Appellate court overturns O'Malley order in 2004 Allied Home Mortgage class

Amelia Flood Jul. 16, 2009, 6:45am



The Fifth District Appellate Court has ruled that St. Clair County Circuit Judge Michael O'Malley erred when he denied a motion to compel arbitration in a suit against Allied Home Mortgage Capital Corp., a mortgage broker accused in a class action suit of charging customers excessive fees and pocketing the difference.

The July 10 ruling remanded the case back to St. Clair County.

O'Malley has been directed by the appeals court to sever the prohibition on class action provision and to enforce the remainder of Allied Capital's arbitration clause.

O'Malley's original ruling came down July 18, 2007.

Fifth District Appellate Judge James Wexstten wrote the unanimous opinion. Fifth District Appellate Judges Thomas Welch and Melissa Chapman concurred.

Plaintiff Rosemary Keefe of Berwyn sued Allied Capital on her own behalf and as class representative for those who used the mortgage broker for an array of services including credit report processing and appraisals. Keefe's suit claims the company "marked up" the services and that Allied Capital took the difference.

Keefe sued on the grounds of unjust enrichment, consumer fraud and breach of fiduciary duty. The suit seeks damages of between $50,000 and $75,000 per class member.

Keefe and her husband worked with the mortgage broker to obtain a loan to refinance their Berwyn property in 1999. At the time, the couple also signed an arbitration rider provided by the company.
That rider is at the heart of the appellate case.

After the suit was filed, Allied Capital filed a motion to compel arbitration per the signed 1999 rider. The rider provides that, "All disputes, claims[,] or controversies arising from or
related to the loan ***, including statutory claims, shall be resolved by binding arbitration, and not by court action, except as provided under 'Exclusions from Arbitration' below," as cited in the appellate ruling.

O'Malley ruled that the rider was "procedurally and substantively unconscionable, particularly in light of the exclusion-from-arbitration section."

The appellate court, on reviewing the case, found that O'Malley sided with the plaintiff without holding an evidentiary hearing to establish whether there were grounds to justify blocking the arbitration stipulated in the rider. The appeals court did not agree that the rider's promise of arbitration was "illusory."

"The defendants' promise to arbitrate in the present case is neither empty nor optional," Wexstten wrote.

The court found the rider to be a mutual contract and that it had a provision for arbitration should the borrower bring a legal case. It also did not find that the rider was "unconscionable," as the plaintiff signed it and was given notice of its consequences in bold face type.

However, the appellate court found the class action waiver the defendants included in their contract was unconscionable and is not enforceable.

"Small consumer claims such as the plaintiff's are precisely the type of claim that class actions are designed to address," Wexstten wrote.

Keefe is represented in the suit by Jeffrey Lowe and Francis "Casey" Flynn of St. Louis, David Nester of Belleville, and John Steward of St. Louis. Allied Capital is represented by Russell Scott, Timothy Huskey and Michelle Rousseau of Swansea.

The St. Clair Case number is 04-L-502.

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