In this putative class action, prospective luxury home buyers allege that a real estate development company unlawfully refused to return deposits when the prospective buyers could not obtain mortgage financing. Toll Brothers sought to dismiss or stay pending arbitration, but the district court found the arbitration provision to be unenforceable as it only required buyers, and not Toll Brothers, to submit disputes to arbitration.
The Federal Arbitration Act “ is a congressional declaration of a liberal federal policy favoring arbitration agreements”, 9 U.S.C. § 2, and, following AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), courts were prohibited from altering otherwise valid arbitration agreements by applying the doctrine of unconscionability to eliminate a term barring classwide procedures. Id. at 1750-53. Conception, however, found that § 2 permits arbitration agreements to be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability,’ but not by defenses that would apply only to arbitration Id. at 1746. The holding in Cheek, while at first blush appearing to apply in violation of the FAA and Conception only to arbitration, only treats “an arbitration provision like any stand-alone contract, requiring consideration.” Further, by requiring mutuality in an arbitration agreement, Cheek serves the purpose of the FAA by encouraging arbitration.
Additionally, where in Conception a class action lawsuit would have interfered with the informality of arbitration and increased risks for defendants, here “it merely requires that for an arbitration provision to be valid, both parties bind themselves to it.”
Accordingly, the Court of Appeals looked to Cheek v. United Healthcare of Mid-Atlantic, Inc., 835 A.2d 656 (Md. 2003), which specifically rejected the argument that consideration for an underlying contract can serve as consideration for an arbitration provision within that contract.
In Tillman v. Commercial Credit Loans, Inc., 362 N.C. 93, 655 S.E.2d 362 (2008), the North Carolina Supreme Court similarly to Cheek held that arbitration provisions without mutuality were also unenforceable.
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