Case Law Summaries

Montano v. Chase Manhattan Mortgage Corp.

• Opinion Date: July 23, 2001
• Business Law
• E-Mail

ARBITRATION—To pass muster, a waiver of rights contract provision, such as one calling for arbitration, may need to provide that the parties expressly waive a statutory right use the courts.

Certain home mortgages permitted the secured debt to be prepaid without penalty. During the term of the mortgage, an assignee of the original lender offered a plan which, for a small monthly fee, would permit payments to be made on a bi-weekly basis instead of on the originally specified monthly basis. “Because two months of the year have three bi-weekly transfer periods, the Plan effectively allows a mortgagor to make the equivalent of one extra monthly principal payment per year, thereby increasing the amount of principal paid and reducing the amount of interest.” A borrower decided to participate in the plan and was given thirty days after receipt of the “Terms and Conditions” to cancel the service and receive a full refund of any enrollment fee paid to participate in the program. The Terms and Conditions included an arbitration provision. The borrower did not elect to withdraw from the plan after receiving the Terms and Conditions. Sometime thereafter, the borrower complained that she was being charged a fee to participate in the plan but that the terms of her mortgage permitted her to prepay the debt without penalty. The lender argued that the dispute was to be decided by arbitration. The issue of the obligation to arbitrate was argued before the Court. In a nearly contemporaneous arbitration case, the New Jersey Supreme Court held that “[t]o pass muster ... a waiver-of-rights provision should at least provide that the employee agrees to arbitrate all statutory claims arising out of the employment relationship or its termination.” With this in mind, the Court realized that the parties did not have a real opportunity to argue the significance of this Supreme Court decision and, of course, the lower court did not have the benefit of the analysis contained in that case. As a result, the Court realized that the lower court also did not have an opportunity to address the significance of a choice-of-law clause (specifying the laws of Ohio) included within the Terms and Conditions nor to determine whether employment law cases invoke different policy considerations than consumer fraud claim cases. Therefore, the Court remanded the matter to the lower court for further proceedings.

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