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Salvadori v. Option One Mortgage Corp.

March 16, 2006


The opinion of the court was delivered by: Wolfson, District Judge


Presently before the Court is a Motion to Dismiss and Compel Arbitration by Defendant, Option One Mortgage Corp. ("Option One"). Plaintiff, a residential mortgage borrower, filed suit in state court to challenge a prepayment penalty arising out of a loan transaction. Defendant contends that Plaintiff's claims, including his newly pled federal claims, are expressly covered by the parties' Arbitration Agreement. As such, Defendant seeks enforcement of the Arbitration Agreement via dismissal of Plaintiff's Complaint in favor of arbitration. For the reasons set forth below, the Court will dismiss Plaintiff's Complaint and enforce the Arbitration Agreement.

I. Background

On or about May 18, 2001, Plaintiff borrowed $222,412 from Option One to finance the purchase of a residential property in Sewell, New Jersey ("the Loan"). The Loan was secured by an Adjustable Rate Note and Mortgage, executed by Plaintiff, which contained various provisions including a requirement that Plaintiff pay a penalty if he repaid the Loan within 24 months of the closing.

At the closing of the loan, Plaintiff executed and delivered to Defendant an Agreement for the Arbitration of Disputes ("the Arbitration Agreement"). The Arbitration Agreement is a separate, signed, two page document with its title "Agreement for the Arbitration of Disputes" set forth in bold, capital letters at the top of the first page. On the second page, in bold capital letters, the Agreement states, "[t]his contract contains a binding arbitration provision which may be enforced by the parties." In addition, the text of the agreement contains an advisory provision in bold type that states, "[i]f you have any questions, you should consult your own lawyer before you sign this Agreement."

The substance of the Agreement provides that both parties waive their right to have disputes resolved in court. In addition, the Agreement establishes that any dispute regardless of when it arose, may, at the option of Plaintiff or Defendant, be submitted to arbitration, and it defines dispute broadly to include:

Any claim or controversy of any nature whatsoever arising out of or in any way related to the Loan; the arranging of the Loan; any application, inquiry or attempt to obtain the Loan; any Loan documents; the servicing of the Loan; or any other aspect of the Loan transaction. It includes, but is not limited to federal or state contract, tort, statutory, regulatory, common law and equitable claims. Because you and we have agreed to arbitration, both of us are waiving our rights to have disputes resolved in court by a judge or jury.

Moreover, the Arbitration Agreement provides the following definition of arbitration:

Arbitration: Arbitration is a means of having an independent third party resolve a dispute. Either you or we can request that a dispute be submitted to arbitration. Either you or we can do this before a lawsuit (which is usually initiated by the filing of a "complaint") has been served or within 60 days after a complaint, an answer, a counterclaim or an amendment to a complaint has been served. Each arbitration, including the selection of the arbitrator, will be administered by the American Arbitration Association (the "AAA") pursuant to its Commercial Arbitration Rules. Each arbitration will be governed by the Federal Arbitration Act (the "FAA") (Title 9 of the United States Code). . .If either party, you or we, fails to submit to arbitration following a proper demand to do so, that party shall bear all costs and expenses, including reasonable attorney's fees, incurred by the other party compelling arbitration. In all other situations, each party, you and we, shall each bear its own costs and expenses, including Arbitrator's and attorney's fees, that the party incurs with respect to the arbitration.

(emphasis added).

Plaintiff paid the Loan in full within 24 months of closing, thus, incurring a prepayment fee of approximately $7,349.50. Plaintiff paid Defendant the fee, and, subsequently, on or about May 24, 2003, filed a Complaint against Option One in the Superior Court of New Jersey, Law Division, Gloucester County ("Gloucester County Superior Court"), challenging the prepayment fee. Thereafter, Defendants contacted Plaintiff's counsel to demand that Plaintiff submit his claims to arbitration pursuant to the Arbitration Agreement. Plaintiff's counsel voluntarily dismissed the Complaint on or about August 12, 2003, but never submitted his claim to arbitration.

On or about December 24, 2003, Plaintiff filed an identical complaint in Gloucester County Superior Court. Thereafter, on March 25, 2004, the state court dismissed the Complaint and compelled Plaintiff to pursue his claims through arbitration in accordance with the Arbitration Agreement. In its Order, the court made various findings including: (1) that the Arbitration Agreement expressly provided that it would be governed by the FAA and the FAA requires courts to compel arbitration when an agreement so requires; (2) that Plaintiff's challenge to the prepayment fee constituted a "dispute" that fell within the scope of the Agreement; (3) that Plaintiff's remaining arguments were without merit under New Jersey case law; and that (4) the strong policy in favor of arbitration warrants enforcement of the Arbitration Agreement.

On or about April 23, 2004, Plaintiff filed an appeal. In a decision dated April 27, 2005, the Appellate Division remanded the case to the Law Division to allow Plaintiff to amend his complaint to assert any "post-Glukowsky*fn1 " claims arising under Federal Law. Specifically, the Appellate Division held, "[p]laintiffs' assertions on appeal, that their claims that Option One's prepayment provision is illegal and violative of the New Jersey prepayment law and the C[onsumer[ F[raud] A[ct] were improperly dismissed in favor of arbitration, are rendered moot by the Supreme Court's decision in Glukowsky. Nevertheless. . .we summarily remand the matters to permit plaintiffs an opportunity to amend their complaints to assert any post Glukowsky claims they may have under the applicable Federal Law."

On August 29, 2005, Plaintiff filed an Amended Complaint that set forth a federal claim based on the Federal Trade Commission ("FTC") Act as well as various state law claims. Based on the federal claims, Defendant ...

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