Agreements to Arbitration: “Good for the Goose, Good For the Gander” Rule Applied By Tennessee Court

You won’t see the "good for the goose, good for the gander" rule articulated as such in many court opinions.  But stop by any courtroom in Tennessee on any motion day and you will hear it being argued by someone.  It is a fundamental concept that is part of the law of equity.

And here, the gander got bit square in the ass – the absolute right result.

Plaintiff bought a mobile home and entered into a retail installment contract with Defendant CMH Homes who then assigned the contract to Vanderbilt Mortgage.  Two years after the purchase, the plaintiff filed suit against both CMH Homes and Vanderbilt Mortgage alleging various theories of recovery including breach of express and implied warranties, violation of the Tennessee Consumer Protection Act, breach of contract and fraud.  Plaintiff also alleged the retail installment contract was unconscionable and void.  Defendants filed a motion to dismiss or to compel arbitration pursuant to the arbitration provision in the contract.  

The exact language of the arbitration agreement is in the Court of Appeals’ decision.  Rather than recite it verbatim, in a nutshell, the arbitration agreement compelled plaintiff to submit nearly all of his claims to arbitration but allowed the defendants to seek judicial relief for virtually all of their claims.  Interestingly, the arbitration agreement even required the plaintiff to seek arbitration of his counterclaims if the defendants ever sued him.    

The trial court declared the arbitration agreement unconscionable pursuant to the Tennessee Supreme Court’s decision in Taylor v. Butler, 142 S.W. 3d 277 (Tenn. 1996).  Defendants appealed pursuant to T.C.A. §29-5-503 which permits an appeal to be taken from an order denying an application to compel arbitration.  

The Court of Appeals agreed the Taylor decision was controlling and required a finding that the contract was void because it was unconscionable.  In Taylor, the Tennessee Supreme Court had been confronted with a substantially similar contract in which one party could seek judicial relief while the other was required to submit to arbitration.  After reviewing decisions from other jurisdictions and the Restatement (Second) of Contracts, the Court found the contract unconscionable because it was an contract of adhesion and was "so one-sided, in view of all the facts and circumstances, that the contracting party is denied any opportunity for meaningful choice." 

In an effort to avoid the Taylor decision, the defendants advanced several arguments. First, defendants argued the trial court should have simply severed the offending portions of the arbitration agreement rather than declaring the entire provision unconscionable and void.  The Court of Appeals refused to consider the issue as the defendants had failed to raise it in the trial court. 

Next, the defendants argued the unconscionability claim was preempted by the Federal Arbitration Act ("FAA") because the terms of the arbitration agreement required it to be governed by the FAA. Again, the Court of Appeals found Taylor controlling as the Taylor arbitration agreement had similar language and the Tennessee Supreme Court had already concluded the FAA permitted states to use general contract law principles, including defenses like unconscionability, to interpret arbitration agreements. 

Lastly, the defendants urged the Court of Appeals to reject Taylor as its rationale was no longer in the legal majority.  Not surprisingly, the Court of Appeals responded by reminding the defendants they were barking up the wrong tree — such an argument should be  directed to the Tennessee Supreme Court as they were the only ones at liberty to overturn Taylor. 

Now, I am no fan of arbitration forced down the throat of the weak, the powerless and the poor via contracts of adhesion.  But the one-sidedness of this provision was so outrageous that CHM Homes and Vanderbilt Mortgage ought to be ashamed of itself.  

A lawyer I consider a really nice guy argued this for CHM and Vanderbilt Mortgage – my guess is that he had his fingers crossed behind his back during oral argument.  (No, I have not discussed this with him.  I do not know his feelings on the issue.  He has not said one word to me inconsistent with the interest of his clients.)  

But I am reminded of the story the late Senator Howell Heflin told me (and undoubtedly thousands of others at one time or another); "John, there has been many a time I’ve walked into that voter booth, closed the curtain, held my nose, and pulled that donkey lever."  Every lawyer has been in that position at least once.

The case is Berent v CMH Homes,  No. E2013-01214-COA-R3-CV  (Tenn. Ct. App. Feb. 28, 2014).  

Here are a few other posts on arbitration clauses in Tennessee: