East Ford, Inc. v. Taylor, No. 2000-IA-01527-SCT.

• Court: Mississippi Supreme Court
• Citation: 826 So.2d 709
• Decision Date: 18 July 2002
• Parties: EAST FORD, INC. v. James E. TAYLOR, Jr.
• Docket Number: No. 2000-IA-01527-SCT.

826 So.2d 709

EAST FORD, INC.
v.
James E. TAYLOR, Jr

No. 2000-IA-01527-SCT.

Supreme Court of Mississippi.

July 18, 2002.

Rehearing Denied October 3, 2002.

826 So.2d 711

Brenda B. Bethany, C. Michael Ellingburg, Jackson, attorneys for appellant

William Liston, III, Winona, Barry Bridgforth, Southaven, attorneys for appellee.

EN BANC.

SMITH, P.J., for the Court.

¶ 1. East Ford, Inc. appeals to this Court from an adverse ruling in favor of James E. Taylor, Jr., by the Hinds County Circuit Court. Taylor filed suit in the Hinds County Circuit Court against East Ford, Inc. on March 15, 2000, alleging that it had sold him a used truck, which was represented to him as new. Taylor signed an "Offer to Purchase or Lease Vehicle" on the date of the sale which contained an arbitration clause. After Taylor filed suit, East Ford filed a Motion to Compel Arbitration. The circuit court ultimately found the arbitration agreement to be unconscionable. This Court subsequently granted permission for this interlocutory appeal. See M.R.A.P. 5.

¶ 2. This Court writes to express to the bench and bar that we adhere to federal policy favoring arbitration and that arbitration agreements are not per se inherently unconscionable.

¶ 3. However, where as here, an arbitration agreement is found to be unconscionable pursuant to general state law principles, then it may be invalidated without offending the Federal Arbitration Act. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686, 116 S.Ct. 1652, 1655, 134 L.Ed.2d 902 (1996)(quoting 9 U.S.C. § 2).

¶ 4. We find that the circuit court was correct in holding the arbitration clause unconscionable in this case, and we therefore affirm and remand to the circuit court for a full trial on the merits.

FACTS

¶ 5. Relying on the salesman's statement that the truck was "new" and had never been titled, on May 10, 1999, James E. Taylor, Jr. purchased a 1998 Ford F-150 pickup truck from East Ford, Inc. for $22,051.77. Taylor completed the transaction by signing several forms, including an "Offer to Purchase or Lease Vehicle." That agreement provided in pertinent part as follows:

B. ARBITRATION AGREEMENT: With only the exceptions described below, the parties acknowledge, understand and agree that: (1) any controversy, claim, action or inaction arising out of, or relating to, the transaction evidenced by the OFFER together with any resulting written agreements including, but not being limited to, any finance, lease, insurance and/or vehicle service agreements (the OFFER and all resulting agreements are hereinafter collectively referred to as the "AGREEMENTS"), or any breach thereof, together with

826 So.2d 712

any repair or service to the vehicle performed or provided by [East Ford, Inc.], shall be settled by arbitration administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules; and (2) judgment of the award rendered by the arbitrator(s) may be entered in any court of competent jurisdiction; and (3) the arbitration proceeding shall be conducted in Jackson, Mississippi; and (4) the arbitrator(s) will have no authority to award punitive damages and may not in any event, make any ruling, finding, or award that does not conform to the terms and conditions of the AGREEMENTS; and (5) the AGREEMENTS evidence a transaction involving interstate commerce; and (6) the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (1947, as amended) shall govern the interpretation and enforcement of this Arbitration Agreement; and (7) the only claims which may arise among the parties which are not subject to this Arbitration Agreement are: (a) claims by [East Ford, Inc.] (including its agents, successors and assigns) that one or more events of default as identified in the AGREEMENTS has occurred on the part of OFFEROR(S) (such claims include, but are not limited to, OFFEROR(S) failure to make payments in compliance with the AGREEMENTS)— the parties agree that all such claims may be pursued in any court of competent jurisdiction; and (b) claims subject to the Arbitration Agreement; and (8) the parties' respective rights and obligations under this Arbitration Agreement will survive the breach, sale, assignment, cancellation, termination, revocation, expiration, novation and/or modification of any or all the AGREEMENTS.

¶ 6. After buying the truck, Taylor discovered that it was not in fact new, but rather that it had been previously titled to another person. When confronted by Taylor, East Ford's representative initially denied that the truck was sold as new, but when presented with a bill of sale which reflected the truck was sold as new, East Ford merely issued an amended bill of sale which reflected the truck was sold as used. Taylor's expert provided an affidavit in which he stated that the difference in cost between a new truck and the used one is $6,676.77.

Taylor subsequently filed suit against East Ford in the Hinds County Circuit Court alleging common law fraud, breach of contract and breach of express warranty. East Ford filed a Motion to Compel Arbitration asserting that Taylor was required to arbitrate the dispute. In response to East Ford's motion, Taylor filed several affidavits, including his own.

¶ 7. In his affidavit, Taylor states that he signed the Offer to Purchase or Lease Vehicle without being advised of the arbitration agreement. He asserts that he has had no legal training and that he did not wilfully agree to arbitration. He further alleges that the agreement was not discussed with him. An affidavit provided by the salesman, Bryan Childress, confirms not only that he did not discuss the arbitration agreement with Taylor, but also that Childress had no knowledge that an arbitration agreement was part of the transaction between East Ford and Taylor. Childress's affidavit further states that he had never discussed an arbitration agreement with any of the customers to whom he has sold vehicles, nor had he ever

826 So.2d 713

been given any information regarding such an agreement by East Ford

¶ 8. The circuit court found the arbitration clause to be unconscionable and, therefore, denied East Ford's Motion to Compel Arbitration. East Ford then filed a Petition for Interlocutory Appeal with this Court, which we subsequently granted.

STANDARD OF REVIEW

¶ 9. The grant or denial of a motion to compel arbitration is reviewed de novo. Webb v. Investacorp, Inc., 89 F.3d 252, 256 (5th Cir.1996). In determining the validity of a motion to compel arbitration under the Federal Arbitration Act, courts generally conduct a two-pronged inquiry. The first prong has two considerations: (1) whether there is a valid arbitration agreement and (2) whether the parties' dispute is within the scope of the arbitration agreement.

¶ 10. In the present case, the outcome of the first prong is not disputed. Under the second prong, the United States Supreme Court has stated the question is "whether legal constraints external to the parties' agreement foreclosed arbitration of those claims." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985) (citations omitted). Under the second prong, applicable contract defenses available under state contract law such as fraud, duress, and unconscionability may be asserted to invalidate the arbitration agreement without offending the Federal Arbitration Act. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996).

ANALYSIS

I. WHETHER THE ARBITRATION CLAUSE IS UNCONSCIONABLE.

¶ 11. The Federal Arbitration Act provides that arbitration agreements "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. The Act establishes a "`federal policy favoring arbitration,'... requiring that `we rigorously enforce agreements to arbitrate.'" Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220, 226, 107 S.Ct. 2332, 2337, 96 L.Ed.2d 185 (1987) (citations omitted). "Absent a well-founded claim that an arbitration agreement resulted from the sort of fraud or excessive economic power that `would provide grounds for the revocation of any contract,' the Arbitration Act `provides no basis for disfavoring agreements to arbitrate statutory claims by skewing the otherwise hospitable inquiry into arbitrability.'" Id. (citations omitted). "[Q]uestions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration ... The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). This Court has adopted this preference for arbitration. See Smith Barney, Inc. v. Henry, 775 So.2d 722 (Miss.2001); I.P. Timberlands Operating Co. v. Denmiss Corp., 726 So.2d 96, 103-04 (Miss.1998); Hutto v. Jordan, 204 Miss. 30, 36 So.2d 809, 812 (1948).

¶ 12. It has been recognized that in order to determine whether legal constraints exist which would preclude arbitration, "courts generally ... should apply ordinary state-law principles that govern

826 So.2d 714

the formation of contracts." Bank One, N.A. v. Coates, 125 F.Supp.2d 819, 827 (S.D.Miss.2001) (quoting Webb v. Investacorp, Inc., 89 F.3d 252, 257 (5th Cir. 1996)). However, "[c]ourts may not..... invalidate arbitration agreements under state laws applicable only to arbitration provisions." Doctor's Assocs., Inc. v. Casarotto, 517 U.S. at 687, 116 S.Ct. at 1655 (quoting Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281, 115 S.Ct., 834, 843, 130 L.Ed.2d 753 (1995); Perry v. Thomas, 482 U.S. 483, 492 n. 9, ...