CMH Homes, Inc. v. Sexton
| Decision Date | 20 February 2020 |
| Docket Number | No. Civ. 17-00835 JCH-LF, No. Civ. 17-00956 JCH-LF,Civ. 17-00835 JCH-LF |
| Citation | 441 F.Supp.3d 1202 |
| Parties | CMH HOMES, INC. and CMH Manufacturing, Inc., Plaintiffs, v. Lon W. SEXTON and Heather Sexton, Defendants. Lon Sexton, Plaintiff, v. CMH Homes, Inc. d/b/a/ Clayton Homes d/b/a Oakwood Homes of Albuquerque, CMH Manufacturing, Inc., and Vanderbilt Mortgage and Finance, Inc., Defendants. |
| Court | U.S. District Court — District of New Mexico |
Daniel S. Weber, W. Scott Simpson, Simpson McMahan Glick & Burford, PLLC, Birmingham, AL, Arslanbek S. Umarov, Rodney L. Schlagel, Butt Thornton & Baehr, PC, Albuquerque, NM, for Plaintiffs.
Nicholas H. Mattison, Feferman & Warren, Albuquerque, NM, for Defendant Lon W. Sexton.
On April 15, 2019, CMH Homes, Inc., ("CMH Homes"), CMH Manufacturing, Inc. ("CMHM"), and Vanderbilt Mortgage and Finance, Inc. ("VMF"), collectively "Defendants," filed a Motion to Compel Arbitration and Stay All Proceedings (ECF No. 35). Defendants ask the Court to compel Plaintiff Lon Sexton to resolve his claims against CMH Homes and CMHM in arbitration and to stay all of his claims against VMF.1 Plaintiff Sexton opposes the motion. The Court, having considered the motion, briefs, evidence, applicable law, and otherwise being fully informed, concludes that the provisions in the arbitration agreement requiring Plaintiff to pay half the arbitrator fees are unconscionable and unenforceable and must be severed from the agreement. Upon severing those provisions, the Court will grant the motion to compel arbitration and stay all proceedings.
Lon Sexton purchased a model manufactured home from CMH Homes in Albuquerque, New Mexico on April 14, 2016, which was manufactured by CMHM. Compare Compl. ¶ 8, ECF No. 1, with Answer ¶ 8, ECF No. 9.2 CMHM manufactured the home in Texas and transported it by interstate roadways to CMH Homes d/b/a Oakwood Homes in New Mexico. McCann Decl. ¶ 4, ECF No. 1-2. Mr. Sexton completed the paperwork for the sale and financing of the home during a single visit at the Oakwood Homes dealership with dealership representatives. Sexton Decl. ¶ 5, ECF No. 37 at 16 of 27. Mr. Sexton entered into a Consumer Loan Note and Security Agreement ("Loan Contract") with VMF. Loan Contract, 1:17-cv-00956-JCH-LF, ECF No. 9-1. CMH Homes and VMF are subsidiaries of the same parent company with business and financial relationships with one another, facts disclosed to Mr. Sexton in the Affiliated Business Arrangement Disclosure Statement. See Pl.'s Ex. 5, ECF No. 37 at 21 of 27.
In connection with the home purchase transaction, Mr. Sexton entered into a Binding Dispute Resolution Agreement (the "Arbitration Agreement") with CMH Homes. Compare Compl. ¶ 9, ECF No. 1, with Answer ¶ 9, ECF No. 9. As relevant here, the Arbitration Agreement provides:
The Parties (defined below) agree to resolve all disputes pursuant to the terms of this Binding Dispute Resolution Agreement (the "Agreement"). The Parties are defined as the buyer (whether one or more) who signs below (referred to hereinafter as "Buyer") and CMH Homes, Inc., its subsidiary(s) (e.g. CMH of KY, Inc.), and their/its agents, assignees, successors in interest, and employees (collectively referred to as "Seller"). Buyer and Seller agree that this Agreement also applies to and governs the rights of intended beneficiaries of this Agreement, who include the following additional parties: (i) manufacturers of the Home (defined below); ... (Buyer, Seller and Beneficiaries may be referred to herein as "Party" or "Parties").
Arbitration Agreement 1, ECF No. 1-1 at 7 of 10.
By its terms, the Arbitration Agreement applies:
The Arbitration Agreement states that it is mandatory that all claims must be submitted first to mediation with a mutually agreed to mediator. Id. If, however, the parties cannot agree on a mediator, mediation would shall be through "the American Arbitration Association (‘AAA’) under its Home Construction Arbitration Rules and Mediation Procedures in effect at the time Mediation is requested (the ‘Rules’)." Id. According to the Arbitration Agreement, if the parties do not resolve their dispute in mediation, they agree to binding arbitration. Id.
Excluded from mandatory mediation or binding arbitration, however, are "any disputes arising out of any contract or any other agreement for a consumer credit transaction secured by a dwelling." Id. Such disputes were excluded from the definition for "Claim" or "Claims." Id.
Regarding fees and costs, the agreement states that the fees and costs shall be paid in accordance with this agreement and the Rules. Id. at 8 of 10. According to the agreement, the buyer and beneficiaries may request that the arbitration administrator reduce or waive fees or that the seller voluntarily pays an additional share of fees and costs, based on each party's financial circumstances or the nature of the claim. Id. The request that the seller pays, however, does not obligate the seller to pay. Id. The agreement additionally states: "Unless inconsistent with applicable law or the Rules, the Parties will pay for their own arbitration costs (including fees and/or expenses of their own attorneys, experts, and witnesses), regardless of which party prevails in the arbitration." Id.
Mr. Sexton was not given an opportunity to negotiate the terms of the Arbitration Agreement. Sexton Decl. ¶ 6, ECF No. 37 at 16 of 27. Nor was he provided a copy of the Arbitration Agreement. Id. ¶ 7.
Counsel for Mr. Sexton sent a letter to Defendants dated July 14, 2017, informing them that he revoked his acceptance of the home and cancelled the contract for the home because of serious defects in the home, including water leaks resulting in dangerous mold growths. See Letter, ECF No. 37 at 17-18 of 27. Counsel stated that Mr. Sexton would no longer make payments to VMF because, pursuant to the contract, VMF, as the holder of the contract, is subject to all claims and defenses that Mr. Sexton could assert against the seller of the home. Id. at 18 of 27. Counsel also notified Defendants that they intended to file suit if they did not receive a satisfactory response within a week of receipt. Id. at 19 of 27. According to the Truth in Lending Disclosure, Mr. Sexton's monthly payment due to VMF was $650.25. Defs.' Reply, Ex. 1, ECF No. 38-1.
On August 15, 2017, CMH Homes and CMHM filed a Complaint for Order to Compel Arbitration against Lon and Heather Sexton, seeking a court order compelling them to arbitrate all claims and disputes between them. Compl. 1, ECF No. 1.3 The next day, Lon Sexton filed suit against CHM Homes, CMHM, and VMF in state court, asserting that they sold him a severely defective manufactured home and stood by as it developed a dangerous mold infestation. Compl., 1:17-cv-00956-JCH-LF, ECF No. 1-1 at 1. He asserts claims for breach of warranty, revocation of acceptance, breach of contract, breach of the covenant of good faith and fair dealing, violation of the New Mexico Unfair Practices Act ("NMUPA"), N.M. Stat. Ann. § 57-12-2(D)-(E), violation of the Manufactured Housing Act ("NMMHA"), N.M. Stat. Ann. § 60-14-19(C), fraud, negligence, and strict products liability against Defendants generally. See id. at 8-12. In addition to damages and among other relief, Mr. Sexton seeks declaratory relief that VMF is liable for all damages awarded for Defendants' conduct, up to the amount payable under the contract. Id. at 12. Defendants removed Mr. Sexton's case to federal court, see Notice, 1:17-cv-00956-JCH-LF, ECF No. 1, whereupon after the filing of an unopposed motion to consolidate, the Court consolidated the case with this one, see Order, ECF No. 15. Defendants subsequently filed a motion to compel arbitration of the claims between Mr. Sexton and CHM Homes and CMHM and to stay all proceedings in this case.
The Federal Arbitration Act ("FAA") makes an agreement to arbitrate in a contract evidencing a transaction involving commerce "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. The FAA "provides two parallel devices for enforcing an arbitration agreement: a stay of litigation in any case raising a dispute referable to arbitration, 9 U.S.C. § 3, and an affirmative order to engage in arbitration, § 4." Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 22, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Under § 4 of the FAA, a court may order the parties to arbitrate upon determining that the making of the arbitration agreement or the failure to comply therewith is not in...
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