Lawson v. Life of The South Ins. Co.

• Decision Date: 10 August 2011
• Docket Number: No. 10–11651.,10–11651.
• Parties: Barbara Elizabeth LAWSON, Individually and on behalf of a class of all persons similarly situated, Jerry Lawson, Individually and on behalf of a class of all persons similarly situated, Plaintiffs–Appellees,v.LIFE OF THE SOUTH INSURANCE COMPANY, a corporation, Defendant–Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

648 F.3d 1166

23 Fla. L. Weekly Fed. C 196

Barbara Elizabeth LAWSON, Individually and on behalf of a class of all persons similarly situated, Jerry Lawson, Individually and on behalf of a class of all persons similarly situated, Plaintiffs–Appellees,

v.LIFE OF THE SOUTH INSURANCE COMPANY, a corporation, Defendant–Appellant.

No. 10–11651.

United States Court of Appeals, Eleventh Circuit.

Aug. 10, 2011.

James E. Butler, Jr., Kate Sievert Cook, Joel O. Wooten, Jr., Butler, Wooten & Fryhofer, LLP, Teresa Thomas Abell, Austin Grower, Charles Austin Grower, Jr., Charles A. Gower, PC, Samuel W. Oates, Jr., Oates & Courville, Ben. B. Philips, Columbus, GA, Alfred N. Corriere, Vansant & Corriere, LLC, Albany, GA, Brandon Lee Peak, Butler, Wooten & Fryhofer, LLP, Atlanta, GA, for Plaintiffs–Appellees.Lee Edmundson Bains, Jr., Elizabeth Prim Formby, Jeffrey Monroe Grantham, Lorrie Lynn Hargrove, Charles Andrew Kitchen, Maynard, Cooper & Gale, PC, Birmingham, AL, Jerry A. Buchanan, Trisha D. Hargrove, Benjamin Arthur Land, Buchanan & Land, LLP, Columbus, GA, Charles Whatley Byrd, Walker, Hulbert, Gray & Byrd, Perry, GA, for Defendant–Appellant.Appeal from the United States District Court for the Middle District of Georgia.Before CARNES, PRYOR and COX, Circuit Judges.CARNES, Circuit Judge:

A rule of contract law is that one who is not a party to an agreement cannot enforce its terms against one who is a party. See Walsh v. Columbus, H.V. & A.R. Co., 176 U.S. 469, 479, 20 S.Ct. 393, 397, 44 L.Ed. 548 (1900); Cooper v. Meridian Yachts, Ltd., 575 F.3d 1151, 1169 (11th Cir.2009); United States v. Puentes, 50 F.3d 1567, 1574 (11th Cir.1995); 13 Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts § 37:1 (4th ed. 1999) (“As a general rule, strangers to a contract acquire no rights under such a contract.” (quotation marks omitted)). The right of enforcement generally belongs to those who have purchased it by agreeing to be bound by the terms of the contract themselves. Most legal rules have exceptions, however, and this rule is no exception to the rule of exceptions. In Arthur Andersen LLP v. Carlisle, Supreme Court noted that a nonparty to a contract may have the legal right to enforce its provisions “through assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel.” (quotation marks omitted). 556 U.S. 624, 129 S.Ct. 1896, at 1902, 173 L.Ed.2d 832 (2009).

Life of the South Insurance Company contends that two of those exceptions—the third-party beneficiary doctrine and equitable estoppel—allow it to compel Barbara and Jerry Lawson to arbitrate their disagreement with it under the terms of an arbitration clause in a contract to which the Lawsons were parties but Life of the South was not. The Lawsons do not want to arbitrate, preferring instead to proceed with the nationwide class action lawsuit they have pending against Life of the South arising out of the credit life insurance policy they purchased from it. They contend that Life of the South has no right to enforce against them the arbitration clause in the loan agreement, even though that agreement did lead them to enter into a separate credit life insurance contract with it. We agree with the Lawsons. This is a case where the general rule applies and the exceptions to it do not.

I.

In December 2002 the Lawsons purchased a used 2000 Chevrolet Blazer from a car dealership in Morrow, Georgia. To finance the purchase they entered into a loan agreement with the dealership. The dealership assigned the loan agreement to Chase Manhattan Bank.

The loan agreement required the Lawsons to pay monthly installments on the car for 60 months, but it granted them the right to pay off the loan early. It also contained a clause titled “Agreement to Arbitrate Disputes,” which provided:

A Dispute means any controversy or claim ... arising from or relating to [the loan agreement]. The term Dispute includes, but is not limited to, the negotiation or breach of [the loan agreement], or any aspect of the sale of the vehicle involving any Buyer, Co–Buyer, Seller or assignee, agent, employee, surety bonding company or insurer of any of these persons .... If any Dispute arises, either you or we may choose to have the Dispute resolved by binding arbitration ....

(emphasis added). The loan agreement defined “you” as “the Buyer” (Barbara Lawson) and “Co–Buyer” (Jerry Lawson) and “we” as “the creditor named above” (the car dealership), “after assignment, the creditor's assignee” (Chase Manhattan), and “any other assignee” (there were no other assignees). The arbitration clause also provided (gratuitously) “that this Agreement to Arbitrate Disputes shall be subject to and governed by the Federal Arbitration Act, 9 U.S.C. [§§ ] 1–10, as amended.”

The loan agreement gave the Lawsons the option to purchase credit life insurance. The premium for the insurance was a one-time, up-front payment of $530.08, and that premium would be included in the total amount financed under the loan agreement for the purchase of the car. Opting to purchase the insurance, the Lawsons checked the appropriate box on the loan agreement.

In addition to checking that box on the form loan agreement with the car dealership, the Lawsons executed a separate credit life insurance policy agreement with Life of the South. The insurance policy provided that Life of the South would pay the balance the Lawsons owed on the car loan if either of the Lawsons died before the loan was paid off. The total coverage at the time of execution was the original loan balance of $15,706.20, which included the insurance premium, but coverage would decrease each month to reflect the payments that the Lawsons made on the loan. Unlike the loan agreement between the Lawsons and the car dealership, the insurance policy agreement between the Lawsons and Life of the South did not contain an arbitration clause.¹

The insurance policy provided that if the Lawsons paid off the loan early, they would be eligible for a refund of any remaining premium, which the policy referred to as the “unearned premium.” The refund would be prorated based on the amount of time left on the original loan term. The Lawsons paid off the loan in April 2005, more than two-and-a-half years early. Life of the South made no effort to refund the unearned amount of the prepaid premium to the Lawsons.

In March of 2006, without having requested a refund from Life of the South or notifying it that they had paid off the loan, the Lawsons filed a nationwide consumer class action in Georgia state court against Life of the South. On behalf of themselves and the purported class, the Lawsons sought a refund of the unearned premium due under the insurance policy because of the early termination of the loan, as well as damages under several contract and tort theories, injunctive relief requiring Life of the South “to ensure that in the future insureds ... receive [their] refunds,” and attorney's fees. The purported class included all United States residents “who have been or will be insured under a Life of the South credit insurance policy” and “whose underlying loan stopped or could stop” before the end of the loan term, and “who were not paid or might not be paid a refund.” The class allegedly numbers in the “hundreds of thousands.”

Life of the South filed a motion to compel arbitration based on the arbitration clause in the loan agreement, which provided Chase Manhattan, the car dealership, and the Lawsons the right to force arbitration of any dispute arising from or relating to that agreement. The arbitration clause in the loan agreement provided that “[n]o class action arbitration may be ordered under this Agreement to Arbitrate Disputes,” cf. AT&T Mobility LLC v. Concepcion, ––– U.S. ––––, 131 S.Ct. 1740, 1747, 179 L.Ed.2d 742 (2011), which, given the class action settlements in cases against other credit insurers involving this same issue, makes the arbitration issue a high stakes one. ²

Life of the South removed the lawsuit to a federal district court under the Class Action Fairness Act, 28 U.S.C. § 1711 et seq. and 28 U.S.C. § 1332(d), bringing with it the motion to compel arbitration. The district court eventually denied the motion to compel arbitration. This is Life of the South's appeal from the denial of that motion. See 9 U.S.C. § 16(a)(1)(B) (“An appeal may be taken from an order ... denying a petition [under the FAA] to order arbitration to proceed ....”).

II.

We review de novo the district court's denial of a motion to compel arbitration. MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 946 (11th Cir.1999).³ To determine which disputes between the parties to an enforceable arbitration agreement are covered by the language of the arbitration clause, we “apply[ ] the federal substantive law of arbitrability,” which is “applicable to any arbitration agreement within the coverage of the FAA.” Klay v. All Defendants, 389 F.3d 1191, 1200 (11th Cir.2004) (quoting Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444, (1985)). That inquiry “must be addressed with a healthy regard for the federal policy favoring arbitration,” Picard v. Credit Solutions, Inc., 564 F.3d 1249, 1253 (11th Cir.2009) (quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26, 111 S.Ct. 1647, 1652, 114 L.Ed.2d 26 (1991)), and we must “rigorously enforce agreements to arbitrate,” Klay, 389 F.3d at 1200 (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221, 105 S.Ct. 1238, 1242, 84 L.Ed.2d 158 (1985)).

Still, “arbitration is a matter of contract [and] the FAA's strong proarbitration policy only applies to disputes that the parties have agreed to arbitrate.” Klay, 389 F.3d at 1200. An exception to that rule is that a nonparty may force arbitration “if the relevant state contract law allows him to enforce the agreement” to arbitrate. Car...