Randolph v. Green Tree Financial Corp.-Alabama, 98-6055

• Decision Date: 22 June 1999
• Docket Number: No. 98-6055,98-6055
• Citation: 178 F.3d 1149
• Parties: Larketta RANDOLPH, on behalf of herself and all others similarly situated, Plaintiff-Appellant, v. GREEN TREE FINANCIAL CORP.--ALABAMA; and Green Tree Financial Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1149

178 F.3d 1149

Larketta RANDOLPH, on behalf of herself and all others similarly situated, Plaintiff-Appellant, v. GREEN TREE FINANCIAL CORP.--ALABAMA; and Green Tree Financial Corporation, Defendants-Appellees.

No. 98-6055.

United States Court of Appeals Eleventh Circuit.

June 22, 1999.

C. Knox McLaney, III, Angela L. Kimbrough, Montgomery, AL, for Plaintiff-Appellant.

Robert A. Huffaker, William H. Webster, Rushton, Stakely, Johnston & Garrett, Montgomery, AL, for Defendants-Appellees.

Appeal from the United States District Court for the Middle District of Alabama.

Before HATCHETT and CARNES, Circuit Judges, and FARRIS ^*, Senior Circuit Judge. ^**

CARNES, Circuit Judge:

Plaintiff Larketta Randolph appeals the district court's order compelling arbitration of her claim against defendants Green Tree Financial Corporation and Green Tree Financial Corp.--Alabama (collectively, "Green Tree"), which financed her purchase of a mobile home. She alleges that Green Tree's financing documents violate the Truth in Lending Act, 15 U.S.C. § 1601 et seq. ("TILA"), that its mandatory arbitration requirement violates the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691-1691f ("Equal Credit Act"), and that the TILA precludes the arbitration of disputes arising under that legislation. The district court ordered the parties to proceed to arbitration and dismissed the action with prejudice. Green Tree challenges our jurisdiction to hear this appeal. We conclude that the district court's judgment was an appealable "final decision." We also hold that the arbitration agreement in this case defeats the remedial purposes of the TILA and is unenforceable.

I. BACKGROUND

This case stems from Randolph's January 25, 1994, purchase of a mobile home from Better Cents Home Builders, Inc., in Opelika, Alabama. Randolph financed her purchase through Green Tree Financial Corp.--Alabama, a wholly-owned subsidiary of Green Tree Financial Corporation. Randolph contends that Green Tree required her to obtain "vendor's single interest" insurance, which protects a vendor or lienholder against the costs of repossession in the event of default, but did not mention this requirement in its Truth in Lending Act disclosure.

Randolph's retail installment contract with Better Cents, which names Green Tree Financial Corp. as the assignee, contains an arbitration provision. It reads, in pertinent part:

17. 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 by one arbitrator selected by Assignee 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 a 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 ARBITRATION UNDER THIS CLAUSE OR PURSUANT TO A COURT ACTION BY ASSIGNEE (AS PROVIDED HEREIN). The parties agree and understand that all disputes arising under case law, statutory law, and all other 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 ... [including] money damages, declaratory relief, and injunctive relief. Notwithstanding anything hereunto the contrary, Assignee 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 obligation secured by the Manufactured Home or to foreclose on the Manufactured Home.... The initiation and maintenance of an action for judicial relief in a court [on the foregoing terms] shall not constitute a waiver of the right of any party to compel arbitration regarding any other dispute or remedy subject to arbitration in this Contract, including the filing of a counterclaim in a suit brought by Assignee pursuant to this provision.

Randolph brought this suit in district court in January, 1996, alleging that Green Tree ¹ violated the TILA by failing to include the requirement of vendor's single interest insurance in its TILA disclosure, and violated the Equal Credit Act by requiring arbitration of all claims. ² She sought certification of a class of individuals who had entered into similar agreements with Green Tree. In response, Green Tree moved to compel Randolph to arbitrate her complaint pursuant to the arbitration agreement. It also moved to stay the action pending arbitration or, in the alternative, to dismiss it.

The district court granted the motion to compel arbitration, and declined to certify a class. See Randolph v. Green Tree Fin. Corp., 991 F.Supp. 1410, 1424-25 (M.D.Ala.1997). Because it concluded that all the issues raised in Randolph's complaint must be submitted to arbitration, it denied the motion to stay the action and instead dismissed her claims with prejudice. See id. Randolph filed this appeal. Green Tree subsequently moved to dismiss the appeal for lack of jurisdiction.

II. STANDARD OF REVIEW

The jurisdictional issue is a question of law, which we review de novo. See, e.g., Triggs v. John Crump Toyota, Inc., 154 F.3d 1284, 1287 (11th Cir.1998). We review de novo the district court's order compelling arbitration. See, e.g., Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753, 756 (11th Cir.1993).

III. ANALYSIS

A. WHETHER THE DISTRICT COURT'S ORDER WAS APPEALABLE AS A

"FINAL DECISION" UNDER THE FEDERAL ARBITRATION ACT

As a threshold matter, we decide whether we have jurisdiction over this appeal. Though we would normally look to 28 U.S.C. § 1291 to determine our jurisdiction over the dismissal of this action, "Congress has set forth special rules governing appeals from a district court's arbitration order." McCarthy v. Providential Corp., 122 F.3d 1242, 1243 (9th Cir.1997). Those rules are set forth in section 16 of the Federal Arbitration Act, 9 U.S.C. § 16. That provision states:

(a) An appeal may be taken from--

(1) an order--

(A) refusing a stay of any action under section 3 of this title,

(B) denying a petition under section 4 of this title to order arbitration to proceed,

(C) denying an application under section 206 of this title to compel arbitration,

(D) confirming or denying confirmation of an award or partial award, or

(E) modifying, correcting, or vacating an award;

(2) an interlocutory order granting, continuing, or modifying an injunction against an arbitration that is subject to this title; or

(3) a final decision with respect to an arbitration that is subject to this title.

(b) Except as otherwise provided in section 1292(b) of title 28, an appeal may not be taken from an interlocutory order--

(1) granting a stay of any action under section 3 of this title;

(2) directing arbitration to proceed under section 4 of this title;

(3) compelling arbitration under section 206 of this title; or

(4) refusing to enjoin an arbitration that is subject to this title.

9 U.S.C. § 16. Put succinctly, the provision "identifies two broad classes of cases in which an appeal is possible, and one in which it is not." Napleton v. General Motors Corp., 138 F.3d 1209, 1216 (7th Cir.1998) (Wood, J., dissenting). Subsection § 16(a)(1)-(2) allows appeals "from orders that somehow prevent arbitration from going forward"; conversely, § 16(b) bars appeals "from interlocutory orders that in one way or another allow the arbitration to proceed." Id.

The other circumstance under which appeals are allowed is set out in § 16(a)(3)--"a final decision with respect to an arbitration that is subject to this title." The question here is whether the district court's order compelling arbitration of the issues raised in Randolph's complaint and dismissing her claims with prejudice falls within that category. If it does, we have jurisdiction. If it does not, the parties must proceed to arbitration.

In arguing that we lack jurisdiction, Green Tree distinguishes between "embedded" and "independent" proceedings, a distinction which has been drawn by a number of circuits that have considered § 16(a)(3). An "embedded" proceeding is one in which the arbitration issue arises as part of a broader action dealing with other issues. In this case, for example, Randolph's action alleges a substantive violation of the TILA as well as raising the arbitrability question; indeed, the motion to compel arbitration was filed by the defendant, Green Tree. In an "independent" proceeding, the motion to compel arbitration is the only issue before the court.

Several circuits have held that orders compelling arbitration which arise in embedded proceedings must be treated as interlocutory and non-appealable, not as "final decisions" under § 16(a)(3). See, e.g., John Hancock Mut. Life Ins. Co. v. Olick, 151 F.3d 132, 135-36 (3d Cir.1998); Seacoast Motors of Salisbury, Inc. v. Chrysler Corp., 143 F.3d 626, 628 (1st Cir.1998) ("The general rule governing what constitutes a final decision under section 16 is that an order compelling arbitration is not final, and therefore not immediately reviewable, if the arbitrability issue is 'embedded'...."); Napleton, 138 F.3d at 1212 (7th Cir.) ("[T]he jurisdictional lodestar of appealability is whether the decision favoring arbitration is from an independent or from an...