Opinion ID: 1945569
Heading Depth: 2
Heading Rank: 1

Heading: whether the trial court erred in denying defendants' motion to compel arbitration and stay litigation

Text: ¶ 7. A lower court's grant or denial of a motion to compel arbitration is reviewed de novo. East Ford, Inc. v. Taylor, 826 So.2d 709, 713 (Miss.2002). ¶ 8. The fraudulent actions alleged by Plaintiffs resulted in the purchase of vehicles, a transaction involving commerce. Written agreements to arbitrate contained in contracts evidencing a transaction involving commerce are subject to the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., and in determining whether to grant a motion to compel arbitration of a dispute subject to the FAA, there are two prongs of inquiry. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626-28, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985); East Ford, 826 So.2d at 713. The first prong the Court must examine is whether the parties agreed to arbitrate the dispute. Id. Second, the Court must determine whether legal constraints external to the parties' agreement bar arbitration of the claims. Id. Prong 1: Whether the parties agreed to arbitrate the dispute ¶ 9. The first prong is two-fold in that the court considers whether there is a valid arbitration agreement and then whether the parties' dispute is within the scope of the arbitration agreement. East Ford, 826 So.2d at 713.
¶ 10. Plaintiffs do not dispute the validity of the arbitration agreement. Instead, the parties disagree about the scope of the agreement, specifically, whether the Plaintiffs' claim of fraudulent behavior is encompassed within the arbitration provision.
¶ 11. This appeal centers around the parties' disagreement as to the interpretation of the agreement. Defendants dispute who, a court or an arbitrator, should interpret the agreement and determine its scope as well as whether the arbitration agreement in the retail installment contract encompasses Plaintiffs' claims. Consequently, two questions must be answered: (1) whether the proper forum for determining the scope of the arbitration agreement is in court or in arbitration, AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (citing United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83, 80 S.Ct. 1347 4 L.Ed.2d 1409 (1960)), and (2) whether the arbitration agreement encompasses the dispute, Mitsubishi Motors, 473 U.S. at 626-28, 105 S.Ct. 3346. Efficiency dictates that we decide first whether it is proper for the court to interpret the arbitration agreement before attempting to interpret it. ¶ 12. First, we must determine the proper interpreter of the arbitration agreement. We have not previously answered this particular inquiry. However, since the FAA governs the enforcement of the disputed agreement, we are bound by the decisions of the United States Supreme Court, which has spoken on the issue. While this Court consistently recognizes the established federal policy favoring arbitration agreements, Terminix Int'l, Inc., Ltd. P'ship v. Rice, 904 So.2d 1051, 1055 (Miss.2004), [t]he presumption in favor of arbitration does not apply to the question of who should decide arbitrability, because the purpose of the FAA was to make arbitration agreements as enforceable as other contracts, not more so, First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 945, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). Whether a party is bound by an arbitration agreement is generally considered an issue for the courts, not the arbitrator, [ u]nless the parties clearly and unmistakably provide otherwise. AT & T Technologies, 475 U.S. at 649, 106 S.Ct. 1415 (emphasis added). In other words, when the parties have explicitly agreed that the question of arbitrability is to be decided by an arbitrator rather than the court, that agreement must be interpreted by an arbitrator. ¶ 13. The United States Supreme Court has mandated that general contract principles will apply. Consequently, the general practice of allowing courts to determine the issue of arbitrability is superceded by the contractual terms of an arbitration provision which provide that arbitrability will be decided by an arbitrator. The terms of the arbitration provision must be honored in a dispute over arbitrability. Therefore, arbitration of the issue of arbitrability is the mandatory result if those are the terms to which the parties have validly agreed. That premise is entirely consistent with the view of this Court. It is well established that parties may agree on the scope of arbitration in any way they desire. B.C. Rogers Poultry, Inc. v. Wedgeworth, 911 So.2d 483, 491 (Miss.2005). Contracts are solemn obligations, and the court must give them effect as written. Id. at 487. ¶ 14. Under the exception in the binding authority, the question becomes whether the agreement clearly and unmistakably states that interpretation of the agreement will be arbitrated. The pertinent part of the arbitration provision reads: Either you or Creditor (us or we) (each, a Party) may choose at any time, including after a lawsuit is filed, to have any Claim related to this contract decided by arbitration. Such claims include, but are not limited to the following: (1) claims in contract, tort, regulatory, or otherwise; (2) claims regarding the interpretation, scope or validity of this clause or arbitrability of any issue. . . . (Emphasis added). ¶ 15. Defendants assert that the circuit court never should have ruled on the question of whether Plaintiffs agreed to arbitrate their claims when one of the specific examples in the agreement lists disputes as to arbitrability of claims as an example of issues for which the parties agreed to submit to arbitration. Plaintiffs contend that the governing language is the general language related to [the retail installment] contract which precedes the specific example Defendants cite. Plaintiffs maintain that the general language does not apply to their claim, which relates to pre-sale fraudulent representations and not to the retail installment contract, a financing agreement between the plaintiffs and GCFM. Thus, Plaintiffs argue that the example of arbitrability does not encompass arbitrability of a claim unrelated to the retail installment contract, such as the claim in this case, and accordingly, that the court, not an arbitrator should interpret the agreement because at a minimum the general and specific language Defendants cite is conflicting as opposed to clear and unmistakable. ¶ 16. Clearly, the language of the arbitration agreement directs that disputes regarding interpretation of the agreement, including scope and arbitrability of issues, to be decided by an arbitrator. Though Plaintiffs dispute the clarity of the language in the provision, the examples in the arbitration provision explicitly identify disputes as to interpretation, scope, validity, and arbitrability of any issue as those subject to arbitration upon the initiation of either party, including after litigation had begun. [3] Therefore, this clear and unmistakable language requires this Court to find that the appropriate forum for interpretation is arbitration. ¶ 17. Had we found the court capable of deciding arbitrability, we would proceed to determine whether the arbitration agreement encompasses the dispute. However, we need not proceed to the rules of interpretation for arbitration provisions in order to determine whether the circuit court's interpretation of the provision in dispute was proper since we have found that the court was the improper forum for such a determination, and therefore, the circuit court judgment is ineffective. Having applied the first prong of the two-pronged inquiry, this Court finds that the issue on reviewwhether the plaintiffs' allegations of fraudulent behavior by the defendants are subject to the arbitration agreement in the retail installment contractis properly decided by an arbitrator rather than a court. Prong 2: Whether Legal Constraints External to the Parties' Agreement Foreclose Arbitration of the Claim ¶ 18. As for the second prong of the test, the existence of legal constraints external to the parties' agreement, foreclosing arbitration of the claim, even if the claim was found to be within the arbitration provision in question, [t]he FAA mandates that arbitration agreements shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. Rice, 904 So.2d at 1055 (internal quotes omitted). In considering this prong, courts should apply ordinary state-law contract principles. East Ford, 826 So.2d at 713-14. Defenses such as fraud, duress, and unconscionability may be asserted to invalidate the arbitration agreement without offending the FAA. See id. at 714. ¶ 19. Plaintiffs allege that they were fraudulently induced to purchase vehicles. Plaintiffs further claim that they were fraudulently induced to enter into a sales contract, and it is only with regard to such sale contract that they claim fraudulent inducement. Yet, no such contract was presented to this Court in either the record, only mentioned in the briefs. This Court is limited to consideration of the facts in the record, while reliance on facts only disclosed in the briefs is prohibited. Atlantic Horse Ins. Co. v. Nero, 108 Miss. 321, 329, 66 So. 780 (1914). Moreover, per the issues raised by the parties in response to the circuit court's denial of defendants' motion to compel arbitration, the subject matter under consideration on review consists exclusively of the arbitration agreement in the retail installment contract. Plaintiffs argue that the retail installment contract encompassing the arbitration agreement is wholly unrelated to the sale of the vehicles and, thus, their claims of fraud. Therefore, as the second prong of the test requires assertion of a contract defense, clearly, Plaintiffs have neither raised the argument nor presented evidence indicating that they were fraudulently induced to enter into the arbitration agreement. Having found from the plaintiffs no allegation of fraudulent inducement to entering the arbitration agreement and no defense presented before the Court as to why the arbitration provision should be deemed unenforceable, this Court finds no legal constraints external to the parties' agreement that would foreclose arbitration. ¶ 20. Mississippi law honors contracts as written, a concept the dissent acknowledges but fails to apply. The dissent wholly misses the dispute between the parties on appeal. On appeal from the circuit court's denial of defendants' motion to compel arbitration, the parties dispute one thingthe interpretation of the arbitration agreement. Plaintiffs agreed that upon the occurrence of such a dispute, the parties would submit to arbitration of that issue, and the United States Supreme Court, which this Court is indeed bound to follow, has mandated that we honor the parties' choice. We would act in derogation of the United States Supreme Court as well as the parties' intent to interpret or allow any court, including this one, to interpret the arbitration agreement when the parties have contracted otherwise. We decide today neither whether Plaintiffs' claims are encompassed by the arbitration agreement nor whether the entire case must be decided by arbitration or by trial. Because we honor the parties' written agreement, the dissent voices a fear which is unfounded. We do not end litigation and send the entire case to be arbitrated. We send the parties, according to their undisputed, explicit wishes, to arbitration solely to determine arbitrability of their claims. ¶ 21. Upon completion of the two-pronged inquiry, the decisions of this Court and the United States Supreme Court necessitate that we honor the agreement of the parties as evidenced in their contract and find that the circuit court erred in ruling on the interpretation of the arbitration provision and declaring its scope. The trial court decision is vacated as to its determination of arbitrability of the claims.