American General Finance, Inc. v. Branch

• Citation: 793 So.2d 738
• Parties: AMERICAN GENERAL FINANCE, INC., et al. v. Mable BRANCH. American General Finance, Inc. v. April Reaves.
• Decision Date: 22 December 2000
• Court: Supreme Court of Alabama

793 So.2d 738

AMERICAN GENERAL FINANCE, INC., et al.
v.
Mable BRANCH.
American General Finance, Inc.
v.
April Reaves

1988.

Supreme Court of Alabama.

December 22, 2000.

Concurring Opinion on Denial of Rehearing March 30, 2001.

793 So.2d 740

Robert H. Rutherford, Richard C. Keller, and F.A. Flowers III of Burr & Forman, L.L.P., Birmingham, for appellants

Garve W. Ivy, Jr., of Ivey & Ragsdale, Jasper, for appellees.

Robert A. Huffaker of Rushton, Stakely, Johnston & Garrett, P.A., Montgomery, for amicus curiae Automobile Dealers Association of Alabama, in support of the appellants' application for rehearing.

Matthew C. McDonald of Miller, Hamilton, Snider & Odom, L.L.C., Mobile, for amici curiae Alabama Retail Association and Alabama Civil Justice Reform Committee, in support of the appellants' application for rehearing.

H. Hampton Boles and Michael L. Edwards of Balch & Bingham, L.L.P., Birmingham, for amicus curiae Alabama Bankers Association, in support of the appellants' application for rehearing.

COOK, Justice.

American General Finance, Inc. ("American General"); Merit Life Insurance Co. ("Merit"); and Yosemite Insurance Company ("Yosemite") (collectively "the Lenders") appeal from an order denying their motions to compel the arbitration of claims presented in an action commenced by Mable Branch (appeal no. 1990887) and an order denying their motions to compel the arbitration of claims presented in an action commenced by April Reaves (appeal no. 1990888). We affirm as to case 1990887, but as to case 1990888 we reverse and remand.

The claims of Branch and Reaves arose out of a series of loan transactions in which they separately borrowed money from American General. In Reaves's case, the first transaction occurred in December 1994, and the second on November 2, 1995. In Branch's case, the first transaction occurred on July 3, 1996; a second on October 18, 1996; and a third on November 21, 1997.

The "Note and Security Agreement" signed by Branch on November 21, 1997, contained the following pertinent provisions:

"Borrower(s) hereby acknowledge that the transactions evidenced by this agreement involve interstate commerce. Borrower and Lender agree that, except as otherwise set forth in this provision, all claims, disputes, or controversies of every kind and nature between Borrower(s) and Lender shall be resolved by arbitration, including (i) those based on contract, tort or statute, (ii) those arising out of or relating to the transaction(s) evidenced by this agreement, the disclosures relating to this agreement, the Federal Disclosure Statement, any insurance certificates or policies, any documents executed at or about the same time this agreement was executed or (iii) those arising out of, relating to any other prior, proposed or actual loan or extension of credit, (and the relationships which result from these transactions or any other previous transactions between Borrower(s) and Lender). Borrower(s) and Lender further agree that all issues and disputes as to the arbitrability of claims must also be resolved by the arbitrator.

". . . .

"Arbitration of such claims will be conducted by a single arbitrator selected by the Borrower(s) and Lender, pursuant to the Federal Arbitration Act, [9 U.S.C. § 1 et seq. (the "FAA"),] and according to the commercial rules of the American Arbitration Association, at a reasonable and convenient location to be selected by the Borrower(s). Each party shall pay one-half of the arbitration costs and expenses.

793 So.2d 741

". . . .

"BORROWER(S) AND LENDER AGREE THAT THE ARBITRATOR MAY AWARD PUNITIVE DAMAGES ONLY UNDER CIRCUMSTANCES WHERE A COURT OF COMPETENT JURISDICTION COULD AWARD SUCH DAMAGES. HOWEVER, IN NO EVENT SHALL AN AWARD OF DAMAGES EXCEED FIVE (5) TIMES THE ECONOMIC LOSS SUFFERED BY THE PARTY. BORROWER(S) AND LENDER FURTHER AGREE THAT THE ARBITRATOR SHALL NOT CONDUCT ANY CLASS-WIDE PROCEEDINGS AND WILL BE RESTRICTED TO RESOLVING THE INDIVIDUAL DISPUTES BETWEEN THE PARTIES."

"Borrower(s) and Lender agree that, notwithstanding the foregoing, Lender retains the right to use judicial or self-help remedies (i) to repossess or foreclose on collateral or to enforce the security interests relating to this transaction, and (ii) to pursue collection actions against the Borrower(s) where the amount of the debt is $10,000 or less. The exercise of this right by Lender to pursue judicial or self-help remedies shall not constitute a waiver of Lender's right to compel the arbitration of any claim or dispute subject to this arbitration clause—including the filing of a counterclaim by Borrower(s) in a lawsuit filed by Lender.

"The arbitration clause shall be binding upon the assigns, directors, officers, representatives, employees, parent companies, affiliated companies, subsidiaries and successors of Lender, and the administrators, assigns, executors, heirs and representatives of Borrower(s). In addition, the parties agree to submit to arbitration not only the foregoing claims or disputes against each other, but also all claims or disputes they have against (i) all other persons or entities involved with the transactions subject to this clause, (ii) all persons or entities who signed or executed any of the documentation subject to this clause, and (iii) all persons or entities who may be jointly or severally liable to any of the parties to this agreement regarding matters or events relating to the transactions and documentation subject to this clause."

(Boldface type and capitalization in original.)

The "Note and Security Agreement" executed by Reaves on November 2, 1995, contained arbitration provisions that differed from the ones in Branch's contract in only one material respect. That agreement did not contain the provision purporting to make arbitrable "all issues and disputes as to the arbitrability of claims." (Boldface type omitted.)

Branch and Reaves commenced their actions on June 15, 1998, and September 11, 1998, respectively. Branch sued Merit and Yosemite, as well as American General, while Reaves sued only American General. Broadly stated, the substantive allegations common to both complaints were that the plaintiffs were enticed, pursuant to a scheme or plan, to borrow money under circumstances that enabled the defendants (1) to collect excessive finance charges; (2) to sell customers "duplicative services" through "flipping"¹; and (3) to collect unnecessary or excessive premiums for credit-disability insurance and life insurance.

793 So.2d 742

All defendants moved to compel arbitration of the actions, based on the arbitration provisions in the "Note and Security Agreement" documents. In a written order, the trial court denied the motions on the ground that the arbitration provisions were unconscionable. The order stated in pertinent part

"This matter comes before the court on the motions of the defendants [American General, Merit, and Yosemite], to compel the disputes of the plaintiffs to arbitration in Branch and the same motion on behalf of [American General] in Reaves.

"The parties have, pursuant to this court's order conducted extensive discovery on the issues, and have submitted voluminous filings to support the record on their respective positions. Along with the Branch case, they have simultaneously done discovery in the [Reaves case].

"Because the issues in Branch and Reaves are the same as to [American General], they will be addressed together. The issues in Branch as to [Merit and Yosemite] are much less complex and can be disposed of summarily, and they will, therefore, be addressed first.

"It is indisputable that both Merit and Yosemite rely upon the provisions of the retail installment contract in the American General document. The broad arbitration provision in this case clearly may be read to encompass the subsidiaries of American General, in this case, Merit and Yosemite. Therefore, to the extent that Merit and Yosemite move to compel arbitration, the findings of this court as to American General appl[y] equally to them, and they will be bound to these findings.

"The court's first duty in considering whether to grant the motion of the defendants is to determine whether or not the parties agreed to arbitrate. The breadth of the clause is not at issue until that determination is made.

"Facially, the parties have signed the contracts in question. That fact, in and of itself, is not dispositive, however, for as our Supreme Court, the Supreme Court of the United States, and the Federal Arbitration Act itself[ ] all say[,] [written] contracts requiring arbitration are subject to the defenses available under state law that would be available to resist any contract.

"Many of the defenses that are implicit in the evidence before the court would require this court, applying the summary judgment standard enunciated by our Supreme Court, to submit these issues for trial to a jury, as there are many questions of fact that could invalidate this provision if a jury believed the evidence and position argued by the plaintiffs.

"There are, however, contract defenses that are to be considered by the court. The Supreme Court of Alabama, in Green Tree Financial Corp. of Alabama v. Vintson, [753 So.2d 497 (Ala. 1999)], noted that the defense of unconscionability is for the trial court....

"The doctrine of unconscionability is codified in [Ala.Code 1975, § 5-19-16, which provides:

"`With respect to a consumer credit transaction, if the court as a matter of law finds the contract or any provision of the contract to have been unconscionable at the time it was made, the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable provision, or it may so limit the application of any unconscionable provision as to avoid any unconscionable result.]'

". . . .

793 So.2d 743

"Our [Supreme Court] has enumerated a series of factors appropriate for consideration of a clause purporting to require

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