A subsidiary of Citigroup failed in its bid to compel arbitration in a life insurance dispute in federal court in Pittsburgh.
U.S. Magistrate Judge Robert C. Mitchell of the Western District of Pennsylvania declined to read the arbitration clauses that were part of other contracts signed by Karen Bucher, the plaintiff, with Citigroup entities as applying to the life insurance policy at issue in this case.
“None of the three transactions defendants cite, however, has any connection with the 2005 mortgage and life insurance policy which form the basis of plaintiff’s claims in this matter,” Mitchell said in his opinion. “The arbitration agreements that defendants submit do not cite the Sept. 7, 2005, note, but instead reference other notes by specific account number and correspond with the appropriate disclosure statement, note and security agreement. In each arbitration agreement, the definition of ‘we’ or ‘us’ or ‘our’ is ‘the lender under the note listed above.’ In addition, the notes indicate that arbitration is contingent upon a separate agreement entered into on the same date as the note, but no such language appears in the Sept. 7, 2005, mortgage.”
Bucher and her husband, Clarence Bucher, had taken out a mortgage-secured loan from CitiFinancial in 2005 and, on the advice of CitiFinancial, they had also gotten a debtor group insurance policy on Clarence Bucher’s life for up to $100,000, according to the opinion.
The Buchers entered into various other financial contracts through CitiFinancial at times after 2005, including in 2007, when they took out a second mortgage-secured loan. At that point, CitiFinancial advised the couple not to refinance their first mortgage, which they would have done absent that advice, since they would lose the life insurance. They didn’t refinance the 2005 mortgage, according to the opinion.
The original loan had been through American Health and Life Insurance Co., but at some point OneMain Financial Services began servicing both of those loans, according to the opinion.
The judge summarized the defendants’ description of the ownership structure of the financial companies this way: “American Health and OneMain are wholly-owned subsidiaries of CitiFinancial Credit Co., while CitiFinancial is a limited liability company whose sole member is CitiFinancial Credit Co., and CitiFinancial Credit Co. is a wholly-owned subsidiary of Associates First Capital Corp., which is a wholly-owned subsidiary of Citicorp Banking Corp., which is a wholly-owned subsidiary of Citigroup Inc.”
American Health, CitiFinancial and OneMain are named as defendants. The case was captioned Bucher v. American Health and Life Insurance.
Clarence Bucher died April 21, 2013.
Karen Bucher later found out that the life insurance policy had been canceled without notice. She filed a suit claiming breach of contract, bad faith and unjust enrichment in the Allegheny County Court of Common Pleas, which the defendants removed to federal court on diversity jurisdiction grounds.
The defense filed two motions to compel arbitration.
In support of its motions, the defense had pointed to two unsecured personal loans and an auto loan—each of which had an accompanying arbitration agreement, according to the opinion.
“Defendants argue that these arbitration agreements apply to ‘all disputes’ between the borrower and lender except certain disputes (which do not include breach of contract, bad faith or unjust enrichment) and apply to any ‘past, present or future insurance, service, or other product that is offered or purchased in connection with a credit transaction,’” according to the opinion. “They also state that the arbitration agreements apply to CitiFinancial Services and to all ‘past, present or future respective parents, subsidiaries, affiliates, predecessors, assignees [and] successors.’”
The judge wasn’t convinced.
For the mortgage and life insurance policy at issue in this case, Mitchell said, “Neither the note nor the policy contains an arbitration agreement. Thus, there is no evidence that plaintiff agreed to arbitrate disputes arising out of the Sept. 7, 2005, mortgage, note or insurance policy.”
Unless there is a clear agreement to arbitrate, motions to compel arbitration are to be treated as summary judgment motions, Mitchell had explained, citing to the U.S. Court of Appeals for the Third Circuit’s 1980 opinion in Par-Knit Mills v. Stockbridge Fabrics.
“In Par-Knit Mills, the court concluded that disputed issues of fact regarding the existence of an agreement to arbitrate meant that the motion to dismiss or stay had to be denied,” Mitchell said, after introducing Pennsylvania law’s three-part standard for determining whether a valid arbitration agreement exists.
David M. Kobylinski of Praetorian Law Group in Pittsburgh represented Bucher and said he was pleased with the court’s opinion. CitiFinancial was trying to maneuver a “vast overreach” that would have been unfair to consumers, he said.
“My client looks forward to her day in court,” Kobylinski said.
Martin C. Bryce Jr. of Ballard Spahr in Philadelphia represented the defendants and couldn’t be reached for comment.
(Copies of the nine-page opinion in Bucher v. American Health and Life Insurance, PICS No. 14-1358, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •