Green Tree Servicing, LLC v. Duncan
7 Am. Tribal Law 633 (2008)
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Rule of Law:
An arbitration clause in a consumer financing contract is unconscionable and violates Navajo public policy when it is one-sided, requiring the consumer to arbitrate all claims while permitting the lender to use judicial proceedings to repossess collateral.
Facts:
- In 1994, Duncan purchased a mobile home and financed it through a loan from Conseco Finance Corporation, Inc. (Conseco).
- The financing contract contained an arbitration clause requiring Duncan to resolve all claims through binding arbitration.
- The same clause reserved the right for the lender (or its assignee) to use judicial or non-judicial relief, including filing a court action, to repossess the mobile home.
- Conseco later filed for Chapter 11 bankruptcy reorganization.
- CFN Investment Holdings, LLC purchased Conseco's servicing contracts, including Duncan's, in the bankruptcy proceeding, and the sale was approved "free of any prior claims against Conseco."
- CFN Investment Holdings, LLC subsequently became Green Tree Servicing, LLC (Green Tree).
- Duncan alleges that Green Tree engaged in fraud, harassment, and assault against her.
Procedural Posture:
- Green Tree Servicing, LLC filed a repossession action against Duncan in the Shiprock District Court (a trial-level court).
- Duncan filed an answer and counterclaims against Green Tree for fraud, harassment, and assault.
- The District Court dismissed Duncan's counterclaims, ruling that it lacked jurisdiction due to the automatic stay from the federal bankruptcy proceeding of Conseco, Green Tree's predecessor.
- Duncan, as appellant, appealed the dismissal to the Navajo Nation Supreme Court.
- On appeal, Green Tree, as appellee, raised alternative grounds for dismissal, including the contract's mandatory arbitration clause.
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Issue:
Is an arbitration clause in a mobile home financing contract, which bars the home owner from filing a court action but allows the finance company to file a repossession action in court, valid under Navajo public policy?
Opinions:
Majority - Unspecified
No, the arbitration clause is not valid under Navajo public policy. A grossly one-sided arbitration clause that mandates arbitration for a consumer's claims while reserving the right for the lender to pursue judicial remedies for repossession is unconscionable and unenforceable. The court reasoned that such a clause violates the Navajo Nation's public policy against unconscionable contracts, as articulated in the Navajo Uniform Commercial Code. It also conflicts with Navajo Fundamental Law principles, such as házhó’ógó (requiring a patient, respectful discussion before a waiver of rights) and ííshjání ádooniíl (requiring clarity), because the grossly unequal effect of the clause was not clearly explained. Given the importance of a home in Navajo culture, the court found that the clause placed a great and unfair burden on Duncan's ability to defend herself in an action seeking to take her home, as she would be forced into arbitration while Green Tree could use the courts. The court also held separately that the automatic stay from Conseco's bankruptcy did not apply to Green Tree, as Green Tree was a purchaser of assets and not the debtor itself.
Analysis:
This decision establishes a significant precedent within Navajo Nation jurisdiction by integrating Navajo Fundamental Law (Diné bi beena'haz'áanii) with modern commercial contract principles to strike down an unconscionable term. The ruling limits the enforceability of one-sided arbitration clauses in consumer contracts, particularly those for essential items like housing. It signals that form contracts used by outside businesses will be scrutinized for fairness and clarity under both Navajo statutes and cultural legal principles. This holding serves as a powerful consumer protection tool and requires lenders doing business on the Navajo Nation to draft more equitable dispute resolution provisions.
