Lackey v. Green Tree Financial Corp., No. 2810.

• Court: Court of Appeals of South Carolina
• Writing for the Court: HOWARD.
• Citation: 498 S.E.2d 898,330 S.C. 388
• Docket Number: No. 2810.
• Decision Date: 16 March 1998
• Parties: Daniel B. LACKEY, George Buggs, Florine Buggs, Michael Highsmith, and Paula Johnson, Respondents, v. GREEN TREE FINANCIAL CORP., Appellant.

330 S.C. 388
498 S.E.2d 898

Daniel B. LACKEY, George Buggs, Florine Buggs, Michael Highsmith, and Paula Johnson, Respondents,
v.
GREEN TREE FINANCIAL CORP., Appellant

No. 2810.

Court of Appeals of South Carolina.

Submitted December 2, 1997.

Decided March 16, 1998.

330 S.C. 391

Herbert W. Hamilton, of Kennedy, Covington, Lobdell & Hickman, Rock Hill, for appellant

Bradford Simpson, of Simpson, Dong & Wingate; John D. Kassel and Kenneth M. Suggs, both of Suggs & Kelly, Columbia; Daniel W. Williams, of Bedingfield & Williams, Barnwell, for respondents.

HOWARD, Judge:

Green Tree Financial Corp. (Green Tree) appeals from a final order finding the arbitration clause in its form contracts to be unconscionable and therefore unenforceable. We reverse and remand for further proceedings.

330 S.C. 392

FACTS

The Respondents each entered into retail installment contracts and security agreements which obligated them to make monthly payments to Green Tree for the purchase of manufactured homes or improvements to manufactured homes. In each instance, the contract forms were provided to manufactured home dealers by Green Tree. When a dealer accepted the terms by signing a contract, the signature also assigned the dealer's rights in the contract to Green Tree. Under these agreements, Green Tree held a security interest in real or personal property owned by each respondent.

The agreements contained an arbitration clause on the reverse side of the form contract. Although the arbitration clauses vary slightly, the parties agree they each contain essentially the following language:¹

All disputes, claims, or controversies arising from or relating to this contract, or the relationships which result from this contract, or the validity of this arbitration clause or the entire contract, shall be resolved by binding arbitration by one arbitrator selected by [Green Tree] with consent of Buyer[s]. This arbitration contract 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 choose arbitration instead of litigation to resolve disputes. The parties understand that they have a right or opportunity to litigate disputes through 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 ARBTRATION UNDER THIS CLAUSE OR PURSUANT TO COURT ACTION BY [GREEN TREE] AS PROVIDED HEREIN. The parties agree and understand that all disputes arising under case law, statutory law, and all other

330 S.C. 393

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 and understand that the arbitrator shall have all powers provided by the law and the contract. These powers shall include all legal and equitable remedies, including, but not limited to, monetary damages, declaratory relief and injunctive relief. Notwithstanding anything hereunto the contrary, [Green Tree] retains an option to use judicial 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 obligations secured by the manufactured home or to foreclose on the manufactured home. Such judicial relief would take the form of a lawsuit. The institution and maintenance of an action for judicial relief in a court 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 the contract, including the filing of a counterclaim in a suit brought by [Green Tree] pursuant to this provision.

The Respondents brought this class action suit, alleging Green Tree had failed to "inform them of their right to be represented by legal counsel of their choice and to ascertain the preferences as to legal counsel in closing the particular transactions described herein...." Green Tree responded with a motion to stay and to compel arbitration.

The trial court denied the motion, concluding the arbitration clause was unconscionable based on its unbalanced terms, which the court found to be a contract of adhesion. The court also ruled the arbitration clause was unenforceable because it lacked mutuality, since Green Tree was not obligated to arbitrate all of its claims, though the Respondents were. The trial court found it unnecessary to rule on the other issues presented. Green Tree appeals these rulings.

SCOPE OF REVIEW

The validity of an arbitration clause which is attacked on the grounds of unconscionability raises a question of

330 S.C. 394

law. S.C.Code Ann. § 36-2-302 (1976). In an action at law, the appellate court's jurisdiction is limited to the correction of errors of law and factual findings which are unsupported by any evidence. Rose v. Beasley, 327 S.C. 197, 489 S.E.2d 625 (1997) (citing Townes Assocs., Ltd. v. City of Greenville, 266 S.C. 81, 221 S.E.2d 773 (1976))

LAW/ANALYSIS

I. Adhesion Contract

The trial court first concluded the contracts were contracts of adhesion. Green Tree disputes this finding, but we agree with the trial court.

South Carolina case law has yet to specifically define an adhesion contract, although several cases refer to them in an insurance setting. See Fireman's Ins. Co. v. State Farm Mut. Auto. Ins. Co., 295 S.C. 538, 370 S.E.2d 85 (1988); Wolf v. Colonial Life & Accident Ins. Co., 309 S.C. 100, 420 S.E.2d 217 (Ct.App.1992). The federal district court applying South Carolina law recently stated the following definition, "[A] contract of adhesion is generally thought of as a standard form contract offered on a take-it-or-leave-it' basis. The terms of the contract of adhesion are not negotiable. An offeree faced with such a contract has two choices: complete adherence or outright rejection." Wingard v. Exxon Co., 819 F.Supp. 497, 503 (D.S.C.1992) (citing E. Allen Farnsworth, Contracts § 4.26 at 295 (1982)). We conclude this definition properly describes a contract of adhesion. See 1 Corbin on Contracts § 1.4 (rev. ed. 1993) (recognizing adhesion contracts as agreements in which one party has virtually no voice in the formulation of their terms and language).

Applying this definition, each contract in this case was an adhesion contract. Each was a standard form contract presented on a "take it or leave it" basis. The Respondents did not contribute to the drafting. They obviously did not possess the same bargaining power as Green Tree. Had they not signed, they would not have received the financing they sought from Green Tree.

330 S.C. 395

II. Unconscionability

The fact that a contract is one of adhesion does not make it unconscionable. See Goodwin v. Ford Motor Credit Co., 970 F.Supp. 1007, 1015 (M.D.Ala.1997). Determining whether a contract is one of adhesion is merely the beginning point in the analysis. Unconscionability, on the other hand, requires a greater showing. Unconscionability is characterized by the "absence of meaningful choice on the part of one party due to one-sided contract provisions, together with terms which are so oppressive that no reasonable person would make them and no fair and honest person would accept them." Fanning v. Fritz's Pontiac-Cadillac-Buick Inc., 322 S.C. 399, 402, 472 S.E.2d 242, 245 (1996) (emphasis added) (citing Jones Leasing v. Gene Phillips and Assocs., 282 S.C. 327, 318 S.E.2d 31 (Ct.App.1984)).

The issues raised in this case have not been thoroughly addressed in this state before. The federal district court in Alabama addressed the same issues presented here and discussed them in depth in Goodwin v. Ford Motor Credit Co., 970 F.Supp. 1007 (M.D.Ala.1997). In Goodwin, car buyers brought a class action against Ford Motor Credit alleging violations of the federal Truth in Lending Act and state consumer protection laws. Each of the car buyers signed an installment sales contract together with a separate arbitration agreement. Both were standardized forms produced by Ford Motor Credit. Once the car buyers brought the class action, Ford Motor Credit filed demands for arbitration. The car buyers answered that the arbitration agreement should not be enforced because it was unconscionable and lacked mutuality. The federal court carefully and thoroughly addressed these issues. We agree with that court's reasoning and decision and refer to it throughout this opinion.

Form contracts obviously serve a very useful purpose in commerce. The benefits of adhesion contracts are succinctly described in Goodwin:

"The contract of adhesion is a part of the fabric of our society. It should neither be praised nor denounced...." That is because there are important advantages to its use despite its potential for abuse. These advantages include the fact that standardization of forms for contracts is a

330 S.C. 396

rational and economically efficient response to the rapidity of market transactions and the high costs of negotiations, and that the drafter can rationally calculate the costs and risks of performance,

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