TitleMax of Ala., Inc. v. Falligant

• Decision Date: 04 December 2020
• Docket Number: 1190670
• Citation: 328 So.3d 244
• Parties: TITLEMAX OF ALABAMA, INC. v. Michael FALLIGANT, AS NEXT FRIEND OF Michelle MCELROY
• Court: Alabama Supreme Court

328 So.3d 244

TITLEMAX OF ALABAMA, INC.

v.Michael FALLIGANT, AS NEXT FRIEND OF Michelle MCELROY

1190670

Supreme Court of Alabama.

December 4, 2020

Christopher A. Bottcher and Lacy M. Triplett of McGlinchey Stafford, Birmingham, for appellant.

G. Daniel Evans and Maurine C. Evans of The Evans Law Firm, P.C., Birmingham, for appellee.

MENDHEIM, Justice.

Michael Falligant, as next friend of Michelle McElroy, who Falligant alleges is an incapacitated person, filed an action in the Jefferson Circuit Court against TitleMax of Alabama, Inc. ("TitleMax"), alleging that TitleMax wrongfully repossessed and sold McElroy's vehicle. TitleMax filed a motion to compel arbitration of Falligant's claims, which the circuit court denied. TitleMax appeals. We reverse and remand.

Facts and Procedural History

Falligant's affidavit testimony is crucial to his claims, brought on behalf of McElroy, against TitleMax. Falligant is the director of mental-health services for the Crisis Center, a nonprofit organization that "provides a variety of community-based services for people experiencing personal crisis or mental health issues." Based on his work at the Crisis Center, Falligant stated that he has "known Ms. McElroy for several years at the Crisis Center and ha[s] had numerous occasions to be with her." Falligant's affidavit testimony states that McElroy "suffers from a variety of mental and emotional illnesses which make her extremely vulnerable and incapable of handling [her] finances." Falligant's affidavit testimony further states that, "[t]hroughout [the] 2017 period of time, [McElroy] has been, in my opinion, mentally incompetent due to her mental illness to conduct her own business and financial affairs or to understand business contracts and terms."

McElroy receives Social Security disability benefits, but the disability for which she receives the benefits is unclear from the record. In his affidavit testimony, Falligant asserts that McElroy is mentally ill, but he does not state that her mental illness is the basis for her receipt of Social Security disability benefits. In a letter dated September 1, 2016, the Social Security Administration indicated that "C[h]risti Naslund for ... McElroy" will receive $1,251 per month; the letter does not indicate the reason McElroy is to receive the monthly payments. Falligant's affidavit testimony provides the following explanation of a specific service it provides as related to McElroy:

"In this mission, we also serve as a payee for many of these mentally ill consumers for their Social S[ecurity] Disability Benefits. We receive referrals from Social Security for individuals who have had a history of instability and mental illness, and are not competent to handle their own financial affairs or the SSI benefits or other Social Security benefits being paid to them. In that capacity, the Crisis Center serves as a payee for approximately 300 people in the greater Birmingham area. Those persons for which the Crisis Center serves as payee include Ms. Michelle McElroy. In my capacity at the Crisis Center, I am very familiar with that program and the payees who we serve. The Social Security payee program tries to provide financial management for beneficiaries such as Ms. McElroy who due to mental illness are incapable of managing their Social Security or SSI payments. The Crisis Center, as the designated payee for Ms. McElroy, receives her monthly disability check from Social Security on her behalf and provides financial management for those funds and her needs."

On May 8, 2017, McElroy entered into a "pawn-ticket" contract with TitleMax ("the original contract"). McElroy was receiving Social Security disability benefits at the time she entered into the original contract, and Christi Naslund was the payee for McElroy's benefits; the Crisis Center became the payee in the fall of 2017. Falligant's affidavit testimony indicates that McElroy "provided to TitleMax documentation showing that she had [S]ocial [S]ecurity disability income being paid to ... Naslund." Id. Under the original contract, TitleMax agreed to loan McElroy $500 at an annual percentage interest rate of 170.21% that McElroy was to pay back on June 7, 2017; the finance charge for the repayment period amounted to $69.95. In exchange for the loan, the original contract required McElroy to deliver to TitleMax the title to her vehicle, a 2007 Toyota Camry. The original contract stated that TitleMax would return to McElroy the title to her vehicle if McElroy paid the $500 loan principal and the $69.95 finance charge on June 7, 2017. The original contract further stated that, if McElroy did not repay the loan in its entirety on June 7, 2017, the parties could enter into a new pawn-ticket contract. The original contract states that, in order to enter into a new contract, McElroy "must pay the pawnshop charge provided in your previous pawn ticket [contract]."

The original contract also contained an arbitration provision. The original contract notes that TitleMax drafted the arbitration clause "in question and answer form so it is easier to understand." The questions and answers constituting the arbitration clause fill more than two pages of the original contract. Of particular note in this case is the following question and answer:

"What disputes does the [arbitration] clause cover?

"....

"This clause covers disputes that would usually be decided in court and are between [TitleMax] (or a related party) and you. In this clause, the word disputes has the broadest meaning. It includes all claims related to your application, this pawn ticket [contract], the motor vehicle, the pawn, any other pawn or your relationship with us. It includes claims related to any prior applications or agreements. It includes extensions, renewals, refinancings, or payment plans. It includes claims related to collections, privacy, and customer information. It includes claims related to the validity of this pawn ticket [contract]. But, it does not include disputes about the validity, coverage, or scope of this clause or any part of this clause. These are for a court and not the [third-party arbiter] to decide. Also, this clause does not cover our taking and selling the vehicle. It does not cover any individual case you file to stop us from taking or selling the vehicle."

(Emphasis in original.)

Rather than repay the loan on June 7, 2017, McElroy elected to enter into new pawn-ticket contracts with TitleMax on six different occasions: June 7, 2017; July 7, 2017; August 5, 2017; September 8, 2017; October 6, 2017; and November 6, 2017 (all contracts, including the original contract, are hereinafter referred to collectively as "the contracts"). Each of the subsequent contracts contains the same arbitration clause as does the original contract.

In his affidavit testimony, Falligant states that "[i]t is my opinion that throughout [the transaction underlying the original contract] and the ones that followed in 2017, Ms. McElroy lacked a mental capacity to understand the contract terms with TitleMax due to her mental illness and disability." Regardless, at McElroy's request, the Crisis Center, now serving as the payee of McElroy's Social Security disability benefits, issued a cashier's check on November 6, 2017, to TitleMax on behalf of McElroy in the amount of $105.40 in an effort, according to Falligant's affidavit testimony, "to help Ms. McElroy maintain possession of her vehicle." Falligant states in his affidavit that he was unaware at the time the Crisis Center issued the check that McElroy had entered into the November 6, 2017, contract with TitleMax. Falligant's affidavit testimony states: "When I learned of these transactions, I requested Alexandria Parrish of The Evans Law Firm to write TitleMax and further alert them of Ms. McElroy's incapacity and her obvious disability since the proof of income provided was based upon a Social Security [d]isability payee program"; the referenced letter does not appear in the record.

Ultimately, McElroy failed to pay the balance owed under the contracts and TitleMax exercised its option to repossess and sell McElroy's vehicle.

On October 28, 2019, Falligant, as next friend of McElroy, filed a complaint against TitleMax asserting claims of conversion, "wrongful repossession," and "recovery of chattels in specie" and requesting that the circuit court "declare the contracts between Ms. McElroy and TitleMax to be void ab initio and award to her restitution of the payments she made to TitleMax and for the value of her vehicle which was wrongfully taken."

On December 18, 2019, TitleMax filed an answer to Falligant's complaint. On the same day, TitleMax also filed a motion to compel arbitration of Falligant's claims based on the arbitration clause in the contracts and in accordance with the relevant provisions of the Federal Arbitration Act, 9 U.S.C. § 1 et seq. ("the FAA"). On February 3, 2020, Falligant filed a response to TitleMax's motion to compel arbitration arguing that McElroy, based on her alleged mental incompetency, lacked the capacity to enter into the contracts and, thus, that the contracts -- including the arbitration clause -- were void ab initio. Falligant also argued that the language of the arbitration clause in the contracts excluded the claims asserted by Falligant against TitleMax. On February 5, 2020, TitleMax filed a reply to Falligant's response arguing that Falligant had failed to present evidence of McElroy's alleged mental incompetency and arguing that the arbitration clause in the contracts did, in fact, apply to Falligant's claims.

On April 24, 2020, following a hearing, the circuit court entered an order denying TitleMax's motion to compel arbitration. In its order, the circuit court noted that McElroy entered into the original contract, and the subsequent contracts, "[i]n 2017 after ... McElroy became a recipient of Social Security [d]isability benefits, based upon her mental disability

, and [after] the Social Security...