Jorja Trading, Inc. v. Willis

• Decision Date: 09 April 2020
• Docket Number: No. CV-18-1012,CV-18-1012
• Citation: 2020 Ark. 133,598 S.W.3d 1
• Parties: JORJA TRADING, INC.; Automatic Auto Finance, Inc.; Cashfish Motor Pawn, Inc. ; Virginia Rivers; Monte Johnston; and John Does 1–10, Appellants v. Leah WILLIS and Adrian Bartholomew, Appellees
• Court: Arkansas Supreme Court

2020 Ark. 133

598 S.W.3d 1

JORJA TRADING, INC.; Automatic Auto Finance, Inc.; Cashfish Motor Pawn, Inc. ; Virginia Rivers; Monte Johnston; and John Does 1–10, Appellants

v.Leah WILLIS and Adrian Bartholomew, Appellees

No. CV-18-1012

Supreme Court of Arkansas.

Opinion Delivered: April 9, 2020

Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C., by: Scott E. Wray and Grace K. Johnson, Fayetteville, for appellants.

The Story Law Firm, PLLC, by: Travis W. Story, Fayetteville and Gregory F. Payne, for appellees.

RHONDA K. WOOD, Associate Justice

Jorja Trading, Inc.; Automatic Auto Finance, Inc.; Cashfish Motor Pawn, Inc.; Virginia Rivers; Monte Johnston; and John Does 1–10, appeal the circuit court’s denial of their motion to compel arbitration. Because the contract is supported by mutual obligations and the contract plainly stated that appellants did not waive arbitration by obtaining a monetary judgment in the small-claims division of district court, we reverse and remand.

I. Background

Appellees, Leah Willis and Adrian Bartholomew, purchased a vehicle from Automatic Auto Finance with an installment-sales contract. Automatic Auto Finance later assigned the installment-sales contract to Jorja Trading. After failing to make their scheduled payments, appellees voluntarily surrendered the vehicle. The vehicle was sold, and appellees’ account was credited. However, a balance remained, and Jorja Trading filed a complaint in the small-claims division of district court seeking payment for the remaining balance. Following a hearing, the district court entered judgment against appellees in the amount of $3,036.84, plus $225 in costs.

Appellees timely appealed the district court judgment to the Washington County Circuit Court, counterclaimed based on usury and UCC violations, and sought class certification. Appellants filed a motion to compel arbitration. The circuit court denied appellants’ motion. It concluded that the arbitration agreement¹ contained in the parties’ installment-sales contract lacked mutuality of obligation in the following three areas: (1) it reserved the right of both parties to seek self-help remedies, (2) it provided that both parties waive class-action lawsuits, and (3) it allowed appellants to reject appellees’ selection of an arbitrator. In addition, the circuit court held that even if the arbitration agreement was valid, the appellants had waived it by first proceeding in district court. Appellants filed an interlocutory appeal, and the court of appeals affirmed. Jorja Trading, Inc. v. Willis , 2018 Ark. App. 574, 566 S.W.3d 510. We granted appellants’ petition for review.

II. Analysis

A. Standard of Review

Arkansas strongly favors arbitration as a matter of public policy. Reg'l Care of Jacksonville, LLC v. Henry , 2014 Ark. 361, 444 S.W.3d 356. It is a less expensive and more expeditious means of settling litigation and relieving docket congestion. Id. We review a denial of a motion to compel arbitration de novo on the record. Advance Am. Servicing of Ark., Inc. v. McGinnis , 375 Ark. 24, 289 S.W.3d 37 (2008).

III. Mutuality of Obligations

Appellants argue that this arbitration agreement, and the installment-sales contract as a whole, has mutuality of obligations. The arbitration agreement is governed by the Federal Arbitration Act (FAA). The FAA makes arbitration agreements "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The Supreme Court has consistently required courts to place arbitration agreements on equal footing with all other contracts and enforce them according to their terms. AT & T Mobility LLC v. Concepcion , 563 U.S. 333, 339, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011). A court may invalidate an arbitration agreement based on "generally applicable contract defenses," but not on legal rules that "apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue." Id. ; see also Kindred Nursing Ctrs. Ltd. P’ship v. Clark , ––– U.S. ––––, 137 S. Ct. 1421, 197 L.Ed.2d 806 (2017). "The primary purpose of the FAA is to ensure that private agreements to arbitrate are enforced according to their terms." BHC Pinnacle Pointe Hosp., LLC v. Nelson , 2020 Ark. 70, at 11, 594 S.W.3d 62. We have explained that any doubts and ambiguities will be resolved in favor of arbitration. Id.

When deciding whether the parties agreed to arbitrate a certain matter, ordinary state-law principles governing contract formation apply. First Options of Chicago, Inc. v. Kaplan , 514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) ; Henry , 2014 Ark. 361, at 6, 444 S.W.3d at 360. We employ Arkansas contract law to decide whether the contract was validly entered, but our review is limited to the extent that it applies to contracts generally, and not arbitration agreements selectively. See Kindred Nursing Ctrs. , 137 S. Ct. 1421 (finding that a state-contract rule that discriminates on its face against arbitration or that covertly accomplishes the same objective by disfavoring contracts that have the defining features of arbitration agreements was illegal); Concepcion , 563 U.S. at 339, 131 S.Ct. 1740. And, "state law is preempted to the extent it ‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives’ of the FAA." Lamps Plus, Inc. v. Varela , ––– U.S. ––––, 139 S. Ct. 1407, 1415, 203 L.Ed.2d 636 (2019) (citing Concepcion , 563 U.S. at 352, 131 S.Ct. 1740 ). Because the FAA’s principle purpose is to ensure the enforcement of arbitration agreements according to their terms, in other cases the Supreme Court has held that "parties may agree to limit the issues subject to arbitration, to arbitrate according to specific rules, and to limit with whom a party will arbitrate its disputes." Concepcion , 563 U.S. at 344, 131 S.Ct. 1740 (internal citations omitted) (emphasis removed).

In Arkansas, the essential elements of a contract are: (1) competent parties; (2) subject matter; (3) consideration; (4) mutual agreement; and (5) mutual obligations. City of Dardanelle v. City of Russellville , 372 Ark. 486, 491, 277 S.W.3d 562, 565–566 (2008). Here, the circuit court found that the arbitration agreement was invalid because it lacked mutuality of obligations. Mutuality of obligations means "an obligation must rest on each party to do or permit to be done something in consideration of the act or promise of the other; thus, neither party is bound unless both are bound." Jordan v. Diamond Equip. & Supply Co., 362 Ark. 142, 153, 207 S.W.3d 525, 533 (2005). It requires that the terms of the agreement "impose real liability upon both parties." Independence Cty. v. City of Clarksville , 2012 Ark. 17, at 7, 386 S.W.3d 395, 399. For example, we have held that mutuality was not lacking in a purchase contract between a town and regional water authority because the town agreed to pay the authority to provide potable water to the town’s master meter in exchange for payment, and the parties adhered to the contract for ten months. Town of Lead Hill v. Ozark Mountain Reg'l Pub. Water Auth. , 2015 Ark. 360, 472 S.W.3d 118.

However, a contract that provides one party the option not to perform his promise would not be binding on the other. City of Dardanelle , 372 Ark. 486, 277 S.W.3d 562 (2008). Thus, in City of Dardanelle , we held that a joint resolution that required two cities to "cooperate" lacked mutuality because such an obligation was too vague to be legally binding on either party. Id.

The appellants contend the installment-sales contract as a whole and the arbitration agreement within it mutually obligates the parties to arbitrate. Appellees did not challenge the mutuality of the installment-sales contract as a whole. Appellants delivered possession of and financed a car in exchange for appellees’ down payment and a promise to make future payments, satisfying mutuality of the installment-sales contract. Both parties agreed to arbitrate any disputes that could not be resolved in small-claims court and agreed on the parameters of arbitration should it occur. Despite this, the circuit court found that three provisions within the arbitration agreement of the contract destroyed mutuality because it could not conceive of scenarios where those provisions applied bilaterally. We disagree. This court has not required that every provision within a contract be bilateral. We therefore cannot require that every provision in an arbitration agreement be bilateral without violating the FAA because doing so would hold arbitration agreements to a more stringent analysis than other contracts. Because the FAA preempts, we cannot single out a rule or application unique to arbitration agreements. Kindred Nursing , 137 S. Ct. at 1426–28. That is precisely what the FAA prohibits.

The Supreme Court explained this in reversing a California decision in DIRECTV v. Imburgia , ––– U.S. ––––, 136 S. Ct. 463, 193 L.Ed.2d 365 (2015). In that case, the Court found that California, under the guise of applying state law, voided an arbitration agreement on a ground it would not have voided in a traditional contract. Id. "The fact that we can find no similar case interpreting the words ... to reach a similar conclusion in similar cases that do not involve arbitration" suggested that California was selectively applying contractual requirements to arbitration agreements alone. Id. at 470–71 (emphasis added). A court cannot invalidate an arbitration agreement on legal rules that apply only to arbitration agreements Id.

The appellants contend the circuit court erred in finding three provisions within the arbitration agreement destroyed mutuality of obligation for the contract. Both parties have bound themselves to arbitrate. Nevertheless, we review each provision addressed by the circuit court. First, the arbitration agreement provides that both parties "retain the right to self-help remedies, such as...