In order for a contract, and therefore an arbitration clause, to be valid under Maryland law, it must be supported by consideration.
This is a breach of contract action for damages and other relief arising out of an Agreement of Sale ("the Agreement") signed by the parties for the purchase of a home. Mehdi Noohi and Soheyla Bolouri, husband and wife (collectively "Plaintiffs"), brought an action, individually and on behalf of all others similarly situated, against Toll Bros., Inc., and its wholly-owned subsidiaries and agents Toll Land Corp. No. 43 and Toll MD V Limited Partnership (collectively "Defendants"), as well as all other similarly situated entities by or through which Toll Brothers markets and sells residential real estate properties within the United States and its territories. Plaintiffs seek damages equal to the amount of the $77,008 deposit withheld by Defendants even though the sales agreement never reached closing, along with compensatory, consequential and punitive damages. Additionally, Plaintiffs allege that from 2006 through 2009, Defendants retained $106.2 million in customer deposits from similarly situated plaintiffs and therefore requested that this Court certify a class action. Defendants argue that this action should be dismissed or stayed pending arbitration because the Agreement of Sale ("the Agreement") signed between the parties includes a mandatory arbitration clause, Section 13. Plaintiffs, however, contend that the arbitration clause is unenforceable for lack of mutuality of consideration and that therefore they are entitled to bring this suit before this Court. Defendant's Motion to Dismiss or Stay Plaintiffs' Complaint Pending Arbitration (ECF No. 5) was denied.
Is the arbitration clause unenforceable for lack of mutuality of consideration?
The arbitration provision is quite simply one-sided and onerous. It mandates that buyers, or in this case Plaintiffs, promise to (1) submit all disputes against seller to binding arbitration, (2) notify Defendants of each claim before they initiate arbitration proceedings, (3) give Defendants a reasonable opportunity to cure the default, and (4) waive the right to proceed in a court of law. Conversely, defendants do not make any promises to plaintiffs in this provision. The clause does not state "Buyer and Seller," or even "the parties" and thus does not impose any obligations on the defendants. It only refers to "Buyers" and their obligations. In order for a contract, and therefore an arbitration clause, to be valid under Maryland law, it must be supported by consideration. Although the obligations need not be identical, each party must promise to arbitrate at least some types of disputes. In this case, the arbitration clause only indicates that plaintiffs agreed to submit their disputes against defendants to arbitration and the clause itself is devoid of any indication that defendants made a similar promise. As such, Section 13 of the arbitration agreement is unenforceable and plaintiffs can proceed with this action in this court.