Hurley v. Deutsche Bank Trust Company
(6th Cir. (Mich.) July 1, 2010)
The mortgagor received a loan from the lender and executed a mortgage on the property. A rider entitled "Arbitration of Disputes" was attached to the mortgage. It required that all disputes between the parties be arbitrated. Sometime thereafter, the mortgagor, who was a member of the National Guard, was called up for service in Iraq. While he was gone, the property was foreclosed.
The mortgagor filed suit in 2007. Thereafter, the lender filed its answer to an amended complaint, made motions to dismiss and for partial summary judgment, and successfully moved the court to transfer venue of the case. In 2009, the lender filed a motion to compel arbitration.
Noting that "strong federal policy in favor of arbitration," and that it would "not lightly infer a party's waiver of its right to arbitration," the court nonetheless found that the lender had waived its right. A party may waive an agreement to arbitrate by engaging in two courses of conduct: (1) taking actions that are completely inconsistent with any reliance on the arbitration agreement; and (2) delaying in its assertion to such an extent that the opposing party incurs actual prejudice.
The court found that both factors indicating waiver were present. First, the lender engaged in litigation for more than two years, including filing multiple dispositive and non-dispositive motions, and proactively selecting the forum via the change of venue motion. The court held that the lender's actions were completely inconsistent with any reliance on the arbitration agreement.
Second, the court found that the mortgagor was prejudiced by the lender's delay in asserting the right to arbitrate. The mortgagor incurred the costs of active litigation, employed four attorneys, undergone extensive discovery and been subjected to various motions at the lender's request.
A copy of the decision is found here
Sarah Delaney and Jeffrey Kingsley