Patrick Home Center, Inc. v. Karr

• Decision Date: 26 March 1999
• Parties: PATRICK HOME CENTER, INC. v. Brian W. KARR and Kristie Burleson Karr.
• Court: Alabama Supreme Court

730 So.2d 1171

PATRICK HOME CENTER, INC. v. Brian W. KARR and Kristie Burleson Karr.

1971953.

Supreme Court of Alabama.

March 26, 1999.

Lily Arnold Green, Hamilton; and A. Stewart O'Bannon III of O'Bannon & O'Bannon, L.L.C., Florence, for appellant.

James K. Davis and Mark E. Hammitte of Fite, Davis, Atkinson, Guyton & Bentley, P.C., Hamilton, for appellees.

MADDOX, Justice.

The sole issue in this case is whether the trial judge erred in refusing to compel arbitration of the plaintiffs' claims arising out of their purchase of a mobile home.

On December 27, 1993, Brian Karr and his wife Kristie Karr purchased a 1994 Fleetwood double-wide mobile home from Patrick Home Center, Inc. ("Patrick Homes"). The terms of the purchase were incorporated into a final contract entitled "Manufactured Home Retail Installment Contract and Security Agreement." This contract was signed by the Karrs.¹ The contract contained the following provision:

"21. ARBITRATION: 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...."

The Karrs allege that they began experiencing problems with their mobile home and that Patrick Homes failed to repair the problems. They sued Patrick Homes, claiming that Patrick Homes was liable for misrepresentation, breach of express and implied warranties, negligent and wanton manufacture, and negligent and wanton set-up of their home.

Patrick Homes moved to compel arbitration under paragraph 21 of the contract. The Karrs do not argue that the purchase of the mobile home did not involve interstate commerce. Neither do they argue that the arbitration provision is not broad enough to include their claims against Patrick Homes. They claim, instead, that they were fraudulently induced to sign the contract and that the contract was a contract of adhesion. The trial court, after hearing oral argument on the motion to compel arbitration, denied it. Patrick Homes appealed.

We first address this Court's power to entertain the appeal, and our scope of review. An appeal is the appropriate method for challenging a trial court's denial of a motion to compel arbitration. See A.G. Edwards & Sons, Inc. v. Clark, 558 So.2d 358, 360 (Ala.1990). This Court's review of a trial court's refusal to compel arbitration is de novo. See Ex parte Warrior Basin Gas Co., 512 So.2d 1364, 1368 (Ala.1987). This review is similar to that employed in the federal courts, where it has consistently been said that "[d]eterminations of arbitrability, like the interpretation of any contractual provision, are subject to de novo review." Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 474 (9th Cir.1991), cert. denied, 503 U.S. 919, 112 S.Ct. 1294, 117 L.Ed.2d 516 (1992). See, e.g., Collins & Aikman Products Co. v. Building Systems, Inc., 58 F.3d 16 (2d Cir.1995); Coors Brewing Co. v. Molson Breweries, 51 F.3d 1511 (10th Cir.1995); Tracer Research Corp. v. National Environmental Services Co., 42 F.3d 1292 (9th Cir. 1994); McMahan Securities Co. L.P. v. Forum Capital Markets L.P., 35 F.3d 82 (2d Cir.1994); Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753 (11th Cir. 1993); Luckie v. Smith Barney, Harris Upham & Co., 999 F.2d 509 (11th Cir.1993): Britton v. Co-op Banking Group, 4 F.3d 742 (9th Cir.1993); Saari v. Smith Barney, Harris Upham & Co., 968 F.2d 877 (9th Cir.), cert. denied, 506 U.S. 986, 113 S.Ct. 494, 121 L.Ed.2d 432 (1992); Storey v. Shearson Lehman Hutton, Inc., 949 F.2d 1039 (8th Cir. 1991); Catholic Diocese of Brownsville, Texas v. A.G. Edwards & Sons, Inc., 919 F.2d 1054 (5th Cir.1990); Paulson v. Dean Witter Reynolds, Inc., 905 F.2d 1251 (9th Cir.1990); Nordin v. Nutri/System, Inc., 897 F.2d 339 (8th Cir.1990); Drake Bakeries, Inc. v. Local 50, American Bakery & Confectionery Wrkrs. Int'l, 370 U.S. 254, 82 S.Ct. 1346, 8 L.Ed.2d 474 (1962). In discussing the standard of review an appellate court should use in determining whether a trial court has correctly ruled on a question of law, this Court has held that "rulings on these motions do not fall within the trial court's discretionary function; thus, if alleged error is properly preserved and presented on appeal, these rulings are subject to de novo review, i.e., a review without any assumption of correctness." King Mines Resort, Inc. v. Malachi Mining & Minerals, Inc., 518 So.2d 714, 716 (Ala.1987). See Otis Elevator of Gadsden, Inc. v. Scott, 586 So.2d 200 (Ala.1991); see also Jim Burke Automotive, Inc. v. Beavers, 674 So.2d 1260, 1270-71 (Ala.1995) (Maddox, J., dissenting from order overruling application for rehearing). Based on these authorities, we conclude that we are to apply the de novo standard of review in a case like this one.

Patrick Homes argues that the trial court erred in denying its motion to compel arbitration because, it says, the Karrs presented no evidence to support their assertion that they were fraudulently induced to sign the contract and their assertion that the contract was a contract of adhesion. Patrick Homes also says the Karrs did not properly make these assertions in the trial court. The Karrs respond to this argument by saying that they were fraudulently induced to enter into the contract and the arbitration provision, and that disputes arising from an arbitration provision that one is fraudulently induced to sign are not subject to arbitration. The Karrs quote, in support of their argument, Prima Paint Corp. v. Flood & Conklin Mfg. Co. 388 U.S. 395, 403-04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), in which the United States Supreme Court held:

"[I]f the claim is fraud in the inducement of the arbitration clause itself—an issue which goes to the `making' of the agreement to arbitrate—the federal court may proceed to adjudicate it. But the statutory language does not permit the federal court to consider claims of fraud in the inducement of the contract generally."

Even assuming that in the trial court the Karrs properly made the argument that they were fraudulently induced to sign the installment contract, we conclude that their reliance on Prima Paint is misplaced because there is no evidence in the record, only the Karrs' mere assertion, to support the claim that they were fraudulently induced to accept the arbitration provision. The record clearly shows that the arbitration provision appeared in the text of the contract, i.e., that the arbitration provision was not separately executed, but was included as a provision of the contract they executed. Therefore, because the Karrs do not assert that the arbitration provision was distinguished from any of the other provisions in the contract, we hold that there is no merit in the Karrs' argument that they were fraudulently induced to accept the arbitration provision.

In Green Tree Agency, Inc. v. White, 719 So.2d 1179, 1180 (Ala.1998), we held that an arbitration provision identical to the one in this case was "broad enough to encompass... claims of fraud in the inducement" and, therefore, that "those claims are subject to arbitration." Accordingly, we hold that the Karrs' claim of fraudulent inducement as to the contract does not support the trial court's order refusing to compel arbitration.

The Karrs further argue that Northcom, Ltd. v. James, 694 So.2d 1329 (Ala.1997), supports the trial court's denial of the motion to compel arbitration. In Northcom, two Justices stated in dictum:

"[I]n a case involving a contract of adhesion, if it is not shown that the party in an inferior bargaining position had a meaningful choice of agreeing to arbitration or not, and if the superior party has reserved to itself the choice of arbitration or litigation, a court may deny the superior party's motion to compel arbitration based on the doctrines of mutuality of remedy and unconscionability."

Northcom, 694 So.2d at 1338. This Court later, however, expressly rejected the dictum in Northcom. See Ex parte Napier, 723 So.2d 49 (Ala.1998), and Ex parte McNaughton, 728 So.2d 592 (Ala.1998). In Ex parte McNaughton, we wrote:

"Upon further consideration, we reject this dictum from Northcom, merging the distinct doctrines of unconscionability and mutuality of remedy to strike down arbitration clauses. Arbitration is not inherently unconscionable.... When interpreting the FAA, the federal courts have concluded that, consistent with the federal policy strongly favoring arbitration, `there is nothing inherently unfair or oppressive about arbitration clauses.'... Thus, agreements to arbitrate are not in themselves unconscionable.

". . . .

"The doctrine of mutuality of remedy is limited to the availability of the ultimate redress for a wrong suffered by a plaintiff, not the means by which that ultimate redress is sought. A plaintiff does not seek as his ultimate redress an arbitration proceeding or a court proceeding. Instead, he seeks legal relief (e.g., damages) or equitable relief (e.g., specific performance) for his injury, and he uses the proceeding as a means to obtain that result."

723 So.2d at 50 (citations omitted). Based on the holding in McNaughton, we find no support for the Karrs' arguments that unconscionability or a lack of mutuality of remedies bars enforcement of the arbitration provision.

The Karrs next argue that they were unaware of what arbitration actually was and therefore they did not legally assent to the terms of the contract. In Green Tree Agency, Inc., however, this Court held that the defendant, a seller of mobile homes, did not have a fiduciary duty to tell the plaintiff, as a purchaser, that the contract contained an arbitration provision, because the document stated on the front that one should not sign it before reading it completely. Green Tree Agency, 719 So.2d at 1180. Similarly, the contract in the present case contained a provision on the front page notifying the...