In re Conseco Finance Servicing Corp., 10-00-121-CV

• Decision Date: 07 June 2000
• Docket Number: No. 10-00-121-CV,10-00-121-CV
• Citation: 19 S.W.3d 562
• Parties: (Tex.App.-Waco 2000) IN RE CONSECO FINANCE SERVICING CORP. F/K/A GREEN TREE FINANCIAL SERVICING CORPORATION
• Court: Texas Court of Appeals

Page 562

19 S.W.3d 562 (Tex.App.-Waco 2000)

IN RE CONSECO FINANCE SERVICING CORP. F/K/A GREEN TREE FINANCIAL SERVICING CORPORATION

No. 10-00-121-CV

IN THE TENTH COURT OF APPEALS

June 7, 2000

Original Proceeding

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Before Chief Justice Davis, Justice Vance, and Justice Gray

OPINION

BILL VANCE, Justice

Conseco Finance Servicing Corp. loaned Jody Grams money to purchase a manufactured home. When Jody and his wife, Candace, sued Conseco for violations of the Texas Debt Collection Act and the Texas Deceptive Trade Practices Act, Conseco invoked an arbitration clause contained in the sales contract. Respondent, Judge of the 82nd District Court, denied Conseco's motion to compel arbitration, and Conseco brings this mandamus proceeding asking us to order Respondent to grant that motion. Jody argues that his claims are not subject to arbitration because the arbitration clause in the contract is unconscionable and his statutory claims are not within its scope. Because the Texas Supreme Court has stated that an arbitration clause cannot be challenged in a court as unconscionable and because Jody's statutory claims "relate to" his contract with Conseco, we will direct Respondent to order the parties to arbitrate his claims. We will not require Candace's claims to be arbitrated because she is not a party to the contract with Conseco and Conseco has not attempted to show that she should be bound by that contract otherwise.

Jody purchased his home on August 12, 1997. The contract is a three-page preprinted, fill-in-the-blank form. There are three parties listed: the buyer--Jody Grams, the seller--Budget Mobile Homes, and the assignee--Green Tree Financial Servicing Corp. (Conseco's predecessor). The contract defines "I" to be the buyer and "you" to be the seller and the assignee. The first page lists the details of the transaction, including the number and amounts of payments, the make, model, and serial number of the home, and states that Jody is giving a security interest in the home. The next two pages state the terms of the contract. By these provisions, Jody agrees to make payments on the home according to the schedule on the first page, to keep the home in good condition and to keep it fully insured by a policy payable to the seller. He also agrees that Conseco could accelerate the amount he owed if he defaulted in performing any obligation created by the contract.

The arbitration clause at issue is on the third page of the contract and provides, in full:

14. ARBITRATION: All disputes, claims or controversies arising from or relating to this Contract or the parties thereto shall be resolved by binding arbitration by one arbitrator selected by you with my consent. This agreement is made pursuant to a transaction in interstate commerce and shall be governed by the Federal Arbitration Act at 9 U.S.C. Section 1. Judgment upon the award rendered may be entered in any court having jurisdiction. The parties agree and understand that they chose arbitration instated of litigation to resolve disputes. The parties understand that they have a right to litigate disputes in court, but that they prefer to resolve their disputes through arbitration except as provided herein. THE PARTIES VOLUNTARILY AND KNOWINGLY WAIVE ANY RIGHT THEY HAVE TO A JURY TRIAL EITHER PURSUANT TO ARBITRATION UNDER THIS CLAUSE OR PURSUANT TO A COURT ACTION BY YOU (AS PROVIDED HEREIN). The parties agree and understand that all disputes arising under case law, statutory law and any other laws including, but not limited to all contract, tort and property disputes, will be subject to binding arbitration in accord with this Contract. The parties agree that the arbitrator shall have all powers provided by law, the Contract and the agreement of the parties. These powers shall include all legal and equitable remedies including, but not limited to, money damages, declaratory relief and injunctive relief. Notwithstanding anything hereunto the contrary, you retain an option to use judicial (filing a lawsuit) or non-judicial relief to enforce a security agreement relating to the Manufactured Home secured in a transaction underlying this arbitration agreement, to enforce the monetary obligation secured by the Manufactured Home or to foreclose on the Manufactured Home. The institution and maintenance of a lawsuit to foreclose upon any collateral, to obtain a monetary judgment or to enforce the security agreement shall not constitute a waiver of the right of any party to compel arbitration regarding any other dispute or remedy subject to arbitration in this Contract, including the filing of a counterclaim in a suit brought by you pursuant to this provision.

On November 12, 1999, the Grams filed suit against Conseco, alleging that it had violated both the Texas Debt Collection Act and the Deceptive Trade Practices Act. Tex. Fin. Code Ann. § 392.301 (Vernon 1998); Tex. Bus. & Com. Code Ann. §§ 17.46(b)(12), 17.50 (Vernon Supp. Pamph. 2000). Conseco filed a motion to compel arbitration, relying on this clause to argue that the parties had agreed to arbitrate "all disputes, claims and controversies which arise from or relate to the Contract." Apparently, Respondent conducted a hearing on the motion to compel,¹ and denied Conseco's request. This mandamus proceeding followed.

What law applies?

Both Texas and Federal public policy strongly favor the submission of disputes to arbitration. D. Wilson Constr. Co. v. Cris Equip. Co., Inc., 988 S.W.2d 388, 393 (Tex. App.--Corpus Christi 1999, orig. proceeding). Both governing bodies have established specific statues to govern arbitration disputes. 9 U.S.C.A. § 1, et seq. (West 1999); Tex. Civ. Prac. & Rem. Code Ann. § 171.001, et seq. (Vernon Supp. 2000). Which statute applies to this contract has several implications. First, if Conseco's demand for arbitration comes within the ambit of the Federal Arbitration Act (FAA), it is entitled to seek review of the denial of that motion by mandamus. Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992). If its claim must be based on the Texas Act, mandamus is not appropriate because an interlocutory appeal is available. Id.; Tex. Civ. Prac. & Rem. Code Ann. § 171.098(a)(1). Secondly, on the substance of the claim, Texas law provides for different restrictions on an arbitration clause than does the Federal statute. See, e.g., Tex. Civ. Prac. & Rem. Code Ann. § 171.002. Thus, depending upon which law governs, we must consider different requirements to determine if Respondent abused his discretion when he refused to order the dispute to arbitration.

The Federal act applies to any contract which "involves" interstate commerce. A contract "involves" interstate commerce if it "affects" interstate commerce, within the broadest meaning of the word approved by the United States Supreme Court. Allied-Bruce Terminix Co. v. Dobson, 513 U.S. 265, 273-74, 115 S.Ct. 834, 839, 130 L.Ed.2d 753 (1995). The "happenstance [of] whether the parties happened to think to insert a reference to interstate commerce in the document" is not determinative of whether the contract is governed by the FAA. Id., 513 U.S. at 278, 115 S.Ct. at 842. Rather, the United States Supreme Court "insist[s] that the 'transaction' in fact 'involve[]' interstate commerce" to fall within the coverage of the act. Id., 513 U.S. at 281, 115 S.Ct. at 843.

Although the United States Supreme Court requires that the transaction reflected in the contract involve interstate commerce in fact, it has also allowed the parties to "specify by contract the rules under which that arbitration will be conducted." Volt Info. Sciences v. Board of Trustees, 489 U.S. 468, 479, 109 S.Ct. 1248, 1256, 103 L.Ed.2d 488 (1989). On that basis, "[t]he parties may designate which arbitration act they wish to control proceedings under the contract, and the courts will honor that choice." Russ Berrie and Co. v. Gantt, 998 S.W.2d 713, 715 n.6 (Tex. App.--El Paso 1999, no pet.). Here, the parties agreed in the contract that the arbitration would be governed by the FAA, and we will apply those provisions to this dispute. Thus, this proceeding is properly before us on Conseco's petition for a writ of mandamus.

The law as applied in a trial court

The Federal Arbitration Act creates a substantive body of law that is applicable in state courts. Perry v. Thomas, 482 U.S. 483, 489, 107 S.Ct. 2520, 2525, 96 L.Ed.2d 426 (1987). A court called upon to determine if arbitration should be compelled under the FAA must determine (1) whether the parties agreed to arbitrate, and if so, (2) whether the scope of the agreement encompasses the asserted claims. Chelsea Square Textiles, Inc. v. Bombay Dyeing and Manufacturing Co., 189 F.3d 289, 294 (2nd Cir. 1999); see also Leander Cut Stone Co. v. Brazos Masonry, Inc., 987 S.W.2d 638, 640 (Tex. App.--Waco 1999, no pet.). Additionally, the agreement to arbitrate may be avoided "upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C.A. § 2; Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 686, 116 S.Ct. 1652, 1656, 134 L.Ed.2d 902 (1996).

Texas procedure controls the decision by a Texas court when it is called on to decide if a disputed claim is subject to an arbitration clause under the Federal Act. Jack B. Anglin, 842 S.W.2d at 268. Thus, if the opposing party disputes the agreement to arbitrate, i.e., claims that there is no agreement to arbitrate or, conceding that the agreement exists, raises a ground in law or in equity for the revocation of any contract, the court may decide the issue on the basis of affidavits, pleadings, discovery and stipulations, unless the material facts are controverted. Leander Cut Stone, 987 S.W.2d at 640. If the facts are controverted, by opposing affidavit or otherwise admissible evidence, the trial court must conduct an evidentiary hearing to determine those disputed facts before...