Wilson v. Waverlee Homes, Inc., Civil Action No. 96-T-1017-N.

• Decision Date: 04 February 1997
• Docket Number: Civil Action No. 96-T-1018-N.,Civil Action No. 96-T-1017-N.
• Citation: 954 F.Supp. 1530
• Parties: Richard WILSON and Mary Wilson, Plaintiffs, v. WAVERLEE HOMES, INC., etc., Defendant. Douglas R. WOODALL and Elizabeth J. Woodall, Plaintiffs, v. WAVERLEE HOMES, INC., etc., Defendant.
• Court: U.S. District Court — Middle District of Alabama

954 F.Supp. 1530

Richard WILSON and Mary Wilson, Plaintiffs, v. WAVERLEE HOMES, INC., etc., Defendant.

Douglas R. WOODALL and Elizabeth J. Woodall, Plaintiffs, v. WAVERLEE HOMES, INC., etc., Defendant.

Civil Action No. 96-T-1017-N.

Civil Action No. 96-T-1018-N.

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

February 4, 1997.

COPYRIGHT MATERIAL OMITTED

G. Houston Howard, II, Howard, Dunn, Howard & Howard, Wetumpka, AL, for Plaintiffs in Nos. 96-CV-1017 and 96-CV-1018.

Patrick C. Davidson, Walker, Hill, Adams, Umbach, Meadows & Walton, Opelika, AL, Robert E. Sasser, Clifton E. Slaten, James D. McLaughlin, Sasser & Littleton, P.C., Montgomery, AL, for Defendants in Nos. 96-CV-1017 and 96-CV-1018.

ORDER

MYRON H. THOMPSON, Chief Judge.

Plaintiffs Richard and Mary Wilson and Douglas and Elizabeth Woodall originally filed these two lawsuits in the Circuit Court of Elmore County, Alabama, against defendant Waverlee Homes, Inc., on a variety of theories based in tort, and for breaches of implied and express warranties, including violation of the Magnuson-Moss Warranty-Trade Commission Improvement Act (Magnuson-Moss Act), 15 U.S.C.A. §§ 2301-2312. These claims all stem from the plaintiffs' purchases of mobile homes manufactured by Waverlee and sold by Hart's Mobile Home Sales, Inc., which is not a party to these lawsuits. Waverlee removed these lawsuits from state to federal court based on the federal courts' concurrent original jurisdiction under the Magnuson-Moss Act, 15 U.S.C.A. § 2310(d), 28 U.S.C.A. § 1441(a), and the federal courts' discretionary jurisdiction over related state-law claims upon removal. 28 U.S.C.A. § 1441(c). Pending before the court are motions by Waverlee to compel binding or final arbitration pursuant to the Federal Arbitration Act (FAA), as amended, 9 U.S.C.A. §§ 1-16, and to stay judicial proceedings pending the court's ruling on the issue of arbitration. For the reasons that follow, the motions will be denied.

I. BACKGROUND

In 1995, the Wilsons and the Woodalls purchased mobile homes from Hart's Mobile Home. The mobile homes had been manufactured by Waverlee. According to the plaintiffs, Waverlee provided an express written warranty that the homes would be free of substantial defects in materials and workmanship for a period of one year and that Waverlee would repair or replace any such defects occurring during that period. The plaintiffs also contend that their homes are protected by a range of Alabama and federal consumer warranties, including implied warranties of merchantability, habitability, freedom from substantial defect, and so forth. The plaintiffs allege substantial manufacturing defects in the homes which have gone uncured or have been improperly repaired, and attach to their complaints `partial' laundry lists of from 25 to 95 problems with the structures.

After removing these two lawsuits to this federal court, Waverlee in turn offered a litany of 47 defenses in its answers, the last of which became most pertinent upon its subsequent motions to compel arbitration and stay judicial proceedings. Although the seller of the mobile homes, Hart's Mobile Home, is not made a party to these lawsuits, Waverlee seeks in this last line of defense to shelter itself from a rain of litigation under the canopy of a clause for binding or final arbitration in the installment sales and financing contracts between Hart's Mobile Home and the plaintiffs, governed by the FAA.¹

II. DISCUSSION

The main question to be decided in these cases is whether a warrantor who is a nonsignatory to a commercial installment sales and financing contract containing an arbitration clause may use contract principles, such as equitable estoppel, to apply the FAA and so compel buyers complaining of breach of warranty to arbitrate their claims.

a. The FAA and Contract Law

The FAA states that:

"A written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... 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. The "primary purpose" of the FAA is to ensure "that private agreements to arbitrate are enforced according to their terms." Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford, Jr. Univ., 489 U.S. 468, 479, 109 S.Ct. 1248, 1255-56, 103 L.Ed.2d 488 (1989). "Arbitration under the Act is a matter of consent, not coercion, and parties are generally free to structure their agreements as they see fit." Id. It is a cardinal principle of federal arbitration law that "`arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.'" AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648, 106 S.Ct. 1415, 1418, 89 L.Ed.2d 648 (1986) (quoting United Steelworkers v. Warrior & Gulf Navig. Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1353, 4 L.Ed.2d 1409 (1960)). Thus, initially, Waverlee must show that the plaintiffs, when purchasing their homes under the installment sales and financing contracts with Hart's Mobile Home that make no mention of Waverlee, nonetheless constructively, or as a matter of law, agreed to arbitrate any dispute that might arise with Waverlee under express and applicable warranties.

It is the court's task, unless the parties have explicitly agreed otherwise, to determine whether an agreement to arbitrate exists between parties. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, ___, 115 S.Ct. 1920, 1923-25, 131 L.Ed.2d 985 (1995). In making this determination, the court should apply ordinary state common law governing the formation of contracts, with due regard for the federal policy favoring arbitration. Volt Info. Sciences, 489 U.S. at 475-76, 109 S.Ct. at 1254; see also Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, ___ & n. 9, 115 S.Ct. 1212, 1219 & n. 9, 131 L.Ed.2d 76 (1995). However, only state laws that are applicable to contracts generally may be applied to arbitration agreements; a state law that singles out arbitration agreements for disfavored treatment is displaced by the FAA. Doctor's Assocs., Inc. v. Casarotto, ___ U.S. ___, ___, 116 S.Ct. 1652, 1655-56, 134 L.Ed.2d 902 (1996); see also Allied-Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265, ___, 115 S.Ct. 834, 843, 130 L.Ed.2d 753 (1995) (states may regulate contracts, including arbitration clauses, under general contract law principles, but may not single out arbitration clauses for disfavor); First Options of Chicago, ___ U.S. at ___, 115 S.Ct. at 1924 (state law generally governs the determination of whether the parties agreed to arbitrate a certain matter).

It is almost axiomatic, as a first rule of state common law governing the formulation of contracts, that parties must manifest assent to a bargain in order to be bound under it. See Restatement (Second) of Contracts § 17. Hence, state law generally parallels the Supreme Court's observation in AT & T Technologies that "`a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.'" 475 U.S. at 648, 106 S.Ct. at 1418 (quoting Warrior & Gulf Navig. Co., 363 U.S. at 582, 80 S.Ct. at 1353). See also Old Republic Ins. Co. v. Lanier, 644 So.2d 1258, 1260 (Ala. 1994). Beyond that, also as a general matter, one "who is not a party to a contract has no standing to compel arbitration." Britton v. Co-op. Banking Group, 4 F.3d 742, 744 (9th Cir.1993); Ex Parte Stallings & Sons, Inc., 670 So.2d 861, 862 (Ala.1995). But there are certain exceptions to such general propositions and statements.

First, parties to a contract may together agree, upon formation of their agreement, to confer certain benefits thereunder upon a third party, affording that third party rights of action against them under the contract. Barber v. Business Products Center, Inc., 677 So.2d 223, 227 (Ala.1996). However, the party claiming to be a third-party beneficiary of a contract bears the burden of establishing that the contracting parties intended to bestow a benefit upon it. Weathers Auto Glass, Inc. v. Alfa Mut. Ins. Co., 619 So.2d 1328 (Ala.1993).

The installment sales and financing contracts between the plaintiffs and Hart's Mobile Home make absolutely no reference to Waverlee. In fact, the arbitration clause in the Woodall contract says that "the parties agree and understand that they choose arbitration instead of litigation to resolve disputes" (emphasis added), and goes on to discuss the security agreement between the parties, while the one in the Wilson contract says "Any controversy or claim between or among you and I or our assignees ... shall, if requested by either you or me, be determined by arbitration." No stretch of the imagination would be adequate to encompass the concept that the parties to either contract contemplated disputes with non-parties relating to stated and implied warranties. Furthermore, the warranty provided by Waverlee neither contains an arbitration provision nor seeks to incorporate by reference the arbitration provisions in the installment sales and financing agreements between the plaintiffs and Hart's Mobile Home. Thus, the plaintiffs at no time and in no way agreed with Waverlee to waive their Magnuson-Moss Act rights, nor did they agree with Hart's Mobile Home to extend such a third-party benefit to Waverlee.

Other exceptions to the general proposition that a nonparty has no standing to compel arbitration are equally inapplicable to these cases. At the outset, one very important point that often gets neglected in any discussion of nonsignatories and arbitration clauses must be made clear: There are instances, and cases, where nonsignatories to arbitration clauses may be equitably compelled to pursue their claims against a defendant in arbitration. See, e.g., In re...