Title: Southern Energy Homes, Inc. v. Ard

State: alabama

Issuer: Alabama Supreme Court

Document:

772 So. 2d 1131 (2000)
SOUTHERN ENERGY HOMES, INC.
v.
Michael ARD and Marsha Ard.
1971998.

Supreme Court of Alabama.
June 2, 2000.
*1132 John Martin Galese and W. Scott Simpson of John Martin Galese, P.A., Birmingham, for appellant.
Stephen T. Etheredge of Buntin, Etheredge & Dowling, L.L.C., Dothan, for appellees.
PER CURIAM.
The plaintiffs Michael Ard and Marsha Ard purchased a manufactured home, manufactured by the defendant Southern Energy Homes, Inc. The Ards' agreements, disputes, and claims against the retailer who sold them this manufactured home are not material to the issues dispositive of this appeal.
The Ards filed a civil action against both the retailer and Southern Energy. Only Count II (as amended), Count III, and Count V state discernible claims against Southern Energy. Count II (as amended) alleges in pertinent part:
Count III alleges, in pertinent part that "the defendant, Southern Energy Homes, Inc., either negligently, willfully, wantonly, or intentionally constructed a manufactured home for the Ards in a deficient manner." Count III includes a catalog of specific defects in the manufactured home. While Count III also claims against "defendants" (plural) for certain "false and fraudulent misrepresentations," Count III does not allege any representations made by Southern Energy. Finally, Count V alleges, in pertinent part, that Southern Energy "negligently, willfully, or wantonly installed and wired a furnace in a manufactured home for the plaintiffs in a deficient manner" and thereby caused the furnace to "catch on fire resulting in damage to the plaintiffs' home."
Southern Energy moved the trial court to stay the litigation and to compel arbitration. In support of its motion, it submitted a document entitled "SOUTHERN ENERGY WARRANTY LIMITED ONE-YEAR/FIVE-YEAR WARRANTY" containing the language of an arbitration agreement between the manufacturer and the purchaser. The Ards did not file any objection to the submission of this document. Thus, the record establishes Southern Energy's prima facie case for the existence of the agreement to arbitrate. TranSouth Financial Corp. v. Bell, 739 So. 2d 1110 (Ala.1999).
Southern Energy also submitted two affidavits by Don McNutt. Only one of these affidavits is material to the contested issues. It reads, in pertinent part:
The only evidentiary material submitted by the Ards in opposition to the motion to stay and to compel arbitration is an exhibit consisting of the 19-page "Home Owner's Manual" issued by Southern Energy. This Home Owner's Manual is the source of the same "Southern Energy Warranty Limited One-Year/Five-Year Warranty" submitted by Southern Energy itself. Pages 4 and 5 of the manual contain this warranty material. This warranty material includes the following arbitration language:
This language encompasses all of the claims alleged by the Ards against Southern Energy.
The Ards did not submit any other exhibits or any affidavit, deposition testimony, or other evidentiary material. The Ards did, however, submit to the trial court a brief presenting their arguments and authorities.
While the trial court granted the retailer's motion to compel arbitration, the trial court denied Southern Energy's motion to compel. The order of the trial court in its entirety reads as follows:
Southern Energy appealed, and we reverse and remand.
The Ards argue that we should affirm the trial court on two theories. The first is that the Ards never made any agreement to arbitrate. The second theory is that the Magnuson-Moss WarrantyFederal Trade Commission Improvement Act (Magnuson-Moss Act), 15 U.S.C. § 1501 et seq., invalidates the arbitration provisions in the Southern Energy warranty. We find both theories invalid for the reasons we will explain.
On the one hand, we recognize that parties cannot be required to arbitrate unless they have agreed to arbitrate. 9 U.S.C. § 4 and AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 106 S. Ct. 1415, 89 L. Ed. 2d 648 (1986). On the other hand, the only pertinent evidentiary materials (as distinguished from arguments by counsel) are the Home Owner's Manual containing the warranty and arbitration language and the already-quoted affidavit of Don McNutt. While the Ards' arguments dispute their assent to the arbitration language and attack the effectiveness of the delivery of the arbitration language, no evidentiary materials of record support the Ards in this regard except the absence of any signatures by the parties in the Home Owner's Manual. This absence of evidentiary materials in opposition to arbitration distinguishes this case from the otherwise similar case of Southern Energy Homes, Inc. v. Kennedy, 774 So. 2d 540 (Ala.2000).
The Ards are contractually bound to the arbitration provisions for two reasons. First, the affidavit of Don McNutt establishes, without contradiction, that the Ards have accepted the benefits of the warranty containing the arbitration provisions. This acceptance constitutes the Ards' acceptance of the arbitration provisions themselves. Rush v. Atomic Electric Co., 384 So. 2d 1067 (Ala.1980). Second, the Ards have sued Southern Energy on the theory, among others, of express warranty. The only express warranty included in the evidentiary materials is the one containing the arbitration provisions. A plaintiff cannot simultaneously claim the benefits of a contract and repudiate its burdens and conditions. Value Auto Credit, Inc. v. Talley, 727 So. 2d 61 *1135 (Ala.1999); Infiniti of Mobile, Inc. v. Office, 727 So. 2d 42 (Ala.1999); Georgia Power Co. v. Partin, 727 So. 2d 2 (Ala. 1998); Delta Constr. Corp. v. Gooden, 714 So. 2d 975 (Ala.1998); Ex parte Dyess, 709 So. 2d 447 (Ala.1997).
In further attack against the existence of an agreement to arbitrate, the Ards argue that the arbitration provisions are inconspicuous, in that the caption does not contain the word arbitration and the table of contents of the Home Owner's Manual does not include the arbitration provisions. Because, in all other respects, the arbitration language is just as conspicuous as the other provisions of the warranty, however, we find that it is a binding part of the warranty. See Mall, Inc. v. Robbins, 412 So. 2d 1197 (Ala.1982), and Gaylord Department Stores of Alabama, Inc. v. Stephens, 404 So. 2d 586 (Ala.1981).
The Ards, in support of their theory that the Magnuson-Moss Act invalidates the arbitration provisions, cite Wilson v. Waverlee Homes, Inc., 954 F. Supp. 1530 (M.D.Ala.1997), Boyd v. Homes of Legend, Inc., 981 F. Supp. 1423 (M.D.Ala. 1997), and Rhode v. E & T Investments, Inc., 6 F. Supp. 2d 1322 (M.D.Ala.1998). Indeed, this very Court, in Southern Energy Homes, Inc. v. Lee, 732 So. 2d 994 (Ala. 1999), cites both Wilson and Boyd with approval and reaches the same holding that the Magnuson-Moss Act invalidates arbitration provisions in a written warranty issued by a manufacturer of consumer goods. Justice See of this Court, however, filed a scholarly and thorough dissent in Lee. We now opine that Justice See's dissent in Lee is correct and the majority opinion is incorrect. Therefore, we overrule the majority opinion in Lee and adopt Justice See's dissent. On the rationale of Justice See's dissent in Lee, we hereby hold that the Magnuson-Moss Act does not invalidate arbitration provisions in a written warranty.
Because the record establishes the valid formation of the agreement to arbitrate, and the arbitration provisions validly and legally bind the Ards, the trial court erred in denying Southern Energy's motion to compel arbitration. Accordingly, the order denying this motion to compel arbitration is reversed and the cause is remanded to the trial court with instructions to vacate that order and to enter an order granting the motion, staying the court proceedings, and compelling arbitration.
REVERSED AND REMANDED.
HOOPER, C.J., and MADDOX, SEE, LYONS, and BROWN, JJ., concur.
HOUSTON, COOK, JOHNSTONE, and ENGLAND, JJ., dissent.
HOUSTON, Justice (dissenting).
See my special concurrence in Southern Energy Homes, Inc. v. Lee, 732 So. 2d 994, 1000-04 (Ala.1999).
JOHNSTONE, Justice (dissenting).
I respectfully dissent. This Court should not overrule Southern Energy Homes, Inc. v. Lee, 732 So. 2d 994 (Ala. 1999), and should not reverse the order of the trial court denying the motion of Southern Energy to compel arbitration.
In March 1996, the Ards purchased from Southland Quality Homes, Inc., ("Southland Homes") a mobile home manufactured by Southern Energy. The Ards signed a "MANUFACTURED HOME RETAIL INSTALLMENT CONTRACT AND SECURITY AGREEMENT" between them and Southland Homes that contains an arbitration provision:
The retail installment contract identifies the make of the mobile home as "1996 Southern Energy."
The Ards also signed a separate arbitration agreement, ostensibly between them and Southland Homes, providing:
This arbitration agreement is not signed by an employee or officer of Southland Homes.
When the mobile home was delivered, inside was a Homeowner's Manual which includes an express warranty by Southern Energy. The express warranty contains the following provision:
The express warranty is not signed by Southern Energy or the Ards.
In September 1997, the Ards sued Southland Homes and Southern Energy in the Houston County Circuit Court. They asserted claims of breach of contract, breach of warranty, fraud, and negligence against Southland Homes. The Ards asserted distinct claims of breach of express warranty and negligent, wanton, or willful manufacture against Southern Energy. Southern Energy filed a motion to stay the action and to compel arbitration of the Ards' claims. Southern Energy grounded its motion on the arbitration clause found in the express warranty it issued covering the mobile home, and upon the arbitration clause found in the retail installment contract made by the Ards and Southland Homes. Southland Homes likewise filed its own motion to compel arbitration.
The Ards filed an opposition to the motions to compel arbitration. They also amended their complaint to state claims pursuant to the Magnuson-Moss WarrantyFederal Trade Commission Improvement Act (Magnuson-Moss Act), 15 U.S.C. § 1501 et seq., against Southland Homes and Southern Energy. The Ards also added *1138 claims of negligent, wanton, or willful installation of a furnace against Southern Energy. The Ards alleged that they notified Southland Homes and Southern Energy of numerous defects in the mobile home and that Southland Homes and Southern Energy failed or refused to correct the defects under the warranty. The Ards requested and received some warranty service from Southern Energy.
The trial court entered an order stating, in pertinent part:
Southern Energy appeals and raises seven issues: (1) "[w]hether the [Ards] are bound by the arbitration agreement set forth within [Southern Energy's] warranty where the arbitration agreement is sufficiently broad to encompass all the [Ards'] claims"; (2) "[w]hether an arbitration agreement must be signed and be `conspicuous' to be enforceable where such agreement is governed by the Federal Arbitration Act"; (3) "[w]hether the [Ards] are bound by all of the provisions of [Southern Energy's] warranty because [they] accepted service under the warranty and later sued Southern [Energy] alleging a claim of breach of warranty"; (4) "[w]hether the Magnuson-Moss Warranty Act prevents the enforcement of a binding arbitration agreement as to non-Magnuson-Moss claims where such claims do not relate to the warranty in the Act"; (5) "[w]hether the Magnuson-Moss Warranty Act prevents enforcement of a binding arbitration agreement subject to the Federal Arbitration Act as to Magnuson-Moss claims"; (6) "[w]hether the [Ards] should be equitably estopped from opposing the arbitration agreement set forth in the Retail Installment Agreement where Southern [Energy] is specifically mentioned in the Retail Installment Agreement, the language of the Retail Installment Agreement is broad enough to encompass all of the [Ards'] claims, and the [Ards'] claims against Southern [Energy] are sufficiently related to the relationship created by the contract"; and (7) "[w]hether the [Ards] are required to arbitrate their claims against Southern [Energy] based upon the arbitration agreements the [Ards] entered into at the time of the purchase where the [Ards] allege that Southern [Energy] is liable for the acts of Southland Homes." I will address the issues in categories.
I first address issue five relating to the effect of the Magnuson-Moss Act on the arbitration provisions. In Southern Energy Homes, Inc. v. Lee, supra, this Court held that the Magnuson-Moss Act "prohibits the inclusion in a written warranty of a *1139 provision calling for binding arbitration." In so holding, this Court adopted the rationale in Wilson v. Waverlee Homes, Inc., 954 F. Supp. 1530 (M.D.Ala.1997), aff'd, 127 F.3d 40 (11th Cir.1997) (table), and Boyd v. Homes of Legend, Inc., 981 F. Supp. 1423 (M.D.Ala.1997). In Waverlee Homes, United States District Court Judge Myron Thompson stated:
"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, 7723.3 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.
954 F. Supp.  at 1537-39 (emphasis added). The rationale of Waverlee, including the recitation of the legislative history of the Magnuson-Moss Act, is still valid and true. The legislative history of the Magnuson-Moss Act, including the remarks of Senator Moss, a cosponsor of the Act, clearly evidences Congress's intent to preclude a waiver of judicial remedies for the statutory rights at issue. See 119 Congressional Record 972 and 15 U.S.C. § 2310(a)(2). See also Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 227, 107 S. Ct. 2332, 96 L. Ed. 2d 185 (1987). Therefore, the Magnuson-Moss Act prohibits the inclusion of a binding arbitration provision in an express warranty and makes such an arbitration provision unenforceable. Southern Energy v. Lee, supra.
These conclusions moot issues one, two, and three all relating to whether the Ards are contractually bound to arbitrate. While the Ards may contractually enforce their warranty against Southern Energy, they are not bound to arbitrate their claims against Southern Energy because the arbitration provision in the warranty is unenforceable. Moreover, because no contract other than the warranty exists between Southern Energy and the Ards, they are not contractually bound to arbitrate their nonwarranty claims. This conclusion resolves issue four.
In issue six, Southern Energy invokes the doctrine of equitable estoppel by intertwining. In Waverlee, supra, Judge Thompson explains the two kinds of intertwining: (1) where the plaintiff's claim *1142 against a nonsignatory to a contract containing an arbitration clause asserts breach of duty imposed or entailed by that contract, and (2) where the plaintiff alleges conspiracy or agency between a nonsignatory and a signatory to a contract containing an arbitration clause. The estoppelby-intertwining doctrine requires a plaintiff to arbitrate either kind of such claim against the nonsignatory if the plaintiff must arbitrate the plaintiff's claims against the signatory. Judge Thompson explains:
"9 U.S.C. § 2. The `primary purpose' of the FAA is to ensure `that private agreements to arbitrate are enforced according to their terms.' Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford, Jr. Univ., 489 U.S. 468, 479, 109 S. Ct. 1248, 1255-56, 103 L. Ed. 2d 488 (1989). `Arbitration under the Act is a matter of consent, not coercion, and parties are generally free to structure their agreements as they see fit.' Id. It is a cardinal principle of federal arbitration law that `"arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit."' AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648, 106 S. Ct. 1415, 1418, 89 L. Ed. 2d 648 (1986) (quoting United Steelworkers v. Warrior & Gulf Navig. Co., 363 U.S. 574, 582, 80 S. Ct. 1347, 1353, 4 L. Ed. 2d 1409 (1960)). Thus, initially, Waverlee must show that the plaintiffs when purchasing their homes under the installment and financing contracts with Hart's Mobile Home that make no mention of Waverlee, nonetheless constructively, or as a matter of law, agreed to arbitrate any dispute that might arise with Waverlee under express and applicable warranties.
Waverlee, 954 F. Supp.  at 1533-37.
Southern Energy raised this doctrine in Ex parte Isbell, 708 So. 2d 571 (Ala.1997). As in Ex parte Isbell, Southern Energy is not a signatory to the retail installment contract between the Ards and Southland Homes. `"[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit."' AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648, 106 S. Ct. 1415, 89 L. Ed. 2d 648 (1986) (quoting United Steelworkers v. Warrior & Gulf Navig. Co., 363 U.S. 574, 582, 80 S. Ct. 1347, 4 L. Ed. 2d 1409 (1960)). The arbitration provision of the retail installment contract does not compel arbitration of claims that do not arise from the contract or between the parties to that contract. *1145 "[T]his case is substantially identical to [Waverlee], in that `[t]he warranty claims here are not intertwined with and founded upon the sales installment agreement[], except in the utterly collateral sense that if the plaintiffs had never purchased their mobile homes, they would not have been protected by the warranties that came with them.'" Ex parte Isbell, 708 So. 2d  at 579 (quoting Waverlee, 954 F. Supp.  at 1536 (emphasis added)). Similarly the Ards' claims against Southern Energy do not arise out of the retail installment contract. The Ards do not sue Southern Energy for a breach of any duty imposed or entailed by the retail installment contract. Nor is Southern Energy a party to the retail installment contract or a third-party beneficiary of that contract. Waverlee, supra. Thus, Southern Energy cannot rely on the arbitration provision of the retail installment contract to compel arbitration of the Ards' claims against it. Ex parte Isbell and Waverlee, supra.
Finally, because the Ards do not claim either agency or conspiracy between Southern Energy and Southland Homes, Southern Energy cannot assert that kind, or scenario, of estoppel by intertwining. Issue seven is factually incorrect in its premise that the Ards "allege that Southern [Energy] is liable for the acts of Southland Homes."
The trial court properly denied Southern Energy's motion to compel arbitration. We should follow Southern Energy Homes, Inc. v. Lee, supra, as precedent and should affirm the order of the trial court.
COOK and ENGLAND, JJ., concur.