Johnson Fistel Defeats Citibank’s Arbitration Clause in Home Equity Line of Credit Agreement

Arbitration is a form of alternative dispute resolution in which the two parties agree not to take their dispute to court, but instead to resolve the dispute by hiring an arbitrator to hear both sides. Many consumer contracts accompany mandatory arbitration clauses, which force consumers to bring their disputes to a privatized justice system that is stacked in favor of big corporations.

Recently, Johnson Fistel challenged and defeated an arbitration clause that was embedded in an agreement for a home equity line of credit provided by Citibank. Citibank requested the New York Supreme Court to compel Johnson Fistel’s client to arbitrate his claims arising from the bank’s refusal to assign his home equity line of credit to another lender. In support, Citibank argued that its broad arbitration clause covered the client’s dispute and that the court should enforce the arbitration clause given the judicial policy favoring arbitration. Nevertheless, W. Scott Holleman from Johnson Fistel’s New York office argued that the arbitration clause was unconscionable, both procedurally and substantively, and the court agreed.

The court was informed by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), which prohibits mandatory arbitration clauses in mortgage and home equity loan agreements. The court found that, although Dodd-Frank could not be retroactively applied to the arbitration clause at issue, the prohibition of mandatory arbitration clauses post Dodd-Frank illustrated the unfair nature of such arbitration clauses in mortgage and home equity line agreements. In light of the unfair nature of the arbitration clause at issue, the court opined that it was unconscionable, thus unenforceable.

The New York Supreme Court’s opinion can be found below.