The Fifth District Appellate Court reversed St. Clair County Circuit Judge Vincent Lopinot’s order compelling arbitration in a suit alleging a mortgage corporation concealed upcharges.
The decision comes seven years after the appeals court first compelled arbitration in 2009. However, the chosen arbitration company forfeited its arbitration services after it was accused of consumer fraud, raising the issue again.
Justice Judy Cates delivered the Nov. 28 opinion with Justice James “Randy” Moore concurring in the judgment. Justice S. Gene Schwarm dissented.
Plaintiff Rosemary Keefe argues in her appeal that the circuit court erred in finding that the parties’ arbitration agreement was enforceable when the designated arbitrator was unable to conduct consumer arbitrations. She also argues there was no showing that the designated procedures governing the arbitration agreement authorized the appointment of a substitute arbitrator.
According to the complaint, Keefe contacted defendants Allied Home Mortgage Corporation and Allied Mortgage Capital Corporation to assist her in refinancing a loan on her property in Berwyn, Ill., in 1999.
The defendants were in the business of brokering mortgages and providing mortgage related services.
On May 18, 1999, Keefe signed several refinancing documents, including an arbitration order. Two months later, the parties closed on the loan.
On Sept. 2, 2004, Keefe filed a class action complaint against the defendants, alleging they engaged third parties to provide certain loan-related services, such as credit reports and appraisals, and paid the fees charged for those services.
After they paid the third-party fees, Keefe claims the defendants charged her sums in excess of the fees and concealed the “upcharges” by failing to disclose the actual fees that the defendants paid to the third parties.
On Dec. 15, 2004, the defendants filed a motion to compel arbitration and stay judicial proceedings based upon the arbitration order.
Keefe filed an opposition, asserting that the arbitration rider was unenforceable “because it was cost-prohibitive, unsupported by consideration, against public policy, and procedurally and substantively unconscionable.”
On July 18, 2007, the trial court denied the defendants’ motion to compel arbitration, finding that the arbitration rider was illusory and procedurally and substantively unconscionable. The defendants appealed.
In a July 10, 2009, opinion, the Fifth District found that “the arbitration rider was supported by adequate consideration but that the provision prohibiting class arbitrations was substantively unconscionable.”
“This court also determined that the provision prohibiting class arbitrations was severable from the remainder of the arbitration rider, leaving the agreement to arbitrate in place,” the opinion states.
The case was remanded to the circuit court with directions to sever the provision prohibiting class actions and to enforce the remainder of the arbitration clause.
Just after the opinion was issued, the parties’ chosen arbitrator, the National Arbitration Forum (NAF), became party in a controversy.
On July 14, 2009, the Minnesota Attorney General filed a complaint against the NAF, alleging it systematically used arbitrators with pro-business biases and engaged in consumer fraud and deceptive trade practices.
On July 28, 2009, the NAF agreed to stop accepting all consumer cases for arbitration.
On Sept. 23, 2009, Keefe argued in the circuit court that the arbitration rider was unenforceable because NAF was no longer able to arbitrate the dispute.
The defendants filed an opposition on Oct. 27, 2009, arguing that the unavailability of the NAF did not render the arbitration rider unenforceable because it was not designated as the exclusive arbitral forum. They argued that the circuit court was authorized to appoint a substitute arbitrator.
The circuit court granted the defendants’ motion to compel arbitration on Oct. 14, 2014.
The Fifth District disagreed with the circuit court, concluding that while the arbitration rider “does not expressly designate the NAF as the exclusive arbitral forum, when the terms of the rider are considered together, the intent of the parties is clear.”
The opinion explains that the rider specifically mandates that the parties’ arbitration agreement be governed by the 1999 NAF Code, and the parties must obtain and file forms with the NAF.
“Indeed, these directions would be meaningless in the absence of the NAF’s designation as the arbitral forum.
“When the arbitration rider is considered as a whole and the term mandating the use of the 1999 NAF Code is read in conjunction with the provision directing the parties on how to obtain the rules and claim forms and where to file the claim forms, the reasonable and natural inference is that the parties intended that their disputes would be arbitrated exclusively before the NAF, and governed by the 1999 NAF Code,” the opinion states.
The Fifth District further held that because the arbitration rider specifically states that the 1999 NAF Code “shall” be used, the Code was “inextricably woven into the fabric of the arbitration agreement.”
The court added that the defendants failed to provide the Code.
“Because the defendants moved to compel arbitration, it was intentionally their burden to establish the enforceability of the arbitration agreement. Any doubts about enforceability that arise from the absence of the 1999 NAF Code are resolved against the defendants,” the opinion states.
However, in Schwarm’s dissent, he argues that it is Keefe’s burden to present a sufficiently complete record to support her claims of appellate error.
The majority held, however, that Keefe had a duty to present a sufficiently complete record of the proceedings in the trial court and may not supplement the record on appeal with documents that were available but not presented to the trial court.
“By all accounts, the record on appeal contains the complete record of proceedings before the circuit court. This is not a case where the appellant failed to include some portion of the circuit court record. The 1999 NAF Code was never presented to the trial court, and the trial court never considered it,” the opinion states.
Schwarm agreed, but argues that after the appeals court first ordered arbitration in 2009, it was Keefe’s burden to submit the 1999 NAF Code before the circuit court.
Schwarm further argues that the arbitration rider concludes that all disputes must be decided exclusively by arbitration, but it does not state that the NAF must act as arbitrator.
“Based on the plain and obvious meaning of the arbitration rider as a whole, it is clear that the parties’ primary intent by the agreement was to arbitrate their disputes under NAF rules and not to require that the NAF serve as arbitrator,” Schwarm states.
Regardless, the unavailability of the 1999 NAF Code and the NAF as an arbitral forum renders the arbitration agreement unenforceable, the Fifth District concluded.