MidFirst Bank v. Safeguard Properties LLC

Filing 22

ORDER Granting re 1 Petition to Compel Arbitration and Designate an Arbitrator, filed by MidFirst Bank. Parties shall file a joint notice within 14 days regarding the status of their selection of an arbitrator. Parties shall notify the Court of completion of arbitration proceedings. If within 30 days after completion of the arbitration proceeding the parties have not moved to reopen for the purpose of obtaining a final determination, this action will be deemed dismissed with prejudice. Signed by Honorable Timothy D. DeGiusti on 5/8/2017. (mb)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA
MIDFIRST BANK,
Petitioner,
v.
SAFEGUARD PROPERTIES, LLC,
Respondent.

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Case No. CIV-17-231-D

ORDER
Before the Court is Petitioner MidFirst Bank’s (MidFirst) Petition to Compel
Arbitration and Designate an Arbitrator [Doc. No. 1]. Defendant Safeguard
Properties, LLC (Safeguard)1 has filed its response in opposition [Doc. No. 13] and
MidFirst has replied [Doc. No. 16]. The matter is fully briefed and at issue.
BACKGROUND
MidFirst provides retail banking and residential mortgage services. Safeguard
is a provider of mortgage field services throughout the United States. It provides a
number of services to financial institutions with interests in defaulted, foreclosed,
and bank-owned real property. It also contracts with mortgagees and mortgage
servicers to conduct property inspections, property preservation, and repair services.

1

Safeguard states its correct name is Safeguard Properties Management, LLC. See
Doc. No. 14.

On December 4, 2007, the parties executed a Master Service Agreement (the
Agreement) under which Safeguard was to provide services on properties throughout
the United States. In the Agreement, Safeguard represented it would, inter alia,
perform the services in accordance with (1) industry standards and all applicable
laws and regulations, (2) service standards set forth in the Agreement, and (3) the
“Rules,” which were defined as “all published HUD, VA, Fannie Mae, Freddie Mac,
GNMA, private investor and private mortgage insurer regulations, guidelines and
requirements and all updates thereto [as well as] all applicable federal, state and local
laws, rules, regulations and ordinances, and [MidFirst’s] requirements, policies and
procedures, and all amendments thereto.”
MidFirst’s right to indemnification from Safeguard was governed by section
11 of the Agreement, which stated:
[Safeguard] shall indemnify and hold [MidFirst], its Affiliates,
respective employees, officers, directors, and agents harmless from any
and all loss, payments, expenses, claims, injury, liability, damages,
penalties, fines, forfeitures, denials of insurance and/or guarantee
claims, lost compensation or reimbursement amounts, attorneys fees
and costs, of any kind whatsoever, arising from or in any way connected
with (a) any violation or failure to comply with the Rules; (b) noncompliance with the terms of this Agreement or any Exhibit,
Addendum or Amendment hereto, including but not limited to breach
of any warranty or representation or performance standard set forth
herein; (c) any claims or actions whatsoever brought by any
Subcontractor or on behalf of a Subcontractor hired by or working on
behalf of Company; (d) negligent, wrongful acts or misconduct by
Company, its employees, officers, directors, agents, contractors or
Subcontractors, (e) any claims or actions brought by a third party
alleging damage or injury to the property or person arising out of an act
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or omission of Company, its affiliates, respective employees, officers,
directors, contractors, Subcontractors, and agents or (f) any mistakes by
Company, its affiliates, respective employees, officers, directors,
contractors, Subcontractors, and agents relating to the Contract
Services herein.
The indemnification provision also contained the following arbitration clause:
In the event any disputes arise relating to this Section, then the parties
agree to submit the dispute to arbitration, in accordance with the laws
of Oklahoma, unless both parties agree in writing not to go to
arbitration. Such dispute will be brought in the jurisdiction of
Oklahoma with a venue of the Western District of Oklahoma.
MidFirst alleges that for more than 2,600 properties, Safeguard failed to
perform its services in conformity with HUD rules, which caused HUD to reconvey
the properties back to MidFirst and/or refuse payment of insurance benefits.
MidFirst contends that as a result, it incurred substantial monetary damages and
other losses, including interest curtailments, reconveyance losses, costs assessed by
HUD, and other miscellaneous expenses. MidFirst submitted claims to Safeguard
for indemnification for the aforementioned losses. However, Safeguard refused to
indemnify MidFirst and gave notice it was terminating the Agreement, to be
effective February 13, 2017.
MidFirst alleges Safeguard has breached the Agreement, entitling it to “offset
its Damages by an amount equal to Safeguard invoices yet to be paid.” Pet. ¶ 20.
Pursuant to the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 et seq., MidFirst filed
the present action, invoking the arbitration clause set forth in § 11. Safeguard objects
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to arbitration on the grounds that (1) the arbitration clause does not apply to
MidFirst’s set off claims and the parties did not agree to arbitrate such claims, and
(2) the arbitration clause is so vague that it is unconscionable and unenforceable
under Oklahoma law.
STANDARD OF DECISION
When deciding whether an enforceable agreement to arbitrate exists, the Court
views the facts and all reasonable inferences in the light most favorable to the party
opposing arbitration. Ragab v. Howard, 841 F.3d 1134, 1139 (10th Cir. 2016). “The
FAA provides that 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.’” In re Cox Enter., Inc. Set-top Cable Television Box Antitrust Litig.,
835 F.3d 1195, 1201 (10th Cir. 2016) (quoting 9 U.S.C. § 2)). The FAA is a
“congressional declaration of a liberal federal policy favoring arbitration
agreements.” Id. at 1201 (quoting Moses H. Cone Mem. Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 24 (1983)). Its purpose is to place arbitration agreements upon
the same footing as other contracts and reverse the judiciary’s longstanding refusal
to enforce agreements to arbitrate. E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 289
(2002).
When a contract contains an arbitration clause, there is a “strong presumption”
that the dispute is arbitrable. Cox Enter., 835 F.3d at 1201. Thus, “an order to
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arbitrate the 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. Doubts should be resolved in favor of coverage.”
Id. (quoting United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574,
582-83 (1960)). Although such presumption “disappears” where there is a dispute
over whether a valid arbitration agreement exists, Dumais v. American Golf Corp.,
299 F.3d 1216, 1219 (10th Cir. 2002), “[i]n the absence of any express provision
excluding a particular grievance from arbitration, ... only the most forceful evidence
of a purpose to exclude the claim from arbitration can prevail ....” Cox Enter., 835
F.3d at 1201 (quoting United Steelworkers of Am. v. Warrior & Gulf Navigation Co.,
363 U.S. 574, 584-85 (1960) (emphasis in original)).
Despite the general presumption in favor of arbitrability, “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.” Tiffany v. KO Huts, Inc., 178 F. Supp. 3d
1140, 1149 (W.D. Okla. 2016) (quoting AT&T Technologies, Inc. v. Commc’ns
Workers, 475 U.S. 643, 648 (1986)); Howard v. Ferrellgas Partners, L.P., 748 F.3d
975, 977 (10th Cir. 2014) (“[E]ven under the FAA it remains a ‘fundamental
principle’ that ‘arbitration is a matter of contract,’ not something to be foisted on the
parties at all costs.”) (quoting AT & T Mobility LLC v. Concepcion, 563 U.S. 333,
339 (2011)). It follows that the question whether the parties have agreed to arbitrate
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a particular dispute 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). At the same time, in deciding whether the parties have agreed to
arbitrate a particular dispute, the Court is not to rule on the potential merits of the
underlying claims. Local 5-857 Paper, Allied-Indus., Chem. and Energy Workers
Int’l Union v. Conoco, Inc., 320 F.3d 1123, 1126 (10th Cir. 2003).
DISCUSSION
I
The threshold inquiry in resolving a petition to compel arbitration is whether
there exists a valid, enforceable agreement to arbitrate. Avedon Eng’g, Inc. v. Seatex,
126 F.3d 1279, 1287 (10th Cir. 1997) (“The existence of an agreement to arbitrate
is a threshold matter which must be established before the FAA can be invoked.”)
(citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995)).
Safeguard contends an enforceable agreement does not exist because the arbitration
clause is procedurally unconscionable due to its purported lack of clarity regarding
which set of rules would govern the arbitration proceeding.2 The Court is not
persuaded by this argument.

2

Section 2 of the FAA allows an arbitration clause to be invalidated by contract
defenses, such as fraud, duress, or unconscionability. Nesbitt v. FCNH, Inc., 811
F.3d 371, 376 (10th Cir. 2016).
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Unconscionability is determined at the time the contract is formed and is a
question of law for the Court to decide. Phillips v. Machinery Co. v. LeBlond, Inc.,
494 F.Supp. 318, 322-23 (N.D. Okla. 1980). Under Oklahoma law,3 “[a]n
unconscionable contract is one in which, at the time of making of the contract, and
in light of the general commercial background and commercial needs of a particular
case, clauses are so one-sided as to oppress or unfairly surprise one of the parties.
Unconscionability has generally been recognized to include an absence of
meaningful choice on the part of one of the parties, together with contractual terms
which are unreasonably favorable to the other party.” Been v. O.K. Industries, Inc.,
495 F.3d 1217, 1236 (10th Cir. 2007) (internal citations and quotation marks
omitted). As the Oklahoma Court of Civil Appeals once noted, “[a]n unconscionable
contract is one which no person in his senses, not under delusion would make, on
the one hand, and which no fair and honest man would accept on the other.” Stoll v.
Chong Lor Xiong, 2010 OK CIV APP 110, ¶ 16, 241 P.3d 301, 305 (citation
omitted). Consequently, Oklahoma’s unconscionability standard has been described
as “onerous.” Been, 495 F.3d at 1236.
There is no evidence Safeguard lacked any meaningful choice or executed the
Agreement under fraud, duress or compulsion; neither is there evidence that the

3

The Agreement stated it would be “governed by the laws of the State of Oklahoma
both as to interpretation and performance.” Agreement, § 27.
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terms of the Agreement were one-sided as to unjustly favor MidFirst. Moreover, the
record belies Safeguard’s argument that the provision lacks clarity and guidance
regarding the applicable rules/procedure. The arbitration clause states any arbitration
proceedings shall be conducted in accordance with Oklahoma law. In this regard,
the Oklahoma Uniform Arbitration Act, 12 OKLA. STAT. §§ 1851 et seq., sets forth
a comprehensive scheme as to arbitration proceedings, including but not limited to
the appointment of an arbitrator (id. § 1859), initiation of arbitration proceedings (id.
§ 1860), the method of appointing an arbitrator (id. § 1862), the conduct of discovery
(id. § 1868), the award (id. §§ 1870-73), post-proceeding motions to vacate or correct
an award (id. §§ 1874-75), and appeal (id. § 1879). Although the Act may not address
every conceivable issue or dispute that may arise between the parties, its provisions
do not leave one rudderless. Accordingly, the Court finds that Safeguard’s vagueness
challenge fails.
II
Safeguard contends that even assuming the arbitration clause is enforceable,
it reflects no agreement to arbitrate MidFirst’s set-off claims. The Tenth Circuit
applies a three-part test when determining whether an issue falls within the scope of
an arbitration clause:
First, recognizing there is some range in the breadth of arbitration
clauses, a court should classify the particular clause as either broad or
narrow. Next, if reviewing a narrow clause, the court must determine
whether the dispute is over an issue that is on its face within the purview
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of the clause, or over a collateral issue that is somehow connected to
the main agreement that contains the arbitration clause. Where the
arbitration clause is narrow, a collateral matter will generally be ruled
beyond its purview. Where the arbitration clause is broad, there arises
a presumption of arbitrability and arbitration of even a collateral matter
will be ordered if the claim alleged implicates issues of contract
construction or the parties' rights and obligations under it.
Sanchez v. Nitro-Lift Tech., L.L.C., 762 F.3d 1139, 1146 (10th Cir. 2014) (quoting
Cummings v. FedEx Ground Package System, Inc., 404 F.3d 1258, 1261 (10th Cir.
2005) (emphasis in original)).
The arbitration clause here is broad in its scope, requiring arbitration of “any
disputes” relating to MidFirst’s right to indemnification. “When a contract contains
a broad arbitration clause, matters that touch the underlying contract should be
arbitrated. … [T]he strong presumption is in favor of issues being subject to
arbitration.” Brown v. Coleman Co., Inc., 220 F.3d 1180, 1184 (10th Cir. 2000)
(citations omitted). Hence, a party cannot avoid arbitration “because the arbitration
clause uses general, inclusive language, rather than listing every possible specific
claim.” An arbitration agreement is not vague “because it includes the universe of
the parties’ potential claims against each other.” Brown v. ITT Consumer Fin. Corp.,
211 F.3d 1217, 1221 (11th Cir. 2000).
Viewing the facts in the light most favorable to Safeguard, the Court finds the
issue of whether MidFirst is entitled to a set-off is related to its right to
indemnification under the Agreement, and therefore, the dispute is subject to
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arbitration. In reviewing the arbitration clause, the Court is mindful of its obligation
not to evaluate the potential merits of the underlying claims, Local 5-857 Paper,
Allied-Indus., Chem. and Energy Workers Int’l Union, 320 F.3d at 1126, and the
well-established rule that any doubts must be resolved in favor of arbitration. Ragab,
841 F.3d at 1137. Under the Agreement, Safeguard agreed to indemnify and hold
MidFirst harmless for, inter alia, all loss associated with Safeguard’s violation of
certain administrative rules and regulations. MidFirst contends Safeguard breached
the Agreement by (1) subjecting MidFirst to administrative penalties by violating
said rules, and (2) failing to indemnify MidFirst for the alleged breach. As a remedy
for that breach, MidFirst seeks, among other things, the right to offset its damages
by an amount equal to Safeguard invoices yet to be paid. Pursuant to the foregoing
standard, the Court finds this asserted right arises from Safeguard’s purported breach
of its duty to indemnify and is within the purview of the clause.
Faced with analogous circumstances and arguments, the Tenth Circuit has
enforced arbitration agreements containing language similar to that at issue here.
See, e.g., Sanchez, 762 F.3d at 1146-47 (enforcing arbitration clause which stated
“[a]ny dispute, difference or unresolved question between” the parties must be
arbitrated); Brown, 220 F.3d at 1184 (enforcing clause that stated “all disputes or
controversies arising under or in connection with this Agreement ... will be settled
exclusively by arbitration.”); P&P Industries, Inc. v. Sutter Corp., 179 F.3d 861, 871
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(10th Cir. 1999) (enforcing clause that stated “‘[a]ny controversy, claim, or breach
arising out of or relating to this Agreement’ shall be arbitrable.”).
“By using this inclusive language, the parties agreed to arbitrate any and all
claims against each other [regarding indemnification], with no exceptions.” Brown,
211 F.3d at 1221. Accordingly, the Court finds that MidFirst’s set-off claims fall
within the scope of the parties’ arbitration clause.
CONCLUSION
MidFirst’s Petition to Compel Arbitration and Designate an Arbitrator [Doc.
No. 1] is GRANTED as set forth herein. It appearing that this case should be stayed
in favor of arbitration, the Clerk is directed to administratively terminate this action
in her records, without prejudice to the rights of the parties to reopen the case after
completion of the arbitration proceeding for the entry of any stipulation or order, or
for any other purpose required to obtain a final determination of the litigation.
Within fourteen (14) days of this Order, the parties shall file a joint notice regarding
the status of their selection of an arbitrator. Upon completion of the arbitration
proceeding, the parties shall notify the Court by filing a written notice in the case
record.
If within thirty (30) days after completion of the arbitration proceeding, the
parties have not moved to reopen this case for the purpose of obtaining such final
determination, this action will be deemed to be dismissed with prejudice.
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IT IS SO ORDERED this 8th day of April 2017.

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