IN THE STATE COURT OF CARROLL COUNTY

 

STATE OF GEORGIA

 

RAY MARLIN CRAWFORD,

Plaintiff,

 

VS.

 

CAVALIER HOMES OF ALABAMA, INC., a Division of Cavalier Manufacturing, Inc., a/k/a CAVALIER HOMES, INC., RESULTS ORIENTED, INC., d/a/a ASSURED HOUSING, and GREEN TREE FINANCIAL SERVICING CORPORATION,

 

Defendants.

 

Civil Action File No. 98-V-641

 

ORDER

 

This matter is before the Court on Defendants' various motions to stay and to compel arbitration, and on Plaintiff's motion to make payments into the registry of the Court. The Plaintiff filed a complaint against Cavalier Homes of Alabama, Inc. (hereinafter "Cavalier"), Results Oriented, Inc. (hereinafter "Dealer"), and Green Tree Financial Servicing Corporation (hereinafter "Green Tree") seeking damages and other relief arising from Plaintiff's purchase of a mobile home which had been manufactured by Cavalier and sold by Dealer. Green Tree is assignee of the manufactured home retail installment contract and security agreement between Plaintiff and Dealer.

Plaintiff purchased the mobile home for $76,214.00, financing $61,000.00, on August 8, 1997. Employees of Dealer discussed the financial arrangements with Plaintiff and were made aware that Plaintiff's income was relatively limited. It is clear that Plaintiff was not particularly well educated nor sophisticated in business matters. At the closing on the purchase, Don Gilbert, Dealer's manager, presented Plaintiff with a stack of papers approximately one inch thick, assuring him that they were standard documents for mobile home sales. Without advising Plaintiff to review the documents or disclosing that the documents contained terms previously not discussed, Gilbert guided Plaintiff through the stack, requesting his signature and initials at various points. (See, Affidavit of Plaintiff filed January 7, 1999). There is no evidence that Plaintiff was prevented from reading the documents, however.

Among these papers, Plaintiff signed sales documents that included two binding arbitration provisions. The first appears as ' 14 of the Manufactured Home Retail Installment Contract and Security Agreement between Dealer and Plaintiff and assigned to Green Tree; the second appears as ' 10 of the Acknowledgment and Agreement between Cavalier, Dealer, and Plaintiff. See, Exhibits B and C to Plaintiff's Complaint. These provisions, apparently signed contemporaneously, constitute Plaintiff's arbitration agreements with the Defendants.

In order to arbitrate, Plaintiff must pay substantial fees - not disclosed in the negotiations or the sales documents to pursue his claim. In addition to a $1,250.00 filing fee to initiate an arbitration proceeding and a daily administrative fee of

 

$150.00, he may be responsible for some or all of the arbitrator's fees, which range between $100.00/hour and $1,400.00/day according to the Commercial Arbitration Rules of the American Arbitration Association (See, Defendant Cavalier's Exhibit No. 1, presented at the oral argument of the instant motions). And though this dispute has arisen between a commercial entity distributing its products in Georgia and a Georgia resident over a transaction that was negotiated and consummated in Georgia, the Acknowledgment & Agreement specifies that the arbitration proceeding shall take place at the manufacturer's principal place of business which is Addison, Alabama, (See, Exhibit D to Plaintiff's complaint). In contrast, the fee for filing this action in this Court is $65.00 (not including service costs).

These arbitration requirements notwithstanding, Dealer and Green Tree have, under the Retail Installment Agreement, reserved their rights to sue Plaintiff in court to enforce the monetary obligation secured by the manufactured home or to foreclose on the manufactured home. See, Exhibit B to Plaintiff's Complaint, Retail Installment Contract and Security Agreement, ' 14.

 

 

 

Plaintiff alleges that the mobile home is defective and that it was not properly set up. After repeated attempts to secure repairs through Cavalier and Dealer, Plaintiff sued them and the assignee, Green Tree, in this action. All three defendants have moved this Court to stay these proceedings and compel arbitration. Plaintiff seeks permission to make payments called for under the Retail Installment Contract into the Registry of the Court. Because the motions filed by each defendant involve substantially the same legal and factual issues they will be addressed together in this order.

Results Oriented, Inc., d/b/a Assured Housing (the "Dealer")

 

Dealer, as a party to both the Acknowledgement and Agreement, and the Retail Installment Contract and Security Agreement, moves this Court to stay these proceedings and compel arbitration under ' 10 and ' 14 of such agreements. Dealer correctly asserts that the Federal Arbitration Act (FAA), 9 U.S.C. ' 1 et seq requires the enforcement of written arbitration agreements contained in contracts evidencing transactions involving interstate commerce. 9 U.S.C. ~ 1, 2. Dealer also points out that the FAA amounts to a "congressional declaration of a liberal federal policy favoring arbitration agreements ... The effect of the [FAA] is to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within coverage of the Act." DiMambro-Northend Associates v. Blanck-Alvarez, Inc., 251 Ga. 704, 707 (1983).

This does not mean, however, that all signed writings apparently requiring arbitration will be enforced. Section 2 of the FAA provides that such writings will be enforceable, "save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. ' 2. The United States Supreme Court noted that '2 "gives States a method for protecting consumers against unfair pressure to agree to a contract with an unwanted arbitration provision. States may regulate contracts, including arbitration clauses, under general contract law principles and they may invalidate an arbitration clause 'upon such grounds as exist at law or in equity for the revocation of any contract.'" Allied-Bruce Terminex Companies, Inc. v. Dobson, 513 U.S. 265, 281, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995).

Plaintiff argues that the arbitration agreements are unenforceable because they are unconscionable. Unconscionable contracts are not enforced in Georgia. Freeman v. Hubco Leasing, Inc., 253 Ga. 698, 324 S.E.2d 462 (1985), Mullis v. $peight Seed Farms, Inc., 234 Ga. App. 27, 505 S.E.2d 818 (1998), cert. denied, 1999 Ga. LEXIS 37 (Jan.8, 1999). When seeking objective standards by which to evaluate unconscionability, Georgia courts have recently used a two-pronged analysis favored by other jurisdictions, examining first the procedural elements of the contract and then the substantive components. NEC Technologies, Inc. v. Nelson, 267 Ga. 390, 391, 478 S.E.2d 769, 771 (1996), Mullis, 234 Ga. App. at 29, 505 S.E.2d at 820.

The procedural inquiry addresses the process of making the contract and focuses on two factors: oppression and surprise. Mullis, 234 Ga. App. at 30, 505 S.E.2d at 820. "Oppression" arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice; "surprise" involves the extent to which the supposedly agreed upon terms were hidden in a prolix printed form drafted by the party seeking to enforce the disputed terms. Id. Factors relevant to the procedural inquiry include "the age, education, intelligence, business acumen and experience of the parties, their relative bargaining power, the conspicuousness and comprehensibility of the contract language, the oppressiveness of the terms, and the presence or absence of a meaningful choice." NEC Technologies, Inc., 267 Ga. at 392, 478 S.E.2d at 772.

Here, Plaintiff has shown the arbitration provisions to be procedurally unconscionable. First, the arbitration fees that Plaintiff could be forced to pay were not disclosed in the arbitration provisions or any sales document, or otherwise at the time the contract was made. The arbitration provisions simply state that disputes would be resolved by arbitration without indicating that Plaintiff would be responsible for substantial fees in the arbitral forum which would be significantly larger than the filing fees required to initiate an action in court. By failing to even mention that the party would have to bear the costs of arbitration, let alone hinting at the magnitude of such costs or providing the signatory with information concerning the applicable fee schedule, the true meaning of the arbitration agreement was obscured.

Secondly, Plaintiff lacked a meaningful choice as to accepting this arbitration agreement. He did not have information about the arbitration procedures that the Defendants, who were effectively also the drafters, had. Plaintiff states he is unsophisticated in business and legal matters. Affidavit of Plaintiff, p. 3. The sales documents were presented to Plaintiff as "standard documents" used for all mobile home sales and the arbitration clauses were pre-printed provisions not open to negotiation. Id at 2. Even if he had fully understood the arbitration provisions, it does not appear that Plaintiff was in a position to bargain for more favorable terms on this point. A disparity in bargaining power between contracting parties resulting in no real negotiations or meaningful choice, as seen in Mullis, constitutes oppression. Mullis, supra, 234 Ga. App. at 30, 505 S.E.2d at 821.

The substantive inquiry examines the contract for terms that are one-sided. In evaluating substantive unconscionability, courts have considered "the commercial reasonableness of the contract terms, the purpose and effect of the terms, the allocation of the risks between the parties, and similar public policy concerns." NEC Technologies, Inc., supra, 267 Ga. at 392, 478 S.E.2d at 772. Here the arbitration provisions bar all judicial remedies available to Plaintiff, while the Retail Installment Contract preserves judicial as well as arbitral remedies to Green Tree and Dealer. Thus, Defendants Green Tree and Dealer have the choice of utilizing arbitration or a judicial forum for the actions which they would be most likely to bring, those being either a suit to collect the indebtedness or to enforce the security agreement, neither of which Plaintiff would have occasion to file, while Plaintiff must arbitrate any claim he might wish to assert.

This forces a result that is unconscionable under Georgia law. The arbitration fees were not disclosed and are virtually prohibitive as to Plaintiff. Plaintiff has established an economic inability to proceed in the arbitral forum rather than a less expensive public forum. Plaintiff is left without substantial redress for any loss and is effectively without a remedy. Such a result is overly harsh and not justified by corresponding concessions from the Defendants. This lack of mutuality on the face of the arbitration agreement and its practical effect of foreclosing any possible relief for Plaintiff renders the provisions substantively unconscionable.

While the arbitration clause contained in the Retail Installment Contract and Security Agreement, ' 14 is governed by Georgia law, the Acknowledgement and Agreement, which contains the second arbitration clause at ' 10, provides that it is to be governed by the laws of the state of Alabama. See, Exhibit C to Plaintiff's Complaint, Acknowledgement and Agreement, ' 5. However an unconscionability analysis under Alabama law produces the same result: a finding that the arbitration agreement is unconscionable. "Therefore, we hold that, in a case involving a contract of adhesion, if it is not shown that the party in an inferior bargaining position had a meaningful choice of agreeing to arbitration or not, and if the superior party has reserved to itself the choice of arbitration or litigation, a court may deny the superior party's motion to compel arbitration based on the doctrines of mutuality of remedy and unconscionability." Northcom, Ltd. v. James, Ala. , 694 So.2d 1329 (1997); see, Ex Parte McNaughton, 728 So.2d 592 (Ala. 1998); AllStar homes, Inc., d/b/a Best Value Mobile Homes v. Waters, 711So.2d 924 (Ala. 1997); Layne v. Garner, 612 So.2d 404, (Ala.1992); Rollins, Inc. v. Foster, 991 F.Supp. 1426, 1437 (M.D. Ala. 1998); Rhode v. E & T Investments, 6 F.Supp.2d 1322 (M.D. Ala. 1998).

Green Tree Financial Servicing Corporation ("Green Tree")

Green Tree seeks to compel arbitration under ' 14 of the Retail Installment Contract and Security Agreement. Because the arbitration agreement is unconscionable under Georgia law as discussed above, arbitration will not be compelled on behalf of Green Tree.

 

Cavalier Homes of Alabama, Inc. ("Cavalier")

Cavalier seeks to compel arbitration under ' 10 of the Acknowledgement and Agreement. Because the arbitration agreement is unconscionable under Alabama law as previously discussed, the arbitration will not be compelled on behalf of Cavalier.

There is another reason why Plaintiff's claims against Cavalier are not subject to arbitration. This is due to Cavalier's status as a warrantor. See, Exhibit D to Plaintiff's Complaint. The Magnuson-Moss Warranty-Federal Trade Commission Improvement Act, 15 U.S.C. 2301 et seq, prohibits the compulsion of binding arbitration upon consumer claims under a written warranty covered by the Act. ~ee, Wilson v Waverlee Homes, Inc., 954 F.Supp. 1530 (M.D. Ala. 1997) aff'd 127 F.3d 40 (llth Cir. 1997), Boyd v. Homes of Legend, Inc., 981 F.Supp. 1423 (M.D. Ala. 1997), Rhode v. E & T Investments, 6 F.Supp.2d 1322 (M.D. Ala. 1998), Southern Energy Homes, Inc. v. Lee, 1999 WL 6988 (Ala. 1999). Therefore, even in the absence of unconscionability, Plaintiff's claims against Cavalier under the written warranty could not be compelled to arbitration.

It is therefore CONSIDERED, ORDERED, and ADJUDGED that Results Oriented, Inc.'s Motion to Compel Arbitration and Stay Proceedings, Green Tree Financial Servicing Corporation's Motion to Stay and Compel Arbitration, and Cavalier Homes of Alabama, Inc.'s Motion to Compel Arbitration, Stay Legal Proceedings, and for Attorney's Fees all be hereby DENIED. Considering the record as a

whole, the Plaintiff's Motion for Permission to Make Payments into the Registry of the Court is GRANTED.

SO ORDERED, this ~ day of July, 1999.

 

Copies to:

T. Michael Flinn, Esq. Rex D. Smith, Esq.

Ian R. Rapaport, Esq. Victor L. Moldovan, Esq. Wendy A. Jacobs, Esq. Thomas S. Kenney, Esq.

 

Robert H. Sullivan Judge

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