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5th Cir. Reverses Denial of Motion to Compel Arbitration in TILA Case

The U.S. Court of Appeals for the Fifth Circuit recently reversed the denial of a lender’s motion to compel arbitration in an adversary bankruptcy proceeding for allegedly violating the federal Truth in Lending Act (TILA), holding that — despite conflicting clauses in two different relevant agreements — the parties had entered into a valid arbitration agreement that delegated the threshold issue of arbitrability to the arbitrator.

A copy of the opinion in Tower Loan of Mississippi, LLC v. Willis is available at:  Link to Opinion.

A borrower signed a loan agreement and also purchased insurance policies issued by the lender’s subsidiary, both of which contained arbitration clauses.

Both agreements also delegated “to the arbitrator the power to decide gateway arbitrability issues, including whether a given claim is covered. The agreements, however, differed “over several procedural aspects of the arbitration, relating mainly to the selection and number of arbitrators, time to respond, location, and fee-shifting.”

The borrower filed a Chapter 7 bankruptcy and brought adversary proceeding against the lender, alleging that it had violated TILA in its loan disclosures.

The lender moved to dismiss or compel arbitration, but the bankruptcy court denied the motion, holding that while the two agreements formed a single contract, the conflicting procedural provisions rendered them insufficient to form a contract to arbitrate under the law of the State of Mississippi.

The trial court affirmed and the lender appealed, arguing “that the arbitration agreements should be construed separately and that even if … construe[d] … together, the parties still formed a valid contract.”

On appeal, the Fifth Circuit engaged in a two-step analysis. First, it looked to “state law to determine whether the parties formed ‘any arbitration agreement at all.’” Second, it examined the contracts “to determine whether this claim is covered by the arbitration agreement.”

However, the Court explained that “‘the analysis changes’ where the agreement delegates to ‘the arbitrator the primary power to rule on the arbitrability of a specific claim.’ … In such case, we ask only whether there is a valid delegation clause. If there is, then the arbitrator decides whether the claim is arbitrable.”

In order to answer the first question, whether under Mississippi law “the parties created a valid contract to arbitrate[,]” the Court explained that it must “resolve two related issues. First, should the arbitration agreements be construed as one contract? Second, assuming we construe them together, did the parties have a meeting of the minds as to arbitration?”

First, the Fifth Circuit disagreed with the lender’s argument that “the agreements should be construed separately because [it] assented only to the first arbitration agreement and not the second” given that it didn’t sign the second one, so “only the first agreement applies.” The Court reasoned that because “[u]nder Mississippi law, ‘when separate documents are executed at the same time, by the same parties, as part of the same transaction, they may be construed as one instrument[,] … the bankruptcy court properly construed the agreements as one.”

Next, the Court addressed whether the parties “entered into a valid contract to arbitrate despite inconsistencies in the contractual terms[,]” finding that although “Mississippi courts have not addressed whether conflicting terms in an arbitration agreement prevent a contract from forming[,]” the parties clearly expressed their intention “to arbitrate any dispute that might arise between them … and thus ‘evidently intended to enter into a binding contract.’” The procedural differences did not matter because the two agreements “speak with one voice about whether to arbitrate.” Accordingly, the Court concluded that “under Mississippi law, the parties validly contracted to arbitrate.”

The Fifth Circuit then reasoned that although “[o]rdinarily the next step—after concluding that there is a valid agreement—is to determine whether this claim is arbitrable[,]” since the lender “has pointed to a delegation clause, we ask only whether the parties ‘evince[d] an intent to have the arbitrator decide whether a given claim must be arbitrated.” Concluding that “[t]hey did … [because] [e]ach agreement has a delegation clause that mirrors the one we held valid in [Kubala v. Supreme Prod. Servs., Inc., 830 F.3d 199 (5th Cir. 2016)] … it is for the arbitrator—not us—to decide whether [the borrower’s] TILA claim is arbitrable. … It is similarly the arbitrator’s province to resolve the inconsistent procedural terms.”

The order denying the lender’s motion to dismiss or compel arbitration was reversed, and the case was remanded with instructions “to refer the dispute to arbitration.”

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Hector E. Lora manages the firm’s Florida office and has substantial experience in all phases of complex commercial litigation, including bench and jury trials as well as appellate practice. Hector represents lenders, servicers, debt collectors and debt buyers in complex mortgage foreclosure actions, quiet title actions, federal TILA, RESPA, TCPA, and FDCPA actions and Florida FCCPA actions brought by borrowers or debtors. He also represents creditors in bankruptcy litigation, purchasers of accounts receivable or factoring companies that provide revenue-based financing to small and mid-sized businesses in collection actions, and landlords in commercial and residential evictions. Hector’s broad litigation experience includes over a decade of defending civil enforcement actions filed by the Federal Trade Commission as well as real estate contract disputes and partition actions, contested mortgage foreclosure and condominium lien foreclosure actions and the foreclosure of UCC Article 9 security interests. Hector also has advised a variety of types of businesses regarding their compliance with applicable federal and state consumer protection laws, including the Federal Trade Commission Act, the Telephone Consumer Protection Act (TCPA), the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Telemarketing Sales Rule, the Controlling the Assault of Nonsolicited Pornography and Marketing Act of 2003, and Florida laws governing telephone solicitation and communication. Hector received his Juris Doctor from the Georgetown University Law Center, and his undergraduate degree with honors from the University of Florida. For more information, see

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