Patriot Mfg., Inc. v. Dixon, CIV. A. 05-0321WSM.

Page 1298

399 F.Supp.2d 1298

PATRIOT MANUFACTURING, INC., Plaintiff, v. Michael and Kalie DIXON, Defendants.

No. CIV. A. 05-0321WSM.

United States District Court, S.D. Alabama, Southern Division.

November 9, 2005.

Bryan Daniel Smith, Winston R. Grow, Partridge, Smith, P.C., Mobile, AL, for Plaintiff.

J. Charles McCorquodale, IV, Jackson, AL, for Defendants.

ORDER

STEELE, District Judge.

This matter is before the Court on the Petition to Compel Arbitration (doc. 2) filed by plaintiff Patriot Manufacturing, Inc. ("Patriot"). The parties having fully availed themselves of the opportunity to present argument and authority in support of their respective positions, and no party having identified disputes of material fact that might require an evidentiary hearing or other factfinding event, the Court finds that the Petition is ripe for disposition at this time.¹

I. Background.

On or about April 26, 2005, defendants Michael and Kalie Dixon (the "Dixons") filed a lawsuit in the Circuit Court of Clarke County, Alabama, styled Michael and Kalie Dixon v. Patriot Homes of Alabama, Inc., et al., Case No. CV-05-074-B (the "State Court Action"). The Dixons alleged that they had purchased a Patriot-manufactured mobile home from a dealer named Cedar Ridge Homes, Inc. ("Cedar Ridge") in January 2004, but that the home suffered from a litany of defects, including structural and plumbing problems, cracked and warped walls, flooring and electrical deficiencies, and ill-fitting doors and windows. Based on these allegations, the Dixons brought claims against Patriot and Cedar Ridge for, inter alia, breach of warranty, negligence, fraud, and violation of the Magnuson-Moss Warranty Act, 15 U.S.C. §§ 2301, et seq. The State Court Action remains pending at this time.

On June 2, 2005, Patriot initiated this action against the Dixons by filing a Petition to Compel Arbitration (doc. 1) pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. ("FAA"). Cedar Ridge is not a party to this case. Patriot maintains that the Dixons' claims against it in the State Court Action all lie within the scope of an enforceable arbitration agreement (the "Arbitration Agreement") executed by the Dixons, Patriot and Cedar Ridge as part of the mobile home sales transaction. The Arbitration Agreement states as follows:

"All disputes, claims or controversies of every kind or nature that may arise between or among the Owner, Retailer, [or] Patriot ... shall be settled by binding arbitration conducted pursuant to the provisions of 9 U.S.C. Section 1, et seq., and administered by the American Arbitration Association (`AAA') under its commercial Arbitration Rules .... Without limiting the generality of the foregoing, it is the intention of the Owner, the Retailer, and Patriot to resolve by binding arbitration all disputes, whether arising out of tort, contract, or otherwise, arising from, concerning or related to the Home, its design, sale, delivery, warranties, setup, repair, installation, manufacture, performance, condition, or financing or any insurance obtained in connection with the Home, including any dispute, controversy, claim or question of any nature whatsoever related to the enforceability, validity, scope or interpretation of this Arbitration Agreement."

(Petition, Exh. A, ¶ 2.) The Arbitration Agreement is a one-page, standalone document, and does not appear to have been referenced in other transactional documents completed by the Dixons, Cedar Ridge and Patriot at the time of the sale.

In connection with its Petition, Patriot filed a Motion for Preliminary Injunction (doc. 9) seeking a stay of the State Court Action pending resolution of its Petition in federal court. A flurry of briefing ensued, with the Dixons contesting subject matter jurisdiction in the absence of Cedar Ridge (a non-diverse entity) and alternatively arguing that the Court should apply Colorado River abstention. On September 1, 2005, the Court entered an Order (doc. 16) rejecting the Dixons' jurisdictional and abstention attacks, but denying Patriot's Motion for Preliminary Injunction pursuant to the Anti-Injunction Act, 28 U.S.C. § 2283. Perceiving no reason to delay resolution of the merits of the Petition, the Court ordered supplemental briefing on the enforceability of the Arbitration Agreement.

II. Legal Standard.

The strong federal preference for arbitration of disputes expressed by Congress in the FAA must be enforced wherever possible. See Musnick v. King Motor Co. of Fort Lauderdale, 325 F.3d 1255, 1258 (11th Cir.2003). However, notwithstanding this federal policy favoring arbitration, "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." MS Dealer Service Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir.1999) (citation omitted). A district court must undertake a two-step inquiry when considering a motion to compel arbitration. Its first task "is to determine whether the parties agreed to arbitrate that dispute," a determination made by reference to the "federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626-28, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985) (citations omitted). Any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. Id. If the court determines that the parties did agree to arbitrate the dispute in question then the second step is to consider "whether legal constraints external to the parties' agreement foreclosed the arbitration of those claims." Id. at 628.

In determining whether the parties agreed to arbitrate a particular dispute, courts consider: (1) whether there is a valid agreement to arbitrate; and (2) whether the dispute in question falls within the scope of that agreement. See Webb v. Investacorp, Inc., 89 F.3d 252, 258 (5th Cir.1996); Hudson v. Outlet Rental Car Sales, Inc., 876 So.2d 455, 457 (Ala.2003). To resolve these questions, courts apply state law principles relating to ordinary contract formation and interpretation, construed through the lens of the federal policy favoring arbitration. See Young v. Jim Walter Homes, Inc., 110 F.Supp.2d 1344, 1346 (M.D.Ala.2000); Oakwood Mobile Homes, Inc. v. Barger, 773 So.2d 454, 459 (Ala.2000) ("[w]hen deciding whether the parties agree to arbitrate a certain matter (including arbitrability), courts generally ... should apply ordinary state-law principles that govern the formation of contracts") (citations omitted). Under Alabama law, a valid agreement to arbitrate is created when the agreement is voluntarily entered into and is contained in a contract involving interstate commerce. See Old Republic Ins. Co. v. Lanier, 644 So.2d 1258, 1260 (Ala.1994).

III. Analysis.

In this case, there is no dispute that the parties agreed to arbitrate all disputes encompassed by the State Court Action. Thus, the only question before the Court is whether external legal constraints preclude arbitration. The Dixons purport to identify three such constraints. First, they maintain that the agreement is unenforceable as a matter of law because it fails to comport with the "single document rule" under the Magnuson Moss Warranty Act ("MMWA"). Second, they urge the Court to find that binding arbitration agreements are always unenforceable under the MMWA. Third, the Dixons contend that the Arbitration Agreement is unconscionable and that it therefore cannot be enforced against them.

A. Whether the Arbitration Agreement Violates the "Single Document Rule."

The Dixons' first salvo is that the Arbitration Agreement violates the disclosure requirements of the MMWA.

1. Statutory/Regulatory Treatment of Arbitration Agreements.

Under the MMWA, "any warrantor warranting a consumer product to a consumer by means of a written warranty, shall to the extent required by rules of the [Federal Trade] Commission, fully and conspicuously disclose in simple and readily understood language the terms and conditions of such warranty." 15 U.S.C. § 2302(a). The statute specifies that such rules may require inclusion in the written warranty of information concerning any "informal dispute settlement procedure" offered or required by the warrantor. Id. § 2302(a)(8). The MMWA also directs the Federal Trade Commission ("FTC") to design rules containing "minimum requirements for any informal dispute settlement procedure which is incorporated into the terms of a written warranty." Id. § 2310(a)(2).²

In satisfaction of its statutory mandate, the FTC promulgated a rule providing that "[a]ny warrantor warranting to a consumer by means of a written warranty a consumer product actually costing the consumer more than $15.00 shall clearly and conspicuously disclose in a single document in simple and readily understood language," nine specific items of information. 16 C.F.R. § 701.3(a). This requirement is known as the "single document rule."³ The nine items that must be disclosed in a written warranty are as follows: (i) the identities of parties to whom the warranty is extended; (ii) a clear description and identification of any parts of the product excluded from the warranty; (iii) a statement of what the warrantor will and will not do in case of defect, malfunction or other nonconformity of the product to the warranty; (iv) the temporal boundaries of the warranty; (v) a step-by-step description of the procedure for consumers to obtain performance under the warranty; (vi) "[i]nformation respecting the availability of any informal dispute settlement mechanism elected by the warrantor;" (vii) a statement identifying any limitations on the duration of implied warranties; (viii) a statement of exclusions or limitations on relief (such as incidental or consequential damages); and (ix) a statement advising the buyer that the warranty confers specific legal rights, and that other...