Randolph v. Green Tree Financial Corp.

• Decision Date: 26 November 1997
• Docket Number: No. 96-D-11-N.,96-D-11-N.
• Citation: 991 F.Supp. 1410
• Parties: Larketta RANDOLPH, et al., Plaintiffs, v. GREEN TREE FINANCIAL CORP., et al., Defendants.
• Court: U.S. District Court — Middle District of Alabama

991 F.Supp. 1410

Larketta RANDOLPH, et al., Plaintiffs, v. GREEN TREE FINANCIAL CORP., et al., Defendants.

No. 96-D-11-N.

United States District Court, M.D. Alabama, Northern Division.

November 26, 1997.

Order Denying Reconsideration January 5, 1998.

COPYRIGHT MATERIAL OMITTED

C. Knox McLaney, III, Angela L. Kimbrough, Montgomery, AL, Lynn W. Jinks, III, Union Springs, AL, for Plaintiffs.

Robert A. Huffaker, Montgomery, AL, for Defendants.

MEMORANDUM OPINION AND ORDER

DE MENT, District Judge.

On January 25, 1994, Plaintiff Larketta Randolph purchased a mobile home from Better Cents Home Builders, Inc. in Opelika, Alabama. Randolph finanćed her purchase through Green Tree Financial Corp. — Alabama. Her financing documents required "vendors single interest" insurance, which protects the vendor or lienholder against the costs of repossession in the event of a default. (See Pl.'s Am.Compl., Ex. A.) The installment contract also contains an arbitration provision requiring the resolution of disputes "arising from or relating to" the contract.¹ (See Pl.'s Am.Compl., Ex. B, ¶ 17.)

On January 3, 1996, Randolph filed the instant action. Her Complaint, as amended on December 10, 1996 and September 29, 1997, seeks recovery from Green Tree Financial Corp. — Alabama, Green Tree Financial Corp., and Green Tree Financial Servicing corporation (collectively "Green Tree")² under two theories: (1) violation of the Truth In Lending Act ("TILA") for failure to disclose the "vendors single interest" requirement; and (2) violation of the Equal Credit Opportunity Act ("ECOA") for requiring waiver of statutory causes of action.³ Randolph also brings this action on behalf of a similarly situated class. (Am.Compl. ¶¶ 12-19.)

In lieu of an Answer, Green Tree filed a Motion To Stay Action and Compel Arbitration, as well as several subsequent briefs and memorandums in support thereof. Pursuant to a request from the court, Green Tree filed one consolidated pleading on October 31, 1997 styled "Motion Of [Green Tree] to Compel Arbitration, Motion To Stay, Or, In The Alternative, Motion To Dismiss And Brief In Support Thereof." ("Defs.' Consolidated Mot.") These Motions are the subject of this Memorandum Opinion and Order. After careful consideration of the arguments of counsel, relevant law, and the record as a whole, the court finds that the collective Green Tree Motion To Compel Arbitration is due to be granted. Rather than stay this action, however, the court finds that dismissal with prejudice is appropriate. Accordingly, the court finds that the collective Green Tree Motion To Stay Action is due to be denied, but that the Motion To Dismiss is due to be granted. Finally, the court finds that Green Tree Financial Servicing Corp. is due to be dismissed as a party to this action.

JURISDICTION

The court properly exercises subject matter jurisdiction pursuant to 28 U.S.C.A. § 1331 (federal question) and 15 U.S.C.A. § 1640. The parties do not contest personal jurisdiction or venue.

DISCUSSION

Section 2 of the Federal Arbitration Act ("FAA") provides that a written agreement to arbitrate in a contract involving interstate commerce "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."⁴ 9 U.S.C.A. § 2. The effect of § 2 is "to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act." Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Section 3 provides for the stay of proceedings in federal district courts when an issue in the proceedings is referable to arbitration. 9 U.S.C.A. § 3. Section 4 provides for orders compelling arbitration when one party has failed, neglected, or refused to comply with an arbitration agreement. 9 U.S.C.A. § 4.

Whether an arbitration provision is enforceable, as opposed to the merits of the underlying dispute, is a question for the court. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985); Kelly v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 985 F.2d 1067 (11th Cir.1993). Any doubts about the scope of arbitrable issues should be resolved in favor of arbitration, even if the result is piecemeal litigation. See Byrd, 470 U.S. at 218-21; Moses H. Cone, 460 U.S. at 24; Kelly, 985 F.2d at 1069.

In enacting the FAA, Congress manifested a "liberal federal policy favoring arbitration agreements." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25, 111 S.Ct. 1647, 114 L.Ed.2d 26 (quoting Moses H. Cone, 460 U.S. at 24). The Act's purpose "was to reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts, and to place arbitration agreements upon the same footing as other contracts." Id. at 24. Therefore, "questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration," Moses H. Cone, 460 U.S. at 24, and courts must "rigorously enforce agreements to arbitrate." Byrd, 470 U.S. at 221.

Even with this strong federal policy in mind, however, arbitration is a matter of contract, and a party cannot be compelled to arbitrate any claims which he or she has not agreed to submit to arbitration. AT & T Technologies, Inc. v. Communications Workers of Am., 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986). Accordingly, "as with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 627, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). Section 2 of the FAA allows courts to give relief where the party opposing arbitration presents "well supported claims that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds `for the revocation of any contract.'" Rodriguez De Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 483-84, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989) (quoting Mitsubishi Motors, 473 U.S. at 627; 9 U.S.C.A. § 2).

Plaintiff bears the burden of demonstrating why the arbitration agreement in this action should not bind the parties, Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 225-26, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987), and raises several grounds as to why the court should not compel arbitration. Alternatively, Plaintiff requests that the court certify a class before ordering arbitration.

I. Enforcement Of The Arbitration Provision Is Not Statutorily Barred

A. Background

Plaintiff contends that Green Tree's actions both in requiring "vendors single interest" insurance and in requiring arbitration of her claims violates her rights under the TILA and the ECOA. Plaintiff's first argument is that requiring "vendors single interest" insurance "imposes an extra charge for insurance each year in the approximate amount of $15.00 and constitutes a clear violation of the [TILA]," because this charge was not disclosed.⁵ (Pl's Opp. at 1.) The TILA requires the disclosure of certain credit charges articulated in the Act. See 15 U.S.C.A. § 1601, et seq.

Additionally, Plaintiff contends that under 15 U.S.C.A. § 1691(a)(3), a provision of the ECOA, "a consumer who wishes to reserve the right to judicial redress for such violations cannot be denied credit." (Pl.'s Opp. at 11.) Plaintiff further cites regulation B implementing the ECOA, which she contends "prohibits presenting terms which violate the Act to a consumer in such a manner as to convey the impression to a reasonable consumer that they are mandatory." (Pl.'s Reply at 3 (citing 12 C.F.R. § 202.4(1), Commentary).) Plaintiff argues that "in order to finance with Green Tree, it is necessary to submit all disputes ... to arbitration." (Pl.'s Reply at 1.) Accordingly, "[b]y requiring consumers to sign a contract waiving statutory causes of action, Green Tree violates [the ECOA] which prohibits a creditor from requiring a waiver of rights." (Am. Compl. ¶ 27.) Essentially, Plaintiff contends that "[a] creditor may not condition the extension of consumer credit upon the consumer's waiving his right to judicial redress for violations of [TILA]." (Pl.'s Opp. at 10; see also Pl.'s Reply at 1.) In other words, "a creditor cannot insist that the consumer sign a predispute arbitration clause covering claims under [TILA]." (Pl.'s Opp. at 12.).

Hence, Plaintiff contends that because Green Tree fails to disclose the "vendors single interest" requirement in its TILA disclosures, she is entitled to damages, including attorney's fees and litigation expenses pursuant to 15 U.S.C.A. § 1640. (Am.Compl. at 6.) She requests similar damages for the alleged ECOA violations. (Am.Compl at 7.)

Green Tree argues that "[e]nforcement of arbitration in the context of TILA claims does not run afoul of any of the provisions of the [ECOA]. Plaintiff has available to her the full panoply of rights granted by the ECOA, and the only limitation imposed is that her remedies be pursued in arbitration rather than in the judicial arena." (Defs.' Consolidated Mot. at 3.)

B. Analysis

In determining whether Congress intended to preclude waiver of judicial remedies, the Supreme Court has prescribed a two-step inquiry. First, the court must determine whether the Parties' agreement to arbitrate reaches the statutory issues, and then, upon finding it does, the court must consider whether legal constraints external to the Parties' agreement foreclosed the arbitration of those claims. Mitsubishi Motors, 473 U.S. at 629; see also McMahon, 482 U.S. at 226-27.

As for the first prong of the Mitsubishi Motors test, and resolving all doubts in favor of arbitration, Byrd, 470 U.S. at 218-21; Moses H. Cone, 460 U.S. at 24; Kelly, 985 F.2d at 1069, the court finds that the arbitration provision at issue here reaches...