In this week's Alabama Law Weekly Update, we present for your review decisions from the Alabama Supreme Court and the 11th Circuit Court of Appeals. The first decision discusses the appropriateness of mortgage reformation when the parties were aware of the mistake prior to executing the mortgage documents. The latter decision analyzes whether difficulties enforcing an arbitration clause excuse the parties from arbitrating.
U.S. Bank N. A. v. Shepherd, No. 1140376 (Ala. Nov. 20, 2015) (holding that reformation of mortgage and foreclosure deed is permissible when both parties executed a mortgage despite awareness that the legal description was incorrect).
In this case, a mortgage was knowingly entered into with an erroneous legal description and was subsequently foreclosed. The foreclosing bank which also held the loan sued to reform the mortgage and foreclosure deed despite the parties being aware of an error in the legal description before the mortgage was executed. At the time of execution, Chester and Emily Faye Shepherd (the “Borrowers”) owned three contiguous parcels of real property and intended to execute a mortgage on their residence. The mortgage documents, though, contained a legal description for another of the Borrowers' parcels which contained a beauty salon. At execution of the mortgage, the lender's representative assured the Borrowers that the error would be corrected after signing and the Borrowers proceeded with executing the loan documents.
Following the Borrowers' default, the bank published a notice of foreclosure containing the legal description for the beauty salon. The foreclosure proceeded and the foreclosure deed described the Borrowers' third parcel which was unimproved, and not named in any of the documents. The bank then took possession of the residence. The bank then sued to quiet title to all three parcels and to reform the mortgage and foreclosure deed. The Borrowers alleged that reformation was not allowed because the parties were aware of the mistake prior to executing the mortgage, and they brought counterclaims against the bank for the mistakes. The trial court ruled in favor of the Borrowers, refusing to reform the mortgage or foreclosure deed and awarding the Borrowers substantial damages. The bank appealed both issues.
On appeal, the Alabama Supreme Court recognized that legal precedent prevents reformation based on a mutual mistake when all parties understand and are aware of the contents of a document. The Supreme Court, though, reversed the trial court's decision, holding that reformation was appropriate given these unique circumstances in this case. It was undisputed that the original mortgage contained an incorrect legal description, and that this error was recognized by both parties before executing the documents. The Supreme Court held that a mistake can be reformed, even if entered into with awareness of the mistake, when the clear intent of the parties is contrary to the document. Accordingly, the court reversed the trial court and remanded the case to reform the legal descriptions. Because the instrument was due to be reformed, the court also reversed the damages awarded to the Borrowers on their counterclaims.
Kaspers v. Comcast Corporation, 2015 WL 7145318 (11th Cir. November 16, 2015) (holding that an arbitration clause was valid and enforceable, despite the difficulties incurred in attempting to arbitrate a claim).
In this decision, Tyler Kaspers (“Kaspers”) brought an action against Comcast Corporation (“Comcast”) seeking, among other things, declaratory and injunctive relief with respect to an arbitration provision contained within Comcast's subscriber agreement. Kaspers entered into a contract with Comcast for cable and internet services. Kaspers, though, was unable to receive full cable service for a period of seven months, despite having multiple technicians visit the property and despite his continuous payment of monthly service charges. After numerous unsuccessful attempts to resolve the dispute and to obtain credits and/or refunds to his account, Kaspers cancelled his service and objected to the remaining amounts owed to Comcast, at which point Comcast referred the remaining balance to a collection agency.
Upon his initial subscription for services with Comcast, Kaspers executed a subscriber agreement which contained a binding arbitration provision. Following his unsuccessful attempts to resolve his disputes with Comcast, Kaspers eventually submitted his claim to the American Arbitration Association (“AAA”) in accordance with the arbitration provision in the subscriber agreement. Kaspers' request for arbitration was denied, however, as the AAA refused to arbitrate the claim because the arbitration provision had a “material or substantial deviation” from AAA rules and protocol and because Comcast had refused to remedy the deviation when requested by the AAA. Eventually, after his requests for arbitration were denied, Kaspers filed suit seeking, among other things, to invalidate the arbitration provision as being unconscionable and against public policy because it imposed unreasonable hurdles to resolving claims through arbitration.
Upon review, the 11th Circuit determined that Kaspers' claim was one of substantive unconscionability, which required an examination into the purpose and effect of the contractual terms. This analysis involved a review of the “contractual terms themselves under the circumstances existing when the contract was made.” In applying this analysis, the court determined that the practical difficulties faced by Kaspers did not arise from the contractual terms themselves but from the circumstances enforcing the contract terms. Further, the complications did not demonstrate a defect in the terms of the arbitration provision or that the contractual terms themselves were substantively unconscionable. Accordingly, the arbitration provision in the subscriber agreement was upheld as valid and enforceable, despite the impediments that resulted from its application.