Rhode v. E & T Investments, Inc.

• Decision Date: 08 May 1998
• Docket Number: No. Civ.A. 98-D-151-S.,Civ.A. 98-D-151-S.
• Citation: 6 F.Supp.2d 1322
• Parties: Gary J. RHODE, Plaintiff, v. E & T INVESTMENTS, INC., d/b/a Best Value Homes; Brilliant Homes Corp., et al, Defendants.
• Court: U.S. District Court — Middle District of Alabama

6 F.Supp.2d 1322

Gary J. RHODE, Plaintiff, v. E & T INVESTMENTS, INC., d/b/a Best Value Homes; Brilliant Homes Corp., et al, Defendants.

No. Civ.A. 98-D-151-S.

United States District Court, M.D. Alabama, Southern Division.

May 8, 1998.

COPYRIGHT MATERIAL OMITTED

Michael S. Harper, Tallassee, AL, for Plaintiff.

Herman W. Cobb, Brian T. Mosholder, Dothan, AL, Algert S. Agricola, Jr., Montgomery, AL, Wade H. Baxley, Dothan, AL, David L. Selby, II, Birmingham, AL, for Defendants.

MEMORANDUM OPINION AND ORDER

DE MENT, District Judge.

Before the court is Defendants' Motion to Compel Arbitration, filed February 18, 1998. Plaintiff filed a Response to Defendants' Motion to Compel Arbitration ("Resp. to Mot. to Compel Arbitration") on April 8, 1997, and a Brief in opposition to Defendants' Motion to Compel Arbitration ("Br. in Opp'n") on April 10, 1998. Each Defendant filed a Reply to Plaintiff's Response on April 23, 1998. Plaintiff filed a Response to Defendant Brilliant Homes Corporation's Reply Brief on April 29, 1998 ("Resp. to Def. Brilliant Homes Corp. Reply Br."). After careful consideration of the arguments of counsel, the relevant law and the record as a whole, the court finds that Defendants' Motion to Compel Arbitration is due to be granted in part and denied in part.

JURISDICTION AND VENUE

The court properly exercises subject matter jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331, 1441(c). The parties do not contest personal jurisdiction or venue.

FACTUAL BACKGROUND

On December 12, 1996, Plaintiff Gary J. Rhode and Defendant E & T Investments, Inc. d/b/a/ Best Value Homes ("E & T Investments") entered into a Manufactured Home Retail Installment Contract ("Installment Contract") for the purchase of a manufactured home ("Home"). The Home purchased by Plaintiff through said Installment Contract was manufactured by Defendant Brilliant Homes Corporation ("Brilliant Homes"). The Installment Contract was assigned to Green Tree Financing Corporation.

Two arbitration provisions accompanied the sale of the Home. Paragraph 14 of the Installment Contract contains a provision mandating arbitration.¹ Additionally, accompanying the installment sales contract is a separate document, entitled "Arbitration Agreement," wherein "seller/lessor" Best Value Homes and "buyer/lessee" Gary Rhode essentially agree to arbitrate any and all disputes relating to the sale and financing of the mobile home.²

On January 7, 1998, Plaintiff commenced this action against Defendants in the Circuit Court of Dale County, Alabama, alleging, inter alia, breach of contract, breach of express and implied warranties, claims under the Magnuson-Moss Warranty-Federal Trade Commission Improvement Act, claims for negligent or wanton construction, installation and repair, violation of Alabama Code §§ 7-2-313, 7-2-314, 7-2-315, and fraud. Defendants removed the action to this court on February 11, 1998. Defendant E & T Investments filed an Answer on February 17, 1998, and Defendant Brilliant Homes filed an Answer on March 12, 1998. On February 18, 1998, Defendants filed this instant Motion to Compel Arbitration.

Defendants contend that all of Plaintiff's claims are governed by the two arbitration agreements executed between E & T Investments and Plaintiff on December 12, 1996. (Mot. to Compel ¶ 1.) Defendants contend that the agreements to arbitrate extend to Plaintiff's claims against Defendant Brilliant Homes, as these claims arise from the sale of the mobile home. (Mot. to Compel at ¶ 7.)

DISCUSSION

Section 2 of the Federal Arbitration Act ("FAA") provides that a written agreement to arbitrate in a contract involving interstate commerce "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."³ 9 U.S.C.A. § 2. The effect of § 2 is "to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act." Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Section 3 provides for the stay of proceedings in federal district courts when an issue in the proceedings is referable to arbitration. 9 U.S.C.A. § 3. Section 4 provides for orders compelling arbitration when one party has failed, neglected, or refused to comply with an arbitration agreement. 9 U.S.C.A. § 4.

Whether an arbitration provision is enforceable, as opposed to the merits of the underlying dispute, is a question for the court. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985); Kelly v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 985 F.2d 1067 (11th Cir.1993). Any doubts about the scope of arbitrable issues should be resolved in favor of arbitration, even if the result is piecemeal litigation. See Byrd, 470 U.S. at 218-21, 105 S.Ct. 1238; Moses H. Cone, 460 U.S. at 24, 103 S.Ct. 927; Kelly, 985 F.2d at 1069.

In enacting the FAA, Congress manifested a "liberal federal policy favoring arbitration agreements." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) (quoting Moses H. Cone, 460 U.S. at 24, 103 S.Ct. 927). The Act's purpose "was to reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts, and to place arbitration agreements upon the same footing as other contracts." Id. at 24, 103 S.Ct. 927. Therefore, "questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration," Moses H. Cone, 460 U.S. at 24, 103 S.Ct. 927, and courts must "rigorously enforce agreements to arbitrate." Byrd, 470 U.S. at 221, 105 S.Ct. 1238.

Even with this strong federal policy in mind, however, arbitration is a matter of contract, and a party cannot be compelled to arbitrate any claims which he or she has not agreed to submit to arbitration. AT & T Technologies, Inc. v. Communications Workers of Am., 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986). Accordingly, "as with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 627, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). Section 2 of the FAA allows courts to give relief where the party opposing arbitration presents "well supported claims that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds `for the revocation of any contract.'" Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 483-84, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989) (quoting Mitsubishi Motors, 473 U.S. at 627, 105 S.Ct. 3346; 9 U.S.C.A. S 2). Thus, § 2 "gives States ... method[s] for protecting consumers against unfair pressure to agree to a contract with an unwarranted arbitration provision" both in equity and under principles of contract law. Allied-Bruce Terminix v. Dobson, 513 U.S. 265, 281, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995).

Plaintiff bears the burden of demonstrating why the arbitration agreement in this action should not bind the parties, Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 225-26, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987), and raises several grounds as to why the court should not compel arbitration. Specifically, Plaintiff argues that the Arbitration Agreements are unenforceable with respect to his claims against Defendants because: (1) the agreements are contracts of adhesion; (2) the Magnuson-Moss Warranty Act prevents binding arbitration being imposed by a seller of goods on a consumer; and (3) the arbitration agreements are strictly between Plaintiff and Defendant E & T Investments, and not Defendant Brilliant Homes.

Because Plaintiff's contractual arguments are directed exclusively to the arbitration provisions, and not to the contract as a whole, the court may properly address these issues. See Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967); Wheat, First Securities, Inc. v. Green, 993 F.2d 814 (11th Cir.1993).

I. The Arbitration Agreements are not Unconscionable Contracts of Adhesion

Plaintiff argues that the court should deny Defendants' Motion to Compel Arbitration on grounds that the arbitration agreements at issue are "nothing more than ... contract[s] of adhesion" resulting from "greatly unequal bargaining power on the part of Defendants" and offered to a party with inferior bargaining power on a "take it or leave it basis." (Br. In Opp'n at 1.)

As noted earlier, "`arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he [or she] has not agreed so to submit.'" Goodwin v. Ford Motor Credit Co., 970 F.Supp. 1007, 1015 (M.D.Ala.1997) (quoting AT & T Technologies, Inc., 475 U.S. at 648, 106 S.Ct. 1415). In making this determination, the court applies state law governing the formation of contracts, keeping in mind the strong federal policy favoring arbitration. See First Options of Chicago v. Kaplan, 514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995); Volt Info. Sciences v. Bd. of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989); American Express Fin. Advisors v. Makarewicz, 122 F.3d 936, 940 (11th Cir. 1997).

Contracts of adhesion are not ipso facto invalid. See Roberson v. Money Tree of Alabama, 954 F.Supp. 1519, 1526 n. 10 (M.D.Ala.1997) (Thompson, J.) (discussing the valid functions of contracts of adhesion in a rational economic model); see also Rollins v. Foster, 991 F.Supp. 1426, 1434 (M.D.Ala. 1998) (Thompson, J.). However, a finding that an arbitration clause is an unjust and unreasonable contract of adhesion might be grounds not to enforce the contract under the FAA. Rollins, 991 F.Supp. 1426, 1433 (citing Ex parte Merrill...