### IN THE COURT OF APPEALS OF TENNESSEE AT KNOXVILLE
CHRISTINE BE

RKLEY, Indiv

idually and o

n behalf of a

ll persons simil

arly situated, etc., v. H&R BLOCK EASTERN TAX SERVICES, INC.

Direct Appeal from the Circuit Court for Carter County No. C7219 Hon. Thomas J. Seeley, Jr., Circuit Judge

No. E1999-00379-COA-R9-CV - Decided May 4, 2000

This is an interlocutory appeal from the Trial Judge’s refusal to enforce an a rbitra tion agreement entered by the parties. Defendant has appealed. We reverse and re

mand with instructio

ns to enforce the arbitration a

greement.

Tenn. R. App. P.3 Interlocutory Appeal by Permission from the Trial Court; Ju dgment of the Circuit Court Re

versed.
FRANKS, J., delivered the opinion of the court, in which GO DD ARD, P.J., and SUSANO, J., joined.

Gary C. Shockley and Alice Corker, Baker, Donelson, Bearman &Caldwell, Nashville, Tennessee and N. Louise Ellingswo

rth, Daniel R. Youn

g, and Michael D. P

ospisil, Kansas City, Missouri, for Appellant.
Gordon Ball, Knoxv

ille, Tennessee f

or Appellees.

OPINION

The dispositiv e issue on appeal is whether the contract signed by the parties containing an arbitration agreement is enforceable.

In 1986, the Interna

l Revenue Service

first allowed tax

payers to electr

onicall y file tax returns, and

defendant H&R Block (“Block”) began offering electronic filing through a program known as “Rapid Refund” as a part of its

tax preparation

services. For the 1987 tax yea r, Block, in-2-

conju nction wi th various lenders, began promoting another service known as the “Refund Anticipation Loan” or

“RAL”, which allows taxpayers to receive a loan from the lender u

sing their anticipated tax r

efund as collate

ral.

Block customers given the RAL option, must firs t compl ete an application. The application is then sen t via “Compuserve ” in Ohio to the lend

er, Beneficial N

ational Bank, in Delaware. Once approved b y the lender, with

in two to four days,

a check is

presented by Block

to the customer. In this process, the custo mer pays Block its usual preparation and electronic filing fees, and if the application is approved, the customer also pays the lender a finance charge

.

Plaintiff, Christine Berkley, contracted with Block in 1994, 1995, 1996 a

nd 1997 to assist her in preparing her federal income tax returns for those years. Having been advised by Block that she could receive her refund much sooner if she obtained a RAL, plaintiff

applied for RALs in at least three of

those years.

Plaintiff executed the standard RAL application form in 1997 for the 1996 tax year. The application disclosed the cost of the loan and included a specific warning that “because the

APR
on a RAL may be high in certain cases relative to other sources of credit, you may wish to use such sources; e.g., credit cards, equity loans, etc., instead of a RAL.”

Section 7 of the RAL applic ation is an agree

ment to arbitrate. This provision, which was not in the applic

ations of prior ye

ars, is as follows:
ARBITRATION: The parties to this RAL application, the Loan Agreement on the RAL check that I signed and any such prior agreements involving the same parties (collectively, the “Agreements”) hereby agree that any claim or dispute (whether in contract, tort or otherwise) in any way relating to the Agreements or

relating to the relationships of such parties including the validity or enforceability of this arbitration provision or any part thereof, (collectively the “Claim”), shall be resolved, upon the election of either party,

by binding arbitra

tion pursuant to

this arbitration provision and the Code of Procedure of the National Arbitration Forum in effect at the time the Claim is filed. No class actions are permitted to this arbitration without the consent of the parties. The parties agree that for purposes of this

arbitration prov

ision, H&R Block, Inc., its subsidiaries, franchisees, affiliates, ag e nts, and employees (collectively

“Block”) shall be an intended third party beneficiary of the

Agreements and a party to this arbitration provision and any transaction made pursuant to these Agreements

involving Blo c k shall be consider ed a Claim and reso

lved pursuant to th is arbitration provision. Rules and forms of the national Arbitration F orum ma y be obtained by calling (800) 474-2371 and all Claims shall be filed by certified mail at any N ational Arbitrati on office or at Pos

t Office Box 50191 , Minneapoli s , Minnesota

55405. Any participatory arbitration hearing that I attend will take place in the federal judi

cial district in whi

ch I live. This arb

itr atio n agreement is made pursuant to a transaction in

volving interstate

commerce, and shall be governed by the Federal Arbitration Act,

9 U.S.C. Sections 1-16. The award of the Arbitrator sh

all-3- apply relevant law and provide written, reasoned findings of fact and conclusions of law, and shall not be subject to appeal. Judgment upon the award

may be entered in any court having jurisdiction. Nothing in this arbitration provision shall be construed to prevent BNB’s use of offset of other contractual rights involving my income tax refund or other amount on deposit with BNB to pay off any RAL debts nor or hereafter owed by me to BNB or a ny oth er R AL Lender or ERO pursuant to the Agreements. The parties here to acknowledge that they have a right to litigate claims in court, but they prefer to resolve such claims through ar

bitration and hereby waive their rights to litigate such claims in cou rt upon election of arbitration by either party. The parties furt her agree that a

ny Cla im hereunde r shallbe limited to no more than the claimant’ s actual compensa tory, economic damages plus punitive damag es, if any in the Arbitrator’s discretion, of no more than 3 times the claiman t’s respective actual compensa tory, economic damages or $50,000 whichever

is lesser, a nd that each party shall bear the expense of their respective attorney’s fee

s regardless of w

hich party preva

ils. (Bold in original.)

Plai ntiff, in her complaint, charged Block with engaging in unfair or deceptive conduct by, among other thin

gs, failing to disclo

se to her and other Block customers that it received “kickbacks”

from the “Refund

Anticipation Loan

” program. Plainti

ff’s c omplaint alleged a viola tion of the Tennessee Co

nsumer Pr o tection Act, T.C.A. §47-18-101 et seq; breach of Brock’s duty to deal withher fairly and in

good faith, and br

each of Brock’s

fiduciary duty an

d unjust enrichmen

t. Subsequently, she filed a “First Amended Complaint” dropping the claim for breach of fiduciary duty, and adding the claim for breach of principal-agency relationship. Subsequently, she moved to amend the complaint to particularize the factual allegations to seek injunctive relief and demand a jury.

Su bsequently, the Trial Court re fused to compel ar

bitration, but gra

nte d a n interlocutory appeal, which this Court accepted, pu rsuant to Rule 9 of the Tennessee Rules of Appellate Procedure.

The arbitration agre

ement states that “

any claim or disput

e (whether in cont

ract, tort or otherwise) in any way” relatingto the RAL program “shall be resolved, upon the election of either party, by binding arbitra

tion.” Block has cl

early announce

d its election to su

bmi t the dispute to arbitration.

The Federal Arb itration Act, 9 U.S. C. §2, provides:

A written pr ovision in any maritime transaction or a contract evidencing a transaction involving commerce to settl e 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, trans

action, or refus

al, shall be valid, irrevocable, and enforceable,-4- save upon such grounds as exist at law or in equity for the r

evocation of any

contract.
The Supreme Court of Tennessee rece ntly reiterated and emp hasized the appli cability of the F AA in the courts of this state in Frizzell Constructio n Co. Inc. v. Gatlin

burg, L.L.C. , 9 S.W.3d 79 (Tenn. 1999).

A contract “evide

ncin g a transaction involving commerce” may be regulated by Congress as part of its authority to regulate interstate commerce, and includes intrastate act ivit ies that have a substantial relation to interstate commerce. See Frizzell Construction, 9 S.W.3d at 83 (citing United States v. Lopez , 514 U.S. 549, 557059 (1995)). In this case, the Agreement containing the arbitration provision clearly is one that involves such commerce and is therefore within the scope of the FAA.

As the United States Supreme Court explained in Southerland Corp. v. Keating , 465 U. S. 1 (1984), the FAA not only “declared a national policy favoring arbitration,” but actuall y “withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.” 465 U.S. at 10. The FAA enforces arbitration agreements

according to the terms of those agreements, allowing the parties to determine the scope of arbitration.

In Mastrobuono v. Shearson Lehman Hutton, Inc. , 514 U.S. 52 (1995), the issue was whether punitive damages could be properly cons ider ed under the par ties’ arbitration

agreement. The Court stated:

[W] e think our decisions in Allied-Bruce, Southland , and Perry , make clear tha t if contracting parties agree to include claims for punitive damages within the issues to be arbitrated, the FAA ensures that their agreement will be enforced according to its terms even if a rule o f state la w would otherwise exclude such claims from arbitration. Thus, the case before us comes down to what the contra ct has to sa

y about the arbitra

bility of petitioner

s’ claim for puniti

ve damages.

514 U.S. at 52.
In this case, the a rbitration clause

provides that all

issues “including the validity or enforceab ilit y of this arbitration provision or any part thereof” shall be resolved by binding arbitration. The United States Supre me Court has decided

that parties may c

ontract to arbitr

ate this type of dispute under the FAA even if state law would prevent arbitration. See Mastrobuono at 52. The Tennessee Supreme Court has also recogni zed th is principle, wher e the parties con

tract to arbitrate under the FAA. Frizzel Construction Company, Inc. v. Gatl inburg , LLC., 9 S.W.3d 79 (Tenn. 1999), (holding that some issues may be excluded by law from arbitration where the parties
a gree to be bound by Tennessee law.) It follows that the parties may contract to arb itrate th e question of the validity and enforceability of the ar bitr ation clause itself. See First Options of Chicago, Inc. v. Kaplan , 514 U.S. 938, 944-45 (1995) (holding tha

t courts should not a

ssumethat the parties agreed to arbitrate arbitrability unless there is “clear and unmistakable” evidence that they1 As to Delaware law, the Tennessee Consumer Protection Acts states: T.C.A., §18-113(b). Any provision in any agreement or stipulation, verbal or written, restricting jurisdiction or venue to a forum outside this state, or requiring the application of the laws of another state with respect to any claim arising under

or relating to the Tennessee Consumer Protectio

n Act and relate

d acts set forth in this title, is void as a matter of public policy. . . .

-5- didso.). C.f. Greentree v. Wampler , 949 So.2d 409, 415 (Ala. 1999), where the Supreme Court of Alabama held that the issue of whether an arbitration clause is unconscionable is to be decided by a court of law and not arbitration.

Because the contract specifically states that the par ties agreed t o arbitrate the question of the validity or enforceability of the arbitration agre

ement, and beca

use the choice of

law clause states that Federal law and Delaware law apply, the parties must submit the question of arbitration to arbitration. 1

The jud gment of the Trial Court on this issue is reversed, and the cause remanded withinstructions to order the parties to arbitrate the validity and enforcement of the a rb itration clause. If the arbitrato

r finds t he clause not enforceable, the Court will proceed to resolve the disputes between the parties. If the arbitrator determines that the arbitration clause is enforceable, then the parties w

ill be required to a

rbitrate all issue

s covered by the a

rbitration agree

ment. The cause is remanded, with the cost of the appeal assessed to appellee.