Harold Allen's Mobile Home Factory Outlet, Inc. v. Early

• Decision Date: 30 June 2000
• Citation: 776 So.2d 777
• Parties: HAROLD ALLEN'S MOBILE HOME FACTORY OUTLET, INC. v. Frances B. EARLY and Yolanda L. Early. Southern Energy Homes, Inc. v. Frances B. Early and Yolanda L. Early.
• Court: Alabama Supreme Court

776 So.2d 777

HAROLD ALLEN'S MOBILE HOME FACTORY OUTLET, INC. v. Frances B. EARLY and Yolanda L. Early.

Southern Energy Homes, Inc. v. Frances B. Early and Yolanda L. Early.

1981337, 1981375.

Supreme Court of Alabama.

June 30, 2000.

W. Beatty Pearson of Pearson, Cummins & Hart, Spanish Fort, for appellant Harold Allen's Mobile Home Factory Outlet, Inc.

John Martin Galese and Jeffrey L. Ingram of Galese & Ingram, P.C., Birmingham, for appellant Southern Energy Homes, Inc.

Joseph C. McCorquodale III and Jacqualyn S. Bradley of McCorquodale & McCorquodale, Jackson, for appellees.

SEE, Justice.

Harold Allen's Mobile Home Factory Outlet, Inc. ("Harold Allen"), and Southern Energy Homes, Inc. ("Southern Energy"), defendants in an action pending in the Clarke County Circuit Court, separately appeal from the trial court's order denying their motions to compel arbitration. We hold that Harold Allen is entitled to compel arbitration of the claims filed by the plaintiffs, Frances B. Early and her daughter Yolanda L. Early, because the Earlys failed to present substantial evidence of fraudulent inducement of the arbitration agreement with Harold Allen, and we hold that Southern Energy is entitled to compel arbitration of the Earlys' claims based on the arbitration provision in its written warranty. Therefore, in both appeals, we reverse and remand.

I.

In March 1996, the Earlys purchased from Harold Allen a mobile home that had been manufactured by Southern Energy. In connection with the purchase, the Earlys signed a document labeled "Retail Installment Contract, Security Agreement, Waiver of Trial by Jury, and Agreement to Arbitration or Reference or Trial by Judge Alone"; and they signed with Harold Allen a separate document labeled "Agreement for Binding Arbitration and Waiver of Jury Trial." The separate arbitration agreement provides, in pertinent part, that the Earlys and Harold Allen agree to arbitrate "all claims and disputes including, but not limited to all contract disputes, claims of fraud, misrepresentation, breach of warranty—express or implied, negligence, wantonness and all torts of every type and nature in any way arising out of the sale and purchase of the mobile home."¹ In connection with their purchase of the mobile home, the Earlys received a "Home Owner's Manual" from Southern Energy. That manual includes a limited, written warranty and an arbitration provision.²

The Earlys allege that they began experiencing problems with the mobile home. In March 1998, they sued Harold Allen and Southern Energy. The Earlys asserted claims alleging intentional or reckless fraudulent misrepresentation, breach of express warranty, breach of implied warranties of merchantability and habitability, negligent manufacture, negligent delivery, and negligent installation. The Earlys also sought a judgment declaring that the arbitration provision in Southern Energy's written warranty was void and unenforceable. Harold Allen and Southern Energy each moved to compel arbitration. Harold Allen based its motion on the separate arbitration agreement; Southern Energy based its motion on the arbitration provision in its written warranty and on the separate arbitration agreement. In response, the Earlys moved to amend their complaint to seek a declaration that both the arbitration provision in the installment agreement and the separate arbitration agreement were void and unenforceable. After conducting a hearing, the trial court granted Harold Allen and Southern Energy's motions to compel arbitration.³ The day after the trial court entered its order granting Harold Allen and Southern Energy's motions to compel arbitration, the Earlys each filed an affidavit in which they stated that a salesman for Harold Allen who had negotiated the sale of the mobile home had told them that the arbitration provision in the sales documents meant that if the Earlys defaulted in their installment payments, then Harold Allen "would not take [them] to court." Within 30 days, the Earlys filed a motion to alter, amend, vacate, or "reconsider" the trial court's order granting the motions to compel arbitration. The Earlys offered their previously filed affidavits in support of their motion. The trial court granted the Earlys' motion and vacated its order compelling arbitration, stating, with respect to Harold Allen, that the Earlys "claim fraud in the inducement of the arbitration agreement and the Court, not an arbitrator, must decide this issue," and stating, with respect to Southern Energy, that "[t]he Magnuson-Moss Act prohibits the enforcement of a binding arbitration clause in a written warranty." Harold Allen and Southern Energy appeal from the order vacating the order compelling arbitration. Thus, in effect, they are appealing from an order denying arbitration.

II.

A direct appeal is the proper procedure by which to seek review of a trial court's order denying a motion to compel arbitration. See Crimson Industries, Inc. v. Kirkland, 736 So.2d 597, 600 (Ala.1999); A.G. Edwards & Sons, Inc. v. Clark, 558 So.2d 358, 360 (Ala.1990); see also Federal Arbitration Act ("FAA"), 9 U.S.C. § 16 (1994) (providing that an appeal may be taken from an order denying a motion to compel arbitration). This Court reviews de novo a trial court's denial of a motion to compel arbitration. See First American Title Ins. Corp. v. Silvernell, 744 So.2d 883, 886 (Ala.1999); Crimson Industries, Inc., 736 So.2d at 600; Patrick Home Center, Inc. v. Karr, 730 So.2d 1171, 1171 (Ala.1999). Section 2 of the FAA, 9 U.S.C. § 2, provides in pertinent part:

"A written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."

Section 2 preempts conflicting Alabama law, in particular, Ala.Code 1975, § 8-1-41(3), thereby making enforceable a predispute arbitration agreement in a contract evidencing a transaction involving interstate commerce. See Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 273-74, 277, 281, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995); Crown Pontiac, Inc. v. McCarrell, 695 So.2d 615, 617 (Ala.1997). For FAA preemption to occur, (1) the parties must have entered a valid, written arbitration agreement and (2) the contract in which the arbitration agreement appears must relate to a transaction involving interstate commerce. See Prudential Sec., Inc. v. Micro Fab, Inc., 689 So.2d 829, 832 (Ala. 1997). These appeals concern the first requirement—the validity and enforceability of the arbitration provisions in the "retail installment contract" in the warranty.⁴

A.

In vacating its order compelling arbitration, the trial court held that, with respect to Harold Allen, the Earlys had presented a claim of fraudulent inducement that the court needed to decide. "[W]hen a claim of fraud in the inducement is directed toward the arbitration clause itself, the issue is adjudicated by the court," but "when a claim of fraud in the inducement is directed toward the entire contract, ... the issue is subject to arbitration." Investment Management & Research, Inc. v. Hamilton, 727 So.2d 71, 78 (Ala.1999). The Earlys did not assert in their complaint, as amended, any claim of fraudulent inducement of the arbitration provision in the installment agreement or of the separate arbitration agreement with Harold Allen. In their original complaint, the Earlys sought a judgment declaring that the arbitration provision in Southern Energy's written warranty is void and unenforceable because, they alleged, (1) "no consideration [was] paid"; (2) "[they] did not agree to submit any claims or disputes to binding arbitration; in fact, this was never discussed with [them]"; (3) the arbitration provision "is unilateral in nature, and is not signed by either of [them] or [Southern Energy or Harold Allen]"; (4) "the transaction does not involve interstate commerce"; (5) there was a "lack of mutuality of remedy"; and (6) the arbitration provision "was not any part of the transaction which is made the basis of [the][c]omplaint, nor was it contained in any of the agreements or documents executed by [the Earlys] with regard to the purchase of their mobile home." In their amended complaint, the Earlys sought, additionally, a judgment declaring void and unenforceable the arbitration provision in the installment agreement and the separate arbitration agreement. They alleged the same grounds they had asserted in their original complaint.

We do not interpret the Earlys' allegations, particularly allegations (2) and (6), as stating a claim of fraudulent inducement of the arbitration agreement—that is, as an allegation that they were tricked by misrepresentations into signing the arbitration agreement or the installment agreement. Even if we interpreted the Earlys' allegations as stating a claim of fraudulent inducement, we would have to conclude that they did not present substantial evidence in support of that claim. See Ex parte Perry, 744 So.2d 859, 863 (Ala.1999) (opinion of three Justices) ("A party must provide substantial evidence of fraud in the inducement, particularly related to the arbitration clause, in order to avoid arbitration."). The only evidence presented to support their challenge to the enforceability of the arbitration agreement was their own affidavits.⁵ Yolanda Early's affidavit states, in pertinent part:

"I asked the salesman what the arbitration clause meant. I specifically asked him if this only had to do with the situation where I might come into default with a payment and Harold Allen would agree to arbitrate if I defaulted in my payments. The salesman told me that that was what that clause meant. He at no time told me that there was any agreement by me that I would have to arbitrate any claims I had against Harold Allen or the mobile

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