Julio Lamboy RUIZ, Plaintiff, v. MILLENNIUM SQUARE RESIDENTIAL ASSOCIATION, et al., Defendants.
Civil Action No. 15-1014 (JDB)
United States District Court, District of Columbia.
Signed January 13, 2016
156 F. Supp. 3d 176
Jessica Hepburn Sadler, John Darren Sadler, Shelah Fidellman Lynn, Ballard Spahr LLP, Washington, DC, for Defendants.
MEMORANDUM OPINION AND ORDER
JOHN D. BATES, United States District Judge
Plaintiff Julio Lamboy Ruiz believes he obtained all the necessary approvals for certain architectural modifications he made to his condominium unit. The defendant owners’ associations disagree and want Ruiz to return the unit to its original condition. The question before the Court today, however, is not which party is right—it is simply whether Ruiz must submit this dispute to arbitration. Although Ruiz acknowledges that an arbitration agreement in the condominium bylaws appears to cover this dispute, he contends that the arbitration procedures are so unfair as to be unconscionable, and thus the agreement cannot be enforced. But several of Ruiz‘s objections provide no basis for finding the arbitration provision unconscionable. And even though defendants have effectively conceded that, when read properly, the provision governing the selection of the arbitrators is unconscionable, the proper course is to sever that provision and enforce the heart of the parties’ agreement: to arbitrate this dispute. The Court will therefore grant defendants’ motion to compel arbitration.
BACKGROUND
Because most of the details of the parties’ dispute are not relevant to the issue presently before the Court, a short summary of the case will suffice. According to his complaint, Ruiz owns a condominium unit at the Millennium Square condominium complex in northwest Washington, D.C. Compl. [ECF No. 1] ¶ 1. The complex is managed by defendants Millennium Square Residential Association and Millennium Square Unit Owners Association—for sake of simplicity, “the Associations“—who also enforce the condominium‘s bylaws. Id. ¶¶ 3-6.
In 2014, Ruiz sought to make a number of architectural modifications to the balconies and roof deck of his unit. Id. ¶ 9. He says he presented the relevant architectural plans to the Associations and properly sought their permission to proceed with the project. Id. ¶¶ 11-35. The Associations agreed to the modifications, or at least did not disapprove them within the time allotted by the bylaws, so Ruiz went ahead and had the work done. Id. In June 2015, however, the Associations sent Ruiz a letter stating that a number of the modifications had not been included in the plans he had submitted; in the Associations’ view, these modifications had never been approved, and so needed to be removed. Id. ¶¶ 39-41; Ex. 8 to Compl. [ECF No. 1-11]. Ruiz then filed this suit, which seeks a judgment declaring that the modifications do not violate the condominium‘s bylaws and may remain in place. Compl. ¶¶ 45-53.
In response to Ruiz‘s complaint, the Associations have filed a motion asking the Court to stay the case and to compel Ruiz to arbitrate the dispute. Defs.’ Mot. to Compel Arbitration [ECF No. 9]. Arbitra
Arbitration. Arbitration pursuant to these Bylaws shall consist of the appointment of an independent arbitrator by the members of the Board of Directors who are Residential Unit owners, the appointment of a second independent arbitrator by the members of the Board of Directors who are Commercial Unit owners and the appointment of the third arbitrator by the two previously appointed arbitrators. These arbitrators shall be requested to reach a decision within thirty (30) days after their appointment. The cost of arbitration shall be paid by the losing party unless the arbitrators determine that the cost should be a Common Expense. If the arbitrators determine that the action of the Board of Directors, the Unit Owners Association, the Residential Executive Committee, the Residential Association, the Commercial Executive Committee or the Commercial Association violates the Condominium instruments or has so prejudiced a Unit owners’ [sic] interests, such action shall not be taken.
Id. at 101.
Ruiz opposes the Associations’ motion. See Pl.‘s Opp‘n [ECF No. 10]. He does not deny that, as a general matter, he is bound by the terms of the bylaws. Nor does he deny that the disagreement over his modifications is a “dispute” covered by Section 11.6 and thus subject to arbitration. Instead, he argues that the arbitration system created by Section 19.2 is so unfair that it is unconscionable as a matter of contract law, and that the agreement to arbitrate is therefore unenforceable.
LEGAL STANDARD
When considering a motion to compel arbitration, the proper legal standard for the district court is the same one used in resolving summary judgment motions under
DISCUSSION
The FAA provides that “[a] written provision in any . . . contract evidencing a
Ruiz‘s primary argument remains that, even if the bylaws are a contract covered by the FAA, the arbitration agreement is not valid. “Like other contracts,” arbitration agreements subject to the FAA “may be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability.” Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 68 (2010) (internal quotation marks omitted). Whether an arbitration agreement is unconscionable is primarily a question of state contract law, see Perry v. Thomas, 482 U.S. 483, 492 n. 9 (1987); Hoffman v. Citibank (S. Dakota), N.A., 546 F.3d 1078, 1082 (9th Cir.2008), and the parties agree that D.C. law governs here. The question, then, is whether the bylaws’ arbitration provisions are unconscionable under D.C. law.
In the District of Columbia, “[a] party seeking to avoid a contract because of unconscionability must prove two elements: an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.” Curtis v. Gordon, 980 A.2d 1238, 1244 (D.C.2009) (internal quotation marks omitted). “These two elements are often referred to as procedural unconscionability and substantive unconscionability.” Urban Invs., Inc. v. Branham, 464 A.2d 93, 99 (D.C.1983) (per curiam). “[I]n an egregious situation,” a showing of only “one or the other [form of unconscionability] may suffice,” id. (internal quotation marks omitted)—although there do not appear to be any reported D.C. cases finding such an “egregious” scenario.
Ruiz‘s argument for procedural unconscionability is rather weak. Proffering almost no evidence about the circumstances of his acquisition of the unit, Ruiz relies solely on the fact that he, like all unit owners, had no opportunity to bargain over the terms of the bylaws. This take-it-or-leave-it quality, he argues, makes the bylaws a contract of adhesion and therefore procedurally unconscionable. See Pl.‘s Supp. Mem. at 2-3. In the Court‘s view, his argument stretches the concepts of
contracts of adhesion and procedural un
At the motion hearing, Ruiz argued that he could not go “elsewhere” because real estate is unique. The only place to get Millennium Square Unit PH3L, in other words, is at Millennium Square, and thus, says Ruiz, he had “no real choice” but to accept the bylaws. But this argument proves too much. As Ruiz acknowledged, this would mean that all condominium purchasers lack “real choice” with respect to bylaws and hence all condominium bylaws are procedurally unconscionable. This conclusion is both at odds with common sense—is the Wall Street magnate who buys a unit overlooking Central Park really “powerless” in any sense?—and unsupported by D.C. case law. In short, Ruiz‘s acquisition of a penthouse condominium (complete with “balconies and roof deck,” Compl. ¶ 9) does not seem like the kind of transaction that the doctrine of procedural unconscionability is intended to guard against. Ruiz must therefore make a very strong case for the substantive unconscionability of Section 19.2.
That case consists of three objections. According to Ruiz, Section 19.2 is substantively unconscionable because: (1) it does not require the arbitrators to provide a written decision justifying their award; (2) it does not provide for discovery of any sort, and imposes an arbitration schedule that effectively bars discovery; and (3) it does not allow Ruiz to participate in the selection of the arbitrators. Pl.‘s Opp‘n at 3-6.
The first two objections fall flat, for nothing in D.C. law suggests that arbitration agreements without Ruiz‘s preferred characteristics are substantively unconscionable. In arguing that an arbitration agreement must provide for discovery and a written decision, Ruiz mistakenly relies on case law that required those characteristics to be present in agreements to arbitrate statutory rights. See Pl.‘s Opp‘n at 3 (citing Sapiro v. VeriSign, 310 F.Supp.2d 208, 214 (D.D.C.2004), in turn citing Cole v. Burns Int‘l Sec. Servs., 105 F.3d 1465 (D.C.Cir.1997)). The D.C. Circuit has expressly held that the reasoning of the leading case in that line, Cole, “does not extend beyond the statutory context.” Brown v. Wheat First Sec., Inc., 257 F.3d 821, 825 (D.C.Cir.2001). There is no statutory claim here. Ruiz‘s claim—that he complied with the bylaws and therefore the modifications can remain—is a matter of common law contract principles. An agreement to arbitrate such a dispute need not meet Cole‘s criteria in order to be enforceable.
Apart from the inapposite Cole, Ruiz cites no authority to suggest that an arbitration agreement must require a written decision. On the contrary, the D.C. Court of Appeals has made clear that “[a]rbitrators . . . are not required to state the grounds for their decisions.” Schwartz v. Chow, 867 A.2d 230, 233 (D.C.2005); see also, e.g., Atkinson v. Sinclair Ref. Co., 370 U.S. 238, 244 n. 4 (1962) (“Arbitrators generally have no obligation to give their reasons for an award.“). Hence, an arbitration agreement that does not expressly require a written explanation—but of course does not preclude one—can hardly be considered substantively unconscionable.
Nor does Ruiz have any authority (apart from Cole) for the proposition that an arbitration agreement is substantively unconscionable if it does not provide for certain discovery procedures. If Ruiz is arguing that the agreement affirmatively precludes discovery, he is simply wrong. Section 19.2 is silent with respect to discovery, thereby leaving the issue to the arbitrators’ discretion. And contrary to Ruiz‘s suggestion, see Pl.‘s Opp‘n at 6, discovery is not foreclosed by Section 19.2‘s requirement that the “arbitrators . . . be requested to reach a decision within thirty (30) days after their appointment.” If the arbitrators determine that discovery issues necessitate a longer arbitration period, they have the power to decline this “request[ ].”
That leaves only Ruiz‘s third argument: that Section 19.2 is substantively unconscionable because it gives Ruiz no say in the arbitrator-selection process. The Associations dispute the premise, arguing that Ruiz does get to play a role, but their reading of the bylaws is wholly unpersuasive. The text of Section 19.2 is straightforward: the first arbitrator is picked by “the members of the Board of Directors who are Residential Unit owners“; the second by “the members of the Board of Directors who are Commercial Unit owners“; and the third by the first two. There is no role for Ruiz. Recognizing that Section 19.2 is a problem, the Associations suggest that the trick is reading it in conjunction with Section 11.6. When the two provisions are read together, the Associations say, it becomes clear that each party to a dispute—including Ruiz here—gets to pick one of the first two arbitrators. Defs.’ Reply [ECF No. 11] at 5. But this is nonsense. Section 11.6 merely identifies a category of disputes that “shall be submitted to arbitration in accordance with Section 19.2“; it says nothing to alter the procedure in Section 19.2, which clearly—if bizarrely—assigns the selection power solely to the Board of Directors. There is simply no way to read the bylaws as giving Ruiz a say.
One might expect the Associations to have an alternative argument—namely, that even if the bylaws do not let Ruiz pick one of the arbitrators, the arbitrator-selection provision is not substantively unconscionable, or is at least not “egregious.” Indeed, the Court invited the Associations to address that issue head-on in supplemental briefing. See Order of Oct. 19, 2015 [ECF No. 12] at 1 (inviting supplemental briefing on “[w]hether the arbitrator-selection provision in this case, if it does not give plaintiff any role in the selection process, is so substantively unfair as to be ‘egregious’ under D.C. law” (emphasis added)). But the Associations have declined to make any argument that the selection provision remains enforceable if it means what Ruiz says it means. They argue exclusively (and unpersuasively) that the bylaws do, in fact, let Ruiz make one of the initial selections. See Defs.’ Supp. Mem. [ECF No. 14] at 3-6. The Court views this failure to argue the point (despite an express invitation) as a concession by the Associations that if Ruiz‘s interpretation of the arbitrator-selection provision is correct—which the Court concludes it is—then the provision is indeed unenforceable. See Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428, 434 (2011) (“Under [our adversarial] system, courts are generally limited to addressing the claims and arguments advanced by the parties. Courts do
The unenforceability of the arbitrator-selection provision does not, however, doom the arbitration agreement in its entirety. The D.C. Condominium Act specifically provides that “[a]ll provisions of the condominium instruments“—which includes the bylaws—“shall be deemed severable, and any unlawful provision thereof shall be void.”
Ruiz tries in vain to avoid this conclusion by dubbing the arbitrator-selection provision “integral” to the parties’ agreement. Pl.‘s Supp. Mem. at 5-7. Some courts, it is true, have held that if the specification of a particular arbitrator (or arbitral forum) was “integral” or “central” to the parties’ agreement to arbitrate, then the subsequent unavailability of that arbitrator (or forum) precludes the court from compelling arbitration. See, e.g., Ranzy v. Tijerina, 393 Fed.Appx. 174, 176 (5th Cir.2010) (per curiam); In re Salomon Inc. S‘holders’ Derivative Litig., 68 F.3d 554, 560-61 (2d Cir.1995). The basic idea behind these decisions is that sometimes a party‘s assent to arbitration depends on the availability of a specific arbitrator, and so their willingness to arbitrate before that arbitrator cannot be interpreted as a more general agreement to arbitrate.
But this case does not fit that mold. Section 19.2 does not specify a particular arbitrator or forum; it specifies a selection mechanism. Ruiz can hardly argue that the use of this selection mechanism was a condition of his assent. His primary argument, after all, is that the mechanism is so unfair to him that it cannot be enforced! Nor can he convince the Court that the Associations’ assent depended on it. Their consistent (if mistaken) position is that the bylaws contain a different mechanism that is less favorable to them, and yet they still wish to arbitrate. The equitable result, then, is to sever the arbitrator-selection provision while retaining the essence of the parties’ agreement: to arbitrate this dispute. See Booker, 413 F.3d at 83-84 (“Compelling Booker to arbitrate with the bar on punitive damages severed is entirely consistent with the intent to arbitrate he manifested in signing the employment agreement in the first place.“).
Although severing the arbitrator-selection provision leaves the bylaws without a mechanism for selecting an arbitrator, this is not fatal. Section 5 of the FAA provides that “if no method [for appointing an arbitrator] be provided [in an agreement], or if . . . a method be provided and any party thereto shall fail to avail himself of such method, or if for any other reason there shall be a lapse in the naming of an arbitrator or arbitrators or umpire, or in filling a vacancy, then upon the application of either party to the controversy the court shall designate and appoint an arbitrator or ar
The parties can also attempt to agree on more detailed arbitration procedures. Section 19.2 contains surprisingly little detail about how the arbitration will be conducted. Cf., e.g., 1 Domke on Commercial Arbitration § 8:20, Westlaw (database updated Aug. 2015) (recommending that an agreement “state the number of arbitrators, the method of their appointment, the place of the arbitration and preferably the law to be applied, and the rules they wish to have adopted by the arbitrators“). But that lack of detail does not render the agreement unenforceable. Both parties agree that D.C.‘s Revised Uniform Arbitration Act,
CONCLUSION AND ORDER
For the foregoing reasons, the Court concludes that Ruiz entered into a valid agreement to arbitrate this dispute, and the unconscionability of the arbitrator-selection provision does not render that agreement unenforceable as a whole. Accordingly, it is hereby
ORDERED that [9] defendants’ motion to compel arbitration and stay proceedings is GRANTED; it is further
ORDERED that by not later than February 12, 2016, the parties shall inform the Court whether they have agreed on a mechanism for selecting arbitrators; and it is further
ORDERED that all proceedings in this case are STAYED pending the conclusion of the arbitration.
SO ORDERED.
JOHN D. BATES
United States District Judge