BRENDA HOUSE, an individual resident of Ottawa County, Oklahoma,
Plaintiff/Appellant,
v.
VANCE FORD-LINCOLN-MERCURY, INC., an Oklahoma
Corporation; and FORD MOTOR CREDIT COMPANY, L.L.C., a foreign limited liability
company, Defendants/Appellees.
Wm. C. Hetherington, Jr., Vice-Chief Judge:
¶1 Brenda House (House) appeals a trial court order denying her motion to
vacate an arbitration award and granting counter motions by Vance
Ford-Lincoln-Mercury Inc. (Vance) and Ford Motor Credit Company, LLC (Ford) to
confirm the arbitration award. She also appeals the trial court's order which
sent the parties' controversy to arbitration, claiming she was denied due
process by the trial court's refusal to conduct an evidentiary hearing. The
orders of the trial court ordering the controversy to arbitration and affirming
the arbitrator's award are AFFIRMED.
FACTS AND PROCEDURE
¶2 House purchased a 2008 Ford F-150 crew cab with a Harley Davidson limited
edition package, from Vance on May 18, 2009. She executed an Oklahoma Simple
Interest Vehicle Retail Installment Contract (the Contract), note and security
agreement, all of which are held by Ford. The Contract lists the vehicle as new
but also states its mileage as 21,421 at the time of her purchase. The cash
price for the 2008 truck was $43,630.00. As part of the transaction, House
received $6,200 credit for a 1998 Ford F-150 trade-in and a $500 rebate was
applied as a part of the down payment. She received "new car" 1.9% financing
with Ford and a check from Vance for $500 for "TT&L" (tag, title, and lien
entry expenses).
¶3 The first page of the Contract contains the following statement: "YOU
ACKNOWLEDGE THAT YOU HAVE READ AND AGREE TO BE BOUND BY THE ARBITRATION
PROVISION ON THE REVERSE SIDE OF THIS CONTRACT." (Emphasis in original.) The
arbitration provision on the reverse of the contract lists, inter alia,
various rights given up, such as the right to trial,1 and others not given up, including the
right to request a court to review whether an arbitrator "exceeded its
authority," and advises it is subject to "the Federal Arbitration Act (9
U.S.C. § 1 et. seq.) and the Federal Rules of Evidence." (Underlining in
original.)
¶4 House filed suit against Vance and Ford (collectively, Appellees) on
December 7, 2010, and amended her petition on December 10, 2010, raising claims
for breach of contract, common law fraud, statutory fraud, deceit, and Oklahoma
Consumer Protection Act violations. All of her claims are premised, in whole or
in part, on the classification of the truck as "new" or used, representations
the truck's mileage was the result of its use as a demonstration vehicle and by
a sales manager, and the non-disclosure of a prior sale to another consumer.
¶5 Following motions to compel arbitration by Appellees, House responded,
arguing fraud was a threshold issue for resolution prior to arbitration. The
trial court entered a March 4, 2011 Order compelling arbitration and staying the
trial court proceedings until the conclusion of the arbitration proceedings.
¶6 House filed a Petition in Error on April 1, 2011, in which she argued she
was denied due process by the trial court's refusal to afford her an evidentiary
hearing on fraud in the inducement and questioning whether Appellees' motions to
compel arbitration were sufficient. In a notarized Narrative Statement filed
April 5, 2011, House states, inter alia, that at a regularly scheduled
Motion Docket on March 4, 2011, after the trial court stated the parties were
going to arbitration, she requested an evidentiary hearing on the issue of fraud
in the inducement and asked the trial court's leave to present argument, and the
trial court "stated that counsel was free to do so, but that it would 'not make
any difference.'" Her counsel then cited Hai v. Baptist Healthcare of
Oklahoma, Inc., 2010 OK CIV APP
3, 230 P.3d 914, described
the case as holding "where fraud in the inducement is properly pled, a plaintiff
is entitled to an evidentiary hearing of that issue before being compelled to
arbitrate," and reiterated she moved for such a hearing. The trial court stated,
"You are going to arbitration," and concluded the hearing.
¶7 House filed an Application for Stay of Arbitration Pending Appeal and for
Expedited Ruling on Hearing with the Oklahoma Supreme Court on April 11, 2011.
The Court issued an April 12, 2011 order advising her the motion would not be
considered until she had presented the motion to the trial court and the trial
court had ruled upon it. House filed a motion in the trial court on April 12,
2011, seeking to stay the arbitration pending appeal or for an expedited ruling
or hearing. An April 13, 2011 Order of the trial court denies that motion.
¶8 The Oklahoma Supreme Court granted House's Application for an Emergency
Stay of the arbitration process in an April 14, 2011 Order. Appellees filed a
joint response to the motion to stay, arguing Appellant failed to meet the
criteria under Okla.Sup.Ct. R. 1.15(c)(2) for such a stay. After denying a
request by Appellant to file a reply, the Oklahoma Supreme Court denied
Appellant's request for a stay pending appeal, citing Rule 1.15, on May 4, 2011.
The Court then issued a May 9, 2011 Order memorializing the denial of the
application and, citing Rogers v. Dell Computer Corporation, 2005 OK 51, 138 P.3d 826 and 12 O.S.Supp.2006 § 1857(c), stating
the "April 14, 2011 stay order is dissolved."
¶9 An arbitration award was entered in December of 2011. The trial court
denied House's motion to vacate the award and granted separate motions by
Appellees to confirm the award in an April 6, 2012 Order. The 7-page arbitration
award, signed on December 6, 2011, is attached as Exhibit A to the April 6, 2012
Order. The arbitrator finds the evidence did not support a conclusion House was
injured by Vance's non-disclosure of the prior transaction, there was no
evidence of misuse of the truck prior to the sale to House, and she had no
problems with the truck during the approximately 30 months she had used the
truck.2 In the
award, the arbitrator finds in favor of Vance and Ford, grants no relief or
award to House, orders the parties to bear their own respective attorney fees
and costs, and assesses $1,275.00 in American Arbitration Association fees and
expenses and $9,463.80 for arbitrator compensation and expenses.
¶10 House filed an April 11, 2012 Supplemental Petition in Error in which she
alleges the trial court erred by refusing to vacate the arbitrator's award
because it fails to comply with the parties' arbitration agreement, the award
exceeds the arbitrator's powers, and the award disregards Oklahoma law. She
raises arguments going to the merits of the underlying transaction, such as
Vance's claims regarding what it asserted were a failed sale, the truck's status
as new or used, and the non-disclosure of earlier transaction. House argues the
arbitration award does not qualify as the required "reasoned award," it contains
"bare" conclusions, and it therefore is impermissible and outside of the
arbitrator's powers. She further claims the award manifestly disregards
applicable law and is subject to vacatur under the Federal Arbitration
Act (FAA).
¶11 In an April 13, 2012 Order addressing deficiencies in the record, the
Oklahoma Supreme Court notes briefing was previously completed in the appeal and
House had filed a Supplemental Petition in Error. Among other things, the
Court's order sets dates for various filings, and directs Appellees to respond
to the Supplemental Petition in Error, directs House to "file a supplemental
brief in chief, limited to the issues raised by the April 6, 2012 order,"
directs "Appellee" to file a supplemental answer brief, and allows House to file
a reply brief. House, Vance, and Ford each filed supplemental appellate briefs
within the time limits set by the Court's order.
THE APPEAL
¶12 We first address House's allegations regarding the trial court order
compelling arbitration. She argues the parties' contract is governed by Oklahoma
law and it was error to fail to conduct an evidentiary hearing on whether the
contract was induced by fraud. She further contends the trial court failed to
follow "proper procedure" in considering Ford's Motion to Compel Arbitration.
Appellees argue factual concessions by House obviated the need for such a
hearing.
¶13 House cites Shaffer v. Jeffrey, 1996 OK 47, 915 P.2d 910, as rejecting the
severability doctrine of Prima Paint Corporation v. Flood Conklin
Manufacturing Company, 388 U.S. 395, 404, 87 S. Ct. 1801 (1967) and as
granting her a "clear right" to an evidentiary hearing on the issue of fraud in
the inducement. Under that doctrine, fraud regarding the arbitration clause may
be severed and considered separately from the remainder of a contract. We read
Shaffer, which addressed an initial construction of § 802(A) of the
Oklahoma Arbitration Act, 15 O.S. 1991 § 801- § 818, in light of subsequently
developed law. In Rogers v. Dell Computer Corporation, 2005 OK 51, ¶ 13 - ¶ 14, 138 P.3d 826, 830, the Oklahoma
Supreme Court states:
In considering whether an arbitration provision is binding on the
parties, it is severed from the rest of the contract. A.T. Cross v. Royal
Selangor(s) PYE, Ltd., 217 F.Supp.2d 229, 233 (D.R.I. 2002).
The court's role is to determine whether there is a valid, enforceable
agreement to arbitrate the dispute. Wilkinson v. Dean Witter Reynolds,
Inc., 1997 OK 20, ¶ 9, 933 P.2d 878, 880 (citing
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.
614, 626 (1985)); Gannon v. Circuit City Stores, Inc., 262 F.3d 677,
680 (8th Cir. 2001). The existence of an arbitration agreement is governed
by principles of state law. Wilkinson, 1997 OK 20 at ¶ 9, 933 P.2d at
880. Because under the FAA this court cannot examine the validity of the
contract as a whole, Prima Paint,3 388 U.S. at 404, we must treat
the contract as valid when analyzing an arbitration provision. (Emphasis
added.)
In Hai, 2010 OK CIV APP
3, ¶17, 230 P.3d at 919, the Court clearly states that "[u]nder the FAA, the
question of the validity of the arbitration provision must be severed and
considered separately. Prima Paint Corporation v. Flood & Conklin Mfg.
Co., 388 U.S. 395, 404, 87 S.Ct. 1801, [1806], 18 L.Ed.2d 1270 (1967);
Rogers, 2005 OK 51, ¶14,
138 P.3d at 830." The severability doctrine applies.
¶14 House concedes the transaction affects interstate commerce and the FAA
applies. Under both the express terms of the arbitration clause in the contract
and House's admission, this dispute falls under the purview of the FAA. House's
contentions she was fraudulently induced to make the contract by the fraud all
relate to the truck itself, i.e., fraud as to the contract in
toto, not fraud regarding the arbitration clause. Under the FAA, "attacks on
the validity of the contract, as distinct from attacks on the validity of the
arbitration clause itself, are to be resolved 'by the arbitrator in the first
instance, not by a federal or state court.' Preston v. Ferrer, 552 U.S.
346, 349 (2008); see also Prima Paint Corp. v. Flood & Conklin Mfg.
Co., 388 U.S. 395 (1967)." Nitro-Lift Technologies, L.L.C. v. Howard,
568 U.S. __ , 133 S.Ct. 500, 184 L.Ed.2d 328 (2012).
¶15 Whether the parties entered into a valid enforceable agreement to
arbitrate their claims presents a question of law reviewed by a de novo
standard. Rogers v. Dell Computer Corporation, 2005 OK 51, 138 P.3d 826. Review of a trial
court's legal rulings is made without deference to the lower court. Gladstone
v. Bartlesville Independent School District No. 30 (I-30), 2003 OK 30, ¶ 5, 66 P.3d 442, 446. The arbitration
provision states it applies to claims "in contract, tort, regulatory or
otherwise," "regarding the interpretation, scope, or validity of this clause, or
arbitrability of any issue," "between you and us, your/our employees, agents,
successors, assigns, subsidiaries, or affiliates," and "arising out of or
relating to your application for credit, this contract, or any resulting
transaction or relationship, including that with the dealer, or any such
relationship with third parties who do not sign this contract." The terms of the
arbitration clause cover disputes of the nature presented in this dispute and
House challenges its applicability only on broad grounds as to the entire
contract. Having considered separately the arbitration clause, we find it
binding. Consequently, we discern no legal error in the trial court's order
sending the parties' dispute to arbitration.
¶16 House also alleges that because the parties' agreement requires
application of Oklahoma law, she is entitled to an evidentiary hearing under
Oklahoma's Arbitration Act. To adopt the approach suggested by House would be to
allow a state arbitration act to supercede and essentially nullify the FAA's
limitations with respect to judicial review of an underlying contract. The
suggested analysis recently was expressly rejected in Nitro-Lift as in
contravention of prior United States Supreme Court decisions declaring the
national policy favoring arbitration and as in contravention of U.S. Const.,
art. VI, cl. 2, because the FAA is "the supreme Law of the Land," 133 S.Ct. at
503-504. In Hai, 2010 OK CIV
APP 3, ¶ 17, 230 P.3d at 919, the Court notes:
The United State Supreme Court when analyzing the law developed
subsequent to Prima, explicitly declared it had "rejected the view
that state law could bar enforcement of § 2, even in the context of
state-law claims brought in state court." Buckeye Check Cashing, Inc. v.
Cardegna, 546 U.S. 440, 445, 126 S.Ct. 1204, 1209, 163 L.Ed.2d 1038
(2006). The OUAA may not be applied here to negate application of the FAA,
including application of substantive law requiring severance of
consideration of the arbitration provision, as opposed to consideration of
the parties' entire agreement, in the face of allegations of fraud in the
inducement.
¶17 Further, as the Oklahoma Supreme Court reiterates in Harris v. David
Stanley Chevrolet, Inc., 2012 OK ¶ 5, 273 P.3d at 878, although it may be a
better policy to conduct such an evidentiary hearing "if the existence of an
agreement to arbitrate is controverted," nevertheless, whether to grant an
evidentiary hearing is within the trial court's discretion and its ruling "will
not be disturbed absent an abuse of discretion."4 "A court should permit arbitration
'unless the court can say with 'positive assurance' the dispute is not covered
by the arbitration clause.' City of Muskogee v. Martin, 1990 OK 70, ¶8, 796 P.2d 337, 340." Harris v.
David Stanley Chevrolet, Inc., 2012 OK 9, ¶ 6, 273 P.3d 877, 879.
¶18 No abuse of discretion is demonstrated here and the parties' dispute is
within the scope of the disputes covered by the arbitration clause. The trial
court's order sending the dispute to arbitration will not be disturbed on
appeal.
¶19 House alleges the trial court erred by failing to follow proper
procedures under district court rules when handling the motion to compel
arbitration and failing to grant her an evidentiary hearing. Appellees argue the
motions seeking arbitration did not fail to comply with the district court
rules5 because
no fact issues needing a verification were at issue and House effectively
admitted the facts she contends required verification. The disputed facts she
argues were "'core' issues for the trial court's determination" under Oklahoma
law all concern fraud as to the contract as a whole and present issues
for the arbitrator under the FAA, i.e., what she was told about the
vehicle, was it represented as new or used, did she rely on representations,
were representations true, and how the contract describes the truck. For the
reasons previously stated, the analysis regarding an evidentiary hearing fails
on this basis as well.
¶20 In the first proposition of her supplemental appellate brief, House
argues the paper trail for the truck shows it was not new because it had been
sold to and repossessed from another person. This alleged error speaks solely to
the underlying factual dispute and merits of the arbitration award. House
essentially invites re-adjudication of the facts during reviewing of the trial
court's order.
¶21 In an arbitration, a party "trades the procedures and opportunity for
review of the courtroom for the simplicity, informality, and expedition of
arbitration." Mitsubishi Motors Corporation v. Soler Chrysler-Plymouth,
473 U.S. 614, 628, 105 S.Ct. 3346, 3354 (1985).6 "In reviewing an arbitrator's
decision, the trial court must give the arbitrator great deference and 'cannot
review the merits of the award, including any of the factual or legal findings.'
Fraternal Order of Police, Lodge 142 v. City of Perkins, 2006 OK CIV APP 122, ¶ 4, 146 P.3d 829, 830 (citing City
of Yukon v. International Ass'n of Firefighters, Local 2055, 1990 OK 48, ¶ 8, 792 P.2d 1176, 1179)." City
College, Inc. v. Moore Sorrento, LLC, 2010 OK CIV APP 127, ¶ 10, 246 P.3d 726, 730. The review House
requests is beyond the scope of the applicable "highly deferential" standard of
appellate review under the FAA, a standard which is "among the narrowest known
to the law." ARW Exploration Corporation v. Aguirre, 45 F.3d 1455, 1462
(10th Cir.1995). "'Thinly veiled attempts to obtain appellate review of an
arbitrator's decision' . . . are not permitted under the FAA." Flexible
Manufacturing Systems Pty., Ltd. v. Super Products Corporation, 86 F.3d 96,
100 (C.A.7 (Wisc.) 1996) (quoting Gingiss International, In. v. Bormet,
58 F.3d 328, 333 (C.A.7 (Ill.) 1995). We will not conduct the fact inquiry
proposed in Proposition I of House's supplemental brief.
¶22 House argues the arbitration award should be vacated because it is not
the "reasoned award" required under the parties' contract. She contends the
award merely contains bare conclusions without any supporting legal authority,
the award is in manifest disregard of applicable law, and, consequently, its
rendering exceeds the authority of the arbitrator.
¶23 The FAA imposes a heavy presumption in favor of confirming an award, and
provides for vacation in narrow circumstances. Wachovia Securities, LLC v.
Vogel, 918 So.2d 1004, 1007 (Fla.App. 2 Dist., Jan 20, 2006); e.g.,
First Options of Chicago v. Kaplan, 514 U.S. 938, 942, 115 S.Ct.
1920,1923, 131 L.Ed.2d 985 (1995) (vacatur should occur only in "very unusual
circumstances"); Brabham v. A.G. Edwards & Sons Inc., 376 F.3d 377,
380 (5th Cir.2004) (vacatur permitted only on narrow grounds); 9 U.S.C. §
10.
¶24 "[A] reasoned award is something short of findings and conclusions but
more than a simple result." Holden v. Deloitte & Touche LLP, 390
F.Supp.2d 752, 780 (N.D.Ill.2005) (internal citations omitted). Sarofim v.
Trust Company of The West, 440 F.3d 213, 215, n. 1 (C.A.5 (Tex.), 2006). In
seven pages containing 27 numbered paragraphs, the arbitrator recites the
history of the dispute, recounts facts elicited during hearing, describes the
parties' contentions, finds a case cited by House distinguishable, and explains
the rationale for the conclusions reached, including that House had not
sustained damages. Although the award was more minimal than House would prefer,
it nonetheless fulfills the terms of the parties' contract calling for a
"reasoned award."
¶25 House also claims the award is subject to vacatur due to the arbitrator's
"manifest disregard of the law," a non-statutory ground recognized by some
jurisdictions in addition to the four grounds stated in the FAA.7 In Advest v. McCarthy,
914 F.2d 6, 9, n. 5 (1st Cir. 1990), the federal court explains that the origin
of this ground "derives directly from dicta employed by the Court in Wilko v.
Swan, 346 U.S. 427, 436-37, 74 S.Ct. 182, 187-88, 98 L.Ed. 168 (1953),"8 and is
judicially created.
¶26 As the federal court explains in Advest, Inc. v. McCarthy, 914
F.2d 6, 8-9 (1st Cir. 1990), reversal based on the ground of "manifest disregard
of the law" requires a challenger to show
that the award is "(1) unfounded in reason and fact; (2) based on
reasoning so palpably faulty that no judge, or group of judges, ever could
conceivably have made such a ruling; or (3) mistakenly based on a crucial
assumption that is concededly a non-fact." Local 1445, United Food and
Commercial Workers v. Stop & Shop Cos., 776 F.2d 19, 21 (1st
Cir.1985); Bettencourt [v. Boston Edison Co., 560 F.2d 1045,
(1st Cir. (Mass.) 1977)], 560 F.2d at 1050.
¶27 The ground "manifest disregard of the law" is narrowly construed.
Prudential-Bache Sec., Inc. v. Tanner, 72 F.3d 234, 237-38 (1st Cir.
1995). "The hurdle is a high one, especially since there is nothing talismanic
about the phrase 'manifest disregard.'" 914 F.2d at 10. The Courts "do not sit
to hear claims of factual or legal error by an arbitrator as an appellate court
does in reviewing decisions of lower courts." United Paperworkers
International Union v. Misco, Inc., 484 U.S. 29, 38, 108 S.Ct. 364, 371, 98
L.Ed.2d 286 (1987). In Bowen v. Amoco Pipeline Co., 254 F.3d 925, (10th
Cir. 2001), the Court explains:
We have interpreted manifest disregard of the law to mean "willful
inattentiveness to the governing law." ARW Exploration Corp., 45 F.3d
at 14639
(internal quotation marks omitted). Requiring more than error or
misunderstanding of the law, id., a finding of manifest disregard
means the record will show the arbitrators knew the law and explicitly
disregarded it, Prudential-Bache Sec., Inc. v. Tanner, 72 F.3d 234,
240 (1st Cir.1995). (Footnote added.)
Accord, Carte Blanche (Singapore) Pte., Ltd. v. Carte Blanche
Intern., Ltd., (C.A.2 (N.Y.) 1989), 888 F.2d 260 ("manifest disregard of the
law" refers to error which is obvious and capable of being readily and instantly
perceived by the average person qualified to serve as arbitrator and implies the
arbitrator appreciated the existence of a clearly governing legal principle but
decided to ignore it); Sheet Metal Workers' Intern. Ass'n, Local 15 AFL-CIO
v. Law Fabrication, LLC, 459 F.Supp.2d 1236, (M.D.Fla. 2006),
affirmed, 237 Fed.Appx. 543, 2007 WL 1821022 (manifest disregard of the
law requires clear evidence that arbitrator was conscious of the law and
deliberately ignored it and a showing that the arbitrator merely misinterpreted,
misstated, or misapplied the law is insufficient); and U.S. ex rel. Watkins
v. AIT Worldwide Logistics, Inc., 441 F.Supp.2d 762 (E.D.Va. 2006) (Party
seeking to vacate based on manifest disregard of law is required to show that
arbitrators were aware of law, understood it correctly, found it applicable to
case before them, and yet chose to ignore it).
¶28 House's arguments premised on statutory definitions of "new" and "used"
vehicles require a determination the statutes apply and were ignored. The
arbitrator recounted Appellees' arguments the prior transaction had failed and
found inapplicable statutes House contends were ignored. Vacatur is denied
premised on the doctrine of manifest disregard of applicable law.10
CONCLUSION
¶29 The trial court's order sending the parties' dispute to arbitration is
AFFIRMED. House's claimed errors which are premised upon re-adjudication of the
underlying issues will not be entertained, she has failed to demonstrate
entitlement to vacatur of the arbitrator's award upon other grounds alleged, and
she has not shown the trial court abused its discretion or erred as to the law.
The order confirming the arbitrator's award is AFFIRMED.
BUETTNER, Acting P.J., and GOREE, J. (sitting by designation),
concur.
