Weller et al v. HSBC Mortgage Services, Inc. et al
ORDER re: Motions to Compel Arbitration. The Motion of Defendant HSBC Mortgage Services, Inc. To Compel Arbitration and Stay Action as to Plaintiff Jack Weller's Claims [# 53 ] is granted. Defendants Assurant, Inc. and American Security Insuranc e Company's Motion To Compel Arbitration and To Stay Proceedings [# 60 ] is granted in part and denied in part. The claims of plaintiff, Jack Weller against defendants, HSBC Mortgage Services, Inc.; Assurant, Inc.; and American Security Insuranc e Company, are STAYED pending outcome of the arbitration. On or before 10/7/2013 and every 90 days thereafter,until the arbitration is completed, plaintiff, Jack Weller, and defendants, HSBC Mortgage Services, Inc.; Assurant, Inc.; and American Security Insurance Company, SHALL FILE a status report indicating the status of the arbitration, including but not limited to, its anticipated date of its completion. By Judge Robert E. Blackburn on 9/11/2013.(klyon, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Robert E. Blackburn
Civil Case No. 13-cv-00185-REB-MJW
GLADYS WOODEN, and
individually and on behalf of all others similarly situated,
HSBC MORTGAGE SERVICES, INC., ASSURANT, INC., AMERICAN SECURITY
INSURANCE COMPANY, and JOHN DOES 1-10,
ORDER RE: MOTIONS TO COMPEL ARBITRATION
The matters before me are (1) the Motion of Defendant HSBC Mortgage
Services, Inc. To Compel Arbitration and Stay Action as to Plaintiff Jack Weller’s
Claims [#53],1 filed May 10, 2013; and (2) Defendants Assurant, Inc. and American
Security Insurance Company’s Motion To Compel Arbitration and To Stay
Proceedings [#60], filed June 5, 2013.2 I grant HSBC’s motion and grant the Assurant
defendants’ motion to compel arbitration, but deny their motion to stay the remainder of
these proceedings in the interim.
“[#53]” is an example of the convention I use to identify the docket number assigned to a
specific paper by the court’s electronic case filing and management system (CM/ECF). I use this
convention throughout this order.
The issues raised by and inherent to the motions are fully briefed, obviating the necessity for
oral argument. Accordingly, I deny plaintiffs’ request for argument.
I putatively have jurisdiction over this matter pursuant to 18 U.S.C. § 1964(a)
(civil RICO) and 28 U.S.C. § 1332(d)(2) (Class Action Fairness Act).
II. STANDARD OF REVIEW
The decision whether to enforce an arbitration agreement involves a two-step
inquiry. First, I must determine whether the parties agreed to arbitrate the dispute.
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 626, 105 S.Ct.
3346, 3353, 87 L.Ed.2d 444 (1985); Williams v. Imhoff, 203 F.3d 758, 764 (10th Cir.
2000). Second, I must consider whether any statute or policy renders the claims nonarbitrable. Mitsubishi Motors Corp., 105 S.Ct. at 3355; Williams, 203 F.3d at 764.
This case involves the practice of including within mortgage loan contracts a
provision allowing the lender or third-party servicer to “force place” insurance when the
borrower fails to maintain insurance. The named plaintiffs are individuals who
refinanced or purchased mortgages that are serviced by defendant HSBC Mortgage
Services, Inc. (“HSBC”). Defendants Assurant, Inc. (“Assurant”), and American Security
Insurance Company (“ASIC”) (collectively, “the Assurant defendants”) are insurance
providers through which HSBC allegedly force places insurance and to which it
outsources insurance tracking, monitoring, and processing.
Plaintiffs allege that HSBC imposes excessive, unauthorized, and unnecessary
flood insurance coverage on the loans it services. Of particular relevance to the instant
motions to compel arbitration, plaintiff Jack Weller alleges that in December 2009, three
years into the life of his loan, HSBC altered its original determination that the property
did not require flood insurance. Although Weller initially purchased flood insurance on
his own (under protest), he ultimately could not maintain that insurance. In January
2012, HSBC provided Weller with force-placed flood insurance. Soon thereafter, Mr.
Weller contacted the Federal Emergency Management Agency (FEMA) and learned
that his property was not, in fact, located in a flood hazard zone and therefore did not
require flood insurance.3 Although HSBC subsequently acknowledged that Mr. Weller’s
property was not required to carry flood insurance, it nevertheless refused to remove
some of the charges for previously force-placed insurance.
Plaintiffs allege claims for relief against HSBC for breach of contract and breach
of fiduciary duty and violation of the Racketeer Influenced and Corrupt Organizations
Act (“RICO”), the Truth in Lending Act (“TILA”), and the Colorado Consumer Protection
Act (“CCPA”). The Assurant defendants are sued for unjust enrichment, aiding and
abetting HSBC’s breach of fiduciary duty, and violations of RICO and TILA. Plaintiffs
seek monetary, declaratory, and injunctive relief. Both defendant groups filed motions
to compel Mr. Weller to arbitrate his individual claims against them.
A. MR. WELLER’S CLAIMS AGAINST HSBC
In connection with the mortgage he purchased from HSBC in November 2006,
Mr. Weller executed a $200,000 Note secured by a Deed of Trust on the property as
security in favor of HSBC. At the same time, Mr. Weller signed an arbitration
agreement with HSBC which allows either party to demand binding arbitration of “any
Claim,” defined by the agreement as follows:
“Claim” is to be given the broadest possible meaning, and
shall mean any claim, dispute, or controversy, whether
Unlike Mr. Weller, plaintiffs Gladys and Matt Wooden’s property was located in a flood hazard
zone. Their allegations suggest that the forced-placed policy HSBC purchased for them from ASIC was
more than three times as expensive as the insurance they previously acquired independently. They
further allege that HSBC received substantial kickbacks from Assurant on the policy.
based upon contract, tort (intentional or otherwise),
constitution, statute, common law, regulation, ordinance or
equity, and whether pre-existing, present or future, including
. . . claims seeking relief of any type, including damages
and/or injunctive, declaratory or other equitable relief, arising
from or relating to Your Loan with Lender or the Loan
Agreement, or any products or services offered in
connection with Your Loan with Lender or the Loan
Agreement, including, but not limited to, any dispute or
controversy concerning, the validity or enforceability of this
Arbitration Agreement, any party thereof or the entire Loan
Agreement, and whether or not the Claim is subject to
(HSBC Motion App., Exh. 3 § 1 at 1.)4 By its terms, the agreement is governed by the
FAA. (Id., Exh. 3 § 6 at 4.) Nevertheless, state law governs the initial inquiry whether
the arbitration agreement is valid and enforceable. First Options of Chicago, Inc. v.
Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 1924, 131 L.Ed.2d 985 (1995).5
Mr. Weller does not address the validity or scope of the arbitration agreement
directly. Indeed, it facially appears that the arbitration agreement is valid, see Vescent,
Inc. v. Prosun International, LLC, 2010 WL 4658862 at *2 (D. Colo. Nov. 9, 2010)
(valid contract requires proof of “mutual assent to an exchange, between competent
parties, with regard to a certain subject matter, for legal consideration”), and that Mr.
Weller’s claims fall within the broad ambit of that agreement. Instead, Mr. Weller argues
that the agreement is unenforceable pursuant to section 1639c(e)(3) of the Dodd-Frank
Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), Pub. L. No. 111203, 124 Stat. 1376, codified at 15 U.S.C. § 1639c(e), and/or because it is
The arbitration agreement includes a list of “Excluded Claims or Proceedings,” none of which is
argued to be implicated here. (See Def. Motion App., Exh. 3 § 1 at 2.)
By contrast, challenges to the validity of the contract as a whole are for the arbitrator to resolve.
See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449, –126 S.Ct. 1204, 1210, 163 L.Ed.2d
unconscionable under Colorado state law. I examine each argument in turn.
1. APPLICABILITY OF THE DODD-FRANK ACT AMENDMENTS
The Dodd-Frank Act “imposes, among its many initiatives, the refinement and
restriction of” the FAA’s policy favoring arbitration of claims. Pezza v. Investors
Capital Corp., 767 F.Supp.2d 225, 226 (D. Mass. 2011) (quoting Preston v. Ferrer,
552 U.S. 346, 353, 128 S.Ct. 978, 169 L.Ed.2d 917 (2008)).6 In particular, section
1639c(e)(3), entitled “No waiver of statutory cause of action,” provides that
No provision of any residential mortgage loan or of any
extension of credit under an open end consumer credit plan
secured by the principal dwelling of the consumer, and no
other agreement between the consumer and the creditor
relating to the residential mortgage loan or extension of
credit referred to in paragraph (1), shall be applied or
interpreted so as to bar a consumer from bringing an action
in an appropriate district court of the United States, or any
other court of competent jurisdiction, pursuant to section
1640 of this title or any other provision of law, for damages
or other relief in connection with any alleged violation of this
section, any other provision of this subchapter, or any other
Mr. Weller claims that this provision prohibits HSBC from compelling him to arbitrate his
claims against it.
However, the effective date of the Dodd-Frank amendment is July 21, 2010,
several years after the arbitration agreement at issue here was executed. Thus, the
immediate issue is whether the provisions of the amendment should or must be applied
retroactively. “Retroactivity is not favored in the law,” Bowen v. Georgetown
The court in Pezza considered section 922 of the Dodd-Frank Act, which, in turn, amended the
whistleblower protections of the Sarbanes-Oxley Corporate and Criminal Fraud Accountability Act of 2002,
to provide that “[t]he rights and remedies provided for in this section may not be waived by any agreement,
policy form, or condition of employment, including by a predispute arbitration agreement” and
concomitantly that “[n]o predispute arbitration agreement shall be valid or enforceable, if the agreement
requires arbitration of a dispute arising under [the Sarbanes–Oxley whistleblower protection provision].”
124 Stat. at 1848, codified at 18 U.S.C. § 1514A(e)(1) & (2). See also Wong v. CKX, Inc., 890
F.Supp.2d 411, 421 (S.D.N.Y. 2012).
University Hospital, 488 U.S. 204, 208, 109 S.Ct. 468, 471, 102 L.Ed.2d 493 (1988),
most particularly when retroactive application of a statue “would impair rights a party
possessed when he acted, increase a party's liability for past conduct, or impose new
duties with respect to transactions already completed,” Fernandez-Vargas v.
Gonzales, 548 U.S. 30, 37, 126 S.Ct. 2422, 2427-28, 165 L.Ed.2d 323 (2006) (citation
and internal quotation marks omitted). Determining whether a statute should apply
retroactively when vested rights may be lost or new obligations imposed involves a
tripartite, sequential process:
We first look to whether Congress has expressly prescribed
the statute's proper reach, and in the absence of language
as helpful as that we try to draw a comparably firm
conclusion about the temporal reach specifically intended by
applying our normal rules of construction[.] If that effort fails,
we ask whether applying the statute to the person objecting
would have a retroactive consequence in the disfavored
sense of affecting substantive rights, liabilities, or duties [on
the basis of] conduct arising before [its] enactment. If the
answer is yes, we then apply the presumption against
retroactivity by construing the statute as inapplicable to the
event or act in question owing to the absen[ce of] a clear
indication from Congress that it intended such a result.
Id., 126 S.Ct. at 2428 (internal citations and quotation marks omitted; alterations in
Mr. Weller does not contest that Congress did not specifically articulate a clear
intent to give section 1639c(e)(3) of the Dodd-Frank Act retroactive effect.7 See
Landgraf v. USI Film Products, 511 U.S. 244, 259-60, 114 S.Ct. 1483, 1494, 128
L.Ed.2d 229 (1994) (had Congress intended statute to have retroactive effect, “it surely
Mr. Weller’s argument that retroactivity is not an issue because this lawsuit was filed after the
effective date of the Dodd-Frank amendments is unavailing. The key date is when the underlying acts that
form the basis of the suit occurred, not when the plaintiff brought suit. See Hughes Aircraft Co. v. United
States ex rel. Schumer, 520 U.S. 939, 946, 117 S.Ct. 1871, 1876, 138 L.Ed.2d 135 (1997).
would have used language comparable to . . . ‘shall apply to all proceedings pending on
or commenced after the date of enactment of this Act’”) (citation omitted). I therefore
proceed to the second step of the sequential analysis and consider whether the
retroactive application of the statute would affect substantive rights, liabilities, or duties
arising from conduct prior to the date of enactment. Fernandez-Vargas, 126 S.Ct. at
2428. At this step, it matters whether the statute is characterized as one “affecting
contractual or property rights” – in which case retroactivity would be impermissible – or
alternatively whether it is one “conferring or ousting jurisdiction” – as to which
retroactive application is permissible because only the tribunal in which the case may be
heard is affected. Landgraf, 114 S.Ct. at 1500, 1502; Pezza, 767 F.Supp.2d at 232-33.
There is a split in authority among the district courts that have considered
retroactive application of the Dodd-Frank amendments governing arbitrability. Mr.
Weller relies on the district court decisions in Wong v. CKX, Inc., 890 F.Supp.2d 411
(S.D.N.Y. 2012), and Pezza v. Investors Capital Corp., 767 F.Supp.2d 225 (D. Mass.
2011), in which the courts held that section 922 of the Dodd-Frank Act (dealing with
whistleblower protections, see supra note 6) did not divest the parties of substantive
rights, but merely altered the tribunal in which the dispute would be resolved. See
Pezza, 767 F.Supp.2d at 233 (“By agreeing to arbitrate a statutory claim, a party does
not forgo the substantive rights afforded by the statute; it only submits to their resolution
in an arbitral, rather than a judicial, forum.”) (citation and internal quotation marks
omitted). The court therefore concluded that the arbitration provisions of that section of
Dodd-Frank could be applied retroactively.
Other district courts have rejected this approach. See Blackwell v. Bank of
America Corp., 2012 WL 1229675 (D.S.C. April 12, 2012), adopting 2012 WL
1229673 (D.S.C. March 22, 2012); Henderson v. Masco Framing Corp., 2011 WL
3022535 (D. Nev. July 22, 2011). Noting first that “[r]etroactivity is not favored in the
law” and thus that there is a presumption against applying statutes retroactively,
Henderson, 2011 WL 3022535 at *4 (quoting Landgraf, 114 S.Ct. at 1496), these
courts stress that arbitration is primarily a contractual matter governed by the law of
contracts, id. They thus have concluded that the right to insist on arbitration is not just a
matter of where the claims may be heard but a question of vested, contractual rights,
which may not be retroactively withdrawn absent clear congressional intent to that
effect. See id.; see also Blackwell, 2011 WL 1229673 at *4.
I find that the rationale of these latter decisions is the more reasoned and legally
supportable approach to this question. In my opinion, Pezza and Wong too blithely
disregard the presumption against retroactivity and the need for “predictability and
stability” attendant on preserving established contractual expectations. See Landgraf,
114 S.Ct. at 1500. Indeed, these decisions disregard the very essence of the
substantive/jurisdictional distinction as described by the Supreme Court itself: that
“jurisdictional statutes speak to the power of the court rather than to the rights or
obligations of the parties.” Id. at 1502 (citation and internal quotation marks omitted).
An arbitration agreement creates a right, one that under the FAA is “irrevocable.” see 9
U.S.C. § 2, and one which the Supreme Court has insisted by placed on equal footing
with other contract rights, see AT&T Mobility LLC v. Concepcion, – U.S. –, 131 S.Ct.
1740, 1745, 179 L.Ed.2d 742 (2011) (“[C]ourts must place arbitration agreements on an
equal footing with other contracts, and enforce them according to their terms.”).
Ultimately, therefore, I concur with the district courts in Blackwell and
Henderson and find that the Dodd-Frank amendments, codified at 15 U.S.C. §
1639c(e)(3) do not operate retroactively to nullify Mr. Weller’s arbitration agreement. I
therefore turn to Mr. Weller’s alternative argument that enforcement of the agreement
would be unconscionable.
Section 2 of the FAA provides that arbitration agreements are “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. § 2. Unconscionability is one such equitable consideration
that my allow a party to avoid its agreement to arbitrate. See Mobility LLC v.
Concepcion, – U.S. –, 131 S.Ct. 1740, 1745-48, 179 L.Ed.2d 742 (2011). Under
Colorado law, several factors inform the unconscionability analysis, including,
(1) a standardized agreement executed by parties of
unequal bargaining power; (2) lack of opportunity to read or
become familiar with the document before signing it; (3) use
of fine print in the portion of the contract containing the
provision; (4) absence of evidence that the provision was
commercially reasonable; (5) the terms of the contract; (6)
the relationship of the parties, including factors of assent,
unfair surprise, and notice; and (7) all the circumstances
surrounding the formation of the contract.
Vernon v. Qwest Communications International, Inc., – F.Supp.2d –, 2013 WL
752155 at *8 (D. Colo. Feb. 27, 2013) (citing Davis v. M.L.G. Corp., 712 P.2d 985, 991
(Colo. 1986)). The burden is on Mr. Weller to prove that the arbitration provision is
unconscionable. General Steel Domestic Sales, LLC v. Rising Sun Missionary
Baptist Church, Inc., 2012 WL 1801955 at *2 (D. Colo. May 17, 2012). Moreover, he
must demonstrate both procedural and substantive unconscionability. Vernon, 2013
WL 752155 at *8.
Substantively, there is nothing inherently unfair about submitting Mr. Weller’s
claims to arbitration or the terms of this particular arbitration agreement itself. See
Bernal v. Burnett, 793 F.Supp.2d 1280, 1288 (D. Colo. 2011).8 On the procedural end,
Mr. Weller claims that the arbitration agreement was buried in a stack of closing
documents and that he does not remember seeing it or being provided a copy of it prior
to the instigation of this litigation. Nevertheless, he does not dispute that it is his
signature which appears on the document. A party "generally cannot avoid contractual
obligations by claiming that he or she did not read the agreement." Vernon v. Qwest
Communications International, Inc., 857 F.Supp.2d 1135, 1152 (D. Colo. 2012),
aff’d, 2013 WL 752155 (D. Colo. Feb. 27, 2013) (citation and internal quotation marks
The contract itself is a separate document and plainly titled “ARBITRATION
AGREEMENT” in bold-face type. The typeface of the rest of the document is small but
uniform, with certain provisions bolded and/or printed in all capital letters. The final
section, just above Mr. Weller’s signature, provides:
BY SIGNING BELOW, THE PARTIES ACKNOWLEDGE
THAT THEY HAD A RIGHT TO LITIGATE CERTAIN
CLAIMS THROUGH A COURT BEFORE A JUDGE OR
JURY, AND THAT THEY WILL NOT HAVE THAT RIGHT IF
EITHER PARTY ELECTS ARBITRATION PURSUANT TO
THIS AGREEMENT, EXCEPT AS PROVIDED OTHERWISE
HEREIN. THE PARTIES HEREBY KNOWINGLY AND
VOLUNTARILY WAIVE THEIR RIGHTS TO LITIGATE
SUCH CLAIMS UPON ELECTION OF ARBITRATION BY
EITHER PARTY. THE PARTIES FURTHER
ACKNOWLEDGE THAT THEY HAVE READ THIS ENTIRE
ARBITRATION AGREEMENT CAREFULLY, THAT THEY
RECEIVED A DUPLICATE COPY OF THIS AGREEMENT,
AND THAT THEY ARE ENTERING INTO THIS
Mr. Weller’s argument that the arbitration agreement is unconscionable because Congress has
proscribed such agreements by virtue of the Dodd-Frank amendments is both clearly tautological and
ARBITRATION AGREEMENT VOLUNTARILY AND NOT
IN RELIANCE ON ANY PROMISES OR
REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THE ARBITRATION AGREEMENT.
(Def. Motion App., Exh. 3 § 11 at 6.) Moreover, although Mr. Weller attests he was not
provided a copy of the mortgage loan documents in advance of the closing, nothing in
his affidavit suggests that he was prevented from requesting the documents in advance,
taking adequate time to review them, or asking questions about them. Similarly,
although the contract was drafted by HSBC and presented to Mr. Weller for his
signature, there is nothing in the record to suggest that the terms were completely nonnegotiable – it appears, instead, that Mr. Weller simply did not ask about them. Even
considered as contracts of adhesion, they are not per se unconscionable for that
reason. See Bernal, 793 F.Supp.2d at 1287. Indeed, nothing in the record suggests
that Mr. Weller was compelled to refinance his home with HSBC at all.
For these reasons, I find and conclude that enforcement of Mr. Weller’s
agreement to arbitrate his claims against HSBC is not unconscionable. No other statute
or policy makes these types of claims non-arbitrable. I therefore will grant HSBC’s
motion to compel Mr. Weller to arbitrate his claims against it.
B. MR. WELLER’S CLAIMS AGAINST THE ASSURANT DEFENDANTS
The Assurant defendants also seek to require Mr. Weller to arbitrate his claims
against them. They insist that Mr. Weller is equitably estopped from resisting arbitration
of their claims, despite the fact that the Assurant defendants themselves are nonsignatories to the arbitration agreement. After careful consideration of the applicable
law and the allegations and facts of this case, I agree.
In general, “arbitration is a matter of contract and a party cannot be required to
submit to arbitration any dispute which he has not agreed so to submit.” AT&T
Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648, 106
S.Ct. 1415, 1418, 89 L.Ed.2d 648 (1986) (citation and internal quotation marks omitted).
Nevertheless, as with other contracts, an arbitration agreement may be enforced
against – or in favor of – nonparties in certain circumstances, which are defined by
general precepts of state contract law. See Arthur Andersen LLP v. Carlisle, 556
U.S. 624, 631, 129 S.Ct. 1896, 1902, 173 L.Ed.2d 832 (2009); Lenox MacLaren
Surgical Corp. v. Medtronic, Inc., 449 Fed. Appx. 704, 708 (10th Cir. Nov. 15, 2011).
One such principle is equitable estoppel, which
precludes a party from asserting rights he otherwise would
have had against another when his own conduct renders
assertion of those rights contrary to equity. . . . In the
arbitration context, the doctrine recognizes that a party may
be estopped from asserting that the lack of [another's]
signature on a written contract precludes enforcement of the
contract's arbitration clause when [the party] has consistently
maintained that other provisions of the same contract should
be enforced to benefit him. A signatory plaintiff cannot, on
the one hand, seek to hold the non-signatory liable pursuant
to duties imposed by the agreement, which contains an
arbitration provision, but, on the other hand, deny
arbitration's applicability because the defendant is a
Lenox MacLaren Surgical Corp., 449 Fed. Appx at 708 (citations and internal
quotation marks omitted; alterations in original). Thus, a non-signatory may compel a
signatory to arbitrate in two circumstances: (1) “when the signatory must rely on the
terms of the written agreement in asserting [its] claims against the nonsignatory;” and
(2) “when the signatory alleges substantially interdependent and concerted misconduct
by both the nonsignatory and one or more of the signatories to the contract.” Id.
(citations and internal quotation marks omitted). With respect to this second situation,
allegations of collusion will support estoppel only when they
establish that the claims against the nonsignatory are
intimately founded in and intertwined with the obligations
imposed by the contract containing the arbitration clause. . . .
The plaintiff's actual dependance on the underlying contract
in making out the claim against the nonsignatory defendant is
therefore always the sine qua non of an appropriate situation
for applying equitable estoppel.
Id. at 709 (citation and internal quotation marks omitted). I therefore turn to the
averments of the complaint to determine whether equitable estoppel applies in this
The HSBC mortgage contract to which the arbitration provision pertains clearly
allows HSBC to force place insurance on Mr. Weller’s property, and Mr. Weller does not
challenge that authority per se. (See Compl. ¶¶ 16-17 at 5-6 (acknowledging that
mortgage loan contract gives the lender discretion to force place insurance).) Instead,
he purports to challenge
(1) “HSBC’s decision to purchase force-placed flood
insurance from the Assurant Defendants pursuant to
agreements that return an improper financial benefit to
Defendants and/or their subsidiaries/affiliates that is
unrelated to any contractual or other bona fide interest in
protecting the lender’s interest in the loan;”
(2) the practice of “forcing Plaintiffs and Class members to
purchase and maintain flood insurance in amounts greater
than required by law, greater than required by their written
mortgage agreements, and/or greater than the lenders’
financial interests in their properties”;
(3) the alleged practice of “improperly backdating flood
insurance policies to cover periods fo which there is no risk
of loss;” and
(4) “HSBC’s decision to purchase force-placed flood
insurance from insurers that provide an improper financial
benefit to Defendants and/or their affiliates and at rates that
far exceed borrower-purchased flood insurance (while
providing substantially less coverage), and other actions
taken by Defendants to increase the number of properties
force-placed and to increase the coverage amounts”
(Id. ¶¶ 2-5 at 1-2 (emphasis in original).) Clearly, none of these claims would exist in
the first instance were it not for Mr. Weller’s contractual agreement with HSBC to allow it
to force place insurance. Yet, the relevant inquiry is whether the HSBC contract
containing the arbitration provision forms the legal – as opposed to merely the factual –
predicate of the claims. See Lenox MacLaren Surgical Corp., 449 Fed. Appx. at 709.
Turning to this question, I note that, among other claims, Mr. Weller has sued the
Assurant defendants for aiding and abetting breach of fiduciary duty. Although
defendants dispute the cognizability of such a claim under applicable law,9 clearly it
presupposes the existence of fiduciary duties on the part of HSBC, which duties
allegedly arise from HSBC’s authority pursuant to the mortgage agreement to deduct
the costs of force-placed insurance from funds held in escrow. (See Compl. ¶¶ 158161 &166-168 at 51-52.) This claim thus is legally as well as factually based in the
mortgage agreement. Likewise, plaintiffs’ claim of unjust enrichment is premised on the
Assurant defendants’ alleged acceptance of premiums from force-placed insurance
policies contemplated by HSBC’s mortgage agreements. There would be no legal basis
for such a claim without the underlying mortgage agreement of which the arbitration
clause is an integral part.10
This argument informs the basis of the pending Motion To Certify Determinative Question of
Virginia Law by Defendants Assurant, Inc. and American Security Insurance Company [#61], filed
June 11, 2013.
In addition, plaintiffs’ RICO and RICO conspiracy claims clearly depend on the existence of
collusion between HSBC and the Assurant defendants, which, in turn, is premised on their relationship visa-vis the mortgage contracts.
Thus, I find and conclude that Mr. Weller’s claims against the Assurant
defendants should be arbitrated under principles of equitable estoppel.11
C. MR. AND MRS. WOODEN’S CLAIMS
The question thus becomes what should become of the remainder of the lawsuit,
specifically, the claims of Mr. and Mrs. Wooden and the putative class. The Federal
Arbitration Act “requires piecemeal resolution when necessary to give effect to an
arbitration agreement”; nevertheless, I have discretion to stay non-arbitrable claims until
arbitration is completed. Moses H. Cone Memorial Hospital v. Mercury Construction
Corp., 460 U.S. 1, 20, 103 S.Ct. 927, 939, 74 L.Ed.2d 765 (1983) (emphasis in
original). My discretion is informed by considerations of judicial efficiency, Coors
Brewing Co. v. Molson Breweries, 51 F.3d 1511, 1518 (10th Cir. 1995), as well as
“issues such as the risk of inconsistent rulings, the extent to which parties will be bound
by the arbitrators’ decision, and the prejudice that may result from delays,” AgGrow
Oils, L.L.C. v. National Union Fire Insurance Co. of Pittsburgh, PA, 242 F.3d 777,
783 (8th Cir. 2001).
Neither HSBC nor the Assurant defendants have addressed any of these
relevant issues in their motions. It strikes this court, however, that there are no
efficiencies to be gained in this instance by granting a stay of the remaining claims.
There is nothing to suggest at this stage of the proceedings that the Woodens are not
adequate representatives for the class, or, alternatively, that another individual plaintiff
might be found from among the class to represent the interests of those similarly
situated to Mr. Weller. I therefore deny the Assurant defendants’ motion to the extent it
I further agree that the arbitration agreement contemplates that Mr. Weller’s claims must be
arbitrated on an individual, not a class-wide, basis.
seeks to stay the remainder of this lawsuit pending arbitration.
THEREFORE, IT IS ORDERED as follows:
1. That the Motion of Defendant HSBC Mortgage Services, Inc. To Compel
Arbitration and Stay Action as to Plaintiff Jack Weller’s Claims [#53], filed May 10,
2013, is GRANTED;
2. That Defendants Assurant, Inc. and American Security Insurance
Company’s Motion To Compel Arbitration and To Stay Proceedings [#60], filed
June 5, 2013, is GRANTED IN PART and DENIED IN PART as follows:
a. That the motion is GRANTED insofar as it seeks to compel arbitration
of the individual claims of plaintiff, Jack Weller, against the Assurant
b. That the motion is DENIED insofar as it seeks to stay the remaining
claims in this lawsuit pending the outcome of the Weller arbitration;
3. That plaintiff, Jack Weller, and defendants, HSBC Mortgage Services, Inc.;
Assurant, Inc.; and American Security Insurance Company, SHALL PROCEED to
arbitration of the individual claims of plaintiff, Jack Weller;
That the claims of plaintiff, Jack Weller against defendants, HSBC Mortgage
Services, Inc.; Assurant, Inc.; and American Security Insurance Company, are STAYED
pending outcome of the arbitration;
5. That on or before October 7, 2013, and every ninety (90) days thereafter,
until the arbitration is completed, plaintiff, Jack Weller, and defendants, HSBC Mortgage
Services, Inc.; Assurant, Inc.; and American Security Insurance Company, SHALL FILE
a status report indicating the status of the arbitration, including but not limited to, its
anticipated date of its completion; and
6. That within fourteen (14) days of the completion of the arbitration, plaintiff,
Jack Weller, and defendants, HSBC Mortgage Services, Inc.; Assurant, Inc.; and
American Security Insurance Company, SHALL FILE a statement with the court stating
that the arbitration has been completed, describing the results of the arbitration, and
indicating what, if any, further action each party intends to take with respect to this
Dated September 11, 2013, at Denver, Colorado.
BY THE COURT:
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