Olle v. 5401 Western Ave. Residential, LLC

569 F.Supp.2d 141

Laura and Peter OLLE, Plaintiffs, v. 5401 WESTERN AVENUE RESIDENTIAL, LLC, et al., Defendants.

Civil Action No. 07-2056 (RMU).

United States District Court, District of Columbia.

August 6, 2008.

COPYRIGHT MATERIAL OMITTED

Robert E. Greenberg, Friedlander, Misler, Washington, DC, for Plaintiffs.

Robert Caterson Park, Jr., Linowes & Blocher, LLP, Bethesda, MD, for Defendants.

MEMORANDUM OPINION

GRANTING IN PART AND DENYING IN PART THE DEFENDANTS' MOTION TO DISMISS; STAYING THE CASE PENDING ARBITRATION

RICARDO M. URBINA, District Judge.

I. INTRODUCTION

This case arises from the defendants' motion to dismiss or, in the alternative, motion to stay litigation pending arbitration. The plaintiffs, Laura and Peter Olle, allege that their contract for the purchase of a luxury penthouse in Northwest Washington, D.C. is invalid because the defendants violated the Interstate Land Sales Full Disclosure Act ("ILSFDA"), 15 U.S.C. §§ 1703(a)(1)(A), 1704, 1706; the D.C. Condominium Act, DC Code § 42-1901; and the D.C. Consumer Protection Act, D.C.Code § 28-3901. The defendants insist that the parties arrived at a meeting of the minds and that any claims arising from the purchase agreement must be settled through arbitration. They, therefore, move to dismiss or stay the case to allow an arbitrator to hear the plaintiffs' claims. Because the arbitration clause is severable from the remainder of the purchase agreement and because the plaintiffs challenged the arbitration clause for the first time in their opposition to the defendants' motion to dismiss, the court grants in part the defendants' motion—staying the case pending arbitration.

II. FACTUAL & PROCEDURAL BACKGROUND

On October 8, 2004, the plaintiffs signed a non-binding reservation agreement with 5401 Western Avenue Residential, LLC ("5401") for the purchase of a luxury penthouse located at 4301 Military Road in Northwest Washington, D.C. ("Chase Point Unit"). Compl. ¶ 10, Ex. 1. Three days later, the plaintiffs furnished a deposit check for $112,495 to reserve the right to purchase Penthouse Unit 1. Id. On December 23, 2004, the plaintiffs signed the purchase agreement and initialed every page of the 22-page contract. Id. ¶ 11, Ex. 2. They deposited a second check for the amount of $112,495. Id. In early May 2005, the defendants informed the plaintiffs that the Chase Point Unit would be available by the end of 2006. Id. ¶ 17, Ex. 4. Two years after they signed the purchase agreement, the plaintiffs submitted a change order agreement on December 15, 2006 and made an additional payment of $30,716. Id. ¶ 12, Ex. 3. When the plaintiffs signed the change order agreement, the defendants had not yet completed the Chase Point Unit as projected in the May 2005 letter. Id. ¶ 18. On January 29, 2007, the defendants informed the plaintiffs that closing on their unit would take place on May 17, 2007. Id. In that letter, the defendants explained that minor punch list items had delayed the date of closing. Id.

On February 26, 2007, the plaintiffs viewed Penthouse Unit 1 for the first time. Id. ¶ 21. A month later, the plaintiffs sent the defendants a letter terminating the purchase agreement and requesting the return of their deposit. Id. On April 2, 2007, the defendants rejected the plaintiffs' request and stated that they would retain the total deposit amount as liquidated damages. Id. ¶ 22, Ex. 7. The next day, the plaintiffs reiterated their desire to terminate the purchase agreement. Id. ¶ 23. Similarly, the defendants insisted that the plaintiffs would forfeit their deposit unless they closed on the property. Id. ¶ 24.

Seven months later, the plaintiffs filed the present complaint. On December 20, 2007, the defendants filed a motion to dismiss or, in the alternative, a motion to stay litigation pending arbitration. The plaintiffs filed their opposition, which was followed by the defendants' reply. The court now turns to the defendants' motion.

III. ANALYSIS

A. Legal Standard to Compel Arbitration

The Federal Arbitration Act ("FAA") provides that "a written provision in . . . a contract to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable save upon any grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The FAA creates a strong presumption in favor of enforcing arbitration agreements and "[a]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 226-27, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987) (stating that arbitration agreements must be rigorously enforced); Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) (noting that federal policy favors arbitration). Nevertheless, parties cannot be forced into arbitration unless they have agreed to do so. AT & T Techs., Inc. v. Commc'ns Workers, 475 U.S. 643, 648-49, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986). Moreover, the authority of arbitrators to resolve disputes is derived from the agreement of parties to engage in arbitration. Equal Employment Opportunity Comm'n v. Waffle House, Inc., 534 U.S. 279, 294, 122 S.Ct. 754, 151 L.Ed.2d 755 (2002). Because arbitration provisions are in essence a matter of contract between the parties, it is for the courts to decide whether the parties are bound by a given arbitration clause. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) (holding that "a gateway dispute about whether the parties are bound by a given arbitration clause raises a question of arbitrability for a court to decide") (internal quotation omitted).

Such questions of arbitrability are typically brought before the court pursuant to § 4 of the FAA, which permits a party to petition any United States district court which would otherwise have subject-matter jurisdiction "for an order directing that such arbitration proceed in the manner provided for in such agreement." 9 U.S.C. § 4. When presented with a motion to compel arbitration, a district court must "determine the enforceability of the agreement [to arbitrate] and decide whether arbitration should be compelled." Nelson v. Insignia/Esg, Inc., 215 F.Supp.2d 143, 146 (D.D.C.2002). It is well-settled law that to make such a determination, courts must engage in a two-part inquiry. Id. at 149-50. First, the court must decide whether the parties entered into a valid and enforceable arbitration agreement. Nur v. K.F.C. USA, Inc., 142 F.Supp.2d 48, 50-51 (D.D.C.2001). If the court concludes that the parties did enter into a valid arbitration agreement, the second step is to determine whether the arbitration agreement encompasses the claims raised in the complaint. Id.

B. The Court Stays the Case Pending Arbitration

1. The Parties Entered into a Valid, Enforceable Arbitration Agreement

The evidence shows that the plaintiffs entered into a condominium purchase agreement ("Agreement") with 5401 that included a requirement that all disputes arising out of or relating to the agreement be arbitrated. Compl., Ex. 2 ¶ 29. Pertinently, the clause provides:

ANY DISPUTE, CONTROVERSY, OR CLAIM CONCERNING THE RIGHTS OR OBLIGATIONS OF THE PARTIES, INCLUDING, WITHOUT LIMITATION, ANY CONDITION OR ELEMENT OF THE UNIT, NEIGHBORHOOD OR NEARBY PROPERTY; THE NEED OR EFFECTIVENESS OF ANY REPAIR OR REPLACEMENT UNDER THE LIMITED WARRANTY; OR ANY CLAIM OR MISREPRESENTATION, FRAUD, OR BREACH OF THIS AGREEMENT, SHALL BE SUBMITTED TO AND SETTLED BY BINDING ARBITRATION PURSUANT TO THE FEDERAL ARBITRATION ACT.

Id. Furthermore, it is basic law that "[o]ne who signs a contract which he had an opportunity to read and understand is bound by its provisions." Paterson v. Reeves, 304 F.2d 950, 951 (D.C.Cir.1962).

Nevertheless, the plaintiffs challenge the enforceability of the Agreement. Pls.' Opp'n to Mot. to Dismiss ("Pls.' Opp'n") at 2. The plaintiffs argue that the "illegality and oppression of the overall contract encompasses the arbitration clause such that it was impossible for the Olles to have a meaningful choice when they agreed to arbitration." Id. at 5. This is so because the Agreement is "an oppressive adhesion contract, offered to the Olles as a standard contract form on a take it or leave it basis without realistic opportunity to bargain." Id. at 7. Additionally, 5401 used "deceptive sales practices to induce the Olles to sign the Purchase Agreement containing the arbitration clause," id. at 8; to wit, they misled the plaintiffs as to the specifications of the unit—specifically, they assured the plaintiffs that a bathroom and grill could be installed in accordance with their wishes but never fulfilled this commitment. Id. at 9; Compl. ¶ 42. Furthermore, the terms of the arbitration clause are unreasonably favorable to the defendants because the clause permits the defendants to recover costs if a suit is filed but deprives the plaintiffs of the same right. Id. at 10. And finally, the clause is against public policy under the ILSFDA and the D.C. Consumer Protection Act because it "completely ousts the jurisdiction of the court, against the express terms" of the statutes, id. at 12, which state that the "district courts of the United States ... shall have jurisdiction of offenses and violations under this title," 15 U.S.C. § 1719 (ILSDA), and that "a person ... may bring an action under this chapter in the Superior Court of the District of Columbia," D.C.Code § 28-3905(k)(1) (D.C. Consumer Protection Act). At a minimum, the plaintiffs insist that they deserve a hearing to present evidence concerning all the circumstances surrounding the transaction. Id. at 8 n. 24.

The defendants reply that the plaintiffs cannot evade the requirements of the arbitration clause by alleging that the contract as a whole is unconscionable. In the first place, the clause is severable from the...