (alteration added). We agree with these other jurisdictions and their findings that the act of a mortgage lender in providing certain exceptions for itself in the arbitration agreement, such as the ability to pursue foreclosure proceedings in a judicial forum, does not in and of itself make the arbitration agreement unconscionable where the mortgage-debtor/borrower is not provided with identical exceptions to the arbitration agreement. The arbitration agreement at issue, which includes exceptions to that agreement that enable the mortgage lender, presently Sovereign Bank, to pursue certain judicial remedies including foreclosure, is not made unconscionable where petitioners are not provided with identical exceptions to the arbitration agreement.