American General Financial Services v. Griffin

• Citation: 327 F.Supp.2d 678
• Decision Date: 26 July 2004
• Docket Number: No. 1:04CV110-D-D.,1:04CV110-D-D.
• Parties: AMERICAN GENERAL FINANCIAL SERVICES, INC., et al., Plaintiffs, v. Willie GRIFFIN, Defendant.
• Court: U.S. District Court — Northern District of Mississippi

327 F.Supp.2d 678

AMERICAN GENERAL FINANCIAL SERVICES, INC., et al., Plaintiffs, v. Willie GRIFFIN, Defendant.

No. 1:04CV110-D-D.

United States District Court, N.D. Mississippi, Eastern Division.

July 26, 2004.

COPYRIGHT MATERIAL OMITTED

Patrick Ryan Beckett, Emerson Barney Robinson III, Butler, Snow, O'Mara, Stevens & Cannada, Jackson, MS, for Plaintiffs.

Christopher Wayne Cofer, Cofer & Associates, PA, Jackson, MS, for Defendant.

OPINION GRANTING MOTION TO COMPEL ARBITRATION

DAVIDSON, Chief Judge.

Presently before the Court is the Plaintiffs' motion to compel arbitration pursuant to Section Four of the Federal Arbitration Act. Upon due consideration, the Court finds that the motion should be granted. In accordance with the parties' agreement, the Defendant's claims shall be submitted to arbitration.

A. Factual and Procedural Background

The Defendant initiated an action in state court alleging various state law claims arising out of consumer loan transactions and the issuance of related insurance policies. In connection with execution of the loan documents, the Defendant signed an arbitration agreement. The Plaintiffs, the state court defendants, filed this action seeking an order compelling the Defendant to arbitrate his claims. The Defendant, who is legally blind, argues, inter alia, that the arbitration agreement was fraudulently obtained.

B. Discussion

1. Subject Matter Jurisdiction

Before addressing the merits of the Plaintiffs' motion, the Court must secure jurisdiction to make such determinations. The Plaintiffs filed their petition to compel arbitration pursuant to the Federal Arbitration Act ("FAA"). 9 U.S.C. § 2. Federal jurisdiction, however, is not evoked by merely citing a federal statute. Rio Grande Underwriters, Inc. v. Pitts Farms, Inc., 276 F.3d 683, 687 (5th Cir.2001). The Fifth Circuit has made it clear that the FAA alone does not confer federal jurisdiction. Id. at 685. (holding that "[a] party may obtain relief in federal court under the Federal Arbitration Act only when the underlying civil action would otherwise be subject to the court's federal question or diversity jurisdiction."). This action is based upon diversity jurisdiction and there is no argument that diversity and the requisite amount in controversy is lacking. 28 U.S.C. § 1332.

The Defendant's first argument attempts to displace this Court's jurisdiction by asserting that the Plaintiffs have failed to show that the underlying transactions "substantially affects interstate commerce."¹ The Defendant insists that the loan and insurance transactions clearly do not "substantially affect interstate commerce" because regulation of insurance is purely a state concern.

What the Defendant fails to recognize is that the Supreme Court has addressed this very issue in Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56-58, 123 S.Ct. 2037, 156 L.Ed.2d 46 (2003). The Supreme Court explained that "application of the FAA [is not] defeated because the individual debt-restructuring transactions, taken alone, did not have a `substantial effect on interstate commerce.'" Id. at 56, 123 S.Ct. 2037 (citations omitted). Rather, "Congress' Commerce Clause power `may be exercised in individual cases without showing any specific effect upon interstate commerce; if in the aggregate the economic activity in question would represent `a general practice ... subject to federal control.' '" Id. at 56-57, 123 S.Ct. 2037 (citations omitted). "Only that general practice need bear on interstate commerce in a substantial way." Id. at 57, 123 S.Ct. 2037 (citation omitted).

The Court specifically recognized the impact commercial lending has on the national economy. Id. at 58, 123 S.Ct. 2037 ("No elaborate explanation is needed to make evident the broad impact of commercial lending on the national economy or Congress' power to regulate that activity pursuant to the Commerce Clause."). Additionally, the court rejected the foundation of the Defendant's theory based on the prior holding in U.S. v. Lopez, 514 U.S. 549, 115 S.Ct. 1624, 131 L.Ed.2d 626 (1995). Alafabco, 539 U.S. at 58, 123 S.Ct. 2037 ("nothing in our decision in Lopez suggests that those [congressional] limits are breached by applying the FAA to the disputes arising out of the commercial loan transactions in this case.").

If there is any lingering doubt as to whether the Plaintiffs' general practice in the aggregate effects interstate commerce, such doubt would rapidly dissipate upon a cursory view of the transactional processes involved. In order to preserve precious judicial resources and avoid restating the obvious, the Plaintiffs have presented sufficient proof of an interstate nexus in approximately two and a half pages, single spaced, response to the issue. The Defendant, conversely, does not present any contradictory evidence. Resultantly, this Court has secured subject matter jurisdiction and may entertain the Plaintiffs' petition for relief.

2. Standard to Compel Arbitration

Congress provided in the Federal Arbitration Act 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." 9 U.S.C. § 2 (1999). The FAA expresses a strong national policy in favor of arbitration, and any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 857, 79 L.Ed.2d 1 (1984); Mouton v. Metro. Life Ins. Co., 147 F.3d 453, 456 (5th Cir.1998).

The Fifth Circuit has directed that courts are to perform a two-step inquiry to determine whether parties should be compelled to arbitrate a dispute. R.M. Perez & Assocs., Inc. v. Welch, 960 F.2d 534, 538 (5th Cir.1992). First, the court must determine whether the parties agreed to arbitrate the dispute in question. This determination involves two considerations: (1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement. Webb v. Investacorp, Inc., 89 F.3d 252, 257-58 (5th Cir.1996). Once the court finds that the parties agreed to arbitrate, it must then consider whether any federal statute or policy renders the claims nonarbitrable. R.M. Perez, 960 F.2d at 538. In conjunction with this inquiry, a party seeking to avoid arbitration must allege and prove that the arbitration provision itself was a product of fraud or coercion; alternatively, that party can allege and prove that another ground exists at law or in equity that would allow the parties' contract or agreement to be revoked. Sam Reisfeld & Son Import Co. v. S.A. Eteco, 530 F.2d 679, 680-81 (5th Cir.1976). As with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability. Pennzoil Exploration and Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1065 (5th Cir.1998).

a. Agreement to Arbitrate

The parties do not dispute that the Defendant signed documents containing an arbitration clause. Nor do the parties dispute that the Defendant received with the loan and insurance paperwork a separate document entitled "Arbitration Agreement and Waiver of Jury Trial" on which the Defendant placed his initials. Rather, the Defendant argues that the documents he signed were never explained to him. In other words, because the Defendant was unable to read he, therefore, had to rely on the representations of the Plaintiffs' employees who did not provide any explanation concerning the arbitration agreement. The Defendant insists that there can be no valid agreement because he did not "knowingly agree to arbitrate his claims."

It is undisputed that the various arbitration agreements bear the signatures of the Defendant. In an enhanced paragraph above the Defendant's signature on the loan application is a clause that warned, "by signing below, you agree to the Arbitration Provisions ... your rights and lenders rights will be determined by an arbitrator, not a judge or jury ... that you have read, and agree to all the terms of the arbitration provision, including the waiver of a jury or judge trial."² Despite this and other language discussing the ramifications of arbitration, the Defendant signed the agreements evincing his assent to the terms contained therein.

As for the Defendant's inability to read as a defense, the Court finds that this is no barrier to arbitration or the formation of a contract. The Mississippi Supreme Court has routinely held, and the Fifth Circuit agreed, that "parties to an insurance contract have an affirmative duty to read that contract and thus, knowledge of the contract's terms is imputed to those parties irrespective of whether they read the contract." Washington Mut. Fin. Group, L.L.C. v. Bailey, 364 F.3d 260, 264-65 (5th Cir.2004); Tel-Com Mgmt., Inc. v. Waveland Resort Inns, Inc., 782 So.2d 149, 153 (Miss.2001); J.R. Watkins Co. v. Runnels, 252 Miss. 87, 172 So.2d 567 571 (1965); Mixon v. Sovereign Camp. W.O.W., 155 Miss. 841, 125 So. 413, 415 (1930). In Bailey, the Fifth Circuit reversed the dismissal of an arbitration petition. The district court's dismissal was based on finding that the consumers were illiterate and that the finance company had not informed them that they were signing an arbitration agreement. Bailey, 364 F.3d at 264. The Appeals Court assigning as error the district court's conclusion "that the Illiterate Appellees' inability to read rendered them incapable of possessing adequate knowledge of the arbitration agreement they signed." Id.

Therefore, the Court finds that the Defendant's impairment is akin to illiteracy and does not displace his affirmative duty to read the contract "or have it read to him." Id. at 265 (quoting, Runnels, 172 So.2d at 571). It is noteworthy and uncontested that the Defendant was accompanied to the Plaintiffs' place...