Court Opinion

ID: 1076540
Source: CourtListenerOpinion
Date Created: 2013-10-09 20:19:23.866523+00
Date Added: 2024-06-11T12:06:19.123009
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                         AT NASHVILLE
                                                       FILED
                                                         April 19, 1999

PAMELA BROWN,                            )             Cecil Crowson, Jr.
                                         )            Appellate Court Clerk
       Plaintiff/Appellee,               )
                                         )   Appeal No.
                                         )   01-A-01-9807-CH-00368
VS.                                      )
                                         )   Davidson Chancery
                                         )   No. 97-2465-II
KAREMOR INTERNATIONAL, INC.              )
and HAGER MARKETING GROUP                )
(a/k/a HMG),                             )
                                         )
       Defendants/Appellants.            )

      APPEALED FROM THE CHANCERY COURT OF DAVIDSON COUNTY
                     AT NASHVILLE, TENNESSEE

              THE HONORABLE CAROL L. MCCOY, CHANCELLOR

KEVIN H. SHARP
CHRISTINE J. LAIRD
424 Church Street, Suite 2800
Nashville, Tennessee 37219
      Attorneys for Plaintiff/Appellee

SCOTT D. CAREY
511 Union Street, Suite 1700
Nashville, Tennessee 37219
      Attorney for Defendants/Appellants

                             AFFIRMED AS MODIFIED
                                AND REMANDED

                                                  BEN H. CANTRELL,
                                                  PRESIDING JUDGE, M.S.

CONCUR:
CAIN, J.
COTTRELL, J.

                                OPINION
                The Chancery Court of Davidson County refused to enforce an

arbitration provision in a product distribution agreement. The court reasoned that the

written agreement was an adhesion contract and that the parties had not bargained

over the arbitration provision. We affirm as to the claims not related to the written

agreement. As to the claim involving a breach of the agreement, we modify the lower

court’s order to reflect that the question is still open

.                                           I.

                In July of 1997 Pamela Brown filed an action in the Chancery Court of

Davidson County naming KareMor International, Inc. and Hager Marketing Group as

defendants. The complaint alleged that KareMor was a network marketing company

for Mayor Pharmaceutical Laboratories, Inc., a marketer of vitamins and other

nutrients. According to the complaint Ms. Brown signed a distributor agreement with

KareMor in January of 1996 and purchased five boxes of product for $2,790.00.

About a week later she attended a KareMor event in Atlanta and was persuaded to

purchase eight additional boxes of product for $18,520. She later spoke with a

KareMor area coordinator who promised to help her get her money back. Still later,

a KareMor vice president promised Ms. Brown that the company would make some

adjustments to the product if she would return part of it to the company. She returned

the product, but the company kept the product and did not make the promised

adjustments.

                The complaint included counts of fraudulent inducement to enter into the

distributorship agreement, unfair and deceptive practices under the Tennessee

Consumer Protection Act, breach of the distributorship agreement, and conversion of

her property.

                                           -2-
             KareMor filed an answer admitting that Ms. Brown became a distributor

for the company and purchased the product described in the complaint, but the

answer denied the other material allegations. The answer contained an affirmative

defense alleging that Ms. Brown was contractually obligated to arbitrate any dispute

she had with KareMor.

             KareMor then filed a motion for summary judgment on the arbitration

defense and attached a copy of the “Distributor Application and Agreement.” The

form agreement contained some general information on the front, filled in by Ms.

Brown, and a section showing that she enrolled in a plan called “E-Plan: Golden

Showcase Enrollment System” at a price of $2,790.00. Although titled “Application

and Agreement” the form does not show any acceptance by the company. In their

statements of undisputed facts filed in connection with the motion for summary

judgment, however, the parties agree that the form exhibited with the motion is a copy

of the agreement signed by Ms. Brown.

             The agreement also included the following statements on the front page

in very small print: “I hereby acknowledge that I have received a copy of KareMor

International’s Policies and Procedures. I have read and understand the Terms and

Conditions on the back of this agreement and agree to abide by the Policies and

Procedures of KareMor International, Inc.” The back of the agreement contained

seventeen “Terms and Conditions” in print only slightly larger than the quoted

language on the front. The sixteenth item stated:

              This Agreement, its interpretation, construction, and
              enforcement, shall be governed by the laws of the State
              of Nevada. Any controversy, dispute, or claim relating to
              this agreement between the parties shall be resolved by
              binding arbitration in Carson City, Nevada, in accordance
              with the rules of the American Arbitration Association, and
              any judgement of the Arbitrator shall be entitled to
              enforcement by any court having jurisdiction over the
              parties.

                                         -3-
At the bottom of the back page the company’s address appeared as: “KareMor

International, P. O. Box 21858, Phoenix, AZ 85036-1858.” There is no further proof

in the record. Consequently, the record is silent as to the circumstances under which

the parties entered into the agreement.

                                          II.

             In 1983 our legislature passed the Uniform Arbitration Act, Tenn. Code

Ann. § 29-5-301, et seq. At long last an agreement to arbitrate became binding on

the parties in Tennessee, contrary to the common law rule and the interpretation given

our prior statutes. See Meirowsky v. Phipps, 432 S.W.2d 885 (Tenn. 1968). But an

agreement containing an arbitraion provision does not require the parties to submit

to arbitration disputes unrelated to the agreement. An arbitration agreement in an

employment contract does not require the employee to submit to arbitration a claim

under the Tennessee Human Rights Act. Jacobsen v. ITT Fin. Services Corp., 762
F. Supp. 752 (E. D. Tenn. 1991). If a contract containing an arbitration provision is

procured by fraud, the plaintiff does not have to seek arbitration on the right to

rescind. City of Blaine v. John Coleman Hayes & Assoc., 818 S.W.2d 33 (Tenn. App.

1991).

             The language appearing on the back page of the agreement exhibited

to the motion for summary judgment says “any controversy, dispute or claim relating

to this agreement between the parties shall be resolved by binding arbitration in

Carson City, Nevada.” The complaint includes four counts, three of which are not

related to the written agreement. A claim for fraud in the inducement is a tort claim

not dependent on the agreement. The claims for violating the Tennessee Consumer

Protection Act and for conversion of Ms. Brown’s property are not claims “relating to

the agreement.” Even if we assume that the arbitration provision in the agreement

was binding on the parties, Ms. Brown would not be required to arbitrate these claims.

                                          -4-
              The remaining count in the complaint -- for breach of contract -- does

come within the language of the agreement. The chancellor, however held that

“Based on the rationale used in [Buraczynski] that a contract of adhesion was signed

and the analysis provided by that court, the court finds that this provision is in an

adhesion contract and it is not clear and it was not fully disclosed at the time that it

was signed . . . .” The reference to Buraczynski was to Buraczynski v. Eyring, 919
S.W.2d 314 (Tenn. 1996) in which the Supreme Court upheld an arbitration provision

in a contract between a physician and his patient. The Court did, however, issue a

word of caution that “such agreements may constitute contracts of adhesion which

must be closely scrutinized to determine if unconscionable or oppressive terms are

imposed upon the patient . . . .” 919 S.W.2d at 316.

              The Court defined an adhesion contract as “a standardized contract

form offered to consumers of goods and services on essentially a ‘take it or leave it’

basis, without affording the consumer a realistic opportunity to bargain . . . ” (citing

Black’s Law Dictionary 40 (6th ed. 1990). Id. at 320. The Court went on to say,

however, that an adhesion contract is not per se unenforceable. “Enforceability

generally depends upon whether the terms of the contract are beyond the reasonable

expectations of an ordinary person, or oppressive or unconscionable.” Id.

              Our analysis of this question is hampered by the absence of any

evidence in the record. The only thing that is established is the agreement, which Ms.

Brown admits she signed, and she admits that it did contain the arbitration provision.

There is no proof concerning the circumstances under which Ms. Brown signed the

agreement. If the arbitration provision was brought to her attention or the contract has

some connection to Carson City, Nevada, the facts must at this point remain in the

realm of speculation.

                                         -5-
             KareMor argues that Ms. Brown had the burden to furnish proof that the

“Terms and Conditions” on the reverse side of the agreement were not brought to her

attention if she is to escape the application of the arbitration provision. W e think,

however, that the burden was on KareMor to show that the parties actually bargained

over the arbitration provision or that it was a reasonable term considering the

circumstances. In Parton v. Pirtle Oldsmobile Cadillac-Isuzu, Inc., 730 S.W.2d 634

(Tenn. App. 1987) we dealt with a contract containing boilerplate clauses and said,

“a party who signs a printed form furnished by the other party will be bound by the

provisions in the form over which the parties actually bargained and such other

provisions that are not unreasonable in view of the circumstances surrounding the

transaction.” 730 S.W.2d at 638. Looking at the four corners of the agreement in this

case, we could not say that a provision buried on the reverse side of a form

agreement, allegedly signed in Tennessee, requiring that any dispute over the

agreement be arbitrated in Carson City, Nevada, was a reasonable provision.

              Therefore, we think the question of whether the parties were bound by

the arbitration provision is still open. But the chancellor was correct in denying

summary judgment to KareMor on that point.

              The judgment of the court below is affirmed as modified in this opinion.

The cause is remanded to the Chancery Court of Davidson County for further

proceedings. Tax the costs on appeal to KareMor, International, Inc.

                                                 ____________________________
                                                 BEN H. CANTRELL,
                                                 PRESIDING JUDGE, M.S.

CONCUR:

                                        -6-
_____________________________
WILLIAM B. CAIN, JUDGE

_____________________________
PATRICIA J. COTTRELL, JUDGE

                                -7-