IN THE STATE COURT OF CARROLL COUNTY

STATE OF GEORGIA

RAY MARLIN CRAWFORD, :

-vs- : CIVIL ACTION FILE NO. 98 V 641 :

CAVALIER HOMES OF ALABAMA, INC., :

and :

GREEN TREE FINANCIAL SERVICING :

:

Defendants. :

 

PLAINTIFF'S RESPONSE TO DEFENDANTS' MOTIONS TO STAY

AND COMPEL ARBITRATION

Comes now RAY MARLIN CRAWFORD, Plaintiff in the above styled case, and responds to Defendants= Motions To Stay, and shows this court the following:

INTRODUCTION

Defendants' Motion for Stay should be denied, not because the sale of this manufactured failed to involve interstate commerce, but rather because the Arbitration Clause is unenforceable in any event and because Greentree was not a party to the contract containing the Arbitration Clause in issue. Policy wise, the issue is whether these defendants should be allowed to insulate their legal conduct from scrutiny under consumer protection type statutes by unilaterally imposing binding arbitration and a waiver of jury trial upon plaintiff. Plaintiff submits that the answer is clearly that this matter should not be submitted to binding arbitration.

Plaintiff is an average consumer, unsophisticated in financial and legal matters, who had the misfortune of buying a defective mobile home from defendants. As a victim of the ongoing selling schemes of defendants, plaintiff was subjected to a variety of unlawful, unfair, fraudulent and unconscionable business practices. Now seeking to enforce his legal rights through litigation in this Court pursuant to applicable consumer laws, plaintiff has discovered yet another fraud committed by the defendants-one of many standardized documents plaintiff was required to sign contained a mandatory binding arbitration waiver of jury trial provision. Defendants are hiding behind this provision asserting a fictional Afundamental right@ to arbitration. Defendants seek to exclude plaintiff from his constitutional right to a jury trial and to be heard in this Court. It is quite clear that defendants= purpose is to shield their ongoing pattern of unfair and unlawful practices and their dominion over consumers from discovery and litigation in this Court before a jury.

Demonstrating the ultimate unfairness of the arbitration provision, Plaintiff maintains the so called arbitration Aagreement@ has been foisted upon him with no disclosure and no negotiation. Plaintiff was not even provided with a copy of the alleged arbitration Aagreement@ document relied upon by Cavalier until plaintiff wrote to Cavalier attempting to assert his legal rights. Further, the alleged arbitration@agreement@ seeks to impose huge costs of arbitration on plaintiff in violation of applicable federal law.

Defendants= attempted reliance on federal and state policy favoring arbitration is unpersuasive. The Federal and Georgia arbitration acts create no substantive right to arbitration but rather favor the enforcement of actual arbitration agreements freely negotiated between parties of equal bargaining strength not involving the sale of consumer goods. The policy provides absolutely no support for blind enforcement of a standardized arbitration provision contained in an adhesive contract signed by a consumer unaware of its existence.

The arbitration clauses in this case are both procedurally and substantively unconscionable and this Court should deny the request to compel arbitration. The supposed arbitration Aagreement@ was not discussed or explained to plaintiff. The arbitration Aagreement@ was merely one of many documents executed by plaintiff as directed to close the deal. All documents were preprinted standardized forms prepared by defendants. There was no negotiation about any preprinted term. Plaintiff was not informed of the significance of any arbitration provision and until the issue arose when plaintiff began to assert his legal rights, and plaintiff was unaware that any term would have an adverse affect on his rights against defendants.

ARGUMENT AND CITATION OF AUTHORITY

The provisions in the Retail Instalment Sale Contract include the following terms:

 

14. ARBITRATION: All disputes, claims or controversies arising from or relating to this Contract or the parties thereto shall be resolved by binding arbitration by one arbitrator selected by you with my consent. This agreement is made pursuant to a transaction in interstate commerce and shall be governed by the Federal Arbitration Act at 9 U.S.C. Section 1. Judgment upon the award rendered may be entered in any court having jurisdiction. The parties agree and understand that they choose arbitration instead of litigation to resolve their disputes. The parties understand that they have a right to litigate disputes in court, but that they prefer to resolve their disputes through arbitration, except as provided herein. THE PARTIES VOLUNTARILY AND KNOWINGLY WAIVE ANY RIGHT THEY HAVE TO A JURY TRIAL EITHER PURSUANT TO ARBITRATION UNDER THIS CLAUSE OR PURSUANT TO COURT ACTION BY YOU (AS PROVIDED HEREIN). The parties agree and understand that all disputes arising under case law, statutory law and all other laws, including, but not limited to, all contract, tort and property disputes will be subject to binding arbitration in accord with this Contract. The parties agree that the arbitrator shall have all powers provided by law, the Contract and the agreement of the parties. These powers shall include all legal and equitable remedies including, but not limited to money damages, declaratory relief and injunctive relief....

 

GREENTREE was not a signatory to the contract.

I. ARBITRATION AGREEMENTS ARE READ TOO EXPANSIVELY

Arbitration agreements are matters of contract law, and a court interpreting such an agreement should consider the intent of the parties. See Allstar Homes, Inc., d/b/a/ Best Value Mobile Homes v. Waters, 1997 WL 723103(Ala. 1997); Allied-Bruce Terminix Companies v. Dobson, 513 U.S. 265 (1995). The Federal Arbitration Act (FAA) does not require parties to arbitrate a dispute that they did not agree to submit to arbitration. 9 USC.' 1-16. The FAA does not make all arbitration clauses in whatever writing enforceable; rather, it makes arbitration agreements enforceable. According to the United States Supreme Court in First Options of Chicago v. Kaplan, 514 U.S. 938, 943-44, 115 S.Ct. 1920, 1924, 131 L.Ed.2d 985, 993 (1995), the determination of whether the parties agreed to arbitrate their disputes should be judged by the "ordinary state-law principles that govern the formation of contracts."

Accordingly, "as with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability." Mitsubishi Motors Corp. v. Soler Chrysler- Plymouth, Inc., 473 U.S. 614, 627, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). Section 2 of the FAA allows courts to give relief where the party opposing arbitration presents "well supported claims that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds 'for the revocation of any contract.' " Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 483-84, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989) (quoting Mitsubishi Motors, 473 U.S. at 627, 105 S.Ct. 3346; 9 U.S.C.A. S 2). Thus, ' 2 "gives States ... method[s] for protecting consumers against unfair pressure to agree to a contract with an unwarranted arbitration provision" both in equity and under principles of contract law. Allied-Bruce Terminix v. Dobson, 513 U.S. 265, 281, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995).

Both the Federal Arbitration Act and Georgia=s Arbitration Act provide that arbitration agreements may be enforced save upon grounds as exist for revocation of contracts. An arbitration agreement is entitled to no greater deference that any other contract provision and is revocable upon statutory and common law grounds that would invalidate any other contract.

 

1) Many courts have expanded the scope of the Federal Arbitration Act far beyond its original intent. The legislative history of the Federal Arbitration Act ("FAA) reflects that the FAA was never intended to apply to the type of consumer contracts of adhesion in which arbitration is now being enforced with increasing frequency. Further, there is substantial evidence that the FAA was never intended to apply in State courts. Instead of adhering to the legislative intent, however, the courts -- primarily the United States Supreme Court -- have exponentially expanded the application and scope of the FAA.

In Allied-Bruce Terminix Companies v. Dobson, 513 U.S. 265, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995), Justice O'Connor observed:

I continue to believe that Congress never intended the Federal Arbitration Act to apply in state courts, and that this Court has strayed far afield in giving the Act so broad a compass. We have often said that the pre-emptive effect of a federal statute is fundamentally a question of congressional intent. ... Yet, over the past decade, the Court has abandoned all pretense of ascertaining congressional intent with respect to the Federal Arbitration Act, building instead, case by case, an edifice of its own creation. I have no doubt that Congress could enact, in the first instance, a federal arbitration statute that displaces most state arbitration laws. But I also have no doubt that, in 1925, Congress enacted no such statute.

Y

Today's decision caps this Court's effort to expand the Federal Arbitration Act. Although each decision has built logically upon the decisions preceding it, the initial building block in Southland Corp. v. Keating, 465 U.S. 1 (1984)] laid a faulty foundation. ... It remains now for Congress to correct this interpretation if it wishes to preserve state autonomy in state courts.

513 U.S. at 283-84 (O'Connor, J., concurring). See also Allied-Bruce Terminix Companies v. Dobson, 513 U.S. 265,115 S.Ct. 834,130 L.Ed.2d 753 (1995) (Thomas, J., dissenting); Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987) (O'Connor, J., dissenting); Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984) (O'Connor, J., dissenting).

In addition there is substantial legislative history to support a much more limited scope of the FAA than that employed by most courts today. In December 1922, S. 4214 and H.R. 13522 were introduced in the Senate and House of Representatives, respectively. Each bill was entitled: "A Bill to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising Out of Contracts, Maritime Transactions, or Commerce among the States or Territories or with Foreign Nations." A hearing was subsequently held on S. 4214 before a subcommittee of the Senate Judiciary Committee. Much of the discussion in that hearing focused on the relationship between the proposed legislation and the contractual waiver of the right to a trial by jury, where the contract containing the arbitration provision was one of adhesion. The following colloquy between Senator Walsh of Montana and Mr. W.H.H. Piatt, the "Chairman of the Committee of Commerce, Trade, and Commercial Law of the American Bar Association" and a vocal supporter of the proposed legislation who argued in favor of passage of S. 4214, is an exemplary excerpt from that hearing:

Senator WALSH: This has occurred to me. I see no reason at all--I see none now; there may be some reason but I see no reason now-why, when two men voluntarily agree to submit their controversy to arbitration, they should not be compelled to have it decided that way.

Mr. PLATT: Yes, sir.

Senator WALSH: The trouble about the matter is that a great many of these contracts that are entered into are really not voluntarily [sic] things at all. Take an insurance policy; there is a blank in it. You can take that or you can leave it. The agent has no power at all to decide it. Either you can make that contract or you can not make any contract. It is the same with a good many contracts of employment. A man says[:] These are our terms. All right, take it or leave it.' Welt there is nothing for the man to do except to sign it; and then he surrenders his right to have his case tried by the court, and has to have it tried before a tribunal in which he has no confidence at all.

Mr. PLATT: That would be the case in that kind of a case, I think; but it is not the intention of this bill to cover insurance cases.

Senator WALSH:. Well, take a freight contract--a transportation contract. Here is a regular form of contract for the shipment of goods. Take a shipment of cattle, for instance. The railroad company puts up a contract having a provision for a arbitration. Now, the shipper says, 'Well, I haven=t any confidence in this arbitration business. I don't want to do that' [The shipper says: 'Very well; we can not take your stock then.

Mr. PLATT: Do you think that would override or transcend the act of Congress with respect to what constitutes a bill of lading? Would not the bill of lading act govern that anyway?

Senator WALSH: Certainly, but the bill of lading provides what shall go in.

Mr. PIATT: Yes.

Senator WALSH: And then they have the regular bill of lading contract, but they have a further provision that any controversy arising under the contract shall be submitted to arbitration; and the fellow says[:] "Well, I haven't any confidence in it. if I have a controversy[J I would like to have it tried before a court where I feel I can get justice."

Mr. PIATT: Speaking for myself, personally, I would say I would not favor any kind of legislation that would permit the forcing [of a man to sign that kind of a contract. I can see where that could be, right now.

Senator WALSH: You can see where they are not voluntary contracts, in a strict sense.

Mr. PIATT: I think that ought to be protested against, because it is the primary end of this contract that it is a contract between merchants one with another buying and selling goods. The shipper is nearly always under a necessity.

Senator WALSH: Yes.

 

"Sales and Contracts to Sell in Interstate and Foreign Commerce, and Federal commercial Arbitration," Hearing on S. 4213 and 4214 before a Subcommittee of the Committee on the Judiciary, 67th Cong., 4th Sess. 9-10 (1923) (hereinafter the "Judiciary Committee Hearings")

Additionally, a letter from then Secretary of Commerce Herbert Hoover was "submit[ted] for the record." Judiciary Committee Hearings at 14. The letter was addressed to Senator Thomas Sterling, who introduced the bill, and it stated in part: "If objection appears to the inclusion of workers' contracts in the law's scheme, it might be well amended by stating, but nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in interstate or foreign commerce." Id.

In response to these and similar comments from other Senators, S. 4214 and H.R. 13522 were revised and reintroduced in Congress the following year as S. 1005 and H.R. 646, respectively. Section I of those bills included the language suggested by Secretary Hoover excluding from the proposed laws application employment contracts of "seamen, railroad employees, [and every] other class of workers engaged in foreign or interstate commerce." "Arbitration of Interstate Commercial Disputes: Joint Hearings on S. 1005 and H.R. 646, Bills to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising Out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or with Foreign Nations, before the Subcommittees of the Committees on the Judiciary," 68th Cong., 1st Sess. 2 (1924) (hereinafter "Joint Hearings"). S. 1005 was referred to the Judiciary Committee. Joint hearings were held on those bills before subcommittees of the Judiciary Committees. At the outset of those hearings, Mr. Piatt, who argued again in favor of passage, stated:

[A] bill similar to [S. 10051 was before the Committee on the Judiciary of both the Senate and House last year, and certain hearings were held thereon. In view of questions by Senator Sterling, Senator Walsh of Montana, and other members, changes have been made, and the bill has been redrafted after being submitted to the American Bar Association meeting at Kansas CityY

Joint Hearings, at 10. The question of a contracting party's volition in the waiver of her right to a jury trial arose again in those hearings. For example, Julius H. Cohen, a principal draftsman of S. 1005, stated:

The one constitutional provision we have got is that you have a right of trial by jury. But you can waive that. And you can do that in advance. Ah, but the question whether you waive it or not depends on whether that is your signature to the paper, or whether you authorized that signature, or whether the paper is a valid paper or not, whether it was delivered properly. So there is a question there which you have not waived the right of trial by jury on.

Joint Hearings, at 17.

The legislative history of the Act stated specifically that the Act Acreate[d] no new legislation, no new rights, except to enforce an agreement in commercial contracts and admiralty contracts.@ Dean Witter Reynolds v. Bryd, 470 U.S. 213, at 220 105 S.Ct. 1238 (1985)(emphasis supplied).

 

Dimambro-Northend v. Blanck, 251 Ga. 704 (1983) cited by Cavalier does not compel arbitration in this instance. Initially, that case involved two commercial parties as opposed to one highly sophisticated commercial party and one consumer as in this case. Further, that case did not involve a waiver of jury trial provision as is involved in the instant case. The 1986 Zepp case further cited by Cavalier in support of its motion did not involve a waiver of jury trial and was decided prior to Bank South, N.A. v. Howard, 264 Ga. 339, 444 S.E.2d 799 (Ga. 1994) which invalidated pre litigation waiver of jury trial. Further, contrary to Zepp, in which the court relied on a specific local legislation authorizing the Athens water authority, there is no such specific legislation here.

Paladino v. Avnet Computer Technologies, Inc., 134 F.3d 1054 (11th Cir. 1998)(refused to compel arbitration of plaintiff's Title VII claim pursuant to an arbitration agreement on grounds that the arbitration clause deprived the employee of any prospect for meaningful relief. The court based its holding on the proposition that, when an arbitration clause has provisions that defeat the remedial purpose of the statute, the arbitration clause is unenforceable) and Wilson v. Waverlee Homes, Inc., 954 F.Supp. 1530 (MD AL 1997) aff'd 127 F.3d 40 (11th Cir.1997)(refused to enforce arbitration agreement violative of Magnuson Moss provisions) further support the limited application of arbitration provisions in consumer and employment contexts. In both of these cases, the Court refused to enforce arbitration agreements with respect to claims of plaintiffs due to a conflict with existing consumer protection statutes.

 

II. ARBITRATION CLAUSES AND THE RIGHT TO JURY TRIAL

 

Most binding arbitration clauses in consumer contracts result in an unknowing and involuntary waiver of the right to a jury trial and Georgia does not allow prelitigation waiver of jury trial.

The Seventh Amendment to the United States Constitution provides:

In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury shall be otherwise re-examined in any court of the United States, than according to the rules of the common law.

The Georgia Constitution guarantees a right to trial by jury in civil actions. Article 1, ' 1, & 11. While this right to trial by jury may be waived, such a waiver must be a voluntary act, knowingly done, with sufficient awareness of the relevant circumstances and likely consequences. Further in Georgia, there can be no prelitigation waiver of a right to jury trial. Bank South, N.A. v. Howard, 264 Ga. 339, 444 S.E.2d 799 (Ga. 1994) held:

Civil litigants in this state's courts are guaranteed the right to a jury trial by the Constitution of Georgia and the Civil Practice Act. Waiver of that right is a matter which is "carefully controlled" by statute. Manderson & Assocs. v. Gore, 193 Ga.App. 723(5), 389 S.E.2d 251 [264 Ga. 340] (1989). The constitutional guarantee of the right to trial by jury refers to two circumstances in which the right may be waived: when no issuable defense is filed and when the parties fail to demand a jury trial. OCGA ' 9-11-39(a) provides for waiver by express stipulation, either written and filed in the record or made orally in open court. By their terms, both the statute and the Constitution plainly contemplate the pendency of litigation at the time of the waiver. We conclude, therefore, that pre-litigation contractual waivers of jury trial are not provided for by our Constitution or Code and are not to be enforced in cases tried under the laws of Georgia.

 

(Emphasis supplied)

Similarly, In Gaylord Dept. Stores of Alabama, Inc. v. Stephens, 404 So.2d 586 (Ala. 1981), the Alabama Supreme Court observed:

While this precious right of trial by jury may be waived, was it properly waived in this particular case?

 

The validity of waiver of a jury trial in a contract action has been recognized in a number of jurisdictions, including Connecticut, Massachusetts, New Jersey, New York, and Ohio. See 73 A.L.R.2d 1333. The Supreme Court of Florida, construing New York law, upheld the jury waiver provision in a written contract. Central Investment Associates, Inc. v. Leasing Service Corp., 362 So.2d 702 (Fla.1978). However, all of these Courts upholding jury waivers follow a general rule that since the right of jury trial is highly favored, a waiver will be strictly construed. In Edsaid Realty Corp. v. Samuels, City Ct., 92 N.Y.S.2d 897 (1949), the Court held that the waiver must be clear and explicit and leave no room for doubt about the intention of the parties. And in National Equipment Rental Ltd. v. Hendrix, 565 F.2d 255 (2d Cir. 1977), the Court held a waiver of jury trial ineffective, where it was buried in the eleventh paragraph, and there appeared gross inequality in bargaining power between the parties, and it did not appear that the waiver was knowingly and intentionally made. We opine that these statements are applicable here.

 

The contract between Stephens and Gaylord appears to be a New Jersey form contract with boiler plate-provisions. The jury waiver provision is buried in paragraph thirty-four in a contract containing forty-six paragraphs; the equality of the bargaining power of the parties is questionable; and it does not appear that the waiver by Stephens was intelligently or knowingly made.

 

Gaylord points to the fact (on pages 139 and 140 of the transcript) that he read the contract before signing it. Our reading of that testimony leads us to conclude that the questioning by Gaylord pointed to a prohibition against opening another pharmacy not to the jury trial waiver.

 

Finally, we note that Gaylord prevented Stephens from removing his cash after it closed the pharmacy and Stephens was threatened with arrest by a Gaylords security agent if he removed his shelving and fixtures. Under these circumstances we opine that even if we were of the opinion that the waiver was effective as to the violations of the contract, the waiver could not be extended to the tort action stated in Count III of Stephens's complaint.

404 So.2d at 588.

 

In Mall, Inc. v. Robbins, 412 So.2d 1197 (Ala. 1982), the Alabama Supreme Court noted:

 

This Court recently enunciated three factors in determining whether to enforce a contractual waiver of the right to trial by jury: (1) whether the waiver is buried deep in a long contract; (2) whether the bargaining power of the parties is equal; and (3) whether the waiver was intelligently and knowingly made. Gaylord Department Stores of Alabama v. Stephens, 404 So.2d 586 (Ala.1981). The contractual waiver in the lease is in section 10.4, which is entitled "Waiver of Trial by Jury: Tenant Not To Counterclaim." Since the section is titled so as to call attention to the waiver of jury trial in the lease, the waiver is not inconspicuously buried deep in the contract. Furthermore, the parties were both businessmen. Robbins owned six or seven other grocery stores at the time he entered into the lease. It cannot be said that the parties had unequal bargaining power.

412 So.2d at 1199. In the instant case, the arbitration agreements are buried deep in boilerplate documents which do not conspicuously demonstrate that legal rights are being forfeited. The bargaining power and experience of the parties is not equal-the consumer is unsophisticated in legal drafting, the contract is presented as a take it or leave it document without negotiation and the arbitration clauses are apparently used industry wide. In the case of the alleged Aagreement@ with Cavalier, plaintiff never knew it had been executed and was not provided with a copy of it until he asserted his legal rights to Cavalier.

In Allstar Homes d/b/a Best Value Mobile Homes v. Waters, No. 1951955, 1997 WL 723103 (Ala., Nov. 21, 1997), the Alabama Supreme Court noted that:

[A]ny arbitration agreement is a waiver of a party's right under Amendment VII of the United States Constitution to a trial by jury and, regardless of the federal courts' policy favoring arbitration, we find nothing in the FAA that would permit such a waiver unless it is made knowingly, willingly and voluntarily.

1997 WL 723103 at *6. After reviewing the legislative history of the FAA, Justice Ralph Cook observed:

These comments by the proponents, drafters, and sponsors of the bills that culminated in the FAA, in addition to the revision that excluded employment contracts, illustrate the importance ascribed to the voluntaries of the contracting parties. Indeed, volition is the sine qua non of the FAA's constitutionality, for specific enforcement of an arbitration provision to which a party has not voluntarily agreed would clearly violate the Seventh Amendment.

Indeed, specific enforcement of arbitration contracts for the purchase of consumer goods or services is beset by a number of problems implicating the Seventh Amendment. The reality is that contracts containing these provisions appear with increasing frequency in today's marketplace. As a result, consumers find it increasingly difficult to acquire basic goods and services without forfeiting their rights to try before a jury the common-law claims that may accrue to them. Entire segments of the market for certain goods and services, such as automobile sales and their attendant necessary financing, are being closed to consumers who are unwilling to forfeit the rights guaranteed them by the federal and state constitutions. To sanction this market closure would essentially effect the repeal of the Seventh Amendment by the concurrence of judicial with legislative fiat.

Moreover, the coerced waiver of the right to a trial by jury results in a monetary penalty to the consumer. This is so because it deprives the consumer purchaser or debtor of the benefit of his bargain, along with the time he spent and the expense he incurred in negotiating it. More specifically, many consumer credit transactions containing .,agreements" to arbitrate actually involve two independent "agreements." The credit sale of a new automobile, for example, is, according to ordinary experience, often consummated between the consumer-buyer and an agent of the automobile dealer only after hours, or, in some cases, days, of bargaining and negotiation. Although a number of terms important to both parties may be involved in these negotiations, one term that seldom, if ever, arises during the bargaining process if arbitration. Indeed, it may safely be said that the thought of specific constitutional provisions never impresses itself upon the mind of the consumer buyer, and, seldom, if ever, upon the mind of the dealer's agent, before an agreement has been reached on the lot or the showroom floor encompassing all the essential terms of the sale.

After the consummation of such a "showroom" agreement, the buyer, is, for the first time, then presented with "take-it-or-leave-it" written documents. These documents do not merely memorialize the terms of the prior agreement, but contain a pivotal term, one that was not negotiated and that is, as in this case, non negotiable. At that stage, the buyer typically learns, for the first time, that in order to receive the benefit of the bargain he has already consummated, and to avoid incurring a monetary penalty consisting of the time he spent and the expense he incurred in negotiating that bargain he must then agree to waive his right to a trial by jury.

This second "agreement" constitutes a modification of the first and is a new contract, see Little v. Redditt, 264 Ala. 371, 88 So.2d 354 (1956), subject to the rules regarding consideration and mutual assent set forth in Winegardner v. Bums, 361 So.2d 1054, 1057-58 (Ala. 1978) (quoting with approval Moore v. Williamson, 213 Ala. 274, 104 So. 645 (1925)). The consumer must either sign the contract, and, thereby, waive his Seventh Amendment guarantee, or begin the process anew elsewhere. Because of the penalty that results from such a waiver, the specific enforcement of an adhesion contract containing an arbitration provision places the Seventh Amendment on a different footing than U.S. Const. amend. IV (guaranteeing freedom from "unreasonable searches and seizures"), amend. V (guaranteeing freedom from forced self-incrimination), and amend. VI (guaranteeing the right to legal counsel in criminal proceedings).

...

Thus, the waiver of rights guaranteed by Amendments Four, Five, and six is not punitive, as is the case with the specific enforcement of an arbitration provision to which a consumer is ultimately required to acquiesce in order to avoid losing the value of the time he expended and the expense he incurred in negotiations before learning of the arbitration requirement. Because arbitration provisions are, in consumer transactions, such as the one hypothesized above, virtually "foisted" upon unsuspecting and unsophisticated consumers, and because the result if often punitive to the consumer, the right guaranteed by the Seventh Amendment is accorded less deference than those rights guaranteed by the Fourth, Fifth, and Sixth Amendments.

The fact that the United States Supreme Court has never held the Seventh Amendment to be binding on the states through the Fourteenth Amendment, as it has certain other of the Bill of Rights guarantees, is irrelevant in this context. This is because the FAA is not a state law. Thus, the constitutional deprivation, where one can be shown, derives from an act of Congress, not a state legislature. The Seventh Amendment, like the other Bill of Rights provisions, was ratified as a limitation on the power of Congress. Clearly, Congress had no power to deprive a citizen of Alabama of his right to a trial by jury before the Fourteenth Amendment was ratified--a fortiori, it has none now. Therefore, whether the Seventh Amendment is binding on the states is entirely irrelevant in any consideration of the FAA.

But it has been said, and rightly so, that "[p]robably no greater encomiums or panegyrics have. ever been pronounced upon any legal or civil right than upon this right of trial by jury." Alford v. State ex rel Attorney General, 170 Ala. 178, 187, 54 So. 213, 215 (1920) (Mayfield, J., dissenting). "[I]t has been from very early time insisted upon, by our ancestors, as 'the great bulwark of their civil and political liberties,' and watched with unceasing jealousy and solicitude. . ." Id." "[The Constitution of the United States would have been justly obnoxious to the most conclusive objection if it had not recognized and confirmed it in the most solemn terms...... Id.

For these reasons, I would hold that in a consumer transaction case involving a contract containing an arbitration provision, unless there is a showing that the consumer entered the arbitration agreement voluntarily, the contract will be unenforceable as an encroachment on the right to trial by jury. I offer the following comments as guidance to parties desiring to avoid this result.

If the offeror of consumer goods or services intends to insist upon the arbitration of disputes arising out of its consumer transactions, it must clearly integrate the arbitration requirement with the terms of the transaction that the consumer would consider essential, such as the price of the goods or services and the size and number of the payments. in other words, the consumer must be apprised of his right to a trial by jury and must be given an opportunity to accept or reject arbitration in a manner similar to the choice commonly given consumers either to purchase or refuse credit life Or disability insurance. Such a procedure is merely analogous to the warning given pursuant to Miranda v. Arizona, 384 U.S. 436, 96 S.Ct. 1602, 16 L.Ed.2d 694 (1966), to ensure that other enumerated rights under the Bill of Rights have been voluntarily waived. This would provide one way in which objective evidence as to the level of volition could be demonstrated.

 

Allstar Homes d/b/a Best Value Mobile Homes v. Waters, No. 1951955, 1997 WL 723103 (Ala., Nov. 21, 1997) (Cook, J., concurring specially).

Recently, in Ex parte McNaughton, No. 1961708, 1998 WL 544926 (Ala., Aug. 28, 1998), Justice Almon of the Alabama Supreme Court noted in his forceful dissent that:

Significant questions in these respects have never been addressed regarding the application of the FAA that deprives individuals of the right of trial by jury based upon the fanciful notion that the individual has "voluntarily" waived that right.

 

Y

The United States Supreme Court has not addressed the application of the Seventh Amendment to the FAA. Even if the Seventh Amendment does not protect a litigant's right of trial by jury in a state court, surely that right is protected by the Tenth Amendment ... and the Ninth Amendment....

Y

If a state guarantees its citizens the right of trial by jury in civil cases, the power of Congress to regulate commerce should not be taken to supersede all the constitutional protections of the rights of access to court, to due process of law, and to trial by jury. These points seem so fundamental and so obvious to me that I am amazed that they have not heretofore been raised and addressed in the recent flurry of litigation over the Federal Arbitration Act.

1998 WL 544926 at *9-10.

In the instant case, the alleged arbitration agreements are closely intertwined with an alleged waiver of the right to trial by jury - a right which in Georgia may not be waived in a prelitigation agreement. The alleged arbitration agreements in this case should not be enforced.

 

III. THE ARBITRATION CLAUSES IN ISSUE ARE UNENFORCEABLE WHEN PLAINTIFF SEEKS REVOCATION OF THE CONTRACT

 

O.C.G.A. ' 11-2-608 together with Freeman v. Hubco, 253 Ga. 698 (1985) and Jacobs v. Metro Chrysler-Plymouth, 125 Ga. App. 462 (1972) clearly establish that a failure to deliver non conforming goods, or delivery of goods which have defects substantially impairing the value of the goods to the consumer, or refusal to repair or unsuccessful repair attempts entitle a consumer to revoke the contract. Revocation includes cancellation of the contract and an end to any executory obligations, including the obligation to arbitrate. For these reasons, the arbitration Aagreements@ should not be enforced.

O.C.G.A.'11-2-608 provides as follows:

Revocation of acceptance in whole or in part.

(1) The buyer may revoke his acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to him if he has accepted it:

(a) On the reasonable assumption that its nonconformity would be cured and it has not been seasonably cured; or

(b) Without discovery of such nonconformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances.

 

(2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it.

(3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them.

 

O.C.G.A. ' 11-2-711 provided the following remedy on revocation of acceptance:

Buyer's remedies in general; buyer's security interest in rejected goods.

 

(1) Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance then with respect to any goods involved, and with respect to the whole if the breach goes to the whole contract (Code Section 11-2-612), the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid:

 

O.C.G.A. ' 11-2-106 provides definitions as follows:

(2) Goods or conduct including any part of a performance are "conforming" or conform to the contract when they are in accordance with the obligations under the contract.

(3) "Termination" occurs when either party pursuant to a power created by agreement or law puts an end to the contract otherwise than for its breach. On "termination" all obligations which are still executory on both sides are discharged but any right based on prior breach or performance survives.

(4) "Cancellation" occurs when either party puts an end to the contract for breach by the other and its effect is the same as that of "termination" except that the canceling party also retains any remedy for breach of the whole contract or any unperformed balance.

 

These statutory provisions provide that all portions of a revoked contract which are executory are discharged. In this case, the agreement to arbitrate is executory and is discharged and unenforceable.

In summary, upon delivery of non conforming goods or upon non conforming performance of the warranty, the buyer may revoke acceptance. Revocation provides for cancellation of the contract. Cancellation terminated the contract and discharges executory obligation such as the arbitration provision in question while resrrving to the revoking party his rights for the breach.

 

IV. ARBITRATION AGREEMENTS ARE NOT ENFORCEABLE

BY NON SIGNATORY PARTIES

 

A recent Alabama Supreme Court decision addressed a situation where a buyer had signed an arbitration agreement when purchasing an automobile and the dealership had not. The dealership later sought to compel arbitration and the Court said:

This Court recently stated in Ex parte Pointer, [Ms. 1961778, Nov. 21, 1997] ___ So. 2d ___, ___ (Ala. 1997), quoting Crown Pontiac, Inc. v. McCarrell, 695 So. 2d at 618-19 (Ala. 1997):

"The purpose of a signature is to show "mutuality and assent," which are required for a contract to be binding. Lawler Mobile Homes, Inc. v. Tarver, 492 So. 2d 297, 304 (Ala. 1986). Conversely, in this case the absence of a signature under the arbitration clause shows a lack of mutuality and assent, where the contract contains a signature line specifically for the arbitration clause, but where McCarrell did not sign on that line, although he signed on other lines that similarly indicated agreement to specific terms.'"

Med Center seeks to enforce the arbitration clause contained in the buyer's order, although it did not affix its signature to the buyer's order. Although Kimberly Smith signed the buyer's order, as previously pointed out the buyer's order specifically provides that it is "Not valid unless accepted by seller or its authorized representative." Therefore, the buyer's order, which contains the arbitration clause, is not enforceable.

 

 

Med Center Cars, Inc. v. Smith 7 ALW 17-2.

Nonsignatory movant Greentree here may not compel arbitration. The alleged arbitration agreement here did not cover the nonsignatory movant. The document on which movant relies is between "dealer and the purchaser". The purpose of a signature is to show "multuality and assent" which are required for a contract to be binding. Lawler Mobile Homes, Inc. v. Tarver, 492 So. 2d 297, 304 (Ala. 1986). The absence of a signature under the arbitration clause shows a lack of mutuality and assent, where the contract contains a signature line specifically for the arbitration clause. Nonsignatory parties should not be allowed to compel arbitration of plaintiff's claims against them. In Ex parte Walter Jones v. Moneytree, Inc., 686 So.2d 1166 the Alabama Supreme Court stated as follows:

Although the loan contract between the Jones and Moneytree had an arbitration clause, the form contract issued by First Colonial did not contain an arbitration clause. Therefore, this dispositive issue is: Did the trial court properly compel arbitration as to the Jones' claim against First Colonial?

We must use the principals of contract interpretation to answer this question. In interpreting the arbitration clause we found in the loan contract, we must consider the intent of the parties to that contract and those parties being the Jones and Moneytree. Federal law favors enforcement of arbitration clauses under the Federal Arbitration Act (FAA), see 9 U.S.C. 111 - 15. However, the FAA does not govern every contract containing an arbitration agreement. In order for the FAA to govern the agreement: 1) there must be a written agreement calling for arbitration and 2) the contract must relate to a transaction involving interstate commerce. Maxis, Inc., v. Sciacca, 598 So.2d 1376, Alabama 1992. The contract issued by First Colonial does not meet that first requirement. It does not contain a written agreement for arbitration... First Colonial is not a signatory to the contract containing the arbitration clause, and is not the creditor, and it was not the debtor... Because First Colonial is not a party to the contract claiming to the arbitration provision, First Colonial has no standing to seek enforcement of the arbitration provisions.

Movant Greentree is not parties to the alleged arbitration agreement. A party that is not signatory to an arbitration agreement cannot compel arbitration. Ex parte Martin v. Southern Energy Homes, Inc., 703 So.2d 883(Ala. 1996). The pertinent part of the document says "the parties thereto@ agree to submit such dispute(s) to binding arbitration.

 

Boyd v. Homes of Legend, Inc., 981 F. Supp. 1423 (M.D. Ala.1997) addressed these same issues. In that case the District Court applying the Alabama Supreme Court's reasoning in Ex parte Isbell held that the nonsignatory manufacturer could not compel arbitration based on a purchase contract containing an arbitration provision. The District Court set out the burden of the nonsignatory manufacturer (Homes of Legend, Inc.) as follows:

...here the defendant manufacturer Homes of Legend must establish that, despite the absence of any explicit mention of Homes of Legend in the purchase contracts signed by the plaintiffs and their dealers, the plaintiffs nonetheless constructively, or as a matter of law, agreed to submit to arbitration the tort, breach-of-warranty, and Magnuson-Moss Act claims they now level against Homes of Legend.

The District Court went on to say:

 

Homes of Legend's reliance on Ex parte Gates, 675 So.2d 371 (Ala.1996), to establish that the contracting parties in these three cases granted Homes of Legend third-party standing to invoke arbitration, is misplaced. While it does appear that in Gates the Alabama Supreme Court found that a defendant mobile home manufacturer could compel arbitration against a purchaser on the basis of an arbitration clause to which the manufacturer was not a signatory, that court subsequently has explained that its holding was not based upon an interpretation of the underlying arbitration clause. See Ex parte Isbell, No. CV-95-8362, 1997 WL 531100, at *3-*4, *12 (Ala. August 29, 1997). (FN7) In Isbell, which also involved a mobile home purchase contract having an arbitration provision, the court clarified that Gates may not be relied upon to establish that a nonsignatory could compel arbitration based upon the contract executed by the buyers and retailer of the mobile home, because this issue was not actually considered by the court in Gates, having never been raised at the trial court. Id. at *3-*4.

The Isbell court went on to interpret the arbitration clause at issue in that case, finding that it was insufficiently broad to encompass the claims against the nonsignatory manufacturer. This arbitration clause, on its face, was significantly broader than those found in the three purchase contracts at issue here. It purported to encompass "[a]ll disputes, claims or controversies arising from or relating to this Contract or the relationships which result from this contract." Id. at *12 (emphasis added). Nonetheless, despite this apparently expansive language, the Alabama Supreme Court concluded that the arbitration provision did not extend to claims against unnamed third parties. In support of its holding, the court pointed out that another provision of the contract specified that the arbitration clause was meant to apply exclusively to the buyers, the retailer and the financing institution involved in the sale, all of whom signed the purchase contract. Id. This express limitation of the scope of the arbitration agreement led the court to conclude that the Isbell agreement was meant to exclude unnamed third parties, and was restricted to disputes arising between or among the signatories of the contract. See also Ex parte Martin, No. CV-96-46, 1996 WL 650307, at *3, --- F.Supp. ----, ---- (Ala. Nov. 8, 1996) (arbitration agreement, lacking broad reference to "relationships which result from this contract," found to be expressly limited to contract signatories).

Thus, the Alabama Supreme Court's decision in Isbell reinforces the conclusion that Homes of Legend is not a third-party beneficiary to the arbitration clauses in the purchase contracts at issue here. Like the arbitration clause considered in Isbell, those found in the Bass, Foster plaintiffs, and Boyd contracts are expressly and unambiguously limited to the contract signatories.

 

V. THE ARBITRATION CLAUSE IN ISSUE IS NOT ENFORCEABLE BECAUSE IT CONFLICTS WITH THE MAGNUSON-MOSS ACT

 

The Arbitration Clause in issue is not enforceable as against plaintiffs because it is in violation of the Magnuson-Moss Act. As stated in Wilson v. Waverlee Homes, Inc., 954 F.Supp. 1530, 65 USLW 2538 (MD AL 1997) aff'd 127 F.3d 40 (11th Cir.1997):

In 1974, Congress enacted the Magnuson-Moss Act "In order to improve the adequacy of information available to consumers, [and] prevent deception." 15 U.S.C.A. ' 2302(a). It sets out clear and comprehensive requirements regarding disclosures, duties, and remedies associated with warranties on consumer products. Products covered by the Act include any "tangible personal property which is distributed in commerce and which is normally used for personal, family or household purposes." ' 2301(1). Relying on the Magnuson-Moss Act, the plaintiffs submit, alternatively, that, because the installment sales and financing contracts between them and Hart's Mobile Home provide for final or binding arbitration, they could not be compelled to arbitrate their claims against Waverlee. The court agrees with the plaintiffs on this issue, which surprisingly appears to be one of first impression for the courts.

1.

[13][14] The plaintiffs correctly observe that the language of the Magnuson-Moss Act, the regulations adopted pursuant to it, and its legislative history all confirm that Congress and the Federal Trade Commission intended that, with the exception of an informal and non-binding dispute resolution mechanism regulated and defined under the Act, consumers are to retain full and unfettered access to the courts for the resolution of their disputes.

[15] The Act. The Magnuson-Moss Act indicates that Congress intended to preserve a judicial forum for consumers. The Act provides that "a consumer who is damaged by the failure of a supplier, warrantor, or service contractor to comply with an obligation under this title or under a written warranty, implied warranty, or service contract, may bring suit for damages and other legal and equitable relief." 15 U.S.C.A. ' 2310(d). The Act recognizes only one exception to this entitlement. The Act provides for the establishment of "informal dispute settlement mechanisms," ' 2310(a)(1), or "informal dispute settlement procedures." ' 2310(a)(3). The Act states that "[o]ne or more warrantors may establish an informal dispute settlement procedure," ' 2310(a)(3); and that this procedure must comply with certain "minimum requirements" to be promulgated by the Federal Trade Commission. ' 2310(a)(2). The Act further makes clear, however, that such dispute resolution procedures or mechanisms are non-binding on the consumer and must be resorted to before the consumer may resort to a legal remedy, that is, to court. In other words, the procedures are a prerequisite, not a bar, to relief in court. The Act provides that, if a warrantor "establishes such a procedure," ' 2310(a)(3)(A), and if the procedure meets the Commission's rules, ' 2310(a)(3)(B), and if the warrantor "incorporates in a written warranty a requirement that the consumer resort to such procedure before pursuing any legal remedy," ' 2310(a)(3)(C), "then ... the consumer may not commence a civil action ... unless he initially resorts to such procedure." ' 2310(a). Because the arbitration clauses contained in the installment sales and *1538.

financing contracts between the plaintiffs and Hart's Mobile Home are binding, rather than non-binding, and are thus a bar to court relief, they conflict with the Magnuson-Moss Act and are unenforceable. [FN2]

 

FN2. The court does not reach whether the arbitration clauses in the contracts between the plaintiffs and Hart's Mobile Home comply with the "minimum requirements" now prescribed by the Federal Trade Commission in its regulations.

The court also does not reach the issues of whether the FAA and arbitration agreements in general are unenforceable as to all claims based on the Magnuson-Moss Act. The court concludes only that the ones between the plaintiffs and Hart's Mobile Home are unenforceable by Waverlee.

The Act's Legislative History. A review of the legislative history of the Magnuson-Moss Act reinforces this conclusion. The remarks of Congressman Moss, one of the sponsors of the bill, are particularly illuminating:

"First, the bill provides the consumer with an economically feasible private right of action so that when a warrantor breaches his warranty or service contract obligations, the consumer can have effective redress. Reasonable attorney's fees and expenses are provided for the successful consumer litigant, and the bill is further refined so as to place a minimum extra burden on the courts by requiring as a prerequisite to suit that the purchaser give the [warrantor] reasonable opportunity to settle the dispute out of court, including the use of a fair and formal dispute settlement mechanism...."

119 Cong.Rec. 972 (Jan. 12, 1973) (emphasis added). Congressman Moss therefore made clear that the informal dispute settlement mechanisms or procedures are a "prerequisite," not a bar, to suit in court. The House report on the bill makes this point even clearer. The report states that "An adverse decision in any informal dispute settlement proceeding would not be a bar to a civil action on the warranty involved in the proceeding." H.R.Rep. 93-1107, 93d Cong., 2d Sess. 41, reprinted in 1974 U.S.C.C.A.N. 7702, 7723. [FN3] This history reflects that it was Congress's intent that any non-judicial dispute resolution procedures would be nonbinding, and consumers would always retain the right of final access to court.

 

FN3. The report goes on to say, however, that "the decision reached in any informal dispute settlement procedure relating to any matter considered in such procedure would be admissible in any civil action arising out of a warranty on a consumer product if the procedure complies with the FTC's rules and is incorporated as a part of a written warranty pertaining to consumer products." H.R.Rep. 93-1107, 93d Cong., 2d Sess. 41, reprinted in 1974 U.S.C.C.A.N. 7702, 7723. See infra note 4.

The Regulations. The Federal Trade Commission has adopted a number of regulations pursuant to the Magnuson-Moss Act. These regulations mirror the Act's command that consumers should have full and final access to the courts for resolution of their disputes, with the exception that they could be required to pursue non-binding informal dispute resolution procedures. Under the regulations, a " 'mechanism' means an informal dispute settlement procedure which is incorporated into the terms of a written warranty." 16 C.F.R. ' 703.1. The regulations, ' 703.2, require that a mechanism comply with the "minimum requirements" prescribed by the Federal Trade Commission and contained in 16 C.F.R. '' 703.3 through 703.8. However, in line with the notion that any mechanism established by a warrantor is merely a prerequisite, not a bar, to suit, the regulations further provide that "decisions of the mechanism shall not be legally binding on any person." 16 C.F.R. ' 703.5(j). Moreover, and to bring this point further home, the regulations add that "The mechanism shall inform the consumer ... that ... [i]f he or she is dissatisfied with its decision or warrantor's intended actions, or eventual performance, legal remedies, including use of small claims court, may be pursued." ' 703.5(g). [FN4]

 

FN4. The decision of the mechanism is, however, "admissible in evidence" in court. 16 C.F.R. ' 703.5(g)(2).

History of the Regulations. If there is any remaining doubt that the Magnuson-Moss Act and the regulations promulgated pursuant to it do not allow for binding non-judicial dispute resolution of the type provided in the arbitration clause in the installment *1539 sales and financing contracts between the plaintiffs and Hart's Mobile Home, that doubt is fully dispelled by the history of the regulations. Upon adopting 16 C.F.R. ' 703.5(j) (which states that decisions of the mechanism "shall not be legally binding"), the Federal Trade Commission responded to public comments from industry representatives in favor of binding arbitration by remarking as follows:

"Several industry representatives contended that warrantors should be allowed to require consumers to resort to mechanisms whose decisions would be legally binding (e.g., binding arbitration). The Rule does not allow for this for two reasons. First, ... Congressional intent was that Section 110 Mechanisms not be legally binding. Second, even if binding Mechanisms were contemplated by Section 110 of the Act, the Commission is not prepared, at this point in time, to develop guidelines for a system in which consumers would commit themselves, at the time of product purchase, to resolve any difficulties in a binding, but nonjudicial, proceeding. The Commission is not now convinced that any guidelines which it set out could ensure sufficient protection for consumers against warrantors, even if the Congressional report had not made clear, as it did, that it wished for such mechanisms to not be binding."

40 Fed.Reg. 60168, 60210 (1975). The Commission then goes on to state that "reference within the written warranty to any binding, non-judicial remedy is prohibited by the Rule and the Act." Id. at 60211. [FN5] These comments make clear that binding arbitration, of the kind contained in the contracts between the plaintiffs and Hart's Mobile Home, is not permissible under the regulations promulgated by the Federal Trade Commission.

 

FN5. The Commission makes clear, however, that, after the warrantor and the consumer have pursued the settlement procedures established under the Magnuson-Moss Act, the warrantor may "offer a binding arbitration option" to the consumer. 40 Fed.Reg. 60168, 60211 (1975). But reference to such in the warranty is prohibited. Id.

2.

The parties argue at great length about whether the FAA overrides the Magnuson-Moss Act and whether the Magnuson-Moss Act in fact precludes waiver of judicial remedy for violations of the rights of purchasers. What must be remembered, however, is that the court is not here confronted with a direct conflict between these two statutes. The limited and only issue before the court is whether Waverlee's enforcement of the specific binding arbitration clauses contained in the contracts with Hart's Mobile Home would violate the Magnuson-Moss Act. [FN6]

 

FN6. See supra note 2.

The court is also not presented with a picture pitting the purchaser's right to litigate a breach of seller's warranty against the seller's right to invoke a contractual arbitration clause. In other words, the combatants here are not Hart's Mobile Home and the plaintiffs. Rather, the issue is once removed; it is a cousin issue. Here, because Congress has addressed, in a definitive manner, the availability and scope of nonjudicial remedies for resolution of disputes between warrantors and consumers, it is no surprise, and no oversight, that the Waverlee warranty for the plaintiffs' motor homes makes no mention of alternative mechanisms. Had Waverlee sought to include, in its warranty, the type of absolute bar on judicial remedies it is seeking here, it would have been in clear and direct violation of the Magnuson-Moss Act. Instead, by relying on the installment sales and financing contracts between the plaintiffs and Hart's Mobile Home, Waverlee seeks to do by surrogate or vicarious means what it is forbidden to do on its own behalf. The striking consequence of allowing a manufacturer like Waverlee to piggyback on an arbitration clause in a consumer contract between seller and consumer, limited on its very face to disputes between those signatory parties, would be the complete and utter evisceration of the Magnuson-Moss Act. If Waverlee had third-party standing, or estoppel grounds, for compelling arbitration with a dissatisfied consumer, then every manufacturer, obligated by state and federal law to provide certain warranties for the protection of consumers, merely by introducing its products into the stream of commerce, and *1540 colluding with product retailers to insert broad and all-inclusive arbitration clauses in consumer contracts, would always be able to avoid the strictures and edicts of the Magnuson-Moss Act. The court refuses to extend the law of third-party beneficiary contract rights, or of equitable estoppel, to reach so profoundly inequitable a result under the Act.

 

 

Waverlee at 1540.(emphasis supplied)

 

This rationale has been followed and applied in additional cases. For example in Rhode

 

v. E & T Investments, Inc., 6 F.Supp.2d 1322 (M. D. AL 1998), it was held:

 

[17] Finally, as a further basis for urging the court to deny Defendants' Motion to Compel Arbitration, Plaintiff argues that the Magnuson- Moss Warranty Act and the regulations issued pursuant to the Act by the Federal Trade Commission prevent binding arbitration to be imposed by a seller of goods on a consumer. (Br. in Opp'n at 4 .) Plaintiff relies on Wilson v. Waverlee Homes, 954 F.Supp. 1530 (M.D.Ala.1997), in support of this argument.

 

The Magnuson-Moss Warranty-Trade Commission Improvement Act, 15 U.S.C.A. ' 2301-2312 ("Magnuson-Moss Warranty Act"), was enacted to "improve the adequacy of information available to consumers, [and] prevent deception." Waverlee Homes, 954 F.Supp. at 1537 (quoting 15 U.S.C.A. ' 2302(a)). The Act delineates clear and comprehensive requirements regarding disclosures, duties and remedies associated with warranties on consumer products. Waverlee Homes, 954 F.Supp. at 1537.

 

[18] The FAA's mandate that agreements to arbitrate statutory claims must be enforced may be overridden by a statute evincing a contrary congressional mandate. McMahon, 482 U.S. at 226, 107 S.Ct. 2332. In Waverlee Homes, the court analyzed highly detailed and specific provisions of the Magnuson-Moss Act and concluded that Congress intended to preclude binding arbitration of written or express warranty claims arising under the Act. Waverlee Homes, 954 F.Supp. at 1537-1539. In Boyd v. Homes of Legend, Inc., 981 F.Supp. 1423 (M.D.Ala.1997) (Thompson, J.), however, the court concluded that non- written and implied warranty claims arising under the Magnuson-Moss Act could be subject to arbitration. Boyd, 981 F.Supp. at 1440. Hence, in Boyd, the court ordered arbitration of non-written and implied warranty claims under the Magnuson-Moss Act, Boyd, 981 F.Supp. at 1440, even though it declined to do so for written warranties in Waverlee Homes. Waverlee Homes, 954 F.Supp. at 1537-39. The Eleventh Circuit recently affirmed the court's decision in Waverlee Homes. Wilson v. Waverlee Homes, 127 F.3d 40 (11th Cir.1997). Further, the court finds Boyd to be soundly reasoned and adopts and incorporates the court's conclusions herein. Thus, both Waverlee Homes and Boyd control the court's findings in the matter currently before it.

 

Count IV of Plaintiff's Complaint states a claim for breach of both express and implied warranties under the Magnuson-Moss Warranty Act. (Compl.&& 20-26.) In urging the *1332 court to reject Plaintiff's argument that binding arbitration of Plaintiff's Magnuson-Moss Act warranty claims is precluded, Defendant E & T Investments states that Waverlee Homes is inapplicable, as Defendant E & T has made no written warranties with respect to the mobile home at issue. (Resp. to Pl.'s Opp. to Defs.' Mot. to Compel Arb. at 4.) Indeed, Paragraph 7 of the Installment Contract disclaims all warranties other than those implied warranties that cannot be avoided by law. The paragraph states, in part:

I agree that there are no warranties of any type covering the Manufactured Home. I am buying the Manufactured Home AS IS and WITH ALL FAULTS and THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF THE MANUFACTURED HOME IS WITH ME. I agree that any implied warranty of merchantilibilty and any implied warranty of fitness for a particular purpose are specifically excluded and do not cover the Manufactured Home. This No Warranties provision does not apply to the extent that the law prohibits it and does not cover any separate written warranties.

The court construes Defendants' argument as challenging the merits of Plaintiff's claims against Defendant E & T Investments for breach of express warranty, rather than addressing Plaintiff's argument that binding arbitration of Magnuson-Moss Act claims is precluded. The court finds that a Response to Plaintiff's Opposition to Defendants' Motion to Compel Arbitration is not the appropriate mechanism for challenging the merits of Plaintiff's claims of breach of express warranties. Accordingly, based on the foregoing, the court finds that Defendants' Motion to Compel Arbitration with respect to Plaintiff's claims against Defendant E & T Investments is due to be granted, with the limited exception that Plaintiff is not compelled to arbitrate any claims for breach of written or express warranties she may have against Defendant E & T Investments. [FN6]

 

FN6. The court notes the recent Eleventh Circuit opinion in Paladino v. Avnet Computer Technologies, Inc., 134 F.3d 1054 correctly refused to compel arbitration of plaintiff's Title VII claim pursuant to an arbitration agreement on grounds that the arbitration clause deprived the employee of any prospect for meaningful relief. Paladino, 134 F.3d at 1060.

The court based its holding on the proposition that, when an arbitration clause has provisions that defeat the remedial purpose of the statute, the arbitration clause is unenforceable. Paladino, 134 F.3d at 1062 (citing Cole v. Burns Int'l Sec. Services, 105 F.3d 1465, 1468 (D.C.Cir.1997)). Specifically, the court examined two provisions of the arbitration clause at issue in that case and held that the provisions, read together, made plaintiff's Title VII claims subject to arbitration, yet circumscribed the arbitrator's authority to grant relief for those claims. Id. at 1061. The court found that, by precluding relief for the Title VII claims, these provisions violated the remedial purpose of Title VII, thereby rendering the arbitration clause unenforceable. Id. at 1062.

The court also stated that arbitration would impose a "hefty cost" on the Plaintiff, thereby further violating the remedial purpose of Title VII. Id. The court stated:

The difficulty of obtaining meaningful relief is not, moreover, the only infirmity of this clause. Because [the employer] makes no promises to pay for an arbitrator, employees may be liable for at least half the hefty cost of an arbitration and must, according to the American Arbitration Association rules the clause explicitly adopts, pay steep filing fees (in this case $2000). One circuit has in dicta stated that such "fee-shifting" is a per se basis for nonenforcement. Cole, 105 F.3d at 1484. We consider costs of this magnitude a legitimate basis for a conclusion that the clause does not comport with statutory policy.... [A] clause such as this one that deprives an employee of any hope of meaningful relief, while imposing high costs on the employee, undermines the policies that support Title VII. It is not enforceable.

Paladino, 134 F.3d at 1062.

As the court states, infra, The Magnuson-Moss Act--pursuant to which Plaintiff brings several of his claims--was passed with purpose of improving the adequacy of information to consumers and preventing consumer deception. Congress's overall goal in the Act is to protect consumers from unfair written warranties. Boyd v. Homes of Legend, 981 F.Supp. 1423, 1438 n. 11 (M.D.Ala.1997) (Thompson, J.) Based on the Eleventh Circuit's recent holding, an argument could be made that, by requiring consumers to absorb the costs of arbitration, arbitration provisions incorporating the rules of the American Arbitration Association may, in fact, undermine the statutory policy of the Magnuson-Moss Act, thereby depriving a consumer of meaningful relief of his or her Magnuson-Moss Act warranty claims and rendering the Arbitration Provision unenforceable. Such an assertion, however, would require a detailed and carefully researched analysis of the remedial purposes of the Magnuson-Moss Act and the effect of requiring consumers to pay money, the amount of which must be calculated in accordance with the applicable rules of the American Arbitration Association, in order to effectuate arbitration and obtain meaningful relief. The court explicitly notes that this issue is not raised by the pleadings, and thus is not currently before it. Hence, the court makes no findings to this effect, at this time.

Rhode v. E & T Investments, Inc., 6 F.Supp.2d at 1332 (Emphasis supplied)

 

In the instant case, the plaintiff has asserted claims for breach of express and implied warranties under the Magnuson-Moss Act. The Boyd Court, together with the Wilson court recognized the inherent conflict in allowing mandatary binding arbitration at a cost to a consumer under the FAA and the Magnuson-Moss Act. The Boyd Court, relied upon by defendant Cavalier in its brief stated at footnote 9: AFN9. It is important to note that the court is not now confronted with a claim where a consumer seeks to pursue both written and non-written warranty claims against a warrantor. Therefore, the court need not address the interesting question of whether the Magnuson-Moss Act would restrict binding arbitration of the non-written warranty claim as well, in particular if it were closely related to, or intertwined with, the written warranty claim. Although this issue could have been raised in Waverlee Homes, it was not.@ This Plaintiff presents this issue. This plaintiff makes claims based upon both express written warranties (provided by Cavalier) and implied warranties, made by Cavalier and dealer. These claims may not be compelled to binding arbitration at a cost to the plaintiff.

 

VI. THE ARBITRATION CLAUSES IN ISSUE ARE UNENFORCEABLE BECAUSE THEY ARE UNCONSCIONABLE UNDER GEORGIA LAW

 

O.C.G.A. ' 11-2-302 states:

Unconscionable contract or clause.

(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination.

 

The Uniform Commercial Code and the Georgia UCC, see OCGA ' 11-1-101 et seq., contain no definition of "unconscionability." However Georgia Courts have noted that the basic test for determining unconscionability is

"whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract." Comment 1 to Uniform Commercial Code ' 2-302.

 

 

R.L. Kimsey Cotton Co. v. Ferguson, 233 Ga. 962, 965(3), 214 S.E.2d 360 (1975). The process by which a court reaches the conclusion that a contract provision is unconscionable has been discussed by our appellate courts only in abbreviated and conclusory fashion. E.g., Ga. Magnetic Imaging v. Greene County Hosp. Auth., 219 Ga.App. 502(5), 466 S.E.2d 41 (1995); Fiat Auto U.S.A. v. Hollums, 185 Ga.App. 113(2), 363 S.E.2d 312 (1987); Esquire Mobile Homes v. Arrendale, 182 Ga. App. 528 (1987)(limitation of remedies and warranties unconscionable); Freeman v. Hubco, 253 Ga. 698 (1985)(limitation of remedies and warranties unconscionable). Georgia Courts have looked to foreign authority to assist in resolving this the definition of unconscionability:

It has been recognized that "unconscionability" as set forth in UCC ' 2-302 is "not a concept, but a determination to be made in light of a variety of factors not unifiable into a formula." (Footnote and emphasis deleted.) Vol. 1, White & Summers, Uniform Commercial Code (4th Ed.), ' 4-3, p. 213. See also A & M Produce Co. v. FMC Corp., 135 Cal.App.3d 473, 186 Cal.Rptr. 114, 120 (1982) (unconscionability is "a flexible doctrine designed to allow courts to directly consider numerous [267 Ga. 392] factors which may adulterate the contractual process"). Foreign courts have generally divided the relevant factors into procedural and substantive elements. See UCC-Unconscionability Warranty Disclaimer, 38 A.L.R.4th 25, '' 2, 3(a)(b). Procedural unconscionability addresses the process of making the contract, while substantive unconscionability looks to the contractual terms themselves. Id.; White & Summers, supra. A non-inclusive list of some factors courts have considered in determining whether a contract is procedurally unconscionable includes 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. See, e.g., Fotomat Corp. of Fla. v. Chanda, 464 So.2d 626, 629 (Fla.App. 5 Dist.1985); Wille v. Southwestern Bell Telephone, 219 Kan. 755, 549 P.2d 903, 906-907 (1976) (commercial transaction); Schroeder v. Fageol Motors, 86 Wash.2d 256, 544 P.2d 20, 23 (1975). See also White & Summers, supra, ' 4-3, p. 215, fn. 15. As to the substantive element of unconscionability, courts have focused on matters such as 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. See, e.g., Fotomat Corp. of Fla. v. Chanda, supra, 464 So.2d at 629; A & M Produce Co. v. FMC Corp., supra, 186 Cal.Rptr. at 122 (commercial transaction). See also White & Summers, supra, '' 4-4 through 4-6. We find the procedural-substantive analysis of unconscionability helpful and apply it to the case at bar.

 

 

NEC Technologies, Inc. v. Nelson, 267 Ga. 390 (1996)(emphasis supplied).

Alabama Courts have used the following language in making an unconscionability analysis:

[A] finding that an arbitration clause is an unjust and unreasonable contract of adhesion might be grounds not to enforce the contract under the FAA. Rollins, 991 F.Supp. 1426, 1433 (citing Ex parte Merrill Lynch, Pierce, Fenner & Smith, 494 So.2d 1, 4 (Ala.1986)). Thus, while an arbitration clause in a contract is not unconscionable under Alabama law based merely on the fact that it is contained in a contract of adhesion, a plaintiff may avoid the arbitration clause by showing that the contract meets the elements of unconscionablity under Alabama law. See Rollins, 991 F.Supp. 1426, 1434.

 

[13] Alabama law provides no explicit standard of unconscionablity; rather, the determination is fact specific. Roberson, 954 F.Supp. at 1525 (citing E & W Bldg. Material v. American Savings & Loan Ass'n, 648 F.Supp. 289, 290 (M.D.Ala.1986)). Generally, Alabama courts use the following four factors to determine whether a contract or contractual provision is unconscionable: (1) whether there is an absence of meaningful choice on one party's part; (2) whether contractual terms are unreasonably favorable to one party; (3) whether there was unequal bargaining power among parties; and (4) whether there were oppressive, one-sided, or patently unfair terms in the contract. Rollins, 991 F.Supp. 1426, 1434 (citing Layne v. Garner, 612 So.2d 404, 408 (Ala.1992); Lloyd v. Service Corp., 453 So.2d 735, 739 (Ala.1984); Crestline Center v. Hinton, 567 So.2d 393 (Ala.Civ.App.1990); Advertiser Co. v. Electronic Engineers, 527 So.2d 1317 (Ala.Civ.App.1988)). See also Taylor v. Leedy & Co., Inc., 412 So.2d 763, 765-66 (Ala.1982); Ala.Code 1975, ' 5-19-16.

 

[14][15] The court, examining an arbitration clause in light of these factors, must determine whether the arbitration clause is so unfavorable that it would not have been reasonable for the party seeking to avoid it to have knowingly accepted the clause, given any reasonable choice, and whether the plaintiff cannot obtain through arbitration the very same relief that would be otherwise available in a court action. Rollins, 991 F.Supp. 1426, 1434 (quoting Roberson, 954 F.Supp. at 1525). Further, a party may show that an arbitration provision is oppressive and one-sided, and therefore unconscionable, where the party who is in an inferior bargaining position is compelled to assert his or her claims in arbitration so as to preclude a remedy in a less expensive public fora, and the costs of arbitral forum render party unable to pursue his or her claim. See Rollins, 991 F.Supp. 1426, 1434-35. In addition, a party may avoid arbitration by asserting a "well-supported claim [ ] that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds 'for the revocation of any contract.' " Gilmer, 500 U.S. at 33, 111 S.Ct. 1647 (quoting Mitsubishi, 473 U.S. at 627, 105 S.Ct. 3346).

 

 

Rhode v. E & T Investments, Inc., 6 F.Supp.2d 1322 (M. D. AL 1998).

 

The arbitration provisions in this case are both procedurally and substantively unconscionable for the following reasons:

A) The arbitration provisions are inextricably intertwined with a waiver of jury trial which is not allowed pursuant to Georgia law. Georgia law disfavors arbitration provisions in the consumer purchase of goods context.

 

B) The provision in question is violative of the Magnuson-Moss Federal Warranty Act 15 U.S.C. '2301 et seq and 16 C.F.R. '703.2 in that it mandates binding arbitration at consumer expense when the Magnuson Moss Act and FTC regulations prohibits arbitration 1) binding on the consumer; and 2) at a cost to the consumer in warranty disputes.

 

C) The provision in question is so one sided in favor of the seller and the creditor as to lack mutuality and be oppressive or unfairly surprising to a party.

 

i) The Cost of arbitration is excessive. More particularly, there is no disclosure that the filing fees for commercial arbitration with the American Arbitration Association (hereinafter AAA) are in excess of $1250.00 and that additional fees for the arbitrator are assessed. The AAA fee schedule includes a minimum non refundable filing fee of $1,250.00 in cased where the amount in controversy is between $50,000.00 and $100,000.00. For each day of hearing, there is an additional fee of $150.00 payable by each party. There is an additional fee for hearing room rental. See rules of commercial arbitration attached hereto. These fees are excessive for the plaintiff who has limited income and who is obligated to make monthly payments of $501.00 to Greentree.

Additionally, the arbitration clause relied upon by defendant Cavalier seeks to require the plaintiff to travel to defendant=s location in Alabama and require arbitration before a retired judge or practicing attorney. The AAA fee schedule does not include these additional items of expense of arbitration.

Cases have held that the expense of arbitration may make the arbitration clause that would otherwise be enforceable unconscionable. Boyd v. Homes of Legend cited by defendant Cavalier recognized that:

the challenge based upon inequality of economic power is a potentially potent one in the context of the Magnuson-Moss Act, given that its legislative history provides a clear indication that the disparity of bargaining power between consumers and warrantors was in the front of Congress's mind when it enacted the legislation. For instance, the report accompanying the Senate version of legislation stated:

"For many years warranties have confused and misled the American consumer. A warranty is a complicated legal document whose full essence lies buried in myriads of reported legal decisions and in complicated State codes of commercial law. The consumer's understanding of what a warranty on a particular product means to him frequently does not coincide with the legal meaning.... Typically, a consumer today cannot bargain with consumer product manufacturers or suppliers to obtain a warranty or to adjust the terms of a warranty voluntarily offered. Since almost all consumer products sold today are typically done so with a contract of adhesion, there is no bargaining over contractual terms."

S. Rep. 93-151, 93d Cong., 1st Sess., quoted in 40 Fed.Reg. 60168 (1975).

For example Rollins v. Foster, 991 F.Supp. 1426, 1434 (M.D.Ala.1998) stated that arbitration clauses may be unconscinable where the cost of arbitration was excessive. The court, examining an arbitration clause in light of these factors, must determine whether the arbitration clause is so unfavorable that it would not have been reasonable for the party seeking to avoid it to have knowingly accepted the clause, given any reasonable choice, and whether the plaintiff cannot obtain through arbitration the very same relief that would be otherwise available in a court action. Rollins, 991 F.Supp. 1426, 1434. Further, a party may show that an arbitration provision is oppressive and one-sided, and therefore unconscionable, where the party who is in an inferior bargaining position is compelled to assert his or her claims in arbitration so as to preclude a remedy in a less expensive public fora, and the costs of arbitral forum render party unable to pursue his or her claim. See Rollins, 991 F.Supp. 1426, 1434-35. In addition, a party may avoid arbitration by asserting a "well-supported claim [ ] that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds 'for the revocation of any contract.' " Gilmer, 500 U.S. at 33, 111 S.Ct. 1647 (quoting Mitsubishi, 473 U.S. at 627, 105 S.Ct. 3346). There, the court stated that the customer must show that the arbitration clause itself was unconscionable. The Court considered factors such as inability to afford arbitration. Id. at 1434. Considering the evidence presented there, the Court found there was no showing of unconscionability because that Plaintiff merely alleged that the arbitration costs ran to several thousand dollars a day and were prohibitive when compared to filing fee of $139 for civil suit in state court, yet did not present a full picture of her financial condition, give specific information about an arbitrator's fees, or allege difficulties in obtaining counsel for arbitration--all of which the court found were relevant to showing that she was effectively precluded from pursuing her claims through arbitration. Id. at 1438. In short, the court found that the plaintiff failed to provide the necessary evidentiary material to support the conclusion that the she was without recourse in any forum because she could not afford the costs of arbitration. Id. at 1437.

Contrary to that case, plaintiff has made specific showing of the costs of arbitration pursuant to AAA rules of commercial arbitration and showed he cannot afford that relief. This case is more akin to Myers v. Terminix, No. CI97-1797, Court of Common Pleas of Ohio, Decided Jan. 27, 1998. which is attached hereto where the Court states:

The parties do not dispute that the arbitration clause requires that Myers's

claims be "conducted in accordance with the Commercial Arbitration Rules

[now] in force of the American Arbitration Association ['AAA']." (Paragraph

10 of the contract.) The parties also do not dispute that a party making a

claim for arbitration with the AAA must pay a nonrefundable filing fee.

Myers asserts that because she is asserting a punitive damages claim

in the amount of $2,000,000, she would be required to pay a $7,000 filing

fee. Even if Myers should choose to forgo her optimistic punitive damages

claim, she still has a facially more reasonable claim for treble damages

based on the Consumer Sales Practices Act. In this case, because her claimed

property damage exceeds $41,000, her potential treble award would be over

$120,000; the nonrefundable filing fee on that amount would be $2,000. Thus,

her filing fee for arbitration would exceed the amount that she paid on the

contract by thirty- three percent. Myers asserts that she did know at the

time of contracting that she would be required to pay an arbitration filing

fee and that she did not know that the fee would be so high. (Myers

Affidavit, paragraph 3.)

There is no dispute that Myers was unaware of the undisclosed arbitration requirements. Such exorbitant filing fees, "agreed to" unknowingly, would prevent a consumer of limited resources from having an impartial third party review his or her complaint against a business-savvy commercial entity. Therefore, the court finds that the undisclosed filing fee requirement in this case is so one-sided as to oppress and unfairly surprise Myers. Thus, the court finds that the clause is properly revocable. Doctor's Assoc., Inc., 517 U.S. at 686-688, 116 S.Ct. at 1656, 134 L.Ed.2d at 908-909; Smith v. Ohio State Home Serv., Inc., supra. Accordingly, the court finds that the arbitration clause is unenforceable in this case.

 

See case attached.

 

ii) The arbitration Aagreement@ lacks mutuality. Further the arbitration Aagreements@ lack mutuality as defendants reserve the right to bring judicial action against plaintiff including the right to seek foreclosure, seek money judgment, or to enforce the security agreement. At the same time, plaintiff is precluded from seeking any counterclaim against the defendants. The net effect it to bind the plaintiff/buyer/debtor to arbitration while reserving to the defendants and creditor Greentree the right to foreclose, maintain a lawsuit and the consumer is precluded from even filing a counterclaim. Northcom, stands for the proposition that, under these circumstances, where a very sophisticated creditor/seller deals with a relatively unsophisticated consumer, there must be mutuality of rmedy for any arbitration clause to enforceable. Northcom at 1138.

 

D) The provisions in question were foisted upon plaintiff in a contract of adhesion presented to plaintiff after negotiation of price as a take it or leave it option and without an opportunity for bargaining about, or even an opportunity to review, the terms contained in the contract. Plaintiff is an unsophisticated consumer not a commercial enterprise. Plaintiff does not have the resources to have an attorney minutely scrutinize the terms of the documents piled in front of him for signature. The arbitrations agreements herein are not conspicuous and easily comprehensible by the average consumer. The contract is a standard form contract prepared by defendants and does not allow the plaintiff to bargain as to any of its terms. Strickland v. GMAC, 578 So. 2d 1275 (Ala 1991). The terms are not negotiable and if the consumer is to buy the mobile home, the consumer is required to use the pre-printed and non-negotiable forms. The Alabama courts have held that whether a contract is a contract of adhesion is a significant factor to be considered in making a ruling on a motion to compel arbitration. Northcom Ltd v. James, 694 So.2d 1329 (Ala 1997) granted a motion to compel arbitration between sophisticated commercial parties. However the Court pointed out that both parties were represented by counsel and had an opportunity to negotiate terms. Here there is no such evidence.

 

E) AThe jury waiver provision is buried in paragraph [fourteen] in a contract containing [fourteen] paragraphs; the equality of the bargaining power of the parties is questionable; and it does not appear that the waiver by [Crawford] was intelligently or knowingly made.@ Gaylord Dept. Stores of Alabama, Inc. v. Stephens, 404 So.2d 586, 588 (Ala. 1981); Ex parte Bentford, 1998 WL 398070 (Ala.). Plaintiff was not ever provided with a copy of the alleged arbitration agreement with Cavalier until he asserted his legal rights against it. As sated by Justice Kennedy writing for the Alabama Supreme Court in Ex Parte Bentford, 1998 WL 398070 (Ala released July 17, 1998):

It would be fundamentally unjust for this court to articulate a standard whereby the citizens of this state, when entering contracts, would be require to leap from document to document searching for provisions that, amongst the fine print and voluminous documentation, might operate to deprive them of their fundamental rights with out their acknowledged assent.

 

F) Most arbitration clauses limit or eliminate the ability of the parties to conduct extensive discovery. Since many, if not most, consumer cases turn on documents and information solely in the possession of the Defendant, the inability to conduct discovery severely hampers the ability of the Plaintiff to prove her case. Defendants can withhold key documents and witnesses from examination by the Plaintiff and effectively deny the Plaintiff access to the proof needed to support her claims. For example, in this case, since plaintiff denied that warranty repairs were made or made timely, it will be essential to plaintiffs claims to discover records regarding the warranty claims made to Cavalier and Cavalier=s ability to timely comply with its warranty obligations. This information will not be available to plaintiff without compulsory discovery.

As the Alabama Supreme Court noted in Allstar Homes d/b/a Best Value Mobile Homes v. Waters, No. 1951955, 1997 WL 723103 (Ala., Nov. 21, 1997):

Although we do not address the full implications of waiving one's right to a trial by jury in favor of arbitration of disputes, we do point out that the due process safeguards found in judicial proceedings are largely absent in arbitration. The reputed informality and the relative speediness of an arbitration procedure are achieved by severely limiting discovery; imposing few evidentiary rules; giving the arbitrator almost unbridled discretion to make decisions without basing them on established principles of law or making written findings to support the arbitrator's conclusions; and providing virtually no right of appeal in the case of error in the arbitrator's decision.

1997 WL 723103 at *6 n. I;

 

 

G) The Magnuson-Moss Act does not allow the compulsion of binding arbitration in transactions such as the one between plaintiff, and defendants. In Wilson v. Waverlee Homes, Inc., 954 F. Supp. (M.D. Alabama, 1997) aff'd, 127 F3d 40 (11th Cir. 1997) the District Court held that "with the exception of an informal and non-binding dispute resolution mechanism regulated and defined under the Magnuson-Moss Act, the consumers are to retain in full and unfettered access to the courts for the resolution of their disputes." The Waverlee Homes Court held that requiring plaintiffs to submit to binding rather than non-binding arbitration is contrary to the Magnuson-Moss act 15 U.S.C. 2301.et sec. Because the arbitration clause contained in the installment sales and financing contracts between the Plaintiffs and Defendants is binding, rather than non-binding, and is thus a bar to court relief, it conflicts with the Magnuson-Moss Act and is unenforceable. Waverlee Homes, supra;

 

H) HUD regulations at 24 C.F.R. ' 3282.252 prohibit dealers from selling manufactured homes unless the dealer does not know that manufactured home fails to conform to applicable standards. This prohibition continues under '3282.252(b) until the home is properly installed. As outlined in the complaint, this home has never been properly installed as the dealer agreed to perform set up;

 

I) The manufacturer=s warranty may be void if the manufactured home is not set up properly. The dealer=s attempts to avoid implied warranties or limit liability should not be allowed where the failure of the remedy is caused by its own conduct.

 

J) As shown in h) and i) above, the mass of documents in this case attempt to exclude virtually all rights and remedies of the plaintiff at the same time he is obligated to pay to Greentree and Results Oriented over $195,000.00. For example Results attempts to exclude all warranties, limiting any obligation with regard to the manufacturer. Retail Sale Contract & 7, Exhibit B to Complaint. Results also seeks to exclude warranties and remedies in the buyer=s order and it seeks to limit its liability in the event the manufacturer fails to perform. Buyer=s Order, Exhibit A to Complaint. On the other hand Cavalier seeks to exclude warranties, limit remedies and void any responsibility in the event the dealer has not properly set up the home. See Cavalier warranty, Exhibit D Plaintiff=s Complaint. In the instant case, dealer claims he has properly set up the home although plaintiff contends he has not. In a very real sense, the plaintiff is on the hook for over $195,000.00 despite the fact that the various defendants have attempted to exclude all responsibility in a circuitous Aits not our fault@ trail of legal jargon.

 

K) Plaintiff has made allegations of fraud in the inducement of the subject agreements on the part of Cavalier and Results. See Plaintiff=s Complaint Count 8,&&73-77. Public policy prohibits enforcement of an arbitration provision which would allow persons signing or relying on them to commit intentional torts against one another, which torts are outside the scope of their contemplated dealings, without concern that they might have to answer for their actions before a jury of their peers. Ex parte Discount Food, 711 S. 2d 992 (Al 1998). Further. O.C.G.A. ' 9-9-2(c)(6) provides that arbitration provisions in contract for the sale of goods are unenforceable under the Georgia Arbitration Act.

 

CONCLUSION

As previously discussed, the arbitration provisions used in these adhesive consumer contracts are unenforceable because they are illegal and because they are unconscionable because plaintiff did not knowingly and willingly agree to submit to arbitration. The contract is one of adhesion, there is a gross lack of mutuality of remedy, there is a divergence of the relative sophistication of the parties, there is a particularly onerous and one sided arbitration provision requiring financial hardship on plaintiff, and which arbitration provision is binding on the consumer in violation of the Magnuson-Moss Act, and there is an allegation of intentional torts of fraud in the inducement. The plaintiff should not be compelled to arbitrate this consumer case.

WHEREFORE, plaintiff prays:

a) that the attempted limitation of remedies and exclusions of warranties be found ineffective or unenforceable;

b) that the Court conduct a hearing into the merits of this matter including receiving evidence as to the unconscionability of the arbitration Aagreements=;

c) that he be awarded such further relief as he is entitled to under the statutes cited above; and

d) for such other and further legal and applicable relief as he may entitled to under the premises.

Respectfully Submitted,

 

LAW OFFICES OF T. MICHAEL FLINN

 

 

 

___________________________________

402 Tanner Street T. Michael Flinn

Carrollton, GA 30117 Attorney at Law

(770) 832-0300 Georgia State Bar No. 264530

CERTIFICATE OF SERVICE

 

I, T. Michael Flinn, have this day served a true and correct copy of the within and foregoing PLAINTIFF'S RESPONSE TO GREENTREE MOTION on defendants by depositing a copy of same in the US Mail with sufficient postage thereon to assure proper dielvery addressed to:

 

Cavalier Homes of Alabama, Inc.,

Ian Rapaport

CHAMBER, MABRY, MCCLELLAND & BROOKS

2200 Century Parkway NE

Suite 825

Atlanta, Ga 30345-3105

 

Results Oriented d/b/a Assured Housing

Larry Iman, reg agent

1716 Nordic Trace

Marietta GA

 

Greentree Financial Servicing

KENNEY & SOLOMON

Thomas S. Kenney

Suite 110

3675 Crestwood Parkway

Duluth, GA 33096

 

This ____ day of ________________, 19____.

 

LAW OFFICES OF T. MICHAEL FLINN

 

 

 

____________________________________

T. Michael Flinn

Attorney at Law

Georgia State Bar No. 264530

 

402 Tanner Street

Carrollton, GA 30117

(770) 832-0300

MYERS

 

v.

 

TERMINIX INTERNATIONAL COMPANY et al. [FN*]

 

FN* Reporter's Note: This case has been settled by the parties.

 

 

No. CI97-1797.

 

Court of Common Pleas of Ohio,

 

Lucas County.

 

Decided Jan. 27, 1998.

 

Homeowner brought action against exterminator in which she asserted contract

and warranty claims. Exterminator moved to stay pending arbitration, and

homeowner moved for summary judgment. The Court of Common Pleas, Charles J.

Doneghy, J., held that arbitration clause in contractual agreement was

rendered unconscionable, and thus unenforceable, by requirement that

homeowner pay nonrefundable arbitration filing fee, which could range from

$750 to $2,000.

 

Defendant's motion denied, and plaintiff's motion granted.

 

CHARLES J. DONEGHY, Judge.

 

This consumer sales case is before the court on the defendants' [FN1] motion

to stay this action pending arbitration and on the plaintiff's motion for

partial summary judgment. Upon review of the pleadings, evidence, memoranda

of the parties, and applicable law, the court finds that the defendants'

motion should be denied and the plaintiff's motion should be granted.

 

 

FN1. The defendants in this case are Terminix International Company and two

of its agents, Sam Scamardo and Eugene Gauthreaux, Jr.

 

I. FACTS

 

On or about September 8, 1993, the plaintiff, Judy Myers, and defendant

Terminix International Company ("Terminix") entered into a contract that was

captioned "Termite Service Plan" ("the contract"). The main purpose of the

contract was for Terminix to inspect for and eradicate termites that were

parasitically living in Myers's home. Myers agreed to pay Terminix over

$1,300 on the contract. Myers and Terminix subsequently entered into one or

more annual "renewal" contracts that provided for further inspections and

insecticide treatments if necessary. Myers agreed to pay $85 for each

renewal. At paragraph 10, on the backside of the one-page contract, the

document provided for the arbitration of disputes between the parties. In

relevant part, the contract's arbitration clause reads as follows:

 

 

 

"10. ARBITRATION. The Purchaser and Terminix agree that any controversy or

claim between them arising out of or relating to this agreement shall be

settled exclusively by arbitration. Such arbitration shall be conducted in

accordance with the Commercial Arbitration Rules then in force of the

American Arbitration Association. * * *"

 

Myers became dissatisfied with Terminix's service when termites reinfested

her home and allegedly caused significant damage. She contends that the

termites caused more than $41,000 in damage to her home.

 

On January 22, 1997, Myers brought this action alleging that the defendants

(1) breached the contract (count I); (2) violated **279 provisions of the

Ohio Consumer Sales Practices Act, R.C. Chapter 1345 (count II); (3)

negligently, recklessly, and intentionally breached duties to exercise

reasonable care to provide goods and services under the contract (count

III); (4) breached warranties, representations, guarantees, and/or promises

owed and/or made to Myers (count IV); (5) are legally and equitably estopped

from denying representations made to Myers (count V); and (6) placed limits

on the remedies allowed in the contract and upon *44 warranties, guarantees,

and damages that are unconscionable and unenforceable (count VI).

 

Pursuant to R.C. Chapter 2711 ("the Ohio Arbitration Act") and Section 2,

Title 9, U.S.Code ("the Federal Arbitration Act"), the defendants seek to

stay this action and to compel arbitration. Myers opposes the defendants'

motion and seeks a partial summary judgment declaring that the arbitration

clause is void and unenforceable.

 

II. STANDARDS OF REVIEW

 

A. SUMMARY JUDGMENT STANDARD

 

The general rules governing motions for summary judgment filed pursuant to

Civ.R. 56 are well established. In Harless v. Willis Day Warehousing Co.

(1978), 54 Ohio St.2d 64, 66, 8 O.O.3d 73, 74, 375 N.E.2d 46, 47, the

Supreme Court of Ohio stated the requirements that must be met before a

Civ.R. 56 motion for summary judgment can be granted:

 

"The appositeness of rendering a summary judgment hinges upon the tripartite

demonstration: (1) that there is no genuine issue as to any material fact;

(2) that the moving party is entitled to judgment as a matter of law; and

(3) that reasonable minds can come to but one conclusion, and that

conclusion is adverse to the party against whom the motion for summary

judgment is made, who is entitled to have the evidence construed most

strongly in his favor.

 

"The burden of showing that no genuine issue exists as to any material fact

falls upon the moving party in requesting a summary judgment."

 

B. MOTION TO STAY ACTION PENDING ARBITRATION

 

Both federal and Ohio public policy favor and encourage resolution of

disputes through arbitration. Southland Corp. v. Keating (1984), 465 U.S. 1,

10, 104 S.Ct. 852, 858, 79 L.Ed.2d 1, 11-12; Lake Cty. Bd. of Mental

Retardation & Dev. Disabilities v. Professional Assn. for the Teaching of

the Mentally Retarded (1994), 71 Ohio St.3d 15, 17, 641 N.E.2d 180, 181-182.

Many provisions of the Federal and the Ohio Arbitration Acts are similar.

The relevant portion of the Federal Arbitration Act, at Section 2, Title 9,

U.S.Code, reads as follows:

 

"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, or the refusal to perform the whole or any

part thereof, or an agreement in writing to submit to arbitration an

existing controversy arising out of such a contract, transaction, or

refusal, shall be valid, irrevocable, *45 and enforceable, save upon such

grounds as exist at law or in equity for the revocation of any contract."

(Emphasis added.)

 

The United States Supreme Court has interpreted this statute as requiring

federal and state courts to stay actions addressing claims involving

arbitration clauses until arbitration of the disputes is completed. See

Southland Corp., 465 U.S. at 16-17, 104 S.Ct. at 861-862, 79 L.Ed.2d at 15-

16.

 

The relevant portion of the Ohio Arbitration Act, at R.C. 2711.01, provides

as follows:

 

"A provision in any written contract [providing for arbitration of a

dispute] shall be valid, irrevocable, and enforceable, except upon grounds

that exist at law or in equity for the revocation of any contract."

(Emphasis added.)

 

R.C. 2711.02 provides for a stay of court actions pending arbitration.

Bellaire Bd. of Edn. v. Paxton (1979), 59 Ohio St.2d 65, 13 O.O.3d 58, 391

N.E.2d 1021, syllabus. Thus, according to both the Federal and the Ohio

Arbitration Acts, courts must enforce an arbitration clause unless the

arbitration clause could be revoked upon grounds as **280 exist at law or in

equity for the revocation of any contract. Doctor's Assoc., Inc. v.

Casarotto (1996), 517 U.S. 681, 684-686, 116 S.Ct. 1652, 1655, 134 L.Ed.2d

902, 907-908 (the federal Act); Zalecki v. Terminix Internatl., Inc. (Feb.

23, 1996), Lucas App. No. L-95-156, unreported, 1996 WL 76052 (the Ohio

Act); Smith v. Ohio State Home Serv., Inc. (May 25, 1994), Summit App. No.

16441, unreported, 1994 WL 200801 (the Ohio Act). Even arbitration clauses

in consumer contracts generally are enforceable. See Southland Corp., 465

U.S. at 16-17, 104 S.Ct. at 861-862, 79 L.Ed.2d at 15-16; Smith v. Ohio

State Home Serv., Inc., supra.

 

III. DISCUSSION

 

In its motion to stay, Terminix argues that, pursuant to either the federal

or the Ohio Arbitration Acts, it is entitled to an order by this court

staying these proceedings. In opposition, Myers submits her motion for

partial summary judgment in which she seeks a declaration that the

arbitration clause in the contract is not enforceable for two reasons.

First, she argues that the result reached by the Sixth Appellate District,

in Zalecki v. Terminix Internatl., Inc., supra, indicates that arbitration

is not mandated in this case. The Zalecki court held that an arbitration

clause contained in a Terminix "Termite Service Plan" was not enforceable

against Zalecki because his claims, based on the Ohio Consumer Sales

Practices Act, arose before the parties in that case executed the contract.

Therefore, according to the court, Zalecki's claims did not "aris[e] out of

the contract" and, thus, an arbitration panel had no authority to decide the

applicability to the Consumer Sales Practices Act to his claim. However,

this *46 court finds that Zalecki is properly distinguishable because that

case did not involve application of the Federal Arbitration Act.

Additionally, unlike the instant case, which involves breach of contract and

related claims based on warranties and guarantees, Zalecki's case raised no

claims based solely on the contract between the parties. Accordingly, the

court finds that Myers's argument based on Zalecki is not well taken.

 

Second, Myers argues that the contract's arbitration clause is not

enforceable because it is unconscionable and, thus, properly revocable. Both

the federal and the Ohio Arbitration Acts contemplate that "applicable

contract defenses, such as fraud, duress or unconscionability, may be

applied to invalidate arbitration agreements without contravening [the

federal Act]." (Emphasis added.) Doctor's Assoc., Inc., 517 U.S. at 687, 116

S.Ct. at 1656, 134 L.Ed.2d at 909. See, also, Smith v. Ohio State Home

Serv., Inc., supra (addressing unconscionability).

 

The parties do not dispute that the arbitration clause requires that Myers's

claims be "conducted in accordance with the Commercial Arbitration Rules

[now] in force of the American Arbitration Association ['AAA']." (Paragraph

10 of the contract.) The parties also do not dispute that a party making a

claim for arbitration with the AAA must pay a nonrefundable filing fee.

[FN2] Myers asserts that because she is asserting a punitive damages claim

in the amount of $2,000,000, she would be required to pay a $7,000 filing

fee. Even if Myers should choose to forgo her optimistic punitive damages

claim, she still has a facially more reasonable claim for treble damages

based on the Consumer Sales Practices Act. In this case, because her claimed

property damage exceeds $41,000, her potential treble award would be over

$120,000; the nonrefundable filing fee on that amount would be $2,000. Thus,

her filing fee for arbitration would exceed the amount that she paid on the

contract by thirty- three percent. Myers asserts that she did know at the

time of contracting that she would be required to pay an arbitration filing

fee and that she did not know that the fee would be so high. (Myers

Affidavit, paragraph 3.)

 

FN2. For a claim between $10,000 and $50,000, the party filing must pay

$750; for a claim between $100,000 and $250,000, the party filing must pay

$2,000; and for a claim between $100,000 and $250,000, the party filing must

pay $7,000. (Exhibit G3 to Ms. Myers' Memorandum in Opposition to Stay.)

 

In Ohio, "[t]he basic test of unconscionability of contract is whether under

circumstances existing at the time of making of **281 the contract and in

light of general commercial background and commercial needs of a particular

trade or case, the clauses involved are so one-sided as to oppress or

unfairly surprise [a] *47 party." (Emphasis added; citations and quotations

omitted.) Neubrander v. Dean Witter (1992), 81 Ohio App.3d 308, 311-312, 610

N.E.2d 1089, 1091. See, also, Orlett v. Suburban Propane (1989), 54 Ohio

App.3d 127, 129, 561 N.E.2d 1066, 1069-1070. There is no dispute that Myers

was unaware of the undisclosed arbitration requirements. Such exorbitant

filing fees, "agreed to" unknowingly, would prevent a consumer of limited

resources from having an impartial third party review his or her complaint

against a business-savvy commercial entity. Therefore, the court finds that

the undisclosed filing fee requirement in this case is so one-sided as to

oppress and unfairly surprise Myers. Thus, the court finds that the clause

is properly revocable. Doctor's Assoc., Inc., 517 U.S. at 686-688, 116 S.Ct.

at 1656, 134 L.Ed.2d at 908-909; Smith v. Ohio State Home Serv., Inc.,

supra. Accordingly, the court finds that the arbitration clause is

unenforceable in this case. The court shall, therefore, deny Terminix's

motion for stay and grant Myers's motion for partial summary judgment. [FN3]

 

FN3. The court finds that Terminix's argument, that Myers's motion calls

upon the court to issue an advisory opinion, is without merit. In her

complaint, Myers properly asserted a claim for a declaration that portions

of the contract (of which the arbitration clause is one) are unenforceable.

Thus, judgment on that issue is plainly not an advisory opinion because,

although not a final appealable order at this juncture, the judgment is

appealable at the conclusion of this case. The case of N. Canton v.

Hutchinson (1996), 75 Ohio St.3d 112, 114, 661 N.E.2d 1000, 1001-1002, is

distinguishable.

 

JUDGMENT ENTRY

 

It is ORDERED that the defendants' motion for stay is denied. It is further

ORDERED that the plaintiff's motion for partial summary judgment is granted.

It is further ORDERED and DECLARED that the arbitration clause at issue is

not enforceable under the facts of the case.

 

Judgment accordingly.

 

IN THE STATE COURT OF CARROLL COUNTY

STATE OF GEORGIA

 

RAY MARLIN CRAWFORD, :

-vs- : CIVIL ACTION FILE NO.98 V 641 :

CAVALIER HOMES OF ALABAMA, INC., :

and :

GREEN TREE FINANCIAL SERVICING :

CORPORATION, :

Defendants. :

 

 

AFFIDAVIT OF RAY MARLIN CRAWFORD IN SUPPORT OF PLAINTIFF=S RESPONSE TO DEFENDANTS= MOTIONS TO STAY AND COMPEL ARBITRATION

 

Now comes before the undersigned authority for administering oaths, RAY MARLIN CRAWFORD, who upon being duly sword deposes as follows:

My name is Ray Marlin Crawford. I am the plaintiff in the above referenced case, I am sui juris, and I am over the age of eighteen. I am making this affidavit based upon my personal knowledge.

My wife and I began to look at new mobile homes shortly prior to the purchase of the subject mobile home. We visited the lot where this home was located and were assisted by a Michael Hamm. Michael Hamm and I discussed different mobile homes and we looked at several mobile homes. I looked at some mobile homes that were set up what I would call fully-that is, they were properly leveled and the two halves of the double wides matched and the carpet was set up. We also looked at mobile homes that were not set up properly, that is the two halves were not matched you had to watch your step when stepping between the two halves or the carpet was folded back over the marriage point, including the subject mobile home. Michael Hamm and I discussed prison ministries. We left without making a decision.

We returned to the sales lot and were again assisted by Hamm several days later. Hamm again showed us the subject home, told us about Cavalier, claimed they made well constructed homes with good quality materials and construction. He told us there was a warranty on the homes.

When we asked to speak about numbers for the purchase, we spoke to a man we believe to be the owner of the lot. We discussed the purchase price of the home and the a trade in. I advised this man, who may have been Mr. Iman, I could not pay more than $500.00 per month. Mr. Iman wanted to come and look at my trade in. He later did come and look at the trade in and I visited the lot yet again. Mr. Iman told me he could not get the payment to less than $500.00 per month. I told him I could not afford to pay more. Mr. Iman told me he would give me more for the trade in ( which was fairly valued at about $2,000.00) and charge more for the home. Therefore, it would appear that I was making a larger down payment and I could get more favorable financing terms and get the payments to $500.00 per month. I took some more time to think about this.

We returned to the lot yet again and told them we were ready to buy this home. Don Gilbert assisted us this time. Don Gilbert left us and went to prepare documents. He called us in to an office to sign paperwork and had a stack of documents approximately 1 inch thick. I kind of joked ADo I have to sign all that?@. Mr. Gilbert said AOh, its just standard documents we have in the sale of all mobile homes.@ Mr. Gilbert never mentioned to me any limitations or exclusions of warranties. He did not tell me the documents required that I waive a jury trial or submit any dispute with any party to mandatory binding arbitration at my expense before a retired judge or practicing attorney in the State of Alabama. I certainly would not have agreed to waiving my legal rights had I known that such was in the documents. Mr. Gilbert placed the documents on a desk and flipped through them indicating by pointing where I was to sign or initial. I have nor recollection of the number of documents that I signed. I signed or initialed where I was told by Mr. Gilbert.

While I can read, I am not a sophisticated business man and even today, after having many hours to pore over the documents, I do not understand all the language in them. I do not know that I ever received copies of the documents I signed because I did not have a copy of the Aacknowledgment and agreement@ form that was sent to my attorney by Mr. Lowe from Cavalier in my paperwork in my possession where we kept all the documents given to us.

I cannot afford the arbitration fees attached to the motion from the American Arbitration Association. I cannot afford to pay $2000.00 for an arbitration and to continue to make $500.00 per month payments on my home. My attorney has agreed to take my case on in the hopes that he can collect attorney=s fees when we win. It seems to me that if Cavalier and them truly wanted to arbitrate the case they would offer to pay the expense of it. Even if they would pay for arbitration though, I would still feel more comfortable having a judge and jury decide my case.

My home has NEVER been properly set up so that the two halves matched evenly. Mr. Gilbert did send persons out to attempt to do this but they discovered that it could not be done. The one time that Cavalier did finally send a repair person I met him as I came home and it was dark. He asked me to sign his form and left. I then discovered he had not performed the work he claimed.

FURTHER AFFIANT SAITH NOT.

_______________________________

Ray M. Crawford

Sworn to and subscribed this ___ day of

January, 1999.

__________________________________

Notary Public

My Commission Expires ___/___/___

 

IN THE STATE COURT OF CARROLL COUNTY

STATE OF GEORGIA

RAY MARLIN CRAWFORD, :

:

Plaintiff, :

:

-vs- : CIVIL ACTION FILE NO. 98 V 641 :

CAVALIER HOMES OF ALABAMA, INC., :

 

GREEN TREE FINANCIAL SERVICING :

:

Defendants. :

 

PLAINTIFF=S SUPPLEMENTAL RESPONSE TO DEFENDANTS= MOTIONS TO STAY AND COMPEL ARBITRATION

 

Comes now RAY MARLIN CRAWFORD, Plaintiff in the above styled case, and supplements his response to Defendants= Motions To Stay, and shows this court the following:

ARGUMENT AND CITATION OF AUTHORITY

Defendants have argued that the only basis for review of the arbitration clauses in this case by the Court is fraud in the inducement of the arbitration clause itself. Such an argument would forestall the specific language of ' 2 of the FAA which allows courts to give relief where the party opposing arbitration presents "well supported claims that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds 'for the revocation of any contract.' " Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 483-84, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989) (quoting Mitsubishi Motors, 473 U.S. at 627, 105 S.Ct. 3346; 9 U.S.C.A. S 2). Thus, ' 2 "gives States ... method[s] for protecting consumers against unfair pressure to agree to a contract with an unwarranted arbitration provision" both in equity and under principles of contract law. Allied-Bruce Terminix v. Dobson, 513 U.S. 265, 281, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). Generally applicable contract defenses, such as fraud, duress or unconscionability, may be applied to invalidate arbitration agreements without contravening '2, but courts may not invalidate arbitration agreements under state laws applicable only to arbitration. Doctor's Associates, Inc., et al. v. Casarotto et ux., 517 U.S. 681 (1996)(citations omitted) Doctor=s Associates relied upon by plaintiff, and Prima Paint, relied on by defendants, are not inconsistent; these cases address different issues. Doctor=s Associates interprets Section 2 of the FAA, establishing grounds under which arbitration agreements may be invalidated. Prima Paint interprets Section 4 of the FAA, establishing the jurisdiction of the courts to hear arbitration challenges.

Key to understanding Prima Paint is the ability to view an agreement to arbitrate as one component of a contract. Reading Section 4 of the FAA, the Supreme Court held that in disputes arising from contracts that include an agreement to arbitrate, the courts may only adjudicate challenges that go to the making of the agreement to arbitrate. As a practical matter, some of the factors that would render an arbitration agreement invalid may also demonstrate that the entire contract is invalid; logic also tells us that where an entire agreement is invalid, an arbitration clause contained within is also invalid. Nevertheless, because courts are only authorized to hear challenges to arbitration agreements under the FAA, the pleadings must focus exclusively on the arbitration agreement.

Although fraud in the inducement was the basis of the challenge in Prima Paint, the court did not limit grounds for challenging an arbitration agreement to this one theory. As seen in Doctor=s Associates, a party may challenge an arbitration agreement under any generally applicable contract principles. Georgia case law, including Primerica Financial Services, Inc. v. Wise, 217 Ga.App. 36, 456 S.E.2d 631(1995) cited by the defendants, also holds that the trial court is permitted to consider whether the challenged provisions resulted from the kind of fraud or overwhelming economic power that would provide grounds for the revocation of any contract and that such showing could include, among other things, that enforcement would be unreasonable and unjust.

 

THE ARBITRATION CLAUSE IN ISSUE IS NOT ENFORCEABLE BECAUSE IT CONFLICTS WITH THE MAGNUSON-MOSS ACT

The Arbitration Clause in issue is not enforceable as against plaintiffs because it is in violation of the Magnuson-Moss Act. A recent Alabama Supreme Court decision confirms that no warrantor as defined by the Magnuson Moss Act may require binding arbitration. Southern Energy Homes v. Lee, 1999 WL 6988 (Ala)(copy provided to Court at hearing) holds that an arbitration clause in a contract with a provider of a written warranty may not be enforced as to any claim against the warrantor wether based upon contract, breach of warranty or fraud.

None of the decisions cited by defendants included a claim that the arbitration clause was in conflict with the Magnuson Moss Act. The Miller v. All Star Carroll Superior Court File No 98-V-01098 case cited by defendants did not raise the issue of the Magnuson Moss Act specifically raised by plaintiff and ruled upon by the Alabama Supreme Court in Southern Energy. Neither did In re: Pate nor Church of Refuge relied upon by defendants involve the Magnuson Moss Act. As shown in the initial response of Plaintiff to the Motions for Stay, the Magnuson Moss Act precludes binding arbitration at a cost to the consumer in the sale of manufactured homes with warranty.

 

THE ARBITRATION CLAUSES IN ISSUE ARE UNENFORCEABLE BECAUSE THEY ARE UNCONSCIONABLE UNDER GEORGIA LAW

 

Plaintiff adopts the arguments of the TLPJ Amicus Brief files with the Court as to the unconscionability analysis. The unconscionability cases relied upon by defendants are 60 years old and the more recent pronouncement of Mullis v. Speight Seed Farms are controlling.

A non-inclusive list of some factors courts have considered in determining whether a contract is procedurally unconscionable includes 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. See, e.g., Fotomat Corp. of Fla. v. Chanda, 464 So.2d 626, 629 (Fla.App. 5 Dist.1985); Wille v. Southwestern Bell Telephone, 219 Kan. 755, 549 P.2d 903, 906-907 (1976) (commercial transaction); Schroeder v. Fageol Motors, 86 Wash.2d 256, 544 P.2d 20, 23 (1975). See also White & Summers, supra, ' 4-3, p. 215, fn. 15. As to the substantive element of unconscionability, courts have focused on matters such as 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. See, e.g., Fotomat Corp. of Fla. v. Chanda, supra, 464 So.2d at 629; A & M Produce Co. v. FMC Corp., supra, 186 Cal.Rptr. at 122 (commercial transaction). See also White & Summers, supra, '' 4-4 through 4-6. We find the procedural-substantive analysis of unconscionability helpful and apply it to the case at bar.

 

NEC Technologies, Inc. v. Nelson, 267 Ga. 390 (1996)(emphasis supplied).

Recognizing the unfairness and oppressiveness of arbitration provisions, many organizations, including arbitration services such as Consumers Union and JAMS/ENDISPUTE have developed standards for which agreements they will allow. The standards focus on the fairness to the consumer and the notice received by the consumer with respect to the arbitration agreement.

For example:

Consumers Union Policy on Arbitration and Other ADR Clauses in Standard Form Consumer Contracts

Standard form contracts offered to consumers by commercial parties are increasingly likely to contain clauses requiring the consumer to participate in arbitration or another form of alternative dispute resolution (ADR). These clauses have the potential to prevent consumers from having their claims heard in court. Consumers Union's policy on mandatory arbitration and ADR clauses is designed to promote standards for when these clauses should be permitted to be placed in consumer form contracts, or enforced if found in such contracts, and to promote fair procedures in the implementation of ADR clauses.

ADR, including arbitration, should not be required in consumer form contracts unless the consumer has the option either to decline to engage in the ADR process after the dispute arises or to reject the results of the ADR process. In other words, ADR clauses should be permitted and enforceable in consumer contracts only if the ADR process is: 1) contractually mandated with non-binding results, 2) optional with binding results, or 3) optional with non-binding results.

The ADR process must be fair. The overall fairness of a contractually imposed ADR process should be judged by compliance with the following criteria.

ADR clauses imposed in a consumer form contract must not select an ADR provider if the location of that provider would impose unreasonable travel costs upon the consumer in order to fully participate in the hearing of the claim.

Any consumer contract requiring the consumer to submit to ADR should contain a clear, conspicuous, and understandable disclosure describing the degree to which the consumer gives up any rights he or she otherwise possesses to go to court. Whenever the parties or their agents engage in face-to-face discussions leading to formation of the contract, there should also be a clear oral disclosure.

ADR clauses should not apply to cases where a consumer is seeking injunctive relief, unless, after the dispute arises, the consumer agrees to the ADR process and the ADR decision maker has the power to order injunctive relief.

In order for any ADR provider to be preselected in a consumer form contract, that provider must maintain an index of actions which is open to the public. The index must identify the parties to the disputes it has pending and has resolved in the past five years. The results of its ADR procedures involving individual consumers should also be available, unless the ADR decision maker has found that there is a special need to seal the results of the ADR proceeding.

Whenever the result of ADR will be binding or subject only to limited review, all parties should have access to civil discovery to the degree necessary to the claims and defenses presented. In particular, consumers should always have access to the complete file, if any exists, about their claim or dispute, and to evidence indicating that any problem they allege is part of a larger pattern or practice of the business.

Standard form consumer contract ADR clauses should be invalid if the preselected ADR provider does not require that the officer who presides at the ADR proceeding must swear all the witnesses to tell the truth.

Standard form contract ADR clauses in consumer contracts should be disallowed unless they provide that the consumer may appeal for review of alleged errors.

ADR providers selected in consumer form contracts must provide for waiver of fees and costs for indigent individuals.

ADR clauses in consumer form contracts should be invalid if they select an ADR provider which does not have an effective method of internal review to reduce the risk of selection bias. This is of critical importance. State licensing of ADR providers may also be necessary.

ADR providers selected in consumer form contracts must provide a written statement of the basis for any decision which is binding when issued.

Conflict of interest disclosures should be made by all proposed single ADR decision makers and all who are proposed to serve as a so-called "neutral third." At least the following should be disclosed:

CNames of prior or pending cases involving any party to the ADR agreement or any attorney for any of the parties in which that person is serving or has served as an arbitrator, party or attorney.

C The results of each concluded case involving any of the parties or attorneys for the current case, including the identity of the prevailing party and the date and amount of any award.

After disclosure, the consumer should have the right to reject the proposed decision maker.

ADR should never be used to eliminate or delay a consumer's access to a small claims court action, licensing or other administrative proceeding, or a consumer class action. Emphasis Supplied

Also,

JAMS/ENDISPUTE ANNOUNCES MINIMUM STANDARDS OF PROCEDURAL FAIRNESS FOR BINDING ARBITRATIONS OF DISPUTES WITH CONSUMERS

IRVINE, CA, May 12, 1998 -- The leader in Alternative Dispute Resolution (ADR) services is the first in the nation to introduce a policy of Minimum Standards of Procedural Fairness for binding arbitration of disputes with consumers. Accompanying the Minimum Standards of Procedural Fairness, JAMS/Endispute also released its new Financial Services Arbitration Rules and Procedures which apply to both consumer and commercial disputes. JAMS/Endispute=s new Rules and Standards follow on the heels of the introduction of a new national advertising campaign, "Just, People, Just Results" that highlights the importance the firm places in ensuring "Just Results" through a fair and neutral process.

The Rules are specifically designed for binding Arbitrations of disputes or claims that are administered by JAMS/Endispute and in which a claim arises from an agreement for financial services between lending or credit companies and their customers. JAMS/Endispute requires compliance with a minimum set of standards of procedural fairness before accepting an assignment to arbitrate billing, lending, and banking or credit services-related disputes between companies and individual consumers. The new rules comply with the minimum standards.

The new minimum standards ensures consumers in arbitrations of financial disputes before JAMS/Endispute, adequate notice of the arbitration clause, a mutually binding clause, availability of remedies, and the choice to participate in the selection of the neutral arbitrator.

Emphasis supplied

 

The Council of Better Business Bureaus has the following policy statement regarding Arbitration Agreements referred to them for resolution:

Council of Better Business Bureaus' Policy for Voluntary Consumer/Business Arbitration in Contractual Commitments

The Better Business Bureau system believes that the arbitration of disputes fosters the interests of consumers and the responsible business community best when consumers voluntarily make an informed choice to enter an open and accessible arbitration process offered by an individual business under fair and impartial rules administered by an agency in which the public has confidence. In furtherance of this belief, the Board of Directors of the Council of Better Business Bureaus has adopted the following policy for pre-dispute, binding arbitration (PDBA) clauses which name the Better Business Bureau as an arbitration forum:

THE RIGHT TO BE INFORMED: The Better Business Bureau system believes some information is so critical in making marketplace decisions that it must be provided at the point where purchasing decisions are made. Accordingly, pre-dispute, binding arbitration clauses must clearly and simply:

C Identify the types of disputes that are covered by the arbitration clause, which may not include claims for criminal or statutory violations.

C Identify the arbitration forum and provide a telephone number of the forum that can be used to obtain additional information about the forum.

C Clearly disclose the nature and amount of any fees consumers may have to pay in connection with the filing or administration of their case.

C Identify the standard that will be used as the basis for the arbitrator's decision (e.g. application of law or fairness).

C Advise consumers that the clause affects important legal rights, and that the consumer will not be able to go to court for disputes covered by the clause if the consumer signs the arbitration clause.

REQUIREMENT THAT CONSUMER SEPARATELY SIGN ARBITRATION CLAUSE: In order to ensure that the consumer has knowingly chosen arbitration as the method of resolving disputes covered by the arbitration clause, binding arbitration clauses must contain the following:

C A separate signature line, appearing immediately below the arbitration clause, for the consumer to sign to acknowledge acceptance of the terms of the arbitration clause; and,

C A statement that the consumer will not be bound by the terms of the clause unless the consumer signs on the signature line.

BBB KNOWLEDGE AND CONSENT: The name "Better Business Bureau" is a registered trade mark owned by the Council of Better Business Bureaus, Inc. To ensure the implementation of these protocols and to maintain the public's confidence in the BBB system, any business or organization planning on using a pre-dispute, binding arbitration clause which names the BBB must be submitted to the BBB 30 days prior to any introduction and use in consumer contracts for written BBB consent. In the absence of such submission and consent, the BBB may at its sole discretion decline to administer arbitrations submitted under the clause.

 

The American Arbitration Association has itself weighed in on arbitration clauses in the consumer context. In the spring of 1997, the American Arbitration Association (AAA) announced the establishment of a National Consumer Disputes Advisory Committee. The stated mission of the Advisory Committee is:

To bring together a broad, diverse, representative national advisory committee to advise the American Arbitration Association in the development of standards and procedures for the equitable resolution of consumer disputes.

 

The Committee developed a Consumer Due Process Protocol (Protocol).

The Protocol was developed to address the wide range of consumer transactions B those involving the purchase or lease of goods or services for personal, family or household use. These include, among other things, transactions involving: banking, credit cards, home loans and other financial services; health care services; brokerage services; home construction and improvements; insurance; communications; and the purchase and lease of motor vehicles and other personal property. Across this broad spectrum of consumer transactions, the Protocol applies to all possible conflicts B from small claims to complex disputes. In light of these realities, the Advisory Committee sought to develop principles which would establish clear benchmarks for conflict resolution processes involving consumers, while recognizing that a process appropriate in one context may be inappropriate in another. Therefore, the Protocol embodies flexible standards which permit consideration of specific circumstances.

 

On the issue of pre disclosure of the arbitration provision, the Advisory Committee notes

PRINCIPLE 2. ACCESS TO INFORMATION REGARDING ADR PROGRAM

Providers of goods or services should undertake reasonable measures to provide Consumers with full and accurate information regarding Consumer ADR Programs. At the time the Consumer contracts for goods or services, such measures should include (1) clear and adequate notice regarding the ADR provisions, including a statement indicating whether participation in the ADR Program is mandatory or optional, and (2) reasonable means by which Consumers may obtain additional information regarding the ADR Program. After a dispute arises, Consumers should have access to all information necessary for effective participation in ADR.

Reporter=s Comments

See SPIDR Report on Qualifications at 9 ("Consumers are entitled to know what tasks the neutral...may perform and what tasks they are expected to perform in the course of a particular dispute resolution service.") Cf. SPIDR Principles at 6-7 ("It is the responsibility of...private programs offering dispute resolution services to define clearly the services they provide...[and provide information about the program and Neutrals to the parties.]"); Kaiser Permanente Review and Recommendations 28 (provider of medical services has duty to provide users with "enough information and facts to allow them to understand the actual operation of the arbitration system"); Principles for ADR Provider Organizations 2. At a minimum, Consumers should be provided with (or have prompt access to) written information to explain the process. This should include general information describing each ADR process used and its distinctive features, including:

*the nature and purpose of the process, including the scope of ADR provisions;

*an indication of whether or not the Consumer has a choice regarding use of the process;

*the role of parties and attorneys, if any;

*procedures for selection of Neutrals;

*rules of conduct for Neutrals, and complaint procedures;

*fees and expenses;

*information regarding ADR Program operation, including locations, times of operation, and case processing procedures;

*the availability of special services for non-English speakers, and persons with disabilities; and,

*the availability of alternatives to ADR, including small claims court.

See, e.g., BBB Arbitration Rules (defining arbitration and the roles of various participants; providing "checklist" for Consumers preparing for arbitration; setting forth procedural rules). Cf. Standards for Court-Connected Programs ' 3.2.b. (listing information which courts sponsoring mediation should provide to program users). See also SPIDR Principles at 6-7 (listing information which private programs should offer to parties regarding the program and participating Neutrals). Consumers should also be able to obtain a copy of pertinent rules and procedures. In the case of binding arbitration provisions, there should also be a straightforward explanation of the differences between arbitration and court process. See Principle 11 "Agreements to Arbitrate." Although the Provider of goods or services is charged with the responsibility for making certain that Consumers have access to appropriate information regarding ADR, the Independent ADR Institution has an important role in this area. The Independent ADR Institution must be prepared to communicate to the parties all information necessary for effective use of the ADR process(es), particularly after a dispute arises.

All materials should be prepared in plain straightforward language. As a rule, such information should be in the same language as the principal contract for goods or services. See, e.g., N.Y. Pers. Prop. Law ' 427 (McKinney 1997). See also Standards for Court-Connected Programs ' 3.2.b., Commentary, at 3-4 (If a significant percentage of the population served is monolingual in a particular language, the material should be available in that language.)

Practical Suggestions

An example of a creative approach to providing information about Consumer ADR is provided by a major university medical center=s Health Care Dispute Resolution Program. The medical center provides prospective patients with a written explanation of mediation and arbitration procedures for resolution of health care-related disputes one month before they visit the center to complete the remaining paperwork. As the written materials explain, the program is voluntary; patients are not required to opt for the procedures as a condition to receiving treatment. Patients may contact the center for additional information regarding the processes.

For purposes of allowing Consumers access to information about dispute resolution programs, the AAA makes available an 800 customer service telephone number. In addition, the AAA, like some other Independent ADR Institutions, also has a World Wide Web site; it posts its rules and an explanation of its mediation and arbitration procedures on the Web site.

A panel proposing reforms to a major HMO-sponsored arbitration system recommended the creation of an "ombudsperson program to assist members in navigating the system of dispute resolution." Kaiser Permanente Review and Recommendations 2.43.

SPECIAL PROVISIONS RELATING TO BINDING ARBITRATION

PRINCIPLE 11. AGREEMENTS TO ARBITRATE

Consumers should be given:

clear and adequate notice of the arbitration provision and its consequences, including a statement of its mandatory or optional character;

reasonable access to information regarding the arbitration process, including basic distinctions between arbitration and court proceedings, related costs, and advice as to where they may obtain more complete information regarding arbitration procedures and arbitrator rosters;

notice of the option to make use of applicable small claims court procedures as an alternative to binding arbitration in appropriate cases; and,

a clear statement of the means by which the Consumer may exercise the option (if any) to submit disputes to arbitration or to court process.

 

Reporter=s Comments

In convening the Advisory Committee which developed this Protocol, the AAA requested that the Committee focus its attention upon due process standards for the conduct of Consumer ADR processes and not directly address the process of forming an agreement to mediate or to arbitrate. Committee deliberations revealed a range of opinions regarding the use of pre-dispute binding arbitration agreements in Consumer contracts. Without taking a position on the appropriateness of such agreements, the Committee developed Principle 11 with the intended purpose of providing guidance to the AAA and similar Independent ADR Institutions in the development of specific arbitration programs within the context of existing law enforcing pre-dispute arbitration agreements. Within this context, Principle 11 emphasizes the importance of knowing, informed assent to arbitration agreements.

 

Practical Suggestions

Consumers should have clear and adequate notice of the arbitration provision and basic information regarding the process at the time of assent. The appropriate method of giving notice and providing essential information will vary with the circumstances. For example, electronic transactions involving software licensure agreements require different notice procedures than face-to-face negotiations or paper transactions. In all cases, however, there should be some form of conspicuous notice of the agreement to arbitrate and its basic consequences (including comparison to court process, cost information, etc.). In addition, the Consumer should be given the opportunity to acquire additional information regarding the arbitration process. The latter might be obtainable through a mail or Web site address, an 800 number or other means for Consumers to obtain additional information regarding arbitration rules and procedures (such as a brochure available on request).

The following is an example of a possible notice. Ideally, the "notice box" would be sufficiently prominent in the contract document or electronic record so that a Consumer would readily notice it.

NOTICE OF ARBITRATION AGREEMENT:

This agreement provides that all disputes between you and [PROVIDER] will be resolved by BINDING ARBITRATION.

You thus GIVE UP YOUR RIGHT TO GO TO COURT to assert or defend your rights under this contract (EXCEPT for matters that may be taken to SMALL CLAIMS COURT).