Homes of Legend, Inc. v. McCollough

• Decision Date: 28 January 2000
• Citation: 776 So.2d 741
• Parties: HOMES OF LEGEND, INC. v. Phillip A. McCOLLOUGH.
• Court: Alabama Supreme Court

776 So.2d 741

HOMES OF LEGEND, INC. v.Phillip A. McCOLLOUGH.

1980921.

Supreme Court of Alabama.

January 28, 2000.¹

David L. Selby II, Larry S. Logsdon, and Michael L. Jackson of Wallace, Jordan, Ratliff & Brandt, L.L.C., Birmingham, for appellant.

G. Houston Howard II of Howard, Dunn, Howard & Howard, Wetumpka, for appellee.

SEE, Justice.

Homes of Legend, Inc., the defendant in an action pending in the Elmore Circuit Court, appeals from the trial court's order denying its motion to compel arbitration of the claims filed against it by Phillip A. McCollough.Homes of Legend moved to compel arbitration, based on an arbitration provision contained in the written warranty it had furnished McCollough when he purchased a mobile home.Because we construe that arbitration provision as providing for nonbinding arbitration, we reverse and remand.

I.

In that part of its order denying Homes of Legend's motion to compel arbitration, the trial court made no express or specific findings of fact.According to McCollough's affidavit (the only affidavit contained in the record), in May 1997he agreed to purchase a mobile home from Hart's Mobile Homes Sales, Inc.("Hart").McCollough alleges that Hart agreed to "special order" the mobile home from Homes of Legend.²McCollough also alleges that when the mobile home was ordered, he paid Hart $500.00 as a down payment.The mobile home was delivered to Hart from Homes of Legend.After delivery to Hart, McCollough alleges, he paid Hart an additional $2,464 and entered into a "Set-Up Agreement" with Hart to deliver and set up the mobile home.The mobile home was delivered to McCollough and was set up.When the home was delivered, McCollough received and signed a "Limited One Year Service Warranty" issued by Homes of Legend.The warranty contains the following arbitration provision:

"LIMITATION OF REMEDIES: Any controversy, claim or dispute between or among the parties arising from or relating to the warranty, contract, or any agreements or instruments relating hereto or delivered in connection herewith, or the breach thereof, and any claim based on or arising from an alleged tort, [sic] and if the controversy, claim or dispute cannot be settled through direct discussions or negotiations, the parties agree first to settle the dispute in an amicable manner by mediation administered by the American Arbitration Association under its Commercial Mediation Rules before resorting to arbitration.Thereafter, any unresolved controversy, claim or dispute arising from or relating to this contract, or breach thereof, and any claim based on or arising from an alleged tort, shall be settled by Arbitration Administered [sic] by the American Arbitration Association in accordance with its Commercial Arbitration Rules and judgement on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.All fees and expenses of the mediation-arbitration shall be borne by the parties equally.However, each party shall bear the expense of its own counsel, experts, witnesses, and preparation and presentation of proofs.This warranty, contract, or any agreements or instruments relating hereto or delivered in connection herewith between the parties shall be governed by the laws of the State of Alabama.All mediation or arbitration proceedings shall be conducted in Albertville, Alabama, or at any other place selected by mutual agreement."

Since delivery, McCollough alleges, he has lived continuously in the mobile home, occupying it as his personal residence.

In May 1998, McCollough sued Homes of Legend, alleging, among other things, that the mobile home contained numerous manufacturing defects.McCollough alleged breach of express warranty, breach of implied warranty, negligent construction, wanton construction, fraudulent concealment of violations of federal housing regulations, negligent or wanton repair, promissory fraud relating to service of the mobile home, fraudulent concealment of certain terms of the warranty, and violations of the Magnuson-Moss Warranty-Federal Trade Commission Improvement Act, 15 U.S.C. § 2301 to § 2312(the "Magnuson-Moss Act").³Homes of Legend answered the complaint, denying in the main those allegations.However, in its answer, Homes of Legend admitted that in May 1997 McCollough had purchased a mobile home manufactured by it, that it had given McCollough a limited one-year service warranty, and that it had made repairs to McCollough's mobile home.

Homes of Legend moved to compel arbitration of McCollough's claims, based on the arbitration provision contained in the written warranty.⁴McCollough opposed Homes of Legend's motion, arguing, among other things, that the arbitration provision was unenforceable because the warranty expressly provides that it is intended to comply with the requirements of the Magnuson-Moss Act and regulations issued thereunder, and because those regulations prohibit a warrantor from including a binding-arbitration provision in its written warranty.⁵McCollough moved for a partial summary judgment on his claim that the provisions of Homes of Legend's warranty, specifically the "limitation-of-remedies" provision, violated the Magnuson-Moss Act.After conducting a hearing, which was not transcribed, the trial court denied the motion to compel arbitration and granted McCollough's motion for a partial summary judgment.⁶In denying Homes of Legend's motion to compel arbitration, the trial court, relying primarily on Wilson v. Waverlee Homes, Inc.,954 F.Supp. 1530(M.D.Ala.1997), aff'd, 127 F.3d 40(11th Cir.1997), held, among other things, that the limitation-of-remedies provision, which contains the arbitration provision, is unenforceable because, the court held, it violates the Magnuson-Moss Act.⁷With respect to McCollough's motion for a partial summary judgment, the trial court held that 15 U.S.C. § 2310(d), part of the Magnuson-Moss Act, creates a cause of action for damages in favor of McCollough as a consumer and that Homes of Legend's limitation-of-remedies provision in its written warranty improperly seeks to avoid the obligations under the Act and violates the federal regulations promulgated pursuant to the Act.The trial court left undecided the question what damages McCollough was entitled to recover for violations of the Magnuson-Moss Act.Homes of Legend moved the trial court to reconsider its order denying its motion to compel arbitration, or, in the alternative, to amend its order to include the statement necessary under Rule 5, Ala. R.App. P., for a permissive appeal from the partial summary judgment.The trial court denied the motion to reconsider or to amend its order.Homes of Legend filed a notice of appeal from the trial court's order denying its motion to compel arbitration.⁸Homes of Legend has not asked this Court's permission to appeal from the partial summary judgment in favor of McCollough.

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.SeeCrimson 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 alsoFederal 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.SeeKirkland,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(except for certain employment contracts, see9 U.S.C. § 1) has the effect of preempting conflicting Alabama law, in particular Ala.Code 1975, § 8-1-41(3), and thereby making enforceable a predispute arbitration agreement in a contract evidencing a transaction that involves interstate commerce.⁹SeeAllied-Bruce Terminix Companies, Inc. 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).As the United States Supreme Court explained in Moses H. Cone Memorial Hospital v. Mercury Construction Corp.,460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765(1983):

"Section 2 is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary.The effect of the section is to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act....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."

(Emphasis added.)Questions of arbitrability —that is, whether the parties agreed to submit their particular dispute to arbitration —"must be addressed with a healthy regard for the federal policy favoring arbitration,"id. at 24, 103 S.Ct. 927; but, in determining whether the parties agreed to arbitrate a dispute, this Court"should apply 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, 131 L.Ed.2d 985(1995);accordQuality Truck & Auto Sales, Inc. v. Yassine,730 So.2d 1164, 1167-68(Ala.1999).Consequently, "in applying general state-law principles of contract interpretation to the interpretation of an arbitration...