In many foreclosure actions lenders face the possibility of counterclaims on any number of theories by disgruntled debtors. At times such counterclaims are valid, but are more commonly a tool to apply some form of pressure or leverage upon the foreclosing lender. In such situations, the best practice for the lender is to enforce an applicable arbitration clause in order to obtain a quick and efficient resolution of the counterclaim. The analysis of U.S. Bank v. Wilkens below highlights a situation which should provide additional “teeth” to the lenders’ ability to enforce their arbitration agreements.
The Eighth District Court of Appeals in the recent case of U.S. Bank v. Wilkens (2012), 8th Dist App.No 96617, 2012 Ohio 263, issued an important decision holding that an arbitration rider attached to a promissory note and mortgage was enforceable against a wife, who had not signed the arbitration rider, based upon the fact that she signed the mortgage and benefitted from that mortgage.
In the case of U.S. Bank v. Wilkens, John Wilkens executed a promissory note and mortgage in December of 2002, agreeing to pay Metro Center Mortgage, Inc. (“Metro Center”) $85,000.00 on a loan for property located in Garfield Heights, Ohio. Mr. Wilkens executed a separate arbitration rider with Metro Center that was incorporated into the loan agreement by reference. Ruth Wilkens signed the mortgage, but did not sign the promissory note or the arbitration rider. In August of 2007, U.S. Bank, after being assigned the promissory note and mortgage, filed a Complaint in foreclosure against the Wilkenses. In their Answer to the Complaint the Wilkenses denied the allegations asserted in the foreclosure Complaint and asserted several counterclaims against U.S. Bank.
In April of 2008, U.S. Bank moved the trial court to compel arbitration of the Wilkenses’ counterclaims and stay further proceedings pending the arbitration. The trial court eventually granted U.S. Bank’s motion to compel and ordered that “any further proceedings are hereby stayed pending arbitration in accordance with the Arbitration Rider.” The Wilkenses then appealed the trial court’s decision.
On appeal, the Wilkenses asserted several arguments as to why the arbitration agreement was not enforceable. One such argument was that the arbitration agreement was not enforceable against Ruth Wilkens because she did not sign that particular agreement. The Court of Appeals did not agree with Ruth Wilkens’ assertion. The court recognized that it is well settled that a court cannot compel parties to arbitrate disputes that they have not agreed in writing to arbitrate. However, the court recognized that there are limited exceptions to the rule, such as when a non-signatory’s conduct indicates that she assumes the obligation and intends to be bound by the arbitration clause. The court also noted that under an estoppel theory, “a non-signator who knowingly accepts the benefits of an agreement is estopped from denying a corresponding obligation to arbitrate.” I Sports v. IMG Worldwide, Inc. (2004), 157 Ohio App. 3d 593, 2004, Ohio 3113, 813 N.E.2d 4, ¶ 10.
In the Wilkens case, the court held that Ruth Wilkens did not sign the promissory note or arbitration agreement rider, but did sign the mortgage. Moreover, Ruth Wilkens averred in an affidavit that during the closing on the loan, the lender’s representative came to her home with all the documents and presented them to the Wilkenses. The court found that Ruth Wilkens clearly benefitted from the agreement and although Ruth Wilkens did not sign the arbitration agreement rider, it was in fact enforceable against her.
This decision by the Eighth District Court of Appeals is one of the most recent rulings by an appellate court in Ohio regarding the ability to enforce an arbitration agreement against a non-signator and is unique in its application to foreclosure actions. This opinion is significant because it expands lenders’ ability to enforce their arbitration agreements. While it is always the best practice to have all potential parties sign an arbitration agreement, this case should help lenders remain confident that their arbitration agreements will be enforceable against all signatories to the mortgage.
If you have any questions regarding the U.S. Bank v. Wilkens opinion, or would like a full copy of the court’s decision, please feel free to contact one of our Finance Creditors Rights Practice Group Members.
