Goodwin v. Ford Motor Credit Co., Civil Action No. 97-T-315-S.

• Decision Date: 17 July 1997
• Docket Number: Civil Action No. 97-T-315-S.
• Citation: 970 F.Supp. 1007
• Parties: Jimmy R. GOODWIN, et al., Plaintiffs, v. FORD MOTOR CREDIT COMPANY, Defendant.
• Court: U.S. District Court — Middle District of Alabama

970 F.Supp. 1007

Jimmy R. GOODWIN, et al., Plaintiffs, v. FORD MOTOR CREDIT COMPANY, Defendant.

Civil Action No. 97-T-315-S.

United States District Court, M.D. Alabama, Southern Division.

July 17, 1997.

COPYRIGHT MATERIAL OMITTED

William Joseph Baxley, Charles A. Dauphin, Joel Evan Dillard, Baxley, Dillard, Dauphin & McKnight, Birmingham, AL, Garve Ivey, Jr., King, Ivey & Junkin, Jasper, AL, Roger W. Kirby, Richard L. Stone, Andrea Bierstein, Kaufman, Malchman, Kirby & Squire, LLP, New York City, Allison Shelley, Birmingham, AL, for Plaintiffs.

Thomas M. Byrne, Kristen Jones Indermark, Sutherland, Asbill & Brennan, Atlanta, GA, Dennis G. Pantazis, Gordon, Silberman, Wiggins & Childs, Birmingham, AL, for Defendant.

MEMORANDUM OPINION

MYRON H. THOMPSON, Chief Judge.

Plaintiffs Jimmy R. and Brenda S. Goodwin and Lera J. and Terry A. Scott brought suit on March 7, 1997, on behalf of themselves and a putative nationwide class, against defendant Ford Motor Credit Company (FMCC). They allege violations of the federal Truth in Lending Act, 15 U.S.C.A. §§ 1601-1693r, and applicable state consumer protection statutes, and also complain of wilful misrepresentation and deceit in violation of state laws. This court has jurisdiction to hear these claims under 15 U.S.C.A. § 1640(e), and 28 U.S.C.A. §§ 1337, 1367. This lawsuit is now before the court on FMCC's motion to compel arbitration and stay judicial proceedings pursuant to the Federal Arbitration Act (FAA), 9 U.S.C.A. §§ 1-16, and on the motion by the Goodwins and the Scotts for partial summary judgment, or alternatively for a jury trial, on the issue of the arbitrability of their claims. For the reasons that follow, FMCC's motion will be granted, and the Goodwins and the Scotts' motion denied.

I. BACKGROUND

On May 28, 1996, the Goodwins purchased an automobile for their personal use from a Dothan, Alabama dealership, and financed the purchase, along with an extended warranty, through a credit agreement with the dealer. The Scotts purchased an automobile on July 17, 1996, from another Dothan area dealership, and they, too, financed the purchase, along with an extended warranty, through the dealer.¹ In both cases, the purchase and finance agreements, or installment sales contracts, were standardized forms produced by FMCC and provided to the dealers. The forms contemplated and provided for immediate assignment of the dealers' rights and obligations under the credit agreements to FMCC upon execution by the dealer and purchaser. Accompanying each installment sales contract, as a separate document, was a preprinted arbitration agreement whereby the dealer and purchaser, by signing, essentially agreed to arbitrate any and all disputes relating to the sale and financing of the automobile.²

The installment sales contracts provide for acceleration of payments or repossession by the dealer upon default by the purchasers, and further provide that any holder of the consumer credit contract (i.e., FMCC) is subject to all claims and defenses which the debtor could assert against the seller.

Where the installment sales contracts itemize the amount financed in the Goodwin and Scott contracts, under "amounts paid on your behalf" to third parties, each contract specifies an amount paid over to the issuer of an extended service contract. The gist of their claims is that it is the standard practice of FMCC to participate in the making of, or at least to knowingly adopt, false and misleading disclosures in installment sales contracts that are assigned to it by prearrangement with dealers, such that certain amounts are represented as paid or payable out by the dealers to other service vendors (in some cases, FMCC or a related corporate entity) on behalf of purchasers, when, in fact, FMCC knows that a substantial portion of these amounts is retained by dealers as hidden commissions. FMCC improperly benefits from this practice because as the ultimate holder of the installment sales contracts, it collects interest from service contract purchasers even on the money retained by dealers as their commissions from FMCC. Presumably, the hidden commission is also an incentive to dealers to sell more extended service contracts, which also inures to FMCC's benefit when it is the service vendor, while invariably increasing the purchase price to customers. These practices and claims are alleged, because of the standardized nature of the installment sales contracts, to be representative of those that pertain to a putative class of plaintiffs nationwide.

FMCC filed demands for arbitration of both the Goodwin and Scott claims on February 24, 1997, and then moved this court on April 10, 1997, to stay judicial proceedings, 9 U.S.C.A. § 3, and compel arbitration, 9 U.S.C.A. § 4. In response, the Goodwins and the Scotts moved for partial summary judgment on May 6, 1997, on the ground that the arbitration clauses they signed are void for lack of mutuality, and thus unenforceable. They moved, alternatively, for a jury trial on the arbitrability issue. They also filed a supplemental memorandum of law on May 15, 1997, in opposition to the motion to compel arbitration and stay judicial proceedings, in which they further argue that FMCC is not a party to their arbitration agreements and thus has no standing to compel arbitration of their claims against it. In another memorandum of law in further support of their motion for summary judgment, filed on May 30, 1997, the Goodwins and the Scotts argue that the arbitration agreements are unenforceable because they are unconscionable contracts of adhesion. Because, for the reasons explained below, none of the arguments raised by the Goodwins and the Scotts is well-taken, their motion for partial summary judgment will be denied, and FMCC's motion to compel arbitration and to stay proceedings will be granted.

II. DISCUSSION

A.

In their first and second briefs, the Goodwins and the Scotts argue that under Alabama common law of contracts, unless an arbitration agreement mutually obligates parties to arbitrate disputes with each other, particularly in the circumstances where each is most likely to have cause to sue the other, an arbitration agreement is void for lack of mutuality. They cite a decision of the Alabama Supreme Court issued on January 10, 1997, in a case entitled Northcom, Ltd. v. James, 694 So.2d 1329 (Ala.1997). The lead opinion of that case seemed to hold, based on a few cases interpreting and applying what was in its day, but is no longer, New York State arbitration law, that each party's promise to arbitrate disputes is required consideration for the other's promise, and without that `mutual obligation' to arbitrate, an arbitration clause is void. Later, withdrawing that lead opinion and substituting a new one for it, the Alabama Supreme Court acknowledged that no severable, let alone equal and identical, consideration is required for an arbitration agreement to be enforceable, so long as the whole contract that it refers to or is contained within has consideration flowing in both directions. Northcom, Ltd. v. James, 694 So.2d 1329, 1335, 1336 (Ala.1997). This revised view conforms with prior Alabama law, as well as the view of the Restatement adhered to in other states. See Marcrum v. Embry, 291 Ala. 400, 282 So.2d 49, 51, 52 (1973); WMX Techs., Inc. v. Jackson, 932 F.Supp. 1372, 1374-75 (M.D.Ala.1996); Restatement (Second) of Contracts § 79 (1981). However, the revised lead opinion sought to distinguish, within the doctrine of mutuality of obligation, between a legal requirement of separate or severable consideration for an arbitration agreement, and an equitable or fairness requirement of `mutuality of remedy.' The opinion recharacterized its holding as pertaining to a requirement of mutuality of remedy, and the Goodwins and the Scotts reshaped their argument accordingly.

By `mutuality of remedy,' the lead opinion meant that if one party has recourse to an equitable remedy of specific performance, the other party must also have adequate remedy for securing performance of the first party's remaining obligations under the contract. If it does not have assurance that the party seeking specific performance must and will itself perform its remaining obligations, the court may refuse to order specific enforcement. See 5A Corbin on Contracts, § 1183 (1964). "However, the law does not require that the parties have similar remedies in case of breach, and the fact that specific performance or an injunction is not available to one party is not a sufficient reason for refusing it to the other party." Restatement (Second) of Contracts, § 363 cmt. c (1981).

The question for this court, therefore, is: Is the promise to arbitrate disputes an obligation under the contract that may be specifically enforced? It is not a first-order obligation, i.e., the primary, bargained-for consideration in the contract, such as payment of money, or transfer of title in a vehicle. Nor is it a second-order obligation, as understood by the Northcom court — that is, an obligation to `provide access to,' or make available a particular remedy, 694 So.2d at 1336-37 — since both an Article III court and an arbitration panel are fora that afford access to potential remedies for breach. It is, in effect and at best, simply a third-order obligation to use a nonjudicial forum for resolving disputes that arise under the contract.

If an arbitration agreement is, in any sense, a promise to perform, it is not self-evident that the arbitration agreements at issue here do not allow the Goodwins and the Scotts to seek specific enforcement of FMCC's promise to arbitrate disputes, if they wish to. A court could very well decide that the scope of the arbitration agreements is such that if the Scotts, for example, dispute that they owe FMCC any money on their installment sales contract, FMCC must arbitrate with them. Even if a court were to decide that they cannot seek specific performance...