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Berent v. CMH Homes, Inc.

Supreme Court of Tennessee, Knoxville

June 5, 2015

RICHARD A. BERENT
v.
CMH HOMES, INC., ET AL

Session November 3, 2014

As Corrected July 24, 2015.

Page 741

Tenn. R. App. P. 11 Appeal by Permission; Judgment of the Court of Appeals Reversed and Case Remanded to the Circuit Court for Hamilton County. Appeal from the Circuit Court for Hamilton County. No. 12C1524-II. Ward Jeffrey Hollingsworth, Judge

William S. Rutchow and Jennifer S. Rusie, Nashville, Tennessee, for the appellants, CMH Homes, Inc., and Vanderbilt Mortgage and Finance, Inc.

Andrew S. Basler, Chattanooga, Tennessee, the appellee, Richard A. Berent.

HOLLY KIRBY, J., delivered the opinion of the Court, in which SHARON G. LEE C.J., and CORNELIA A. CLARK, GARY R. WADE, and JEFFREY S. BIVINS, JJ., joined.

Page 742

In this appeal, we are asked to overrule established precedent regarding the circumstances under which an arbitration provision in an adhesion consumer contract is rendered unconscionable and unenforceable based on non-mutual remedies, i.e., mandating arbitration for the consumer but reserving a judicial forum for the merchant. This case involves an adhesion contract for the sale of a manufactured home. The contract includes an arbitration provision under which the sellers retain the right to seek relief in a judicial forum for limited purposes. After the buyer took possession of the home, he filed a lawsuit against the sellers for breach of contract, and the sellers filed a motion to compel arbitration. The trial court denied the motion to compel. In reliance on this Court's decision in Taylor v. Butler, 142 S.W.3d 277 (Tenn. 2004), the trial court held that the non-mutuality of remedies in the arbitration provision rendered it unconscionable and invalid. The Court of Appeals affirmed, also relying on Taylor. We granted permission to appeal to address whether the ruling in Taylor is preempted by the Federal Arbitration Act under the reasoning in AT& T Mobility LLC v. Concepcion, 563 U.S. 333, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), and to address whether Taylor should be overruled or modified in light of the current majority view in other jurisdictions on the validity of arbitration contracts that include non-mutual remedies. We hold that Taylor did not adopt a per se rule that any degree of non-mutuality of remedies in an arbitration provision in an adhesion contract renders the provision unconscionable and unenforceable. Consequently, the ruling in Taylor is not preempted by federal law. In addition, after reviewing the law in other jurisdictions, we decline to overrule or modify the ruling in Taylor. Applying Taylor to the contract in this case, we conclude that the sellers' retention of a judicial forum for limited purposes does not render the arbitration agreement unconscionable. Accordingly, we reverse the decisions of the Court of Appeals and the trial court and remand to the trial court for further proceedings.

OPINION

HOLLY KIRBY. J.

Facts and Proceedings Below

In December 2010, Plaintiff/Appellee Richard A. Berent bought a manufactured home in Hamilton County, Tennessee, from Defendant/Appellant CMH Homes, Inc. The parties executed a contract setting forth the terms of the sale and the parties' obligations (hereinafter " Installment Contract" ). Mr. Berent financed the home through Appellant/Defendant Vanderbilt Mortgage and Finance, Inc., a subsidiary of CMH Homes. After the sale, CMH Homes assigned its rights under the Installment Contract to Vanderbilt Mortgage and Finance. In this opinion, we refer to CMH Homes and Vanderbilt

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Mortgage and Finance collectively as the " Sellers."

After installation of the home, Mr. Berent found that it was not installed to his satisfaction. According to Mr. Berent, the improper installation of the home resulted in drainage issues, mold, and a host of other problems. Despite his complaint, the problems were not remedied.

Frustrated, Mr. Berent decided to sue the Sellers. In December 2012, he filed a complaint against the Sellers in the Circuit Court of Hamilton County, Tennessee, alleging breach of contract, breach of express and implied warranties, fraud, and violation of the Tennessee Consumer Protection Act (" TCPA" ). Mr. Berent asserted in his complaint that the Installment Contract on the sale of the manufactured home was void as unconscionable.

In response, the Sellers filed a motion to compel arbitration. The motion was based on the arbitration provision (" Arbitration Agreement" ) contained in the Installment Contract. The Arbitration Agreement included the following two paragraphs:

A. Agreement to Arbitrate: Buyer and Seller (sometimes called the " Parties" ) agree to mandatory, binding arbitration (" Arbitration" ) of all disputes, claims, controversies, grievances, causes of action, including, but not limited to, common law claims, contract and warranty claims, tort claims, statutory claims, and, where applicable, administrative law claims, and any other matter in question (" Claims" ) arising from or relating to this Contract, any products/goods, services, insurance, or real property (including improvements to the real property) sold or financed under this Contract, any events leading up to this Contract, the collection and servicing of this Contract, and the interpretation, scope, validity or enforceability of this Contract (with the exception of this agreement to arbitrate, the " Arbitration Agreement" ). The interpretation, scope, validity, or enforceability of this Arbitration Agreement or any clause or provision herein and the arbitrability of any issue shall be determined by a court of competent jurisdiction.
....
G. Exceptions: Notwithstanding any other provision of this Arbitration Agreement, Buyer agrees that Seller may use judicial process (filing a lawsuit): (a) to enforce the security interest granted in this Contract or any related mortgage or deed of trust, and (b) to seek preliminary relief, such as a restraining order or injunctive relief, in order to preserve the existence, location, condition, or productive use of the Manufactured Home or other Collateral. Buyer and Seller also agree that this Arbitration Agreement does not apply to any Claim where the amount in controversy is less than the jurisdictional limit of the small claims court in the jurisdiction where the Buyer resides, provided, however , that the Parties agree that any such small claims Claim may only be brought on an individual basis and not as a class action. Bringing a court proceeding described in this paragraph G., however, shall not be a waiver of Seller's or Buyer's right to compel Arbitration of any other Claim that is covered by this Arbitration Agreement, including Buyer's counterclaim(s) in a suit brought by Seller.

( Underlining and emphasis in original). Thus, the parties agreed to submit to arbitration all disputes " arising from or relating to" the Installment Contract, except that neither would be required to arbitrate small claims. As a further exception, the Arbitration Agreement permitted the Sellers to file a lawsuit in court " to enforce the security interest" or " to seek preliminary

Page 744

relief" against Mr. Berent to preserve the manufactured home.

Mr. Berent argued against the motion to compel arbitration. He contended that the Arbitration Agreement is procedurally and substantively unconscionable and, therefore, unenforceable. In support of his argument, Mr. Berent relied primarily on this Court's decision in Taylor v. Butler. Specifically, Mr. Berent cited the holding in Taylor that the arbitration clause at issue in that case was " unconscionable and therefore void because it reserves the right to a judicial forum for [the defendant] while requiring [the plaintiff] to submit all claims to arbitration." Taylor, 142 S.W.3d at 287.

The trial court was persuaded by Mr. Berent's argument. It entered an order holding that the Arbitration Agreement " is similar to the one struck down in Taylor and is therefore to be considered unconscionable and unenforceable." Accordingly, the trial court denied the Sellers' motion to compel arbitration. The Sellers appealed as of right. See Tenn. Code Ann. § 29-5-319(a)(1) (2012).

The Court of Appeals affirmed the decision of the trial court. Berent v. CMH Homes, Inc., No. E2013-01214-COA-R3-CV, 2014 WL 813874, at *6 (Tenn. Ct.App. Feb. 28, 2014). The intermediate appellate court noted that Taylor had twice been applied " to invalidate an arbitration provision that had a similar one-sided effect of allowing one party access to the judicial system and restricting the other party's access." Id. at *4 (citing Brown v. Tenn. Title Loans, Inc., 216 S.W.3d 780, 786-87 (Tenn. Ct.App. 2006), and McGregor v. Christian Care Ctr. of Springfield, L.L.C., No. M2009-01008-COA-R3-CV, 2010 WL 1730131, at *6-7 (Tenn. Ct.App. Apr. 29, 2010)). Finding that the Arbitration Agreement signed by Mr. Berent had a " one-sided effect" that was " similar" to the agreements held unconscionable in Brown and McGregor, the Court of Appeals concluded that Taylor compelled a conclusion that the Arbitration Agreement is unconscionable. Berent, 2014 WL 813874, at *4.

In the Court of Appeals, the Sellers argued against the application of Taylor, claiming that the rule established in that case is preempted by the Federal Arbitration Act (" FAA" ), relying primarily on the U.S. Supreme Court decision in AT& T Mobility LLC v. Conception. The Court of Appeals rejected that contention, reasoning that " the FAA does not preempt the application of a generally applicable state-law contract defense such as unconscionability." Berent, 2014 WL 813874, at *5.

The Sellers also argued that Taylor should be overturned as the law of the state because the view espoused therein is no longer the majority view. Id. The Court of Appeals declined to address this argument, commenting that it is not the prerogative of the intermediate appellate court to rule on the " continued viability" of a Supreme Court decision. Id. Therefore, the Court of Appeals affirmed the trial court's ruling that the Arbitration Agreement in this case is unconscionable and unenforceable. Id. at *6.

The Sellers sought permission to appeal to this Court to address the " viability" of our decision in Taylor, in light of the U.S. Supreme Court's decision in Concepcion and the majority view in other jurisdictions on non-mutual remedies in arbitration agreements. We granted permission to appeal to clarify Taylor and its application to the facts of this case.

Analysis

In this appeal, the Sellers argue that this Court should reconsider, and ultimately

Page 745

overrule, the decision in Taylor v. Butler, 142 S.W.3d 277 (Tenn. 2004). They characterize Taylor as having created a per se rule that any degree of non-mutuality in the remedies available to the parties in an adhesion arbitration agreement renders the arbitration agreement unconscionable and, therefore, unenforceable. The Sellers argue that the per se rule adopted in Taylor runs afoul of the U.S. Supreme Court's decision in AT& T Mobility LLC v. Concepcion, 563 U.S. 333, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), which held that any state rule that specifically disfavors arbitration agreements is preempted by the Federal Arbitration Act. 131 S.Ct. at 1746-48. Even if the ruling in Taylor is not preempted by federal law, the Sellers argue, this Court should reconsider Taylor. They note that, since Taylor was decided, most of the cases on which Taylor relied have been overruled or abrogated and that " the vast majority of jurisdictions" now hold that non-mutuality of remedies, standing alone, does not render an arbitration agreement unconscionable. In the alternative, should the Court not choose to overrule Taylor, the Sellers argue, it should nevertheless reverse the trial court's decision and hold that the Arbitration Agreement at issue is enforceable.

In response, Mr. Berent argues that Taylor does not create a per se rule that any degree of non-mutuality of remedies in an arbitration agreement renders it unconscionable. Mr. Berent insists that, under Taylor, courts are to assess the fairness of arbitration agreements on a case-by-case basis to determine validity based on any state common-law defense, such as fraud, duress, or unconscionability, so Taylor need not be reconsidered. Applying Taylor here, Mr. Berent urges this Court to hold that the Arbitration Agreement in the ...


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