Madol v. Dan Nelson Automotive Group

• Decision Date: 24 June 2004
• Docket Number: No. 03-3330.,03-3330.
• Parties: Mabor MADOL; Kaw Ngong, Appellees, v. DAN NELSON AUTOMOTIVE GROUP, doing business as J D Byrider; South Dakota Acceptance Corporation, doing business as J D Byrider; South Dakota Auto Group, Inc.; Dan Nelson Finance Supercenter; Carnow Acceptance Company, doing business as South Dakota Acceptance Corporation; Daniel A. Nelson, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

372 F.3d 997

Mabor MADOL; Kaw Ngong, Appellees, v. DAN NELSON AUTOMOTIVE GROUP, doing business as J D Byrider; South Dakota Acceptance Corporation, doing business as J D Byrider; South Dakota Auto Group, Inc.; Dan Nelson Finance Supercenter; Carnow Acceptance Company, doing business as South Dakota Acceptance Corporation; Daniel A. Nelson, Appellants.

No. 03-3330.

United States Court of Appeals, Eighth Circuit.

Submitted: April 15, 2004.

Filed: June 24, 2004.

David N. May, argued, Des Moines, IA (Matthew J. Haindfield, on the brief), for appellants.

CeCelia Ibson Wagner, argued, Des Moines, IA, for appellees.

Before MORRIS SHEPPARD ARNOLD, MAGILL, and MURPHY, Circuit Judges.

MORRIS SHEPPARD ARNOLD, Circuit Judge.

I.

This case involves a dispute over used automobiles that the plaintiffs, Mabor Madol and Kaw Ngong, purchased and financed at Dan Nelson Automotive's car dealership and documents that the plaintiffs signed in connection with those transactions. The plaintiffs brought suit in Iowa state court, claiming that in the course of selling and financing the vehicles the defendants had violated Iowa consumer protection statutes (Iowa Code §§ 537.1101-537.7103 and Iowa Code ch. 538A) and the federal Truth in Lending Act (15 U.S.C. § 1631 et seq.), and had committed common-law fraud. The defendants removed the case to the United States District Court for the Southern District of Iowa. All that is at issue at this point is whether an arbitration agreement that the plaintiffs signed requires that their grievances be referred to an arbitrator.

When purchasing their vehicles, each plaintiff signed, among other documents, a dispute resolution agreement (DRA). The DRA provides that the purchaser, dealer, and "all assignees... agree to submit all dispute(s) of any kind between them that arise out of, result from, or are in any way connected with the purchase and sale or financing of the Vehicle, for resolution by binding arbitration." The DRA also states that the parties agree that the DRA will be governed by the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16.

Based on the DRA, the defendants filed a motion to compel arbitration and stay litigation under 9 U.S.C. §§ 3 and 4. (Where arbitration is required by § 4 of the FAA, § 3 requires that the court stay the court proceedings upon application of one of the parties.) The plaintiffs resisted the motion, arguing that the DRA is invalid because the vehicle transactions were unconscionable. In particular, the plaintiffs argued in their resistance to the defendants' motion that the DRA should be "revoked" because they "had no choice regarding what they signed to consummate these consumer credit transactions," they were given "stacks of documents" by the defendants' employees, and "the sheer magnitude of the paperwork and the number of clauses per document surely overwhelmed" them because they were "not used to sophisticated business dealings."

The matter was initially considered by a magistrate judge, who issued an order granting the defendants' motion, concluding that "all further action in this case shall be and is stayed pending completion of arbitration as contemplated by the Dispute Resolution Agreement signed by plaintiffs." The plaintiffs then filed objections to the magistrate judge's order in accordance with Rule 72 of the Federal Rules of Civil Procedure. The district court, after considering those objections, set aside the order compelling arbitration and staying litigation, and granted the parties thirty days to conduct discovery and submit additional evidence regarding the validity or alleged unconscionability of the DRA. The defendants appeal, arguing that the district court erred in setting aside the magistrate judge's order and inviting the parties to supplement the record. We reverse.

II.

The plaintiffs have moved to dismiss the appeal for lack of an appealable order. We deny this motion because we conclude that the district court's order was appealable under § 16(a) of the FAA, which provides in relevant part that "[a]n appeal may be taken from ... an order ... refusing a stay of any action under section 3 of this title" or "denying a petition under section 4 of this title to order arbitration to proceed." 9 U.S.C. § 16(a)(1)(A), (B). While the district court's order did not purport to determine conclusively whether the dispute should be referred to an arbitrator, it "reject[ed] the conclusion of the magistrate judge's Order" compelling arbitration and staying proceedings, and reopened discovery in the district court so that the parties could further develop the evidentiary record. Despite the order's temporary nature, it was an order "refusing a stay" and directing that the litigation proceed, and was thus appealable under § 16(a). Cf. McLaughlin Gormley King Co. v. Terminix Intern. Co., L.P., 105 F.3d 1192, 1193 (8th Cir.1997).

III.

The FAA reflects Congress's "declaration of a liberal federal policy favoring arbitration agreements," Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), and its intent "to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible," id. at 22, 103 S.Ct. 927. It provides that "[a] written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract ... shall be 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. A "party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration." Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000).

The issues subject to consideration by the magistrate judge (and the district court, upon review of the magistrate judge's order) were restricted. In ruling upon a motion to compel arbitration under the FAA, a judge "is limited to considering the parties' claims that the arbitration agreement is invalid or that it does not apply to the dispute with respect to which arbitration is sought." Bob Schultz Motors, Inc. v. Kawasaki Motors Corp., U.S.A., 334 F.3d 721, 727 (8th Cir.2003), cert. denied, 540 U.S. 1149, 124 S.Ct. 1147, 157 L.Ed.2d 1042 (2004). The plaintiffs do not contend that the literal terms of the DRA do not apply to their grievances; they argue, however, that the agreement to arbitrate is invalid because the vehicle "contracts as a whole," including the DRA, are unconscionable. The magistrate judge was unpersuaded by the plaintiffs' efforts to prove that the DRA was invalid, and he thus granted the motion to compel arbitration and stay proceedings.

The district court agreed that the record was insufficient to support the plaintiffs' contention of invalidity, and stated that the magistrate judge's "conclusions were correct based on the record before him," noting that the "Plaintiffs have offered nothing to support their argument that the...