Family Sec. Credit Union v. Etheredge

• Decision Date: 19 May 2017
• Docket Number: 1151002,1151007,1151004,1151005,1151001,1151003,1151006,1151000
• Citation: 238 So.3d 35
• Parties: FAMILY SECURITY CREDIT UNION v. Richard W. ETHEREDGE Family Security Credit Union v. Kendrick M. Nettles Family Security Credit Union v. Wanda J. Pezent Family Security Credit Union v. David Moore Family Security Credit Union v. Martha H. Dunagan Family Security Credit Union v. Gene McClure Family Security Credit Union v. Kayla N. Williams Family Security Credit Union v. Dana Dunn and Timothy Dunn
• Court: Alabama Supreme Court

238 So.3d 35

FAMILY SECURITY CREDIT UNION

v.Richard W. ETHEREDGE

Family Security Credit Union

v.Kendrick M. Nettles

Family Security Credit Union

v.Wanda J. Pezent

Family Security Credit Union

v.David Moore

Family Security Credit Union

v.Martha H. Dunagan

Family Security Credit Union

v.Gene McClure

Family Security Credit Union

v.Kayla N. Williams

Family Security Credit Union

v.Dana Dunn and Timothy Dunn

1151000

1151001

1151002

1151003

1151004

1151005

1151006

1151007

Supreme Court of Alabama.

May 19, 2017

Gerald P. Gillespy of Burr & Forman LLP, Birmingham; and Michael D. Strasavich of Burr & Forman LLP, Mobile, for appellant.

Joseph C. McCorquodale III of McCorquodale Law Firm, Jackson, for appellees.

MAIN, Justice.

Family Security Credit Union ("FSCU") appeals the trial court's denial of its motions to compel arbitration in eight separate but closely related cases. We reverse and remand.

I. Facts and Procedural History

Action Auto Sales ("Action Auto") is a car-financing group that financed the vehicle inventory of Pine City Auto ("Pine City"), a used-car dealership. Action Auto held the titles to the vehicles in the inventory it financed and released a title only when a vehicle was sold and Pine City paid off a proportional amount of the inventory financing. Pine City eventually went out of business without paying off the inventory financing on some of the vehicles it had sold. Action Auto sued Pine City and the purchasers of eight vehicles who had purchased vehicles from Pine City and financed those purchases through FSCU.¹ Action Auto sought possession of the vehicles and money damages. The purchasers each filed counterclaims and cross-claims against Action Auto and Pine City and third-party claims against FSCU, alleging negligence, wantonness, and conspiracy. The purchasers' third-party claims against FSCU are based on FSCU's alleged failure to perfect its security interest in the vehicles before financing the purchasers of the vehicles. FSCU moved for each of those third-party claims to be submitted to arbitration, and, to support its motions, FSCU attached a copy of a "Retail Installment Sale Contract" and a "Dealer's Assignment and Buyer's Consent to Assignment" that each purchaser had executed when he or she purchased the vehicle. The purchasers opposed the motions to compel arbitration, but they did not submit any evidence. After hearing oral arguments, the trial court denied all eight motions to compel arbitration. FSCU filed these eight appeals, which this Court consolidated for the purpose of issuing one opinion.

As part of the purchase of the vehicle, each purchaser executed a "Retail Installment Sale Contract" with Pine City and a "Dealer's Assignment and Buyer's Consent to Assignment," which assigned the sale contract to FSCU. The "Dealer's Assignment and Buyer's Consent to Assignment" contained the following arbitration provision immediately above the signature lines:

"Any controversy or claim arising out of or relating to this Agreement shall be settled by binding arbitration. Dealer and Buyer further agree that any such arbitration shall take place in Morgan County, Alabama. Judgment upon any award rendered by the arbitrator may be entered by any court having jurisdiction thereof. The arbitrator shall determine the prevailing party, and the costs and expenses of the arbitration proceeding, including the arbitrator's fees, shall be borne by the non-prevailing party, unless otherwise required by law. No provision of this Agreement, nor the exercise of any right under this Agreement, shall limit the right of the Credit Union to (1) obtain provisional or ancillary remedies, such as injunctive relief, writ of attachment, or protective order from a court having jurisdiction before, during, or after the pendency of any arbitration; (2) exercise self-help remedies, such as set-off; (3) foreclose against or sell any real or personal property collateral by the exercise of a power of sale under a mortgage or other security agreement or instrument, a deed of trust, or applicable law; (4) exercise any other rights under this Agreement upon the breach of any term or condition herein; or, (5) ... proceed with collection of the account through all other legal methods, including, but not limited to, proceeding in court to obtain judgment. Any and all arbitration under this contract will take place on an individual basis; class arbitrations and class actions are not permitted. DEALER AND BUYER FURTHER AGREE THAT YOU ARE WAIVING THE RIGHT TO TRIAL BY JURY AND TO PARTICIPATE IN A CLASS ACTION."

(Capitalization in original.)

In denying FSCU's motions to compel arbitration, the trial court held that "FSCU's promise to arbitrate is merely illusory and does not serve as valid consideration to support the arbitration agreement" because "the arbitration clause does not preclude FSCU from pursuing several alternative avenues of relief against the borrower, including the filing of a judicial lawsuit," but "requires that borrowers ... settle ‘[a]ny controversy or claim arising out of or relating to this Agreement’ through binding arbitration."

Further, the trial court held that the arbitration provision was unconscionable. Specifically, the court stated:

"In the present case, the terms of the arbitration clause contained in the Assignment are grossly favorable to FSCU. Although consumer debtors such as [the purchasers] are required to arbitrate all disputes they may have against FSCU, FSCU has the option of pursuing several alternative remedies to arbitration, including the filing of a judicial lawsuit. The huge disparity in the rights of the contracting parties is one-sided and unreasonably favors FSCU.

"In addition, FSCU, a large and sophisticated business entity, has overwhelming bargaining power. To obtain the financing needed to purchase a used car from Pine City, [the purchaser] had no choice but to execute FSCU's boilerplate Assignment containing the arbitration clause, along with FSCU's form applications for membership to the credit union and for credit financing.

"Under the circumstances, the used car sales transaction evinces the necessary elements to support a finding of unconscionability. Hence, the arbitration requirement contained in the Assignment should be declared invalid and unenforceable, and FSCU's motion to compel arbitration should be denied."

(Citations omitted.)

II. Standard of Review

" ‘This Court reviews de novo the denial of a motion to compel arbitration. Parkway Dodge, Inc. v. Yarbrough, 779 So.2d 1205 (Ala. 2000). A motion to compel arbitration is analogous to a motion for a summary judgment. TranSouth Fin. Corp. v. Bell, 739 So.2d 1110, 1114 (Ala. 1999). The party seeking to compel arbitration has the burden of proving the existence of a contract calling for arbitration and proving that the contract evidences a transaction affecting interstate commerce. Id."[A]fter a motion to compel arbitration has been made and supported, the burden is on the non-movant to present evidence that the supposed arbitration agreement is not valid or does not apply to the dispute in question." Jim Burke Automotive, Inc. v. Beavers, 674 So.2d 1260, 1265 n.1 (Ala. 1995) (opinion on application for rehearing).’ "

Elizabeth Homes, L.L.C. v. Gantt, 882 So.2d 313, 315 (Ala. 2003) (quoting Fleetwood Enters., Inc. v. Bruno, 784 So.2d 277, 280 (Ala. 2000) ).

III. Discussion

It is undisputed that FSCU moved to compel arbitration and supported its motions with contracts that were executed by the purchasers and that each contract contained the above-quoted arbitration provision. It was also undisputed that the contracts evidenced a transaction affecting interstate commerce. Thus, the burden shifted to the purchasers to present evidence that the arbitration agreements were not valid or that they did not apply to the disputes in question. The purchasers did not present any additional evidence. They presented only argument. Therefore, unless on its face the arbitration provision is not valid or does not apply to the dispute in question, the trial court's decision to deny the motions to compel arbitration was erroneous.

A. Unconscionability

The trial court held that the arbitration provision in each contract is unconscionable on its face. Concerning unconscionability, this Court has stated:

" ‘Unconscionability is an affirmative defense, Green Tree Fin. Corp. v. Wampler, 749 So.2d 409, 415 (Ala. 1999), and the party asserting the defense bears the burden of proof. Ex parte Napier, 723 So.2d 49, 52–53 (Ala. 1998).’ Fleetwood Enters., [Inc. v. Bruno,] 784 So.2d [277] at 281 [ (Ala. 2000) ]. In order to meet that burden, the party seeking to invalidate an arbitration provision on the basis of unconscionability must establish both procedural and substantive unconscionability. Blue Cross Blue Shield of Alabama v. Rigas, 923 So.2d 1077, 1087 (Ala. 2005). As this Court explained in Rigas:

" 'Substantive unconscionability

" ‘ " ‘relates to the substantive contract terms themselves and whether those terms are unreasonably favorable to the more powerful party, such as terms that impair the integrity of the bargaining process or otherwise contravene the public interest or public policy; terms (usually of an adhesion or boilerplate nature) that attempt to alter in an impermissible manner fundamental duties otherwise imposed by the law, fine-print terms or provisions that seek to negate the reasonable expectations of the nondrafting party, or unreasonably and unexpectedly harsh terms having to do with price or other central aspects of the transaction.’ "

" ‘ Ex parte Thicklin, 824 So.2d 723, 731 (Ala. 2002) (emphasis omitted) (quoting Ex parte Foster, 758 So.2d 516, 520 n.4 (Ala. 1999), quoting in turn 8 Richard A. Lord, Williston on Contracts § 18:10 (4th ed. 1998) ). See alsoLeeman v. Cook's Pest Control, Inc., 902 So.2d 641 (Ala. 2004).

" ‘Procedural unconscionability, on the other hand, "deals with ‘procedural deficiencies in the contract formation process, such as

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