The interlocutory appeals
In opposition to the motions to compel arbitration, Ray Marlin Crawford submitted his affidavit which stated that he and his wife began looking at new mobile homes in the summer of 1997. They visited Assured's lot in Villa Rica and looked at different mobile homes, some fully set up and some not. On their second visit to the lot, Mr. Crawford advised one of the Assured representatives that he could not pay more than $500 per month. It was agreed that Assured would give Crawford $11,750 on trade-in of his old mobile home (fairly valued at $2,000) and charge more for the home so that Crawford could get more favorable financing terms and payments of $500. In response, Crawford "took some more time to think about this." The Crawfords returned to the lot again and told Don Gilbert, another Assured representative, they were ready to buy the Cavalier mobile home which they had toured on the lot. That home had been manufactured in Alabama.
Crawford described the signing of documents as follows:
Among the documents signed by Crawford were the contract of sale between Assured and Crawford, a Manufactured Home Retail Installment Contract and Security Agreement (Installment Contract) signed by Crawford and assigned by Assured to Green Tree, and an Acknowledgment and Agreement signed by Crawford as well as representatives of Assured and Green Tree. Paragraph 14 of the Installment Contract, pursuant to which Green Tree seeks to compel arbitration, states:
The portions of the clause which are capitalized are also in bold print in the Contract. Paragraph 14 is the last numbered paragraph in the Installment Contract, and a portion of it is printed on the same page as Crawford's signature. Immediately above his signature, in large bold type, is "NOTICE TO BUYER: 1. DO NOT SIGN THIS CONTRACT BEFORE YOU READ IT OR IF IT CONTAINS ANY BLANK SPACES. 2. YOU ARE ENTITLED TO A COPY OF
Sections (d), (e), and (f) of Paragraph 1 of the Acknowledgment and Agreement, signed by Crawford, Assured, and Cavalier, state that Assured is not an agent of Cavalier but dealt with Crawford as an independent party; that Crawford has received a packet of materials, including the Manufacturer's Warranty; and that "[a]ll warranty claims against MANUFACTURER... are to be handled as provided in the MANUFACTURER'S Warranty which PURCHASER has read and understands or will read and be familiar with." Paragraph 10,
Immediately below this paragraph appeared "I HAVE READ AND UNDERSTAND SECTION 10 WHICH RELATES TO ARBITRATION AND WAIVER OF JURY TRIAL." In the space provided for "PURCHASER's INITIALS," Crawford initialed.
The Acknowledgment and Agreement, in addition to invoking the Federal Arbitration Act (FAA), 9 USC §§ 1-16, provides that "[t]his Agreement shall be governed by the laws of the State of Alabama."
The trial court determined that the two arbitration clauses were unconscionable, using the standards set out in NEC Technologies v. Nelson, 267 Ga. 390, 478 S.E.2d 769 (1996), and that arbitration was precluded by the Magnuson-Moss Warranty Act as to all three defendants.
1. We consider first the appeal of Green Tree. Green Tree urges in its first enumeration, and we agree, that the trial court committed legal error by not following substantial precedent holding that arbitration clauses in consumer contracts are enforceable under the Federal Arbitration Act (FAA), 9 USC §§ 1-16, and further in refusing to determine whether the validity of the arbitration clause itself was required to be arbitrated.
(a) The FAA, according to the United States Supreme Court, creates a body of federal substantive law and preempts state laws that undermine enforcement of private arbitration agreements. Southland Corp. v. Keating, 465 U.S. 1, 16, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984).
In the Installment Contract, the FAA is specifically relied upon, and there is no choice of law provision calling into question any conflict with state law, such as those contained in Volt, supra, and North Augusta Assoc. v. 1815 Exchange, 220 Ga.App. 790, 791(1), 469 S.E.2d 759 (1996). Also, even when there is a choice of law provision, if the intent of the parties indicates that arbitration would be governed by the FAA, this Court will enforce the intentions of the parties. Primerica Financial Svcs. v. Wise, 217 Ga.App. 36, 37(1), 456 S.E.2d 631 (1995).
Georgia has also enacted an Arbitration Act, OCGA § 9-9-1 et seq., evidencing the legislature's conclusion that arbitration is not in violation of the public policy of this State and, therefore, cannot be said, per se, to be unconscionable. "What the Legislature allows cannot be contrary to public policy. [Cit.]" NEC Technologies, supra at 394(3), 478 S.E.2d 769. See also W.J. Cooney, P.C. v. Rowland, 240 Ga.App. 703, 704, 524 S.E.2d 730 (1999).
In the case of Green Tree and Crawford, the Installment Contract without question invokes both the substantive law and procedure of the FAA. There was no argument below that the transaction did not involve interstate commerce nor that the FAA would not apply pursuant to the Installment Contract, only that there was unconscionability, which is considered further, infra.
(b) The trial court's sole allusion to the issue of which forum, court or arbitrator, should decide if the Installment Contract and the Acknowledgment and Agreement provided that the threshold issue of arbitrability be arbitrated was the following footnote:
First, pursuant to the FAA and in the absence of conflicting Georgia or Alabama law,
Sections 2 and 3 of the FAA provide that:
The United States Supreme Court, in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 402, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), determined that, in a contract with a broad arbitration clause,
In this case, the only evidence presented to the court regarding this issue was Crawford's affidavit, quoted in part above. The only deduction to be made from that affidavit is that Crawford did not read the documents which he signed. As acknowledged by the trial court in its order, however, "[t]here is no evidence that [Crawford] was prevented from reading the documents" by the actions of Assured employees. Assured is the only defendant whose representative was present, in addition to Crawford, at the signing of the documents.
Therefore, absent Crawford's proof of unconscionability under Georgia or Alabama law, the only claim presented to the trial court was that of fraud in the inducement of the entire contract, which must be arbitrated.
This is consistent with the Georgia principle that:
(c) We now look to the issue of unconscionability under NEC Technologies, supra. That case, in the context of the Uniform Commercial Code, holds that "the unconscionability of a contract is not to be judged based on subsequently-acquired knowledge." Id. at 394(3), 478 S.E.2d 769. Further, unconscionability is to be determined "on the circumstances existing at the time the contract was made, rather than those existing ... later." (Emphasis supplied.) W.J. Cooney, P.C., supra at 704, 524 S.E.2d 730.
The trial court, in concluding the two arbitration clauses here were unconscionable, focused on the fees and costs of arbitration as compared to the filing fee in the State Court of Carroll County and Crawford's lack of sophistication.
Georgia has not specifically addressed the issue of unconscionability in the context of the FAA and agreements to arbitrate.
Even before considering unconscionability, however, we again address the issue of arbitrability. For this purpose only, we assume that Crawford's position that he attacked only the arbitration clause as fraudulently induced and unconscionable had been supported by evidence. In First Options of Chicago v. Kaplan, 514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995), the United States Supreme Court addressed the standards of review under the FAA on two issues: (1) how a trial court should review an arbitrator's decision that the parties agreed to arbitrate a dispute, and (2) how a court of appeals should review a trial court's decision confirming or refusing to vacate an arbitration award. In Kaplan, Manuel Kaplan's wholly owned investment company, MKI, had signed a workout document containing an arbitration clause with First Options after the 1987 stock market crash. While Mr. and Mrs. Kaplan had also signed other documents in relation to the workout, none of those signed by them contained an arbitration clause. First Options tried to compel the Kaplans individually to arbitrate, and the Kaplans filed, with the arbitrators, their objections that their dispute with First Options, as opposed to that of MKI, was not arbitrable.
The Court held that courts, in determining whether the parties have agreed to submit the issue of arbitrability itself to arbitration, should not assume that the parties agreed to "arbitrate arbitrability" unless the evidence is clear and unmistakable that they have so agreed. On this question, the presumption on review opposes arbitration.
While the arbitration provision in the Installment Contract is very broad, that contract also contains a severability clause in Paragraph 13, immediately preceding the arbitration provision. We find persuasive and adopt the rationale of the Alabama Supreme Court which held that, in such a situation, the severability clause created an ambiguity as to whether a court or arbitrator would decide the issue of arbitrability and, under Kaplan, supra, the trial court properly determined the issue. See Premiere Chevrolet v. Headrick, 748 So.2d 891, 894-896 (Ala.1999); Commercial Credit Corp. &c. Ins. Co. v. Leggett, 744 So.2d 890, 892-894 (Ala.1999). Compare Galindo v. Lanier Worldwide, 241 Ga.App. 78, 82-83(2), 526 S.E.2d 141 (1999) (Trial court applied incorrect presumption in favor of arbitration where party denied signing contract containing arbitration clause. Order confirming arbitration award reversed.).
Therefore, it would have been proper for the trial court to determine that Crawford had not agreed to "arbitrate arbitrability" had Crawford presented evidence that he was aware of the arbitration clause and shown that it was unconscionable or induced by fraud.
Contrary to the trial court's finding, the Installment Contract was not unconscionable.
"An unconscionable contract is one abhorrent to good morals and conscience. It is one where one of the parties takes a fraudulent advantage of another." (Punctuation and emphasis omitted.) F.N. Roberts Pest Control Co. v. McDonald, 132 Ga.App. 257, 260(3), 208 S.E.2d 13 (1974). "It is an agreement that no sane person not acting under a delusion would make and that no honest person would take advantage of. [Cits.]" W.J. Cooney, P.C., supra at 704, 524 S.E.2d 730.
Therefore, Crawford has failed to show such coercion, either procedural or substantive, that would be a defense to Green Tree's motion to compel arbitration of the merits of the dispute or that would merit the trial court's order that the payments due Green Tree be made into the registry of the court pending resolution of the dispute.
2. Also, the trial court erred in finding that arbitration was precluded as to Green Tree based on the Magnuson-Moss Warranty Act, supra.
While that Act does preclude a warrantor from denying the right of a consumer to litigate instead of arbitrate a warranty dispute, Green Tree is neither "a supplier, warrantor, or service contractor" covered by that Act. 15 USC §§ 2301(4), (5), (8); 2310(d), (f).
Case No. A00A0540
3. Assured also enumerates as error the trial court's finding that the arbitration clause was unconscionable. That issue is controlled by our holdings, supra. The trial court erred in denying the motion of Assured to compel arbitration of the merits of the dispute.
Case No. A00A0541
4. Cavalier's enumeration that the trial court improperly denied its motion to compel arbitration of nonwarranty issues based on unconscionability is controlled by our holdings in Case No. A00A0542.
5. Cavalier also contends that the trial court improperly denied its motion based on the Magnuson-Moss Warranty Act, supra. The trial court relied on Southern Energy Homes v. Lee, 732 So.2d 994 (Ala. 1999) for its conclusion that express warranty claims had to be litigated under that Act.
That case, however, has recently been reversed by Southern Energy Homes, Inc. v. Ard, 772 So.2d 1131, 2000 Ala. LEXIS 218 (Ala.2000), based on an extensive analysis by Justice See (originally contained in his dissent in Lee) of United States Supreme Court cases discussing the FAA and its relationship with other federal statutes.
Implied warranty claims have previously been found subject to arbitration by federal district courts, and we adopt their rationale regarding those claims. Rhode, supra; Boyd v. Homes of Legend, 981 F.Supp. 1423 (M.D.Ala.1997).
Therefore, the trial court also erred in not granting Cavalier's motion to compel arbitration of the express and implied warranty claims.
Judgments reversed and cases remanded.
RUFFIN and ELLINGTON, JJ., concur.