Title: Lewis v. Conseco Finance Corp.

State: alabama

Issuer: Alabama Supreme Court

Document:

848 So. 2d 920 (2002)
Billie J. LEWIS and Jackie Lewis
v.
CONSECO FINANCE CORPORATION. WLS, Inc., et al.
v.
Billie J. Lewis and Jackie Lewis.
1010772 and 1010752.

Supreme Court of Alabama.
August 30, 2002.
Rehearing Denied October 25, 2002.
*922 G. Houston Howard II of Howard, Dunn, Howard & Howard, Wetumpka, for Billie J. Lewis and Jackie Lewis.
Paul C. Garrison of Hall, Conerly, Mudd & Bolvig, P.C., Birmingham, for WLS, Inc., d/b/a S&H Mobile Homes, Larry Smith, Gail Smith, and Lisa Melendy.
R. Austin Huffaker, Jr., and Ronald G. Davenport of Rushton, Stakely, Johnston & Garrett, P.A., Montgomery, for Conseco Finance Company-Alabama.
HOUSTON, Justice.
These consolidated appeals present issues involving arbitration. The trial court granted Conseco Finance Corporation's motion to compel arbitration and denied a similar motion filed by WLS, Inc., Larry Smith, Gail Smith, and Lisa Melendy (hereinafter "the WLS defendants"[1]). For the reasons stated below, we affirm the trial court's judgment with respect to Conseco and reverse the trial court's judgment with respect to the WLS defendants.
Billie and Jackie Lewis purchased a mobile home from WLS, Inc. To effectuate the purchase, Billie Lewis executed a purchase agreement and an installment agreement. The installment agreement, which contained an arbitration provision, was subsequently assigned to Conseco (formerly known as Green Tree Financial Corporation), which financed the purchase.
Approximately one year after purchasing the mobile home, the Lewises sued Conseco and the WLS defendants, asserting claims of fraud and suppression, breach of express warranty, breach of implied warranty, and violations of the Magnuson-Moss Warranty Act. Many of the claimsmost notably the breach-of-express-warranty and Magnuson-Moss claimswere purportedly asserted against Conseco through the following provision found in the installment agreement, which is required to be in the agreement pursuant to a Federal Trade Commission ("FTC") rule, 16 C.F.R. § 433.2:
Both Conseco and the WLS defendants filed motions to compel arbitration. The trial court initially granted both motions, but, following the Lewises' filing of a motion to alter, amend, or vacate, which relied primarily on our decision in Ex parte Thicklin, 824 So. 2d 723 (Ala.2002), the trial court vacated its order compelling arbitration with respect to the WLS defendants. The Lewises appeal the grant of Conseco's motion to compel arbitration (no. 1010772), and the WLS defendants appeal the denial of their similar motion (no. 1010752).
Our analysis in this case is guided by the following standard of review:
Fleetwood Enters., Inc. v. Bruno, 784 So. 2d 277, 280 (Ala.2000) (emphasis omitted).
The Federal Arbitration Act, 9 U.S.C. § 1 et seq., "mandates the arbitration of claims encompassed by an arbitration clause that is contained in a binding contract that involves interstate commerce." Ex parte Conference America, Inc., 713 So. 2d 953, 955 (Ala.1998). We have held that a contract "involves" interstate commerce when the underlying transaction "substantially affects" interstate commerce. Sisters of the Visitation v. Cochran Plastering Co., 775 So. 2d 759, 761-62 (Ala.2000). We now turn to consider whether, under these principles, Conseco and the WLS defendants are entitled to arbitrate the claims asserted against them by the Lewises.
The Lewises make three arguments against arbitration with respect to Conseco. First, they argue that Conseco failed to demonstrate that the transaction "substantially affected interstate commerce." Second, they argue that because there was allegedly no "substantial performance" of the installment agreement on the part of WLS, Inc., the trial court erred in "specifically enforcing" the arbitration provision. Third, the Lewises assert that the breach-of-express-warranty and Magnuson-Moss claims asserted against Conseco "through" the FTC rule provision are not subject to arbitration under Ex parte Thicklin, supra.
In support of its motion to compel arbitration, Conseco submitted the affidavit of Robert D. Eller, regional manager of Conseco Finance Corporation-Alabama, which is described in the affidavit as an affiliate of Conseco Finance Corporation. Eller's affidavit states, in pertinent part:
The Lewises contend that this affidavit is insufficient to demonstrate that the transaction had a "substantial effect" on interstate commerce as required under Sisters of the Visitation; we disagree. The undisputed facts in this case are almost identical to those in Green Tree Financial Corp. v. Channell, 825 So. 2d 90 (Ala.2002). In that case, we reversed a trial court's denial of the motion to compel arbitration filed by Green Tree (now known as Conseco):
825 So. 2d  at 94-95.
Although the Lewises make several arguments in an attempt to attack Eller's affidavit as "vague," we are not persuaded. The Lewises do not point to any evidence that contradicts Eller's statements regarding Conseco's corporate status and structure or its statement that payment to WLS, Inc., was made from a bank in Minnesota, and the Lewises do not dispute that they submitted several payments to an address in Kentucky. Accordingly, we see no legitimate basis to reach a result in this case different from the one reached in Channell with regard to the interstate-commerce question.[2]
The Lewises argue that the trial court erred in specifically enforcing the arbitration agreement because, it says, WLS, Inc., breached the installment agreement. The Lewises rely on Ala.Code 1975, § 8-1-40, which provides:
*925 "Specific performance cannot be enforced against a party to a contract in any of the following cases:
Specifically, the Lewises contend that § 8-1-40 applies and precludes the enforcement of the arbitration provision because "WLS, Conseco's assignor, did not substantially perform its obligations [under the installment agreement] to Lewis, and Lewis' consent was obtained by `misrepresentation, concealment, circumvention or unfair practices.'" Lewises' brief at 23.
However, if the Lewises' challenge is in reality a challenge to the enforceability of the installment agreement as a whole, then that challenge is properly resolved by an arbitratornot by the court. Green Tree Fin. Corp. v. Wampler, 749 So. 2d 409, 413 (Ala.1999) (holding that an attack on the enforceability of a security agreement must be arbitrated). Wampler provides the general rule for determining the proper forum for the resolution of claims when an arbitration provision is involved:
749 So. 2d  at 413.[3] When engaging this analysis, we "`look beyond the ad hoc arguments of counsel in order to determine whether [the plaintiff's] claim actually bears upon the entire agreement' or just the arbitration clause." NationsBanc Invs., Inc. v. Paramore, 736 So. 2d 589, 591 (Ala.1999) (quoting Anniston Lincoln Mercury Dodge v. Conner, 720 So. 2d 898, 901-02 (Ala.1998)).
In this case, it is apparent that the Lewises challenge the enforceability of the installment agreement as a whole, not merely the arbitration provision. If § 8-1-40 were truly applicable, it would preclude Conseco from seeking the specific *926 enforcement of any provision of the agreement, not merely the arbitration provision.
The Lewises creatively, but erroneously, attempt to construe their challenge to the enforceability of the contract as a challenge to the arbitration provision alone, arguing that Conseco currently seeks only the specific enforcement of the arbitration provision and that the remaining contractual provisions would be unaffected because they have not been asserted. In this respect, the Lewises simply mischaracterize the relevant analysis, which is properly directed at the extent and possible effect of the Lewises' challenge on the whole contract rather than on the particular provisionhere the arbitration provision sought to be enforced.
Based upon the above, we hold that the Lewises' arguments concerning specific performance raise issues that are properly resolved by an arbitrator.
The Lewises argue that their claim under the Magnuson-Moss Warranty Act and their breach-of-express-warranty claim against Conseco are not subject to arbitration under our decision in Ex parte Thicklin. However, assuming that those claims could properly be brought against Conseco, those claims are derivative; that is, they are asserted through the language from the installment agreement quoted above, which, pursuant to an FTC rule (16 C.F.R. § 433.2), must appear in such an agreement. Therefore, the claims purportedly[4] would be viable against Conseco only to the extent that they are viable against the WLS defendants. Because, as discussed below, we hold that the Lewises have failed to demonstrate that the WLS defendants gave them a "written warranty," we hold that Ex parte Thicklinin which we held that, where a written warranty had been given, Magnuson-Moss and express-warranty claims could not be arbitrated unless the arbitration provision at issue was included in that written warrantyis inapplicable. See Part B.2. below. Therefore, because Ex parte Thicklin is inapplicable to the claims against the WLS defendants, it is inapplicable to the Lewises' claims against Conseco.
The WLS defendants contend that the trial court erred in vacating its order compelling arbitration with respect to the Lewises' claims against them because, they say, the necessary requirements of 1) an agreement to arbitrate and 2) a substantial effect on interstate commerce have been satisfied. The Lewises contend that the trial court acted appropriately, and they raise many of the same arguments they advanced against Conseco; namely, 1) that the WLS defendants failed to demonstrate *927 the requisite effect on interstate commerce, 2) that specific enforcement of the arbitration provision is not appropriate because of certain breaches of the installment agreement, and 3) that the arbitration provision cannot be enforced because it was not disclosed in a written warranty. Because we find the Lewises' specific-enforcement argument unpersuasive for the reasons given above, we address only the first and third arguments raised by the Lewises in support of the trial court's ruling.
In support of their motion to compel arbitration, the WLS defendants relied upon the affidavit of Larry Smith; however, the trial court struck Smith's affidavit as untimely; it therefore did not consider it. The Lewises argue that while the WLS defendants now rely upon Conseco's involvement in the transaction to establish the requisite connection to interstate commerce (as supported by Eller's affidavit), the WLS defendants never sufficiently pursued this argument before the trial court.
However, a review of the WLS defendants' response to the Lewises' motion to alter, amend, or vacate the trial court's original order granting the WLS defendants' motion to compel arbitration reveals the following assertions:
The WLS defendants, while perhaps not formally stating that they were incorporating Eller's affidavit in defense of their motion to compel arbitration, nonetheless thoroughly described how, under Alabama law, Conseco's involvement in the single transaction at issue substantially affected interstate commerce, a conclusion with which we today concur. By specifically basing their argument on materials already before the trial courti.e., by referencing the trial court's attention to both motions to compel arbitration, and by specifically arguing that Conseco's involvement satisfied the interstate-commerce requirement for the entire transactionthe WLS defendants effectively incorporated Conseco's motion to compel arbitration in support of their own with regard to the interstate-commerce question.
It is undisputed that Conseco's involvement was part of the underlying transaction; in fact, such a conclusion would be difficult to dispute under the facts before us. When examining whether a transaction substantially affects interstate commerce in the arbitration context, we do not employ a "divide and conquer" technique; rather, we examine all facets of a transaction. See Lewis, 813 So. 2d  at 824 (stating that "[w]e cannot employ an unrealistically narrow construction of the `transaction' concept so as to limit our scrutiny to the events transpiring at the time of the sale [of a manufactured home]," and that, with respect to the interstate-commerce question, "even those facts arising from the assignment by [the seller of the manufactured home] to Green Tree, are quite relevant"). Based on the above, we hold thatas we did with Conseco the WLS defendants have met their burden of demonstrating that the transaction substantially affected interstate commerce.
The WLS defendants contend, contrary to the assertions of the Lewises, that the Lewises cannot use our recent decision in Ex parte Thicklin, supra, as a defense to arbitration because, they say, that case does not apply to these facts. We agree.
Ex parte Thicklin involved the sale of a mobile home. The buyer was given a written warranty that did not mention arbitration. The buyer sued the seller and the manufacturer, asserting various claims, including claims alleging Magnuson-Moss and express-warranty violations. Relying on Cunningham v. Fleetwood Homes of Georgia, Inc., 253 F.3d 611 (11th Cir.2001), we held that because the written warranty did not disclose to the buyer any arbitration requirement as it was required to do by the Magnuson-Moss Warranty Act, the trial court could not compel the buyer to arbitrate his Magnuson-Moss and express-warranty claims. Ex parte Thicklin, 824 So. 2d  at 728.
The disclosure requirements mentioned in Ex parte Thicklin applied specifically to a "written warranty," a term defined in the Magnuson-Moss Warranty Act as follows:
*929 "(6) The term `written warranty' means
15 U.S.C. § 2301(6). In order to invoke Ex parte Thicklin as a defense to arbitration, a party resisting arbitration would have to demonstrate initially that a written warranty of the type described in 15 U.S.C. § 2301(6) had been issued by the party seeking arbitration.
In this case, the Lewises have offered no written warranty given by the WLS defendants. In fact, the record reflects that the WLS defendants not only gave no written warranties, but that both express and implied warranties were specifically (and repeatedly) disclaimed in both the purchase agreement and the installment agreement.
In their brief to this Court, the Lewises argue that the existence of a written warranty is evidenced by 1) the existence of a one-year warranty from the manufacturer mentioned in the purchase agreement, and 2) the indication in both the purchase agreement and the installment agreement that the mobile home purchased by the Lewises was "new." However, neither of these facts bolsters the Lewises' argument. First, the one-year warranty mentioned in the purchase agreement was not given by the WLS defendants, but by the manufacturera fact made clear by the following language in the purchase agreement:
Second, even if the indication that the mobile home was "new" could be construed to be a warranty under state law, see Ala.Code 1975, § 7-2-313 (an issue on which we express no opinion), it would not fit either definition of a "written warranty" under the Magnuson-Moss Warranty Act. It certainly does not fit the definition in § 2301(6)(B), and, with regard to 6(A), a statement that a product is "new" simply does not "affirm[ ] or promise[ ] that [the] material or workmanship [in the mobile home] is defect free or will meet a specified level of performance over a specified period of time." Because the Lewises did not produce a written warranty given by the WLS defendants, any defense to arbitration stemming from our decision in Ex parte Thicklin is unavailable.
Based upon the above, as to the appeal from the trial court's order granting Conseco's motion to compel arbitration, we affirm; as to the appeal from the trial court's order denying the WLS defendants' motion to compel arbitration, we reverse and remand for further proceedings consistent with this opinion.
1010772AFFIRMED.
1010752REVERSED AND REMANDED.
SEE, LYONS, BROWN, HARWOOD, WOODALL, and STUART, JJ., concur.
MOORE, C.J., dissents.
[1]  Larry Smith is the president of WLS, Inc.; Gail Smith and Lisa Melendy are WLS, Inc., employees.
[2]  Our decision regarding the interstate-commerce issue precludes the need to address Conseco's alternative argument that this case involves "persons or things" in interstate commerce. See Selma Med. Ctr., Inc. v. Fontenot, 824 So. 2d 668 (Ala.2001).
[3]  There is no dispute as to the breadth of the arbitration provision at issue, which covers "all disputes, claims or controversies arising from or relating to this Agreement or the relationships which result from this Agreement, or the validity of this arbitration clause or the entire Agreement."
[4]  Conseco argues that, even if the Magnuson-Moss Warranty Act applies to the WLS defendants, application of the Act to Conseco through the FTC rule at issue is improper. See Lindsey v. Ed Johnson Oldsmobile, Inc., No. 95 C 7306 (N.D.Ill., September 13, 1996) (not published in F.Supp.) ("To impose liability [through the FTC rule] against an assignee under [the Magnuson-Moss Warranty Act] where none was otherwise contemplated would be contrary to the congressional intent underlying such statutes."); Results Oriented, Inc. v. Crawford, 245 Ga.App. 432, 538 S.E.2d 73, 81 (2000) (holding, in a challenge to the enforceability of an arbitration provision in an installment agreement assigned by a mobile-home dealer to Green Tree (now Conseco), that the Magnuson-Moss Warranty Act did not apply to Green Tree because "Green Tree is neither a `supplier, warrantor, or service contractor' covered by that Act." (quoting 15 U.S.C. § 2310(d), and (f); citing 15 U.S.C. § 2301(4), (5), and (8) (defining "supplier," "warrantor," and "service contract"))). However, given our disposition in this case, we do not reach this issue.