Sonic Auto. Inc. v. Price

• Decision Date: 12 August 2011
• Docket Number: 3:10-CV-382
• Court: U.S. District Court — Western District of North Carolina
• Parties: SONIC AUTOMOTIVE, INC., Petitioner, v. ROBERT PRICE, CAROLYN PRICE, MARCUS CAPPELLETTI, KELLY CAPPELLETTI, MISTY OWENS, JOSEPH LEE WILLIAMS, JAMES B. WRIGHT, and VINCENT J. ANSTEY on behalf of themselves and all other persons similarly situated, Respondents.

SONIC AUTOMOTIVE, INC., Petitioner,
v.
ROBERT PRICE, CAROLYN PRICE, MARCUS CAPPELLETTI, KELLY CAPPELLETTI,
MISTY OWENS, JOSEPH LEE WILLIAMS, JAMES B. WRIGHT,
and VINCENT J. ANSTEY on behalf of themselves and all other persons similarly situated, Respondents.

3:10-CV-382

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NORTH CAROLINA CHARLOTTE DIVISION

Signed: August 12, 2011

MEMORANDUM AND ORDER

THIS MATTER comes before the Court on a petition to vacate arbitration award on class certification pursuant to the Federal Arbitration Act, 9 U.S.C. §10(a)(4) ("FAA"), filed by Petitioner Sonic Automotive, Inc. ("Petitioner") (Doc. 1). Respondents Price, et al, ("Respondents") are individual purchasers of automobiles and associated service contracts from Petitioner's automobile dealerships, who now seek to proceed in class arbitration over allegations that Petitioner engaged in unfair and deceptive trade practices. Respondents oppose the petition to vacate the arbitration award on its merits, (Doc. 24), and have additionally filed a motion to dismiss for want of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1), or alternatively, to dismiss on prudential grounds. (Doc. 18). Respondents also move the Court to stay the petition to vacate the arbitration award pending resolution of the motion to dismiss.

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(Doc. 21). Having considered the record, the parties' extensive memoranda, and the applicable federal law, Respondents' Motion to Dismiss will be DENIED, the Motion to Stay is rendered moot, and the Petition to Vacate the Arbitration Award on Class Certification will be GRANTED for the following reasons.

STATEMENT OF THE CASE

As further described below, the standard of review for vacating an arbitration award is narrow. A reviewing court is not to "reconsider the merits of an award even though the parties may allege that the award rests on errors of fact or on misinterpretation of the contract." See United Paperworkers Int'l Union, AFL-CIO v. Misco, Inc. 484 U.S. 29, 36 (1987). Consequently, the facts underlying the issues subject to the arbitration proceedings are generally outside the scope of this Court's analysis of the award. Nevertheless, it is useful to provide a complete overview of the relevant facts, allegations and procedure that form the basis of this case.

A. The State Court Suits and Entering Arbitration

Petitioner seeks vacatur of the "Partial Final Award on Class Certification" entered in the consolidated arbitration proceeding Owens, et. Al. v Automobile Protection Corporation et. al., AAA Consolidated Case No. 11 188 0114005 (Jul. 19, 2010) (Green, Arb.). Petitioner—a respondent in the arbitration—is an automotive retailer that owns and operates dealership locations across the United States. The company is incorporated in Delaware and maintains its principal place of business in Charlotte, North Carolina, in this judicial district. (Doc. 1 ¶1). Respondents—claimants in the arbitration—are individuals who purchased vehicles packaged

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with a product called "ETCH." ETCH consists of a "small number stenciled to one or more vehicle windows" and was marketed as an automobile theft deterrent system. Petitioner describes the ETCH product as "an engraving on a car's windows that is designed to make the windows harder to re-sell, and thus to deter professional car thieves. The product comes with a $2,500 warranty, which is available in the event it fails to deter the theft of a vehicle." (Doc. 3 12 n.2).

The named plaintiffs filed their initial suits, and later proceeded in arbitration, as members of a putative class. Each of the named plaintiffs signed some form of an "Agreement to Arbitrate Certain Issues" with the dealership at the time the ETCH product was purchased concurrent with the sale or lease of an automobile. (Doc. 3 3). Some of these agreements were materially identical, whereas others contained differing terms and clauses. Respondents allege that Petitioner engaged in illegal "packing and stuffing" of ETCH into monthly payment installments for automobiles, misrepresented the purchase of ETCH as a necessary predicate for vehicle financing services, described the product as a "warranty" rather than as insurance—nor regulated it as such, and failed to use a standardized price structure for ETCH's standardized benefits. (Award 4). These allegations comprise the foundation for Respondents' claims for unfair and deceptive trade practices, breach of contract, negligent hiring and supervision, unjust enrichment, and assorted forms of damages and injunctive relief.

The arbitration consolidated two lawsuits that were directed to arbitration pursuant to the parties' arbitration agreements and judicially entered Consent Orders. The first of these suits, styled Owens et al v. Automobile Protection Corp. et al. (Civ. No. 04-CP-46-2997) ("Owens"),

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was filed in the Court of Common Pleas of South Carolina on November 15, 2004. On January 14, 2005, Petitioner moved to compel arbitration in this case pursuant to the arbitration agreements signed by the Owens plaintiffs, which require, in pertinent part, arbitration of disputes involving, "[a]lleged unfair trade practices, consumer statutes and regulations, or punitive damages." (Doc. 3 Ex. 4). On February 14, 2005, while the Motion to Compel Arbitration in Owens was pending, a second suit, styled Price et. al. v. Automobile Protection Corp. et al. (Civ No. 05-CVS-00157) ("Price"), was filed in the General Court of Justice, Superior Court Division, Lincoln County, North Carolina.

On March 22, 2005 the parties in Owens voluntarily entered into a Consent Order to enter arbitration. (Doc. 3 Ex. 8). On April 18, 2005, the parties in Price voluntarily entered into a Consent Order to enter arbitration that is materially identical to that in Owens. The Consent Orders, and the powers they convey to the Arbitrator, form an integral part of this review, and it is useful to reproduce the documents' five paragraphs for the record:

"With the consent of all parties, IT IS ORDERED THAT:
(1) Any and all matters, claims and issues embraced by the Complaint and First Amended Complaint filed in this matter by the Plaintiffs shall be submitted to arbitration before the American Arbitration Association ("AAA").
(2) Pursuant to the AAA Supplementary Rules for Class Arbitration, the arbitrator(s) shall determine (1) whether the applicable arbitration clauses preclude or allow class-wide arbitration; and (2) if the clauses allow class arbitration, whether the arbitration meets the prerequisites for a class arbitration such that the arbitration should proceed as a class arbitration;
(3) Nothing in this stipulation is to be construed as a waiver by any party of any procedural or substantive right afforded to them pursuant to the Rules of the AAA, including but not limited to the Supplementary Rules for Class Arbitration.

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(4) Plaintiffs shall file their demand for class arbitration to the AAA within thirty days of the date of entry of this order.
(5) This lawsuit is hereby stayed in its entirety pursuant to the FAA [and applicable state law] until the Plaintiffs have submitted their claims to arbitration and the arbitration proceedings have been completed."

(Doc. 3 Exs. 8, 9).

The suits were stayed pending the arbitration. Pursuant to the Consent Orders, the Plaintiffs in the state suits each filed a Demand for Arbitration with the AAA. The demands were made pursuant to the procedures for initiating an arbitration that arises from a contractual agreement to arbitrate. Rule 4(a) of the AAA Commercial Arbitration rules establishes that a claimant seeking to initiate arbitration pursuant to a contractual agreement must file two copies of a demand for arbitration and two copies of the arbitration provisions of the contract. See AAA Comm. Arb. R-4(a). The arbitration demands that were filed after entry of the Consent Orders demonstrate compliance with this process. The AAA Commercial Arbitration rules also permit parties to initiate an arbitration proceeding through a submission in which parties to "any existing dispute may commence an arbitration under these rules by filing . . . a written submission to arbitrate under these rules signed by the parties." See AAA Comm. Arb. R-5. There was no joint written submission signed by both parties and submitted to the AAA in this case. The parties did not commence arbitration pursuant to the submission process. On October 14, 2005 the Owens and Price Plaintiffs submitted a Consolidated and Amended Arbitration Demand that joined the substantially similar proceedings. Mr. Donald H. Green ("the Arbitrator") was selected by the parties to oversee the proceeding and acted as the sole arbitrator for the proceeding.

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B. The Arbitration Proceedings and the Class Certification Award

More than three years after the arbitration was consolidated, on November 12, 2008, the Plaintiffs moved for certification of the following class:

"All customers who on or after November 15, 2000, purchased or leased from a Sonic Dealership a vehicle that included APCO ETCH product as part of the transaction whose deal file includes an arbitration agreement."

(Doc. 3 Ex. 21 10). In voluminous briefs and during three days of...