Ms Credit Center, Inc. v. Horton, No. 2004-CA-01699-SCT.

• Court: United States State Supreme Court of Mississippi
• Writing for the Court: Dickinson, Justice
• Citation: 926 So.2d 167
• Docket Number: No. 2004-CA-01699-SCT.
• Decision Date: 23 February 2006
• Parties: MS CREDIT CENTER, INC., d/b/a MS Loan Center, American Bankers Life Assurance Company of Florida and MS Casualty Insurance Company v. Catherine HORTON.

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926 So.2d 167 MS CREDIT CENTER, INC., d/b/a MS Loan Center, American Bankers Life Assurance Company of Florida and MS Casualty Insurance Company
v.
Catherine HORTON. No. 2004-CA-01699-SCT. Supreme Court of Mississippi. February 23, 2006. Rehearing Denied April 27, 2006.

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Taylor Nicholson Ferrell, Walter D. Willson, Kenna L. Mansfield, Jr., Jackson, attorneys for appellant.

Suzanne Griggins Keys, attorney for appellee.

Before WALLER, P.J., DICKINSON and RANDOLPH, JJ.

DICKINSON, Justice, for the Court.

¶ 1. This is an appeal of a trial judge's order denying a motion to compel arbitration. For reasons other than those cited by the trial judge, we affirm.

BACKGROUND FACTS AND PROCEEDINGS

¶ 2. Catherine Horton made three loans from MS Credit Center, Inc., d/b/a MS Loan Center ("MS Credit").¹ The first was on January 28, 1997, for $553.73;² the second on July 12, 1999, for $626.49; and the third on December 21, 2001, for $961.88. In her second loan transaction, Horton purchased credit life and disability insurance from MS Life Insurance Company ("MS Life") and MS Casualty Insurance Company ("MS Casualty").³ In the third transaction, Horton purchased credit life and disability insurance from American National Insurance Company and credit property insurance from American National Property and Casualty Company, neither of whom are parties to this suit.

¶ 3. In connection with her 2001 loan, Horton signed a separate document entitled: "ARBITRATION AGREEMENT AND WAIVER OF JURY TRIAL." The title was written in all capital, bold-face font, and the body of the agreement was written in the same font size used in the other loan documents. The agreement stated, in part:

ARBITRATION. I agree with you to arbitrate any and all (1) disputes, torts, counterclaims, or any other matter in question or controversy between us arising out of, in connection with, or in any way relating to the loan transaction, including any Disclosure Statement, Promissory Note and Security Agreement and any insurance coverage you might purchase in connection with any transaction ("Claims") (including questions or whether a Claim must be arbitrated under this Agreement) and (2) any Claims arising out of, in connection with, or relating to a transaction involving us and one or more third parties who has not signed this Agreement which a third party elects to arbitrate, such as any insurer for any insurance policies you might elect to buy relating to this transaction ("Third Party Claims").

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¶ 4. Also, at the end of the agreement, directly above the line prepared for Horton's signature, was the following language:

THE ARBITRATION WILL TAKE THE PLACE OF ANY COURT PROCEEDINGS, INCLUDING A TRIAL WITH A JUDGE AND JURY. I UNDERSTAND THAT I AM WAIVING ANY RIGHT TO A TRIAL BY A JUDGE OR A JUDGE AND JURY. THE ARBITRATOR MAY AWARD DAMAGES OR OTHER RELIEF ONLY TO EITHER OF U.S. AND ANY THIRD PARTY THAT EXERCISES THEIR RIGHT TO ARBITRATE CLAIMS UNDER THIS AGREEMENT. IF I HAVE OTHER LOANS OR INSURANCE POLICIES THROUGH THE LENDER, THIS AGREEMENT APPLIES TO ALL OTHER TRANSACTIONS INVOLVING THIS LENDER.

I HAVE READ THIS AGREEMENT CAREFULLY. IT LIMITS CERTAIN OF MY RIGHTS, INCLUDING MY RIGHT TO MAINTAIN A COURT ACTION AND A TRIAL BY JURY. IF ANY PART OF THIS AGREEMENT IS FOUND TO BE IN CONFLICT WITH APPLICABLE LAW OR DECLARED INVALID, THAT WILL NOT AFFECT ANY OTHER PART OF THIS AGREEMENT AND THE REMAINING PORTIONS OF THIS AGREEMENT REMAIN VALID AND BINDING.

¶ 5. In addition to signing her name just below this language, Horton placed her initials on the bottom of the page containing the arbitration agreement.

¶ 6. On December 27, 2002, Horton filed suit against MS Credit and the Insurance Defendants, alleging they did not adequately disclose the terms of her purchases of credit insurance. Horton asserted causes of action for Breach of Fiduciary Duties, Breach of Implied Covenants of Good Faith and Fair Dealing, Fraudulent Misrepresentation and/or Omission, Negligent Misrepresentation and/or Omission, Civil Conspiracy, Negligence, and Unconscionability. Horton demands statutory and compensatory damages of $1,000,000.00, punitive damages of $10,000,000.00, costs, attorneys' fees, and pre and post-judgment interest. Horton does not limit her unconscionability claim to the arbitration agreement. Rather she asserts that the entire set of loan transactions were procedurally and substantively unconscionable.

¶ 7. The defendants filed separate answers asserting numerous affirmative defenses. The Insurance Defendants asserted as their forty-eighth affirmative defense that "some or all of the claims advanced herein are subject to binding arbitration under the loan agreements and/or the Federal Arbitration Act." MS Credit did not include an arbitration defense in its original answer but did so in its July 7, 2003, answer to the Amended Complaint.⁴

¶ 8. The Insurance Defendants served discovery on Horton and noticed her deposition. MS Credit, Bankhead and Sloan neither served discovery upon Horton, nor noticed her deposition.

¶ 9. Horton testified in her deposition that each time she went to the MS Credit office to obtain a loan, she was presented the paperwork and told where to sign. Although she testified she did not know what the term "arbitration" meant, there is no evidence in the record that anyone at

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MS Credit provided incorrect or misleading information which induced Horton to enter the agreement. Bankhead testified that she customarily presented paperwork to borrowers for their review and signature, and only upon request did she attempt to explain the arbitration language.

¶ 10. On March 16, 2004, MS Credit-joined by Bankhead and Sloan-filed a Motion to Compel Arbitration of Horton's claims. The motion asserted that when Horton signed the arbitration agreement in connection with her December 2001 loan, she agreed to submit all claims to binding arbitration. The Insurance Defendants joined in MS Credit's Motion and filed a separate motion to address their standing to compel arbitration.

¶ 11. In response to MS Credit's Motion to Compel Arbitration, Horton asserted: (1) Defendants waived their rights to compel arbitration; (2) Horton did not knowingly and voluntarily agree to arbitrate; and (3) the arbitration agreement was procedurally unconscionable.

¶ 12. On August 16, 2004, the trial court denied the motion to compel arbitration, specifically holding that the agreement was procedurally unconscionable and unenforceable. From this order MS Credit, MS Casualty, and MS Life appeal.

ANALYSIS

¶ 13. The question presented is whether the arbitration agreement between Horton and MS Credit require her to submit her claims to binding arbitration. Although the record does not support the trial court's finding of unconscionability, we hold the defendants nevertheless waived the right to require arbitration. Thus, the trial court reached the right result for the wrong reason. Because we are reversing the trial court's finding of unconscionability, and because we announce today new guidelines for assertion of all affirmative defenses, we shall proceed to discuss the issues in some detail.

I.

Federal Arbitration Act

¶ 14. When a commercial transaction involving interstate commerce includes an agreement to arbitrate disputes, federal law controls the enforcement of the arbitration agreement. Guiness Harp Corp. v. Jos. Schlitz Brewing Co., 613 F.2d 468 (2nd Cir.1980). Federal law on the subject of arbitration is codified at 9 U.S.C. § 1, et seq. This set of federal statutes is officially known as the Federal Arbitration Act ("FAA"). The FAA and the United States Supreme Court interpretive decisions, are the controlling law on the subject.

¶ 15. When Congress enacted the FAA, its purposes were to establish a broad "federal policy favoring arbitration," and to require courts to "rigorously enforce agreements to arbitrate." East Ford v. Taylor, 826 So.2d 709, 713 (Miss.2002) (citing Shearson/Am. Exp. Inc. v. McMahon, 482 U.S. 220, 226, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987)). Section 2 of the FAA provides, inter alia:

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.

9 U.S.C. § 2 (emphasis added).

Doctor's Associates, Inc. v. Casarotto

¶ 16. The United States Supreme Court — whose decisions the justices on this Court are bound by oath to follow — has clearly declared that Section 2 of the FAA prohibits courts (including this

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Court) from singling out arbitration provisions for special treatment. That is to say, it prevents courts from placing more stringent requirements for the enforcement of arbitration provisions than for other provisions in a contract. Doctor's Assoc., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996).

¶ 17. In Casarotto, a Subway sandwich shop franchisee filed suit against his franchisor "alleging state-law contract and tort claims relating to the franchise agreement." Id. at 683, 116 S.Ct. 1652. The agreement included an arbitration provision in ordinary type on page nine. Id. The trial court stayed all proceedings pending arbitration as required by the agreement. The Montana Supreme Court reversed, holding that the arbitration provision was unenforceable under a Montana statute which required contracts to include notice of arbitration provisions "in underlined capital letters on the first page of the contract." Mont.Code Ann § 27-5-114(4).

¶ 18. The Supreme Court granted certiorari, vacated the Montana Supreme Court's judgment, and remanded for further consideration in light of Allied-Bruce...