Stout v. Byrider, 5:98-CV-2830.

• Decision Date: 09 June 1999
• Docket Number: No. 5:98-CV-2830.,5:98-CV-2830.
• Citation: 50 F.Supp.2d 733
• Parties: James D. STOUT, et al., Plaintiffs, v. J.D. BYRIDER, et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

Page 733

50 F.Supp.2d 733

James D. STOUT, et al., Plaintiffs, v. J.D. BYRIDER, et al., Defendants.

No. 5:98-CV-2830.

United States District Court, N.D. Ohio, Eastern Division.

June 9, 1999.

John Timothy Murray, Sr., Sylvia Margo Antalis, Murray & Murray, Sandusky, OH, for plaintiffs.

Gary William Johnson, John A. Albers, Weston, Hurd, Fallon, Paisley & Howley, Cleveland, OH, William F. Kolis, Jr., Richard D. Panza, Wickens, Herzer & Panza, Lorain, OH, for J.D. Byrider aka Docherty Motors, Inc., defendant.

Gary William Johnson, John A. Albers, William F. Kolis, Jr., Richard D. Panza, Herzer & Panza, Lorain, Lorain, OH, for T & J Acceptance Corporation dba Carnow Acceptance Company, defendant.

ORDER

GWIN, District Judge.

In this case, Plaintiffs James D. Stout and Shirley A. Brown make claim for fraud, violations of Ohio's Consumer Sales Practices Act, and the federal Truth-in-Lending Act arising from the plaintiffs' purchase of used motor vehicles. Now before the Court is the defendants' motion to compel arbitration pursuant to 9 U.S.C. § 1, et seq., the Federal Arbitration Act [Doc. 8].¹

With their motion, the defendants say Plaintiffs Stout and Brown agreed to arbitrate disputes against the defendants relating to the sale and financing of automobiles. Defendants ask the Court to enforce the arbitration agreements and refer this case to arbitration.

Plaintiffs Stout and Brown oppose arbitration arguing that the defendants fraudulently induced their assent to the arbitration and dispute resolution agreements. Plaintiffs say that because the agreements are one-sided and benefit only the defendants, the agreements are unenforceable adhesion contracts.

Because the defendants gave plaintiffs an opportunity to ask questions and review the agreements before signing them, the Court finds that the arbitration agreements are enforceable. Therefore, the Court grants the defendants' motion to compel arbitration under the terms of the agreements. As arbitration will resolve the issues in suit, the Court dismisses this case without prejudice to reinstatement should further proceedings be needed after arbitration.

I. Factual background

In 1998, Plaintiffs James D. Stout and Shirley Brown purchased used automobiles from Docherty Motors in Sandusky, Ohio. They obtained financing to purchase the cars from Defendant CarNow Acceptance Corporation ("CNAC").

Plaintiffs Stout and Brown say the vehicles they purchased from Defendant Byrider were defective. Stout and Brown claim they purchased expensive warranties without knowledge that these warranty charges were included in the finance charges. The plaintiffs say the defendants have engaged in a standard practice of uniformly misrepresenting the quality and value of the vehicles they sell and the cost and value of warranties.

Plaintiffs Stout and Brown also claim that with their purchase contracts, the defendants required them to sign standard form arbitration agreements. The plaintiffs now oppose arbitration under these contracts. They say the defendants did not explain the legal consequences of agreeing to arbitrate disputes relating to the sale and financing of the automobiles. Plaintiffs urge the Court not to compel arbitration because the arbitration agreements unjustly abrogate their legal rights to bring claims in court.

Considering these facts, the Court decides whether to order arbitration pursuant to 9 U.S.C. § 1, et seq.

II. Discussion

In this case, the parties dispute whether certain standard arbitration agreements the plaintiffs signed are enforceable. Defendants maintain the agreements are enforceable because the plaintiffs had time to review the agreements and ask questions before signing the contract. Plaintiffs say the defendants failed to fully explain the arbitration agreements. Because this case concerns arbitration agreements involving transactions in interstate commerce, the Federal Arbitration Act governs.

The Federal Arbitration Act embodies "the strong federal policy in favor of enforcing arbitration agreements." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985); Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984). The policy supporting the Act is to "ensure judicial enforcement of privately made agreements to arbitrate." Dean Witter at 219, 105 S.Ct. 1238; Ferro Corp. v. Garrison Indus., Inc., 142 F.3d 926, 932 (6th Cir.1998).

Section 2 of the Federal Arbitration Act provides that written agreements to arbitrate in a contract involving transactions in 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." 9 U.S.C. § 2. Section 3 provides for a stay of proceedings in district courts when an issue is determined to be arbitrable.² 9 U.S.C. § 3. Section 4 gives district courts authority to compel arbitration when a party neglects or refuses to comply with an arbitration agreement. 9 U.S.C. § 4.

Where the Act applies, federal law and not state law generally governs the arbitrability of a dispute. Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). However, because arbitration is a matter of contract, a party cannot be compelled to arbitrate any claims he or she did not agree to arbitrate when making the contract. AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986); see also Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985) ("[A]s with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability.").

If a party opposing arbitration shows "well supported claims that the agreement to arbitrate itself resulted from fraud, `overwhelming economic power,' or unfair pressure under principles of contract, the court may revoke the contract." Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 401, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) ("[T]he federal court is instructed to order arbitration to proceed once it is satisfied that `the making of the agreement for arbitration or the failure to comply (with the arbitration agreement) is not in issue'.") (citation omitted).³

Here, Plaintiffs Stout and Brown each entered private contracts with the defendants. Plaintiffs now say the defendants fraudulently induced them into signing these contracts. Plaintiffs ask the Court to find the arbitration contracts adhesive and unconscionable.

In deciding whether to order arbitration, courts consider four principal issues: (1) whether the parties agreed to arbitrate the dispute; (2) the scope of the arbitration agreement; (3) if federal claims are asserted, whether Congress intended arbitration to govern the claims, and (4) if only some claims are arbitrable, whether to stay the proceedings pending arbitration. H & M Charters, Inc. v. Reed, 757 F.Supp. 859, 864 (S.D.Ohio 1991) (quoting Creative Securities Corp. v. Bear Stearns & Co., 671 F.Supp. 961 (S.D.N.Y.1987); Compuserve, Inc. v. Vigny Int'l Finance, Ltd., 760 F.Supp. 1273, 1278 (S.D.Ohio 1990).

Applying these standards, the Court first decides whether the parties agreed to arbitrate their disputes. The record evidence shows that the parties did agree to arbitration.

First, the plaintiffs each engaged in lengthy discussions with Mr. Wendall Gaddie, Defendant CNAC's financing representative. These discussions involved Mr. Gaddie explaining many standard form agreements relating to the purchase of the vehicles. With each plaintiffs' automobile purchase, Gaddie sat with the plaintiff and individually presented the plaintiff with each form for review and signature. Gaddie also encouraged the plaintiffs to ask questions if they did not understand the forms.

Although the financing process appears to use prepared forms and organized transaction "jackets," each customer financing transaction is very systematic. Mr. Gaddie systematically presents the customer with individual forms to sign and he provides a brief explanation of the form. If a customer asks a question, Mr. Gaddie answers the inquiry and gives further explanation. During the plaintiffs' meetings with Gaddie, each plaintiff specifically reviewed the arbitration agreements at issue, but did not ask questions.⁴ Also, each plaintiff signed the arbitration forms, representing that they understood the terms of the agreement. These facts show that the plaintiffs agreed to arbitration.⁵

Second, both Plaintiffs Stout and Brown say they read the contract language before signing the agreements. The contract language itself is clear. On January 31, 1998, Plaintiff Brown purchased and financed a 1991 Ford Fiesta. In doing so, she read and signed a form captioned "Agreement for Binding Arbitration." The agreement states in part:

Except as described below, in the event of a dispute under the terms of the Contracts, the Dealer and the Purchaser(s) hereby agree to submit such dispute to the Better Business Bureau for resolution by binding arbitration according to the rules of the Better Business Bureau.

THE PARTIES HEREBY FURTHER AGREE THAT THE ONLY CLAIM NOT SUBJECT TO THIS AGREEMENT IS A CLAIM BY THE DEALER THAT PURCHASER(S) HAVE FAILED TO MAKE PAYMENTS ON A TIMELY BASIS IN COMPLIANCE WITH THE CONTRACTS, SUCH A CLAIM MAY BE PURSUED IN A COURT OF LAW.

Agreement for Binding Arbitration, dated January 31, 1998 (emphasis added).

The contract language clearly says that disputes between the "Dealer" and "Purchaser" will be resolved through arbitration before the Better Business Bureau. The contract says the only exception to this agreement to arbitrate is the Dealer's right to pursue default claims in court. Taken together, the terms infer that a purchaser cannot bring claims in court.

Private arbitration offers potential real benefits to...