Hudson et al v. Windows USA, LLC et al

Filing 31

ORDER granting 12 Motion to Compel; denying 12 Motion to Dismiss for Lack of Jurisdiction; denying 12 Motion to Dismiss for the reasons set out in the Order. Defendants Windows USA, LLC, d/b/a Windows USA and Alaskan Window Systems, and Big Four Companies, Inc.'s Joinder 17 in Wells Fargo's Motion to Compel Arbitration will be set for oral argument. Counsel should contact the undersigned's Courtroom Deputy, Shone Powell, within seven days of the entry of this Order to set the matter. Supplemental ten-page briefs, addressing the issues raised by the Court herein, shall be filed ten days before the scheduled hearing. Signed by District Judge Daniel P. Jordan III on April 5, 2017. (SP)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF MISSISSIPPI
NORTHERN DIVISION
ARCHIE & ANGELA HUDSON,
on behalf of themselves and all of those
similarly situated

PLAINTIFFS

v.

CIVIL ACTION NO. 3:16cv596-DPJ-FKB

WINDOWS USA, LLC, d/b/a WINDOWS USA
& ALASKAN WINDOW SYSTEMS;
BIG FOUR COMPANIES, INC.; and WELLS
FARGO, N.A.

DEFENDANTS

ORDER
This case is before the Court on Defendant Wells Fargo National Bank’s (“Wells Fargo”)
Motion to Compel Arbitration and Dismiss under Federal Rule of Civil Procedure 12(b)(1) or
12(b)(3) [12] and Defendants Windows USA, LLC, d/b/a Windows USA and Alaskan Window
Systems (“Windows USA”), and Big Four Companies, Inc.’s (“Big Four”) Joinder [17] in Wells
Fargo’s Motion to Compel Arbitration.1 Because the Court concludes that the claims against
Wells Fargo are within a valid arbitration agreement with a delegation clause, Wells Fargo’s
motion to compel arbitration is granted, but the Court denies the motion to the extent Wells
Fargo seeks dismissal. As for Windows USA and Big Four’s joinder in Wells Fargo’s motion,
the Court will set the matter for oral argument and seek additional briefing from the parties.
I.

Facts and Procedural History
This case arises from Plaintiffs Archie and Angela Hudson’s purchase of new windows

for their home from Defendant Windows USA. Big Four is allegedly the managing member of
Windows USA. Compl. [1] ¶ 4. The purchase occurred following an in-home demonstration

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The Complaint named Wells Fargo, N.A., as a defendant, but Wells Fargo asserts that
“[t]here is no such entity.” Def.’s Mot. [12] at 1 n.1.

and was financed via a Visa Home Projects Program credit card issued by Defendant Wells
Fargo.
The Hudsons say Defendants’ sales practices leading to the purchase and financing are
deceptive, fraudulent, and unconscionable. They therefore filed this lawsuit on July 28, 2016,
asserting statutory claims under the Truth in Lending Act and the Mississippi Consumer
Protection Act as well as common-law claims for fraud, breach of contract, breach of implied
warranties and covenants, and gross negligence. The Hudsons seek actual and punitive damages
for themselves and on behalf of a class of similarly situated individuals under Federal Rule of
Civil Procedure 23.
On September 16, 2016, Defendant Wells Fargo filed its Motion to Compel Arbitration
[12]. Wells Fargo asserts that, pursuant to the terms of the credit-card application the Hudsons
signed, they must arbitrate their claims against Wells Fargo. Defendants Windows USA and Big
Four have joined in Wells Fargo’s motion. Joinder [17]; Mem. [18]. Plaintiffs initially
responded to the arbitration motion with a request for arbitration-related discovery, Pl.’s Mot.
[15], but the Court denied that request and granted Plaintiffs additional time to respond to
Defendants’ motion and joinder. Order [26]. The matters raised have now been briefed, and the
Court has personal and subject-matter jurisdiction.
II.

Analysis
The sole issue before the Court is whether the Hudsons must arbitrate their claims against

Defendants under the Wells Fargo credit-card application they admittedly signed on December 9,
2015. Credit Card Account Application [12-1]. According to the Hudsons, they signed the first
page of that ten-page document, but Windows USA’s sales representative, Aaron Williams,

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never presented the other nine pages of the application and pressured the Hudsons to sign
without reading the document.
There is no dispute that the contract included an arbitration agreement, which is twice
referenced just above the Hudsons’ signatures:

Id. at 1; see id. at 2 (containing the Arbitration Agreement). Wells Fargo therefore seeks an
order compelling arbitration under the Federal Arbitration Act; Windows USA and Big Four join
that motion.
A. Motion to Compel Arbitration
The Federal Arbitration Act provides as follows:
If any suit or proceeding be brought in any of the Courts of the United Sates upon
any issue referable to arbitration under an agreement in writing for such
arbitration, the court in which such suit is pending, upon being satisfied that the
issue involved in such suit or proceeding is referable to arbitration under such an
agreement, shall on application of one of the parties stay the trial of the action
until such arbitration has been had in accordance with the terms of the agreement.
9 U.S.C. § 3. “Arbitration is a matter of contract between the parties, and a court cannot compel
a party to arbitrate unless the court determines the parties agreed to arbitrate the dispute in
question.” Pennzoil Expl. & Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1064 (5th Cir.
1998).
Enforcement of an arbitration agreement involves two analytical steps. The first
is contract formation—whether the parties entered into any arbitration agreement
at all. The second involves contract interpretation to determine whether this
claim is covered by the arbitration agreement. Ordinarily both steps are questions
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for the court. But where the arbitration agreement contains a delegation clause
giving the arbitrator the primary power to rule on the arbitrability of a specific
claim, the analysis changes.
Kubala v. Supreme Prod. Servs., Inc., 830 F.3d 199, 201 (5th Cir. 2016) (citations omitted).
In this case, Wells Fargo asserts that the arbitration agreement contains an express
delegation clause and otherwise incorporates the American Arbitration Association (“AAA”)
Rules, which include a delegation provision. See Credit Card Account Application [12-1] at 2
(requiring arbitration over “disagreements about the meaning or application of this Arbitration
Agreement” and providing that arbitration will take place “according to the [AAA] Commercial
Arbitration Rules and the Supplemental Procedures for Consumer Related Disputes”). Wells
Fargo is correct that, if there is a valid arbitration agreement, then the delegation provision,
coupled with the incorporation of the AAA Rules, “present[] clear and unmistakable evidence
that the parties agreed to arbitrate arbitrability.” Petrofac, Inc. v. DynMcDermott Petroleum
Operations Co., 687 F.3d 671, 675 (5th Cir. 2012).
Since Wells Fargo has pointed to a delegation clause, “the [C]ourt’s analysis is limited.”
Kubula, 830 F.3d at 202. It considers only “whether there is any agreement to arbitrate any set
of claims”—a decision that “turns on state contract law.” Id. Under Mississippi law, “[t]he
elements of a contract are (1) two or more contracting parties, (2) consideration, (3) an
agreement that is sufficiently definite, (4) parties with legal capacity to make a contract, (5)
mutual assent, and (6) no legal prohibition precluding contract formation.” GGNSC Batesville,
LLC v. Johnson, 109 So. 3d 562, 545 (Miss. 2013) (internal quotation marks, citation, and
emphasis omitted).
Here, the Hudsons attack the fifth element—mutual assent—asserting fraud in the
factum. Fraud in the factum is one exception to the general rule that “[a] party is under an
obligation to read a contract before signing it, and will not . . . be heard to complain of an oral
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misrepresentation the error of which would have been disclosed by reading the contract.” Ross
v. Citifinancial, Inc., 344 F.3d 458, 465 (5th Cir. 2003). “[F]raud in factum is a
‘misrepresentation as to the nature of a writing that a person signs with neither knowledge nor
reasonable opportunity to obtain knowledge of its character or essential terms.’” GuideOne Mut.
Ins. Co. v. Rock, No. 1:06cv218-SA-JAD, 2009 WL 2195047, at *3 (N.D. Miss. July 22, 2009)
(quoting Ross v. Citifinancial, Inc., 344 F.3d 458, 465 (5th Cir. 2003)).
But there is a key caveat to this defense in the arbitration context. Only fraud in the
factum “relate[d] to the arbitration clause itself” can impact the question of whether a party to a
contract “can be compelled to arbitrate.” R.M. Perez & Assocs., Inc. v. Welch, 960 F.2d 534, 538
(5th Cir. 1992), overruled on other grounds as recognized in Brabham v. A.G. Edwards & Sons,
Inc., 376 F.3d 377, 381 (5th Cir. 2004). If the alleged fraud in the factum instead “relates to the
entire agreement, then the Federal Arbitration Act requires that the fraud claim be decided by an
arbitrator.” Id. (citing Prima Paint Corp. v. Flood and Conklin Mfg. Co., 388 U.S. 395, 404
(1967)).
And that is precisely what the Hudsons allege. According to them, they were tricked into
signing a credit-card agreement rather than a closed-in loan form. Hudson Aff. [27-1] ¶ 7. The
salesman allegedly completed the credit-card application and “presented it to [the Hudsons],
mixed with a plethora of other forms he had filled out [and] instructed [them] to hurry up and
sign.” Id. ¶ 11. As such, the Hudsons “never agreed to, [n]or were given a chance to read and
understand . . . the now-discovered . . . Arbitration Clause printed on the back of the Wells Fargo
Credit Card Agreement prior to [the salesman] defrauding [them] into signing page one of that
misrepresented instrument.” Id. ¶ 27; see also Pls.’ Mem. [27] at 3 (arguing fraud in the factum
as to the “Credit Card Agreement, including but not limited to, its Arbitration [Agreement]”).

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Because the Hudsons say the entire agreement was procured through fraud in the factum, their
fraud-in-the-factum defense may not be considered by the Court. See Prima Paint Corp., 388
U.S. at 404. Wells Fargo’s motion to compel arbitration will be granted.
Finally, Wells Fargo urges the Court to dismiss the claims against it. While the relevant
section of the Federal Arbitration Act provides that a court “shall . . . stay” an action in which
claims are referable to arbitration, 9 U.S.C. § 3, the Fifth Circuit has held that dismissal is
appropriate “when all of the issues raised in the district court must be submitted to arbitration,”
Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992). Here, not all of the
issues raised have been submitted to arbitration at this time. See infra. And even if Alford
applied, it did not require dismissal but “held merely that dismissal was not an abuse of
discretion.” Apache Bohia Corp., LDC v. Texaco China, B.V., 330 F.3d 307, 311 n.9 (5th Cir.
2003). Given that the case otherwise remains open at this time, the Court declines to dismiss the
claims against Wells Fargo and will instead stay the case as to those claims.
B. Joinder in Motion to Compel Arbitration
A closer question is presented by Windows USA and Big Four’s joinder in Wells Fargo’s
motion. Those defendants—both nonsignatories to the agreement containing the arbitration
provision—say that the Hudsons must arbitrate their claims against them because those claims
are inextricably intertwined with the claims against Wells Fargo. While Mississippi did not
always recognize a nonsignatory defendant’s right to compel arbitration, see generally Parkerson
v. Smith, 817 So. 2d 529 (Miss. 2002) (McRae, J.), the state eventually adopted various forms of
equitable estoppel, beginning with B.C. Rogers Poultry v. Wedgeworth, 911 So. 2d 483 (Miss.
2005).

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In Wedgeworth, a nonsignatory defendant attempted to compel a signatory plaintiff to
arbitrate. The Mississippi Supreme Court acknowledged the Fifth Circuit’s seminal opinion in
Grigson v. Creative Artists Agency L.L.C., 210 F.3d 524 (5th Cir. 2000), finding it “instructive”
but not binding. Wedgeworth, 911 So. 2d at 491. The court explained that Grigson establishes
two avenues for a nonsignatory to compel a signatory to arbitrate. Id. The first occurs “‘when
the signatory to a written agreement containing an arbitration clause must rely on the terms of the
written agreement in asserting its claims against a nonsignatory.’” Id. (quoting Grigson, 210
F.3d at 527). The second exists “‘when the signatory to the contract containing an arbitration
clause raises allegations of substantially interdependent and concerted misconduct by both the
nonsignatory and one or more of the signatories to the contract.’” Id. (quoting Grigson, 210 F.3d
at 527).
Because the first Grigson theory was not at issue in Wedgeworth, the court moved to the
second Grigson theory and rejected it. Id. at 492 (citing Ervin v. Nokia, Inc., 812 N.E.2d 534
(Ill. App. Ct. 2004)). Instead, the court held that interdependent-and-concerted misconduct
might support arbitration if the interdependent-and-concerted misconduct occurred between a
nonsignatory defendant and a signatory with which a “close legal relationship, such as, alter ego,
parent/subsidiary, or agency relationship” existed. Id.
In this case, Defendants’ opening memorandum relied on the interdependent-andconcerted-misconduct theory. Looking for such claims in the Complaint, the Court agrees that
some—but not all—of the allegations against Windows USA and Big Four assert
interdependent-and-concerted misconduct with Wells Fargo. The question is whether this means
that all claims should be arbitrated, none should be arbitrated, or only those based on
interdependent-and-concerted misconduct should be arbitrated. While the parties recognize this

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issue, neither provides sufficient analysis or authority for the Court to rule. Further briefing is
required.
Likewise, neither party delves deeply into the close-legal-relationship question.
Windows USA and Big Four argue that the parties’ status as “merchant and lender” establishes
the “close legal relationship” Wedgeworth requires. Defs.’ Joinder [18] at 6. But the only case
they cite to support this merchant-and-lender argument is based on agency. See Defs.’ Joinder
[18] at 6 (citing Sawyers v. Herrin-Gear Chevrolet Co., 26 So. 3d 1026, 1039 (Miss. 2010)
(affirming order compelling arbitration with non-signatory that “maintained . . . agency
relationship” (quoting Wedgeworth, 911 So. 2d at 492))). If the question is whether Defendants
maintained an agency relationship, the parties have not addressed any of the factors the
Mississippi Supreme Court applies to that question. See Miller v. R.B. Wall Oil Co., Inc., 970
So. 2d 127, 131 (Miss. 2007). The Court therefore desires further briefing on whether Windows
USA and Big Four had a close legal relationship with Wells Fargo, including, but not limited, to
an agency relationship.2
The parties are instructed to contact the Court’s courtroom deputy within seven days to
set this case for oral argument on Windows USA and Big Four’s joinder. Supplemental briefing
on the issues the Court has identified must be filed no later than ten days before the as-yet-to-beset hearing. The supplemental briefs shall be filed simultaneously and shall not exceed ten
pages. There will be no responses.

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The issue places both sides in a potentially uncomfortable position. Those claims for
which the Hudsons allege interdependent-and-concerted misconduct involving Wells Fargo
presumably depend upon the existence of an agency relationship among Defendants. But that
might also trigger arbitration under Wedgeworth. Conversely, Windows USA and Big Four may
have liability reasons to avoid mentioning agency in their joinder but would need to show
something tantamount to that legal relationship to obtain arbitration.
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III.

Conclusion
The Court has considered all arguments. Those not specifically addressed would not

have changed the outcome. For the foregoing reasons, Defendant Wells Fargo National Bank’s
Motion to Compel Arbitration and Dismiss under Federal Rule of Civil Procedure 12(b)(1) or
12(b)(3) [12] is granted in part; the claims against it are stayed pending arbitration. Defendants
Windows USA, LLC, d/b/a Windows USA and Alaskan Window Systems, and Big Four
Companies, Inc.’s Joinder [17] in Wells Fargo’s Motion to Compel Arbitration will be set for
oral argument. Counsel should contact the undersigned’s Courtroom Deputy, Shone Powell,
within seven days of the entry of this Order to set the matter. Supplemental ten-page briefs,
addressing the issues raised by the Court herein, shall be filed ten days before the scheduled
hearing.
SO ORDERED AND ADJUDGED this the 5th day of April, 2017.
s/ Daniel P. Jordan III
UNITED STATES DISTRICT JUDGE

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