Roberson v. Money Tree of Alabama, Inc., Civil Action No. 96-T-118-S.

• Decision Date: 31 January 1997
• Docket Number: Civil Action No. 96-T-118-S.
• Parties: Robert ROBERSON and Ruby Roberson, Plaintiffs, v. The MONEY TREE OF ALABAMA, INC., et al., Defendants.
• Court: U.S. District Court — Middle District of Alabama

954 F.Supp. 1519

Robert ROBERSON and Ruby Roberson, Plaintiffs, v. The MONEY TREE OF ALABAMA, INC., et al., Defendants.

Civil Action No. 96-T-118-S.

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

January 31, 1997.

COPYRIGHT MATERIAL OMITTED

Christian Edward Roberson, Gordon, Silberman, Wiggins & Childs, Birmingham, AL, Donald P. McKenna, Taylor & Taylor, Birmingham, AL, for Plaintiffs.

C. Randal Johnson, George M. (Jack) Neal, Jr., Wilson F. Green, Sirote & Permutt, Birmingham, AL, for The Money Tree, Inc. of Alabama.

Robert William Bradford, Jr., Hill, Hill, Carter, Franco, Cole & Black, Montgomery, AL, for American Heritage Life Insurance Corporation.

Michael Lester Bell, Sara Anne Ford, John P. Dulin, Lightfoot, Franklin & White, L.L.C., Birmingham, AL, for American Bankers Life Assurance Company of Florida.

MEMORANDUM OPINION

MYRON H. THOMPSON, Chief Judge.

Plaintiffs Robert and Ruby Roberson originally filed suit against defendants The Money Tree of Alabama, Inc., American Bankers Life Assurance Company of Florida, and American Heritage Life Insurance Corporation in state court, charging all defendants with fraud. The defendants removed this lawsuit from state to federal court based on diversity-of-citizenship jurisdiction, 28 U.S.C.A. §§ 1332, 1441. Money Tree and American Heritage were later dismissed, leaving only American Bankers as a defendant.

This lawsuit is now before the court on American Bankers' motion to compel arbitration and stay judicial proceedings pursuant to the Federal Arbitration Act (FAA), 9 U.S.C.A. §§ 1-16. For the reasons that follow, the motion will be granted.

I. BACKGROUND

On four occasions from 1993 to 1995, the Robersons borrowed money from Money Tree. They allege that on each occasion they were told by the sales agent with whom they dealt that they were required to purchase credit insurance through American Heritage or American Bankers as a condition for approval of their loans. The Robersons originally filed suit against Money Tree, American Bankers, and American Heritage in the Circuit Court of Henry County, Alabama, alleging that all defendants, through their agents, misrepresented to plaintiffs that they would not qualify for consumer loans unless they purchased credit insurance and financed the insurance policies as part of their loans, and so caused them to bear unnecessary and extreme costs. The Robersons further claim that defendants conspired with one another to commit fraud by suppressing information they were under a duty to reveal about the true conditions and requirements for obtaining loans.

On January 22, 1996, Money Tree removed this case to this court based on diversity-of-citizenship jurisdiction, and at the same time filed a motion to compel arbitration and stay judicial proceedings pursuant to the FAA. Money Tree relied on a "Pre-dispute Arbitration Agreement" in the loan contracts it had with the Robersons.¹ Both the removal petition and the motion to compel were joined by American Bankers on January 30, 1996, and by American Heritage on February 22, 1996. The Robersons opposed the motion to compel on February 21, 1996. While affording the parties ample opportunities to file briefs and memoranda of law, this court withheld ruling pending a decision in the Alabama Supreme Court on a group of cases on appeal from the Henry County Circuit Court presenting identical issues. However, those cases were subsequently settled and the Supreme Court never issued an opinion.

The complexion of this case changed on November 18, 1996, with the dismissal of Money Tree and American Heritage pursuant to a stipulation for pro tanto dismissal. Thus, the only remaining defendant in this action is American Bankers.

II. DISCUSSION

The Robersons argue that they should not be compelled to arbitrate their claims against American Bankers for several reasons. First, they claim that the FAA does not apply to their loan agreement because the agreement does not, in fact, concern interstate commerce. Next, they argue that the loan agreement, or at least the arbitration clause within it, should not be honored because it is adhesive and unconscionable. Finally, they contend that American Bankers has no standing to compel arbitration since it is not a party to and has no rights under the loan agreement in which the arbitration clause appears.

A. Applicability of the FAA

The Robersons first argue that the loan agreements they signed with Money Tree, which on several occasions included and incorporated credit insurance contracts with American Bankers, were entirely intrastate in nature and that therefore the FAA does not apply to them.

The FAA makes enforceable a written arbitration provision in "a contract evidencing a transaction involving commerce." 9 U.S.C.A. § 2.² The FAA defines "commerce" as "commerce among the several states." 9 U.S.C.A. § 1. Thus, the first question in this case is whether the transaction at issue is one "involving commerce" within the meaning of the FAA.

In Allied-Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265, ___, 115 S.Ct. 834, 841, 130 L.Ed.2d 753 (1995), the United States Supreme Court instructed that "the word `involving' ... signals an intent to exercise Congress's commerce power to the full," and that the phrase "`evidencing a transaction' mean[s] only that the transaction ... turn[s] out, in fact, to have involved interstate commerce.³" (Emphasis added.)

In the contracts between the Robersons and Money Tree, this requirement has been met. The evidence before the court reflects the following: Money Tree is a Georgia corporation; although the Robersons' loans were negotiated in Alabama, all loans, including theirs, were approved from a centralized loan approver in Georgia; although the notes and loan confirmation forms were signed in Alabama, all original loan notes, including theirs, were produced in and shipped from Georgia; the loan proceeds were wired from Georgia and then disbursed to the Robersons in Alabama; all supplies for the Alabama Money Tree office were shipped from Georgia; and all loan documents were printed in Georgia. The transactions between the Robersons and Money Tree were ones "involving commerce" within the meaning of the FAA. See, e.g., Staples v. The Money Tree, 936 F.Supp. 856, 858-59 (M.D.Ala.1996) (Thompson, J.); see also Williams v. Katten, Muchin & Zavis, 837 F.Supp. 1430 (N.D.Ill.1993); Pioneer Properties, Inc. v. Martin, 557 F.Supp. 1354 (D.Kan.1983); First Citizens Mun. Corp. v. Pershing Div. of Donaldson, Lufkin & Jenrette Sec. Corp., 546 F.Supp. 884 (N.D.Ga. 1982).⁴

B. Unconscionability of Loan Agreement and/or Arbitration Clause

The Robersons' next argument is that the loan agreement, or at least the pre-dispute arbitration agreement component of it, is an unconscionable contract of adhesion and should not be enforced.⁵ They claim that they were offered no meaningful choice or opportunity to negotiate the terms of their loans, and that they did not understand and were not given to understand the significance of those terms, and of the arbitration clause in particular. The core of their argument, however, is that because the pre-dispute arbitration agreement requires them to arbitrate any claim against Money Tree, while explicitly reserving for Money Tree the right to seek judicial remedies in the eventuality of default by the Robersons, the agreement is oppressively, and therefore unconscionably, one-sided.

The Robersons point out that the FAA does not require the enforcement of an arbitration provision where it is invalid "upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C.A. § 2. The Supreme Court has confirmed that § 2 "gives States [] method[s] for protecting consumers against unfair pressure to agree to a contract with an unwarranted arbitration provision" both in equity and under principles of contract law. Allied-Bruce, 513 U.S. at ___, 115 S.Ct. at 843. The Alabama Supreme Court has also recognized that a finding that an arbitration clause is an unjust and unreasonable contract of adhesion might be grounds not to enforce that clause under the FAA. See Ex parte Merrill Lynch, Pierce, Fenner & Smith, 494 So.2d 1, 4 (Ala. 1986).

Moreover, Alabama statutory law empowers a trial court essentially to modify a consumer finance or credit contract, the provisions of which it finds as a matter of law to be unconscionable. The Alabama Code Mini-Code, 1975 Ala.Code § 5-19-16, provides that, "With respect to a consumer credit transaction, if the court as a matter of law finds the contract or any provision of the contract to have been unconscionable at the time it was made, the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable provision, or it may so limit the application of any unconscionable provision as to avoid any unconscionable result." The language of this section mirrors a provision in the sale of goods chapter of the Alabama Commercial Code, 1975 Ala.Code § 7-2-302(1), governing consumer sales.⁶ See, e.g., Cleveland Ins. Agency, Inc. v. Redshaw, Inc., 524 So.2d 367, 369 (Ala.Civ.App.1987) (finding contract not unconscionable where both parties were sophisticated corporate entities who negotiated the contract over several months); Lloyd v. Service Corp. of Alabama, Inc., 453 So.2d 735, 739-40 (Ala.1984) (applying § 7-2-302 by analogy to find clauses waiving landlord tort liability in residential leases unconscionable).

However, it would be difficult for a court to decide this issue `as a matter of law' because "Alabama law provides no implicit standard of unconscionability.⁷ Each case must be decided on its own facts." E & W Bldg. Material v. American Sav. & Loan Ass'n, 648 F.Supp. 289, 290 (M.D.Ala.1986) (finding loan contract not unconscionable where sophisticated and knowledgeable borrower was not "taken in" by a party possessing vastly superior knowledge and...