Brown et al v. CMH Manufacturing, Inc. et al

Filing 38

MEMORANDUM OPINION AND ORDER pursuant to defendants' 6 MOTION to compel arbitration; directing that the plaintiffs submit this case to arbitration in accordance with the terms of the Finance Agreement; this action is stayed and retired to the inactive docket pending the arbitral decision or abandonment of that forum and this action, whichever first occurs; counsel are directed to file joint status reports quarterly beginning 10/1/2014, respecting progress on the matter. Signed by Judge John T. Copenhaver, Jr. on 8/29/2014. (cc: attys; any unrepresented parties) (taq)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF WEST VIRGINIA
AT CHARLESTON
LARRY BROWN and
ROSANNA BROWN,
Plaintiffs,
v.

Civil Action No. 2:13-31404

CMH MANUFACTURING, INC.
a foreign corporation, and
CMH HOMES, INC.
a foreign corporation, and
VANDERBILT MORTGAGE AND FINANCE, INC.
a foreign corporation,
Defendants.
MEMORANDUM OPINION AND ORDER
Pending is the defendants’ collective motion to compel
arbitration, filed December 9, 2013.

I. Background
On March 18, 2011, Larry Brown and Rosanna Brown (the
“Browns”) purchased a manufactured home from defendant CMH
Homes, Inc. (“CMH Homes”).1

The home was made by defendant CMH

Manufacturing, Inc. (“CMH Manufacturing”).

The purchase was

financed through defendant Vanderbilt Mortgage and Finance, Inc.

1

The Seller’s name on both the Sales agreement and the financing
agreement is “Clayton Homes Danville, WV,” and signed on behalf
of that entity by Lee Smell, but the parties treat the sale as
having been made by CMH Homes.

1

(“Vanderbilt”).

Compl. ¶¶ 5, 7, 11, 14.

The Browns signed two

agreements as part of the purchase: a Sales Agreement and a
Manufactured Home Retail Installment Contract and Disclosure
Statement (the “Finance Agreement”).

Defs.’ Mot. Compel

Arbitration, Exs. 1-2.
The Finance Agreement provides that the Browns will
pay for the manufactured home in monthly installments over a
period of 20 years and that the Browns grant the Seller a first
priority security interest in the manufactured home, which may
be enforced upon default by repossession or judicial power or
both.

At the end of the Finance Agreement the Seller assigns

“this Contract, together with Seller’s rights, title and
interests in the Collateral . . . to Vanderbilt . . . .”
Finance Agreement 10.
The Finance Agreement contains an arbitration
provision that, among other things, states:
Buyer and Seller (sometimes called the ‘Parties’)
agree to mandatory, binding arbitration (‘Arbitration’) of
all disputes, claims [and] controversies . . . arising from
or relating to this Contract, any product/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

2

shall be determined by a court of competent
jurisdiction. . . .
If Buyer has Claims against others (each, a ‘Third
Party’) related to or arising from facts or circumstances
covered by this Arbitration Agreement (including, but not
limited to (i) the design, construction and manufacture of
the Manufactured Home, (ii) the advertising and the sale of
the Manufactured Home, (iii) the delivery or the
installation of the Manufactured Home, and (iv) insurance
covering the Manufactured Home or Buyer, including title
insurance, where applicable (each, a ‘Related Claim’)),
then the Buyer and Seller agree to consolidate the
Arbitration of Buyer’s Claims against Seller, brought on an
individual basis, with the Arbitration of any and all
Related Claims, brought on an individual basis, into one
Arbitration to be governed by this Arbitration Agreement,
provided, however, that the Third Party must agree to be
joined in the Arbitration of the Related Claims under this
Arbitration Agreement.
. . .
The Arbitration shall be governed by and conducted
under: (a) the Federal Arbitration Act, 9 U.S.C. §§ 1_9;
(b) the arbitration rules (‘Arbitration Rules’) of the
American Arbitration Association (‘AAA’)(the ‘Arbitration
Administrator’) in effect at the time Arbitration is
requested, at the election of the Party filing for
Arbitration; and (c) this Arbitration Agreement. . . .
After the arbitrator is selected, the Arbitrator, in
accordance with the Arbitration Rules, will set a
reasonable schedule, in light of the nature and complexity
of the Claims, for the Arbitration and discovery, including
any depositions, the exchange of written documents, the
final deadline for discovery prior to the Arbitration, and
other discovery matters addressed in the Arbitration Rules.
Finance Agreement 8 (emphasis in original).
Although the Sales Agreement itself is silent
regarding arbitration, the Finance Agreement, as above quoted,
expressly covers in arbitration all disputes arising from or

3

relating to the Finance Agreement and any product or services
sold or financed under the Finance Agreement, including claims
by the Browns against the manufacturer.
After moving in, the plaintiffs eventually discovered
a “Homeowner’s Manual” inside a kitchen drawer of their new
home.

Larry Brown Aff. ¶ 18-19.

before they purchased the home.

They had not seen this manual
Id. ¶ 20.

In addition to

information regarding general home maintenance, operation,
safety, and moving, the manual contained a “Limited One Year
Warranty and Arbitration Agreement.”

Defs.’ Mot. Compel

Arbitration, Ex. 4, at 34.
The Browns allege that the home they received did not
conform to express and implied warranties.

Compl. ¶ 2.

They do

not elaborate on the problems with their home other than stating
that “[t]he nonconformities discovered by the Plaintiffs
involved substandard, defective and/or negligent manufacture,
delivery, and installation.”

Compl. ¶ 17.

The plaintiffs

accepted the home assuming that some of the defects would be
cured, but also were unable to discover some of the defects
until after they began living in the home.

Compl. ¶ 28, 31.

The Browns state that they notified CMH Homes and CMH
Manufacturing about the problems and to request repairs, but
that those defendants failed to sufficiently repair the home to

4

conform with the warranties after being given “numerous
opportunities to correct the defects”.

Compl. ¶¶ 19, 29.

The

Browns bring ten claims, all under West Virginia state law and
connected to the alleged breach of warranties or the fairness of
the contracts.
After removing this action from the Circuit Court of
Boone County, the defendants moved to compel arbitration.

In

the defendants’ estimation, both the arbitration agreement in
the Finance Agreement, and the arbitration provision in the
Homeowner’s Manual compel arbitration.

The defendants assert

that claims against CMH Homes, treated as signatory to the
Finance Agreement, should be arbitrated because of the
arbitration clause in the Finance Agreement, and that claims
against Vanderbilt and CMH Manufacturing should be arbitrated
based on a theory of equitable estoppel.
In response, the Browns insist that they had no
knowledge of any of the arbitration agreements, were not given
copies of the Sales Agreement or Finance Agreement, and that the
arbitration provisions were both procedurally and substantively
unconscionable.

Although they often do not specify which

arbitration provision they are discussing, they argue that the
arbitration clauses are procedurally unconscionable because they
allegedly limit discovery and because the arbitration agreements

5

designate the American Arbitration Association (“AAA”), which in
their view is biased, to conduct the arbitration.

They also

argue that the arbitration agreements are substantively
unconscionable because, in the plaintiffs’ estimation, they do
not apply equally to the buyer and seller.

Additionally, the

Browns respond that both arbitration clauses are not valid
because the Browns did not voluntarily, knowingly, and
intelligently waive their right to a jury trial.

Inasmuch as

the arbitration agreement in the Finance Agreement alone
suffices to resolve the question of whether arbitration is
required here, the court does not further address the role of
the Homeowner’s Manual arbitration provision.
The court has jurisdiction over this case in
diversity.

28 U.S.C. § 1332 (2012).

There is no dispute that

the plaintiffs are citizens of Logan County, West Virginia, and
the defendants are all citizens of Tennessee.
Not. Removal ¶¶ 4-6.

Compl. ¶¶ 4-8;

The purchase price of the home was $57,597

(absent the finance charges of over $65,000) and the plaintiffs
seek cancellation of the contract.2

When a party seeks

cancellation of a contract, it is the entire price of the
contract that is in controversy.

See, e.g., Mullins v. Harry’s

2

The complaint does not specify whether the plaintiffs seek
rescission of the Finance Agreement, the Sales Agreement, or
both.

6

Mobile Homes, Inc., 861 F. Supp. 22, 24 (S.D. W.Va. 1994).

The

plaintiffs also allege various violations of the West Virginia
Consumer Credit and Protection Act (“WVCCPA”) for which monetary
relief is sought, request attorney’s fees pursuant to W. Va.
Code § 46A-5-104, and seek punitive damages.

Although

valuations of these forms of relief are not yet particularized,
the court is satisfied that the amount in controversy exceeds
$75,000 after adding these three categories of relief to the
contract sale price of $57,597.

See, e.g., Woodrum v. Mapother

and Mapother P.S.C., Inc., Civ. Action No. 2:10-0478, 2010 WL
3943732, *6 (S.D. W.Va. Oct. 5, 2010) (estimating attorney’s
fees in an action asserting WVCCPA claims as $25,000).

The

court thus has jurisdiction.3

3

The defendants argue in the notice of removal that federal
question jurisdiction also exists. See 28 U.S.C. § 1331 (2012).
Specifically, they state that this action is subject to the
Carmack Amendment of the Interstate Commerce Commission Act, 49
U.S.C. § 14706 (2006), because the plaintiffs allege damage to
the home during the delivery. Section 14706 permits actions in
federal court against delivering carriers who damage goods and
also travel between states, among other things. See 49 U.S.C.
§§ 13501, 14706. Yet the plaintiffs’ complaint contains no
claim under § 14706 or any other federal statute. It is
fundamental that federal question jurisdiction may not be
premised on federal defenses, but only on federal claims in the
complaint. See, e.g., Holmes Group, Inc. v. Vornado Air
Circulation Sys., Inc., 535 U.S. 826, 830 (2002).

7

II. Analysis
The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16,
espouses a “liberal federal policy favoring arbitration
agreements, notwithstanding any state substantive or procedural
policies to the contrary.”

Moses H. Cone Mem. Hosp. v. Mercury

Const. Corp., 460 U.S. 1, 24 (1983).

In this circuit, under the

Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16,
a litigant can compel arbitration . . . if he can
demonstrate “(1) the existence of a dispute between the
parties, (2) a written agreement that includes an
arbitration provision which purports to cover the dispute,
(3) the relationship of the transaction, which is evidenced
by the agreement, to interstate or foreign commerce, and
(4) the failure, neglect or refusal of the defendant to
arbitrate the dispute.”
Adkins v. Labor Ready, Inc., 303 F.3d 496, 500-01 (4th Cir.
2002) (quoting Whiteside v. Teltech Corp., 940 F.2d 99, 102 (4th
Cir. 1991)).

The Browns do not contest the defendants’ claims

that the first, third, and fourth elements of this test are met,
and the court finds that they are established.

The dispute is

only over the second element, that is, whether any agreement
covers the disputes between the parties and includes an
arbitration provision.
Whether a party agreed to arbitrate a particular
dispute is generally a question of contract formation under
state law.

Adkins, 303 F.3d at 501 (citing First Options of

Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)).

8

“Although

federal law governs the arbitrability of disputes, state-law
principles resolve issues regarding the formation of contracts.”
American Gen. Life and Accident Ins. Co. v. Wood, 429 F.3d 83,
87 (4th Cir. 2005) (citing Hill v. Peoplesoft USA, Inc., 412
F.3d 540, 543 (4th Cir. 2005)).

“[I]n applying general state-

law principles of contract interpretation to the interpretation
of an arbitration agreement . . . due regard must be given to
the federal policy favoring arbitration, and ambiguities as to
the scope of the arbitration clause itself resolved in favor of
arbitration.”

Volt Information Scis., Inc. v. Board of Trustees

of Leland Stanford Junior University, 489 U.S. 468, 475-76
(1989).
The court ultimately concludes that the arbitration
clause in the Finance Agreement requires the court to compel
arbitration with respect to all of the Browns’ claims.

As a

result, the court does not address the Sales Agreement or the
Homeowner’s Manual in further detail.

As previously noted,

throughout the Browns’ response, they refer to the “arbitration
clause” without specifying if they are referring to the clause
in the Finance Agreement or in the Homeowner’s Manual.

The

court will address all of the plaintiffs’ arguments as if made
with respect to the arbitration clause in the Finance Agreement.
Further references by the court to the “Arbitration Agreement”

9

refer to the arbitration agreement contained within the Finance
Agreement.

A.

Parties Bound to Arbitration
The defendants raise the questions of what parties are

bound to arbitrate and whether the Arbitration Agreement covers
the disputes at issue.

As noted, the Finance Agreement was

originally between CMH Homes as “Seller” and the Browns as the
“Buyers”, but CMH Homes immediately assigned it to Vanderbilt.
CMH Manufacturing was not a party to the Finance Agreement.

The

Arbitration Agreement in the Finance Agreement states the “Buyer
and Seller . . . agree to mandatory, binding arbitration of all
disputes . . . including . . . contract and warranty claims . .
. arising from or relating to this Contract [and] any
products/goods . . . sold or financed under this contract
. . . .”

Finance Agreement 8.

The Browns’ complaint against

the defendants concerns warranties in the manufacture and
delivery of the home, and thus it is covered by the plain
language of the arbitration agreement.
With respect to claims against Third Parties, the
Arbitration Agreement states, as quoted at length above, that
“[i]f Buyer has Claims against others (each, a ‘Third Party’)
related to or arising from facts or circumstances covered by

10

this Arbitration Agreement (including, . . .

the design,

construction and manufacture of the Manufactured Home . . .
[and] the delivery or the installation of the Manufactured Home
. . . (each, a ‘Related Claim’)) then the Buyer and Seller agree
to consolidate the Arbitration of Buyer’s Claims against Seller,
with the Arbitration of any and all Related Claims . . . into
one Arbitration to be governed by this Arbitration Agreement,
provided, however, that the Third Party must agree to be joined
in the Arbitration of the Related Claims under this Arbitration
Agreement.”

Finance Agreement 8 (emphasis in original).

By the

terms of the Arbitration Agreement, the plaintiffs agreed to
include in arbitration third parties -- for instance, CMH
Manufacturing -- against whom the plaintiff brings claims
related to the manufacture and delivery of the home.

All of the

defendants against whom the plaintiffs bring a claim -- CMH
Homes, CMH Manufacturing, and Vanderbilt -- consent to
arbitration, as they have filed a motion to compel arbitration.
Accordingly, the court finds that by the terms of the
Finance Agreement, the Browns have agreed to arbitrate all of
the disputes in their complaint.

The plaintiffs do not offer,

and the court does not find, any reason why this provision
cannot be enforced by the defendant who is a party to the
agreement.

Note that the court need not resolve whether it is

11

CMH Homes, the original “Seller,” or CMH Homes’ assignee,
Vanderbilt, who has the power to enforce the Finance Agreement
as a party to that agreement, because there is no question that
at least one of the two has the right to do so.4
Consequently, the court finds that the claims against
all three defendants -- CMH Homes, CMH Manufacturing, and
Vanderbilt -- are covered by the language in the arbitration
agreement.

B. Unconscionability
While the specific claims brought by the plaintiffs
are covered by the arbitration agreement, a contract is not
enforceable if it is unconscionable.

Contracts that show an

“overall and gross imbalance,” or appear to be exceptionally
one-sided, are unconscionable.

Syl. pt. 12, Brown v. Genesis

Healthcare Corp. (Brown I), 724 S.E.2d 250, 261, 228 W. Va. 646,
657 (2011), overruled in part on other grounds sub nom. Marmet
Health Care Ctr. v. Brown, 132 S. Ct. 1201 (2012).

The court also notes that the defendants argue that an
equitable estoppel theory, which allows nonsignatories to
contracts to compel arbitration, applies here. However, the
court need not resort to equity because the contract language
itself specifies that the third party claims may be directed to
arbitration, and the contract may be enforced by a party to the
contract.
4

12

Under West Virginia law, a contract term must be both
procedurally and substantively unconscionable for a court to
refuse to enforce it.

State Ex rel. Richmond Am. Homes of W.

Va., Inc v. Sanders, 717 S.E.2d 909, 920, 228 W. Va. 125, 136
(2011).

“However,

both need not be present to the same degree.

Courts should apply a ‘sliding scale’ in making this
determination: the more substantively oppressive the contract
term, the less evidence of procedural unconscionability is
required to come to the conclusion that the clause is
unenforceable, and vice versa.”

Brown v. Genesis Healthcare

Corp. (Brown II), 729 S.E.2d 217, 221, 229 W. Va. 382, 386
(2012) (quoting Syl. pt. 20, Brown I, 724 S.E.2d at 262, 228
W.Va. at 658).
“Procedural unconscionability is concerned with
inequities, improprieties, or unfairness in the bargaining
process and formation of the contract.

Procedural unconscion-

ability involves a variety of inadequacies that results in the
lack of a real and voluntary meeting of the minds of the
parties, considering all the circumstances surrounding the
transaction.”

Syl. Pt. 10, Brown II, 729 S.E.2d 217, 221, 229

W. Va. 382, 386 (2012).

“Substantive unconscionability involves

unfairness in the contract itself and whether a contract term is
one-sided and will have an overly harsh effect on the

13

disadvantaged party.”
228 W. Va. at 658.

Syl. Pt. 19, Brown I, 724 S.E.2d at 262,

“[T]he paramount consideration is

mutuality,” where there must be “at least a ‘modicum of
bilaterality’ to avoid unconscionability.”

Id.

The Browns give three reasons as to why the
Arbitration Agreement is unconscionable: (1) the discovery
permitted in this arbitration is not as extensive as discovery
provided for by the Federal Rules of Civil Procedure, (2) the
Arbitration Agreement designates the AAA to conduct the
arbitration, and (3) the Arbitration Agreement lacks mutuality
because only the Browns are required to submit to arbitration.
They also note, without separately identifying them as arguments
of unconscionability, that the Arbitration Agreement was a
contract of adhesion, that they had no knowledge of the
Arbitration Agreement, that the meaning of arbitration was not
explained to them, and that their first opportunity to review
and sign the Finance Agreement was after the home had already
been ordered and while it was being contemporaneously delivered.
1. Procedural Unconscionability
The court first notes that plaintiffs misidentify some
of their arguments as arguments of procedural unconscionability.
The plaintiffs state that the Arbitration Agreement is
procedurally unconscionable because it limits discovery and

14

because it provides that arbitration will be conducted by an
arbitrator from the AAA.

But, as noted, procedural

unconscionability concerns not the procedure of arbitration
defined by an arbitration agreement, but the process surrounding
the formation of the contract.

Accordingly, the court will

consider these arguments when it addresses substantive
unconscionability below.
The plaintiffs do raise, however, that they did not
know about the Arbitration Agreement when they signed the
Finance Agreement, that they signed a contract of adhesion, that
arbitration was not explained to them, that they did not sign
the Finance Agreement until the time that the home was being
contemporaneously delivered, and that they were not given a copy
of the Finance Agreement after signing it.

These constitute

arguments about procedural unconscionability.
Generally, procedural unconscionability turns on “the
age, literacy, or lack of sophistication of a party; hidden or
unduly complex contract terms; the adhesive nature of the
contract; and the manner and setting in which the contract was
formed, including whether each party had a reasonable
opportunity to understand the terms of the contract.”
10, Brown II 729 S.E.2d at 221, 229 W. Va. at 386.

15

Syl. pt.

Although the Browns argue that the Finance Agreement
was a contract of adhesion, more is required for a finding of
procedural unconscionability.

State ex rel. Dunlap v. Berger,

567 S.E.2d 265, 274-75, 211 W. Va. 549, 557-58 (2002) (citing
Am. Food Mgmt., Inc. v. Henderson, 434 N.E.2d 59, 62-63, 105
Ill. App. 3d 141, 145 (Ill. App. Ct. 1982) (“[f]inding that
there is an adhesion contract is the beginning point for
analysis, not the end”).

But the Browns offer no more, as their

other arguments for procedural unconscionability -- which mostly
concern whether they were given the opportunity to understand
the Arbitration Agreement -- are without merit.
The arbitration language appears plainly in the
Finance Agreement.

Finance Agreement 8-9.

The Browns do not

claim that, when signing the contract, anyone prohibited them
from reading the terms of the contract.

The Browns are thus

presumed to have read the terms of the contract and will be
bound by them, even if they did not actually take the time to do
so.

New v. Gamestop, Inc., 753 S.E.2d 62, 76, 232 W. Va. 564

(2013); State ex rel. Johnson Controls, Inc. v. Tucker, 729
S.E.2d 808, 820, 229 W. Va. 486, 498 (2012) (“we see nothing in
the record to indicate that the contract was formed in a manner
or setting that prevented [the plaintiff] from having a
reasonable opportunity to understand the terms of the

16

arbitration clause.”); Miller v. Equifirst Corp. of WV, Civ.
Action No. 2:00-0335, 2006 WL 2571634, at *10 (S.D. W. Va. Sept.
5, 2006)(Copenhaver, J.) (“Plaintiffs have failed to identify
any conduct on the part of the closing agent . . . that
prevented them from reading and reviewing the . . . Arbitration
Riders.”).

Their claim that they were not told about the

Arbitration Agreement is defeated because there is ordinarily no
duty for the party with greater bargaining power to explain the
terms of the contract to the party with lesser bargaining power.
Adkins v. Labor Ready, 185 F. Supp. 2d 628, 637-38 (S.D. W.Va.
2001).

Moreover, the Arbitration Agreement itself described

arbitration in plain English:
Arbitration is a process in which a neutral arbitrator
decides a dispute instead of a judge or jury. Each side
has an opportunity to present evidence to the Arbitrator,
both in writing and through witnesses. Arbitration
proceedings are less formal than court trials. Other
rights that the Parties have in court may not be available
in Arbitration. The information that can be obtained in
discovery from each other or from third persons in
Arbitration is generally more limited than in a lawsuit.
An Arbitrator will decide the case by issuing a written
decision called an “award.” Once confirmed, an award may
be enforced as a court judgment in accordance with federal
or state law. The circumstances under which a court can
review an award are more limited in Arbitration.
Finance Agreement 8.

The Agreement also warned the Browns that:

IF BUYER DOES NOT UNDERSTAND ANY OF THE TERMS OR PROVISIONS
OF THIS ARBITRATION AGREEMENT, INCLUDING ADVANTAGES OR
DISADVANTAGES OF ARBITRATION, THEN BUYER SHOULD SEEK
INDEPENDENT LEGAL ADVICE BEFORE SIGNING THIS CONTRACT.
Finance Agreement 9.

Similarly, their claim that they were not

17

given a copy of the Finance Agreement after signing does not
indicate that the agreement was procedurally unconscionable,
inasmuch as the contract was already formed at that point.
“Procedural unconscionability is concerned with inequities,
improprieties, or unfairness in the bargaining process and
formation of the contract.”

Brown II, 729 S.E.2d at 227, 229

W.Va. at 393 (quoting Syl. pt. 17, Brown I, 724 S.E.2d. at 261,
228 W.Va. at 657).

After signing, the “bargaining process and

formation of the contract” were over.

The Browns also argue

that they did not have time to review the contract because the
home was being contemporaneously delivered to their plot while
they were signing the documents at a public library.

The

plaintiffs fail to explain how concurrent delivery of the home
prevented them from reading the arbitration provision and
rejecting the delivery if they chose to do so.

2. Substantive Unconscionability

a. Discovery

The Browns argue that the discovery limitations
contained in the Arbitration Agreement make it unconscionable.
The plaintiffs wish to have the formal discovery processes
afforded to them by the Federal Rules of Civil Procedure rather

18

than the discovery allowed by the Arbitration Agreement.

The

Agreement provides that:
After the Arbitrator is selected, the Arbitrator, in
accordance with the Arbitration Rules [of the AAA], will
set a reasonable schedule, in light of the nature and
complexity of the Claims, for the Arbitration and
discovery, including any depositions, the exchange of
written documents, the final deadline for discovery prior
to the Arbitration, and other discovery matters addressed
in the Arbitration Rules [of the AAA].
Finance Agreement 8.

The Browns claim that this is

unconscionable because “[c]onsumer cases tend to be factintensive, requiring extensive deposition and document
production in order to show, inter alia, pattern and practice to
support fraud and/or unfair and deceptive practices claims.”
Resp. 11.
The informal discovery afforded in arbitration is one
of the reasons that parties seek to arbitrate in the first
place.

“Limited discovery rights are the hallmark of

arbitration . . . . The fact that an arbitration may limit a
party’s discovery rights is not ‘substantive unconscionability.’
If it were, every arbitration clause would be subject to an
unconscionability challenge on that ground.”

State ex rel.

Ocwen Loan Servicing, L.L.C. v. Webster, 752 S.E.2d 372, 398,
232 W. Va. 341, 367 (2013) (quoting Coast Plaza Doctors Hosp. v.
Blue Cross of Cal., 83 Cal. App. 4th 677, 689-90, 99 Cal. Rptr.
2d 809, 818-19 (Cal Ct. App. 2000)).

19

The court also notes that

while the plaintiffs complain that depositions will not occur in
arbitration, the arbitration provision expressly provides for
depositions.

Finally, the discovery limitations apply equally

to plaintiffs and defendants.

The informal discovery in

arbitration does not make the Arbitration Agreement
unconscionable.

See Gilmer v. Interstate/Johnson Lane Corp.,

500 U.S. 20, 31 (1991).

b.

Arbitration Conducted Through the AAA

The Browns assert that the Arbitration Agreement is
unconscionable because it designates that arbitration shall be
conducted through the AAA.

The Agreement specifies that:

Arbitration shall be governed by and conducted under

“The

. . . the

arbitration rules of the American Arbitration Association
(“AAA”) . . . and . . . this Arbitration Agreement.”
Agreement 8.

Finance

The plaintiffs contend that the AAA is biased in

favor of defendants because the AAA has an incentive to compete
with other arbitration providers for designation in form
contracts and, in order to obtain and keep an entity’s
arbitration business, AAA arbitrators are less apt to give
favorable awards to consumers; the AAA’s arbitrators are
allegedly predominately corporate defense attorneys, and the AAA
is allegedly paid on a fee-per-case basis for each arbitration,

20

thereby providing a further incentive to favor the entity that
ensures their use and employment by writing them into the form
contract of adhesion.
In support, the plaintiffs cite Dunlap, 567 S.E.2d at
280 n.12, 211 W. Va. at 564 n.12, and a summary affirmance in
Toppings v. Meritech Mort. Servs., 569 S.E.2d 149, 149, 212 W.
Va. 73, 73 (2002) (per curiam).

In particular, the Browns cite

the following dictum from a footnote of Dunlap:
We also observe that neutrality in the selection and
composition of any forum or tribunal is essential to the
legal validity of contractual provisions providing for
dispute resolution mechanisms, particularly when such
provisions are placed in contracts of adhesion like the one
signed [here]. A functional analysis of the West Virginia
cases which do not favor arbitration demonstrates that this
Court would not countenance an arbitration provision by
which the parties agree that all disputes will be
arbitrated by a panel chosen exclusively by one of the
parties. The right to appoint one's own arbitrator is the
essence of tripartite arbitration. We have held that an
impermissible structural unfairness in a tribunal, be it
judicial or arbitral, would be presumed where the decisionmaker is designated by one of the parties to a dispute and
where the person making the decisions is compensated on a
fee-per-case basis. Consideration of this neutrality
principle has been recognized by courts addressing the
enforceability of an arbitration requirement.
Dunlap, 211 W. Va. at 564 n.12, 567 S.E.2d at 280 n.12 (2002)
(internal citations and quotation marks omitted).

The

plaintiffs similarly rely on Toppings, which concludes, based on
the Dunlap footnote alone, that the following certified question
be answered in the affirmative:

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Whether a lender's form compulsory arbitration clause or
rider, which mandates that all disputes arising out of a
consumer transaction be submitted to a lender-designated
decision maker compensated through a case-volume fee system
whereby the decision maker's income as an arbitrator is
dependent on continued referrals from the creditor, so
impinges on neutrality and fundamental fairness that it is
unconscionable and unenforceable under West Virginia law.
Toppings, 569 S.E.2d at 149, 212 W. Va. at 73.
The plaintiffs’ argument fails because decisions by
the West Virginia Supreme Court of Appeals do not abrogate the
authority of the United States Supreme Court on matters of
arbitration inasmuch as the FAA preempts state law in these
areas.

“West Virginia precedent generally barring state claims

from arbitration must be necessarily circumscribed . . . .

To

the extent that Dunlap intends to fashion a broad prohibition
against the arbitrability of state-law claims, such a ruling,
whether dicta or otherwise, cannot contravene the FAA.”
429 F.3d at 90.

Wood,

See also Marmet, 132 S.Ct. at 1202; Miller,

2006 WL 2571634, at * 14.

“[A] court may not ‘rely on the

uniqueness of an agreement to arbitrate as a basis for a statelaw holding that enforcement would be unconscionable, for this
would enable the court to effect what . . . the state
legislature cannot.’”

AT&T Mobility, LLC v. Concepcion, 131

S.Ct. 1740, 1747 (2011) (quoting Perry v. Thomas, 482 U.S. 483,
493 n.9 (1987)).

22

The United States Supreme Court has more than once
stated “[w]e decline to indulge the presumption that the parties
and arbitral body conducting a proceeding will be unable or
unwilling to retain competent, conscientious, and impartial
arbitrators.”

Gilmer 500 U.S. at 30 (quoting Mitsubishi Motors

Corp. v. Soler Chrysler-Plymouth Inc., 473 U.S. 614, 634
(1985)).

In addition, the court finds that the Consumer

Arbitration Rules of the AAA, which appear to apply in this
instance, allow the parties to agree to a process for appointing
an arbitrator.

American Arbitration Association, Consumer

Arbitration Rules, R-16(a) (effective Sept. 1, 2014).

If the

parties cannot agree, the AAA will appoint an arbitrator from
its rolls, but the rules afford the plaintiff an opportunity to
object to that arbitrator and obtain review before the AAA of
that arbitrator’s partiality.

Id. R-19(b).

And, the rules

require the arbitrator to disclose possible conflicts of
interest.

Id. R-18.

The court also notes that under these

rules, if the arbitrator holds hearings -- which the plaintiffs
may request -- the arbitrator is paid for the time spent on the
case rather than a flat fee for the case.

Id. at R-29, p. 34.

Provisions similar to these have been ruled permissible.

See

Gilmer, 500 U.S. at 30 (arbitration rules that, among other
things, allowed challenges of the arbitrator’s neutrality, for
cause, and required disclosure of conflicts); Miller, 2006 WL

23

2571634, at * 14 (National Arbitration Forum Rules).

While the

court appreciates the healthy skepticism articulated by the
plaintiffs, the court concludes that, under the binding
authority cited, the Arbitration Agreement is not rendered
unconscionable simply because the AAA and its arbitration rules
apply in this setting.5

c. Mutuality
The Browns contend that the Arbitration Agreement is
not mutual, because it requires the Browns to submit their
claims to arbitration, but allows the
Seller [to] 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.
Finance Agreement 9.

The plaintiffs cite Noohi v. Toll

Brothers, 708 F.3d 599, 610 (4th Cir. 2010), a case in which the
court determined that the arbitration agreement bound only the
plaintiffs to arbitration, and thus lacked mutuality of

5

The plaintiffs also briefly argue that the Arbitration
Agreement is unconscionable because it does not allow for the
consumer to opt out of the arbitration agreement. However, the
basis for the plaintiffs’ claim is that there are cases finding
an arbitration agreement with an opt-out clause not
unconscionable. The plaintiff does not cite any cases where an
Arbitration Agreement was unconscionable because there was no
opt-out provision.

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consideration.

The court found that the arbitration provision

lacked mutuality because it had the effect of only binding the
buyer to submit his claims to arbitration, while the seller was
able to file all its claims in court.

Id. at 610-11.

In

contrast, the provision in this case excludes from arbitration
only certain identified claims brought by the Seller that relate
to recovery of the collateral.

More important, as the

defendants have pointed out, the West Virginia Supreme Court of
Appeals has already determined that an arbitration agreement
that excludes only those claims by which the holder of a
security interest in property attempts to recover it does not
lack mutuality.

Webster, 752 S.E.2d at 396, 232 W. Va. at 365

(quoting Miller, 2006 WL 2571634 at *11 (“The exception for
proceedings related to foreclosure is one that is not only
common in arbitration agreements but quite necessary in order to
effectuate foreclosure and a retaking of the subject property by
lawful processes, where needed, without breach of the peace.”).
Accordingly, the court finds that the contract is not
unconscionable for a lack of mutuality.

3. Jury Trial Waiver
Apart from their unconscionability arguments, the
Browns contend that the Arbitration Agreement is unenforceable
because they did not knowingly and intelligently waive their

25

right to a jury trial.

This argument is without merit inasmuch

as “the loss of the right to a jury trial is a necessary and
fairly obvious consequence of an agreement to arbitrate.”

Wood,

429 F.3d at 91 n.6 (quoting Snowden v. CheckPoing Check Cashing,
290 F.3d 631, 638 (4th Cir. 2002)).6

IV.
The court concludes that the Arbitration Agreement
contained in the Finance Agreement is enforceable.
It is ORDERED that the plaintiffs submit this case to
arbitration in accordance with the terms of the Finance
Agreement.

It is further ORDERED that this action be, and

hereby is, stayed and retired to the inactive docket pending the
arbitral decision or abandonment of that forum and this action,
whichever first occurs.

Counsel are directed to file joint

status reports quarterly beginning October 1, 2014, respecting
progress on the matter.

6

The plaintiffs briefly argue that the contract is also
unenforceable because it contains a promise by the buyers to
pursue claims individually rather than as a class. It is plain
that such clauses do not render Arbitration Agreements
unenforceable. American Express Co. v. Italian Colors
Restaurant, 133 S. Ct. 2304, 2310-11 (2013); Webster, 232 W. Va.
at 390.

26

The Clerk is requested to transmit this written
opinion and order to counsel of record and any unrepresented
parties.
ENTER: August 29, 2014
John T. Copenhaver, Jr.
United States District Judge

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