Wilson v. 5 Choices, LLC
2:16-cv-10659
E.D. Mich.May 8, 2017Background
- Plaintiffs (Wilson et al.) allege a coordinated scheme: Education Defendants sold expensive real-estate education/"leads," Property Defendants sold allegedly overvalued or misrehabilitated houses (sourced from JGI), and Lending Defendants financed transactions. Plaintiffs assert fraud, breach of fiduciary duty, and RICO claims.
- Lending Defendants (American Cash Funding, Income Property USA, Insiders Cash) moved to dismiss based on arbitration clauses and forum-selection provisions in written agreements signed by plaintiffs.
- Plaintiffs contend (1) the agreements were fraudulently induced, (2) some plaintiffs lack privity yet may pursue RICO claims, (3) a settlement statement controls and lacks those clauses, and (4) defendants acted as fiduciaries or created a relationship of trust.
- The key legal question is whether arbitration/forum-selection clauses are enforceable despite broader fraud and RICO allegations and whether non-borrower plaintiffs can maintain RICO claims against the lenders.
- At oral argument and in the opinion, the court applied Sixth Circuit and Supreme Court precedent requiring challenges to arbitration clauses themselves to be decided before a court; attacks on the contract as a whole belong to arbitrators.
- The court granted Lending Defendants’ motion and dismissed claims against them without prejudice pending arbitration or suit in the selected forum; set a later hearing for Education Defendants’ motion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of arbitration clauses | Agreements were fraudulently induced and thus unenforceable; pitch created relationship of trust | Clauses are in signed written agreements; plaintiffs failed to allege fraud in inducement of arbitration clause itself with required particularity | Arbitration provisions enforceable; contract-wide fraud challenges are for arbitrator; claims dismissed without prejudice pending arbitration |
| Scope re: RICO claims (including broad language) | RICO claims can proceed, including by non-borrower plaintiffs not in privity with lenders | Broad arbitration language covers all claims arising from agreements, including RICO; non-borrower plaintiffs lack standing/causal allegations against lenders | RICO claims arising from the loan/contract fall within arbitration. Non-borrower plaintiffs fail to allege proximate-cause/injury to confer RICO standing against lenders; such RICO claims dismissed |
| Forum-selection clauses | Multiple conflicting forum clauses across documents should not force litigation in multiple fora; settlement statement controls | Forum-selection clauses in the signed agreements are controlling; no basis to avoid enforcement | Forum-selection clauses enforceable; dismissal (not stay) appropriate to permit arbitration or litigation in selected forum |
| Breach of fiduciary duty | Defendants created a relationship of trust at events and acted as fiduciaries | Lender-borrower relationship is not ordinarily fiduciary; plaintiffs’ inexperience and reliance allegations are insufficient | No fiduciary duty pled; lender-borrower duties insufficient to defeat arbitration or state-law defenses; fiduciary claim rejected |
Key Cases Cited
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (arbitrability challenges to the contract as a whole go to the arbitrator)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (pleading must be plausible)
- Ashcroft v. Iqbal, 556 U.S. 662 (conclusory allegations insufficient)
- Preston v. Ferrer, 552 U.S. 346 (arbitrator decides challenges to contract validity unless attack is to arbitration clause itself)
- Atlantic Marine Constr. Co. v. U.S. Dist. Court, 571 U.S. 49 (forum-selection clauses should be given controlling weight)
- In re Sallee, 286 F.3d 878 (6th Cir.) (absent special circumstances, lender-borrower fiduciary relationship not imposed)
- Forsythe v. BancBoston Mortgage Corp., 135 F.3d 1069 (6th Cir.) (mortgagee-mortgagor relationship not fiduciary in technical sense)
- Ulrich v. Fed. Land Bank of St. Paul, 192 Mich. App. 194 (Michigan Ct. App.) (plaintiff’s inexperience and reliance insufficient to create fiduciary duty)