Richard A. Berent v. CMH Homes, Inc.
2015 Tenn. LEXIS 464
Tenn.2015Background
- In Dec. 2010 Richard Berent bought a manufactured home from CMH Homes and financed it through Vanderbilt (a CMH subsidiary); the Installment Contract included an arbitration clause.
- Berent sued the Sellers in 2012 alleging breach, warranty claims, fraud, and TCPA violations after installation problems; he argued the Installment Contract was unconscionable.
- The arbitration clause required arbitration of all disputes except (a) small-claims under the jurisdictional limit, and (b) allowed Seller to sue in court to enforce its security interest or seek preliminary injunctive relief to preserve the manufactured home.
- The trial court denied the Sellers’ motion to compel arbitration, relying on Taylor v. Butler (142 S.W.3d 277 (Tenn. 2004)) which found a one-sided forum-selection clause unconscionable; the Court of Appeals affirmed.
- Sellers sought review to (1) clarify or overturn Taylor in light of AT&T Mobility v. Concepcion and recent authority, and (2) obtain an order compelling arbitration.
- The Tennessee Supreme Court held Taylor does not create a per se rule invalidating any non-mutual remedial carve-out, concluded Taylor is not preempted by the FAA, declined to overrule Taylor, and found the particular foreclosure/preliminary-relief carve-out here was not unconscionable; it reversed and remanded.
Issues
| Issue | Plaintiff's Argument (Berent) | Defendant's Argument (Sellers) | Held |
|---|---|---|---|
| Whether Taylor created a per se rule that any non-mutuality in an adhesive arbitration clause is unconscionable | Taylor established a per se rule that any merchant-only access to courts renders arbitration clause unconscionable | Taylor adopted a per se rule and that rule is preempted by the FAA (Concepcion) and should be overruled | Taylor does not adopt a per se rule; it requires case-by-case unconscionability analysis considering degree of one-sidedness |
| Whether Taylor is preempted by the Federal Arbitration Act under Concepcion | Taylor is a valid state-law contract defense (unconscionability) and not preempted | Taylor conflicts with FAA policy favoring arbitration and should yield | Taylor is not preempted; it applies ordinary contract defenses equally to arbitration agreements consistent with Concepcion |
| Whether the specific arbitration clause in the Installment Contract is unconscionable | The clause is one-sided (seller can use courts for foreclosure/preliminary relief; buyer must arbitrate) and thus unconscionable under Taylor | The carve-out is limited, has business justification (protecting security interest), and AAA rules/other law mitigate one-sidedness | Clause is not unconscionable on these facts; carve-out for foreclosure/preliminary relief is reasonable; arbitration agreement enforceable |
| Whether case should be remanded on fraud/consideration issues | Alleged fraud in formation may void arbitration; trial court should evaluate | Trial record lacks evidence of fraud; court should compel arbitration now | Court remanded for trial court to consider fraud/formation issues as appropriate; those claims were outside scope of this appeal |
Key Cases Cited
- Taylor v. Butler, 142 S.W.3d 277 (Tenn. 2004) (held an adhesive arbitration clause void as unconscionable where drafter reserved judicial forum while consumer was forced to arbitrate)
- AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (U.S. 2011) (state rules that single out arbitration or undermine fundamental attributes of arbitration are preempted by the FAA)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (U.S. 1967) (arbitrability and fraudulent inducement principles)
- Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681 (U.S. 1996) (FAA permits application of generally applicable contract defenses to arbitration agreements)
- Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (U.S. 1985) (piecemeal litigation acceptable where some claims are arbitrable and others are not)