Fleetwood Enterprises, Inc. v. Gaskamp

• Decision Date: 24 January 2002
• Docket Number: No. 01-20334.,01-20334.
• Citation: 280 F.3d 1069
• Parties: FLEETWOOD ENTERPRISES, INC., Fleetwood Homes of Mississippi, Inc., and Georgia-Pacific Corporation, Plaintiffs-Appellees, v. William P. GASKAMP, Jr., individually, and as next friends for William P. Gaskamp, III, Derek S. Gaskamp and Brooke A. Gaskamp, Minors; Shannon Gaskamp, individually, and as next friends for William P. Gaskamp III, Derek S. Gaskamp and Brooke A. Gaskamp, Minors, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1069

280 F.3d 1069

FLEETWOOD ENTERPRISES, INC., Fleetwood Homes of Mississippi, Inc., and Georgia-Pacific Corporation, Plaintiffs-Appellees, v. William P. GASKAMP, Jr., individually, and as next friends for William P. Gaskamp, III, Derek S. Gaskamp and Brooke A. Gaskamp, Minors; Shannon Gaskamp, individually, and as next friends for William P. Gaskamp III, Derek S. Gaskamp and Brooke A. Gaskamp, Minors, Defendants-Appellants.

No. 01-20334.

United States Court of Appeals, Fifth Circuit.

January 24, 2002.

Lionel Mark Schooler (argued), Jackson & Walker, Houston, TX, Michael S. Simpson, Jackson Walker, Austin, TX, for Fleetwood Enterprises, Inc. and Fleetwood Homes of Mississippi, Inc.

Stuart Victor Kusin, Randall W. Wilson, Susman Godfrey, Houston, TX, for Georgia Pacific Corp.

David James Sacks, Kathleen H. Boll (argued), Sacks & Associates, Cletus P. Ernster, III, Taylor, Davis & Ernster, Houston, TX, for Defendants-Appellants.

Appeal from the United States District Court for the Southern District of Texas.

Before JOLLY, SMITH and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

This appeal arises from a district court order compelling arbitration of all of the claims brought by plaintiffs in a Mississippi state court lawsuit. The plaintiffs-appellants, the Gaskamps,¹ assert on appeal that the district court erred in compelling arbitration of the claims of the Gaskamp children because the children were not parties to the arbitration agreement between the Gaskamp parents and the defendants-appellees Fleetwood Enterprises, Inc. and Fleetwood Homes of Mississippi, Inc. (collectively, "Fleetwood"), and Georgia-Pacific Corp. ("Georgia-Pacific"). They also assert that the district court erred in compelling arbitration of the parents' claims because the arbitration agreement was procedurally unconscionable. We reverse in part and affirm in part.

FACTUAL AND PROCEDURAL BACKGROUND

In November 1997, the Gaskamp parents negotiated with a sales representative for Manufactured Bargains the purchase of a mobile home manufactured by Fleetwood. They made a down payment of $2,500 on the home, gave Manufactured Bargains some household items, and traded in their old mobile home; in exchange, Manufactured Bargains delivered and installed the new Fleetwood home on the Gaskamp parents' property. The Gaskamps moved into the new mobile home, and remained there while Manufactured Homes arranged for financing of the home. The following month, Manufactured Homes informed the Gaskamp parents that it had arranged financing for the mobile home through Bombardier Capital, Inc. ("Bombardier"). To obtain the financing and keep the new home, the Gaskamp parents were asked to make an additional down payment of $12,500.00, and to sign some paperwork. The Gaskamp parents signed documentation on two separate occasions, and made the payment. The documents signed included an "Arbitration Provision."²

After moving into the Fleetwood home, the Gaskamps began experiencing health problems including throat and eye irritation, runny nose, and respiratory problems. In September 1999, Brooke Gaskamp was hospitalized as a result of breathing difficulties. She received a diagnosis of reactive airway disease as a result of exposure to formaldehyde. Two months later, the Texas Department of Health, Toxic Substances Division, tested the new mobile home, and found elevated levels of formaldehyde. Shortly thereafter, the Gaskamps moved out of the mobile home.

In June 2000, the Gaskamp parents brought suit in Mississippi state court against the manufacturer of the home, Fleetwood; the manufacturer of particle board contained in the home, Georgia Pacific; the seller, Manufactured Bargains; and the financing institution, Bombardier. The Gaskamp parents brought the suit individually and as next friends of the Gaskamp children, alleging a variety of claims for personal injuries resulting from the exposure to formaldehyde.³

In December 2000, two of the defendants in the Mississippi lawsuit, Fleetwood and Georgia-Pacific, filed a Complaint to Compel Arbitration against the Gaskamps in the United States District Court for the Southern District of Texas. The Gaskamps responded with a motion to dismiss. The Gaskamp parents subsequently settled their claims against Bombardier in the Mississippi state court lawsuit, and filed a motion to dismiss all of their individual claims in the Mississippi state court lawsuit in February 2001.

After the Gaskamps' settlement with Bombardier, Fleetwood and Georgia-Pacific filed a Motion to Compel Arbitration and for Expedited Hearing. On February 20, 2001, the district court ordered all of the Gaskamps' claims to arbitration, and stayed all proceedings in both the district court and the Mississippi state court (including the hearing on the Motion to Dismiss the claims of the Gaskamp parents). In its Order Compelling Arbitration and Staying State and Federal Cases, the district court explained, without citing authority, that the children must arbitrate with their parents because "[u]nlike a guest who happened to be in a mobile home when he was hurt, the children are permanent residents whose presence and use is wholly derivative of the parents' use of the mobile home."

On appeal, the Gaskamps make two main arguments. First, they assert that the district court erred in compelling arbitration of the Gaskamp children's claims because they were not parties to the arbitration agreement or third-party beneficiaries thereof. Second, they argue that the arbitration provision is procedurally unconscionable.

DISCUSSION

I. Standard of Review and Applicable Law

This Court reviews de novo the grant or denial of a motion to compel arbitration. See Webb v. Investacorp, 89 F.3d 252, 257 (5th Cir.1996). In adjudicating a motion to compel arbitration under the Federal Arbitration Act, courts begin by determining whether the parties agreed to arbitrate the dispute. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 3353-54, 87 L.Ed.2d 444 (1985); Folse v. Richard Wolf Medical Instruments Corp., 56 F.3d 603, 605 (5th Cir.1995). This determination is generally made on the basis of "ordinary state-law principles that govern the formation of contracts." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 1924, 131 L.Ed.2d 985 (1995). Next, the Court must determine "whether legal constraints external to the parties' agreement foreclosed the arbitration of those claims." Mitsubishi Motors, 473 U.S. at 628, 105 S.Ct. at 3355; see also Folse, 56 F.3d at 605. In the present case, the parties agree that Texas state law governs matters that are not addressed by the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq.⁴

II. The Claims of the Gaskamp Children

As stated earlier, the first step in evaluating a motion to compel arbitration is to determine whether the parties agreed to arbitrate. This determination depends on 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, 89 F.3d at 258. In determining whether the dispute falls within the scope of the arbitration agreement, "ambiguities ... [are] resolved in favor of arbitration." Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 475, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989). However, this federal policy favoring arbitration does not apply to the determination of whether there is a valid agreement to arbitrate between the parties; instead "[o]rdinary contract principles determine who is bound." Daisy Mfg. Co., Inc., v. NCR Corp., 29 F.3d 389, 392 (8th Cir.1994); see also Volt Info., 489 U.S. at 478, 109 S.Ct. 1248 ("[T]he FAA does not require parties to arbitrate when they have not agreed to do so."); EEOC v. Waffle House, ___ U.S. ___, 122 S.Ct. 754, 763, 151 L.Ed.2d 755 (2002)(citations omitted)("Because the FAA is `at bottom a policy guaranteeing the enforcement of private contractual arrangements,'... we look first to whether the parties agreed to arbitrate a dispute not to general policy goals.... It goes without saying that a contract cannot bind a nonparty."); McCarthy v. Azure, 22 F.3d 351, 355 (1st Cir.1994) ("The federal policy [favoring arbitration], however, does not extend to situations in which the identity of the parties who have agreed to arbitrate is unclear.").⁵

In the present case, the parties agree that the dispute in question, i.e. the set of claims for personal injury resulting from use of the mobile home, falls within the scope of the arbitration agreement, which is very broad. However, the parties disagree with regard to the first consideration, namely, whether there is a valid agreement to arbitrate between the parties. The Gaskamps argue that, although there is an arbitration agreement between the Gaskamp parents and the appellees,⁶ there is no such agreement between the Gaskamp children and the appellees. The issue in this case is, then, not what claims are arbitrable, but rather who must arbitrate. We apply Texas law to determine whether the Gaskamp children are required to arbitrate.

The Gaskamp children did not personally sign the arbitration agreement, and there is no provision in the agreement expressly stating that the Gaskamp parents, on behalf of their children, agreed to submit the children's claims to arbitration. Nonetheless, the appellees argue that because the Gaskamp children are minors, their parents were empowered to make decisions of substantial legal significance concerning the minors. Additionally, the appellees contend that under Texas law, non-signatory family members who bring claims intertwined with a signatory family member's claims are bound to arbitrate. Because the Gaskamp children are minors and because they joined their parents in the Mississippi state court suit, appellees argue, the...