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holding that separate written instruments will be construed together and considered to constitute one transaction where the parties and the subject matter are the same, and where there is clearly a relationship between the documents; however, when a merger clause is used in a subsequent agreement, unless specifically incorporated therein, clauses, such as an arbitration clause contained in the original agreement, will not be enforceable under the subsequent agreement
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No. 18-0605
04-10-2020
TD AUTO FINANCE LLC, Focus Receivables Management, and Northstar Location Services, LLC, Defendants Below, Petitioners v. Freddie REYNOLDS and Shelby Reynolds, Plaintiffs Below, Respondents
Daniel J. Konrad, Esq. DINSMORE & SHOHL LLP, Huntington, West Virginia, Attorney for Petitioners Raymond S. Franks, II, Esq., BAILEY & GLASSER, LLP, Charleston, West Virginia, Steven J. Broadwater, Jr., Esq., HAMILTON, BURGESS, YOUNG & POLLARD, PLLC, Fayetteville, West Virginia, Attorneys for Respondents
Daniel J. Konrad, Esq. DINSMORE & SHOHL LLP, Huntington, West Virginia, Attorney for Petitioners
Raymond S. Franks, II, Esq., BAILEY & GLASSER, LLP, Charleston, West Virginia, Steven J. Broadwater, Jr., Esq., HAMILTON, BURGESS, YOUNG & POLLARD, PLLC, Fayetteville, West Virginia, Attorneys for Respondents
WORKMAN, Justice:
This is an appeal from the Circuit Court of Mercer County's denial of petitioners TD Auto Finance LLC ("TD Auto Finance"), Focus Receivables Management, LLC, and Northstar Location Services, LLC's (collectively "petitioners") motion to compel arbitration of respondents Freddie and Shelby Reynolds’ ("respondents") claims against them. The circuit court found that a merger clause in the Retail Sales Installment Contract supplanted a prior agreement to arbitrate contained in a credit application executed by respondents.
Upon careful review of the briefs, the appendix record, the arguments of the parties, and the applicable legal authority, we conclude that the credit application and Retail Installment Sales Contract did not constitute contemporaneously-executed documents which were part of a singular transaction. As such, the merger clause contained in the Retail Installment Sales Contract served to supersede the arbitration agreement contained in the previously-executed credit application and contained no requirement to arbitrate. Accordingly, we affirm the circuit court's denial of petitioners’ motion to compel arbitration. I. FACTS AND PROCEDURAL HISTORY
On November 14, 2014, respondents purchased a new 2014 Chevrolet Silverado truck from Crossroads Chevrolet ("Crossroads"). During their interactions with Crossroads, respondents executed a credit application permitting Crossroads to effectively investigate and "shop" their credit around to potential financing companies for the purchase of a vehicle. Upon negotiating and reaching an agreement as to the purchase of a 2014 Chevrolet Silverado, respondents subsequently executed a Retail Installment Sales Contract ("RISC") for the purchase of the truck.
The credit application first executed by respondents states that by executing the application, respondents "authorize dealer and any finance company, bank or other financial institution to which the Dealer submits my application," to investigate their credit and employment history. The form credit application contains a paragraph that applies to "applications submitted to TD Auto Financial LLC Only" and provides that "in exchange for the time, effort, and expense in reviewing your application and for other valuable consideration ... [respondents] agree to all of the terms of the TD Auto Finance LLC Contract of Arbitration contained in [the] application ...." The "Contract of Arbitration," which comprises page six of the credit application, provides:
There is no page five of the document (skipping from page four to page six); however, petitioners’ counsel represented that there was no such page in the document and the non-serial page numbering was an error of some sort.
Any claim or dispute, whether in contract, tort or otherwise (including any dispute over the interpretation, scope, or validity of this Important Contract of Arbitration or the arbitrability of any issue), between our employees, parents, subsidiaries, affiliate companies, agents, successors or assignees, which arises out of or relates to this application and Important Contract of Arbitration, any installment sale contract or lease agreement, or any resulting transaction or relationship (including any such relationship with third parties who do not sign this application and important Contract of Arbitration) shall, at the election of any of us .... be resolved by a neutral, binding arbitration and not by a court action.
The record contains no information about precisely when, during the course of respondents’ interaction with Crossroads, this document was executed. However, in oral argument below and before this Court, counsel for petitioners conceded that common sense suggests it was executed at some point prior to the RISC, as a necessary precursor to the sales transaction.
The RISC was executed by respondents and Crossroads to consummate the purchase of the truck. The RISC provides that it is for the purchase of a 2014 Chevrolet Silverado in the amount of $37,700.21 and financing in the amount of $46,811.18. The final page of the document contains what is commonly known as a "merger" or "integration" clause, as follows: "HOW THIS CONTRACT CAN BE CHANGED. This contract contains the entire agreement between you and us relating to this contract. Any change to this contract must be in writing and we must sign it. No oral changes are binding."
This specific paragraph is signed by both respondents and a representative of Crossroads. Importantly, however, the document concludes with a contemporaneous assignment of the RISC from Crossroads to petitioner TD Auto Finance. The final paragraph states: "Seller assigns its interest in this contract to TD AUTO FINANCE LLC (Assignee) under the terms of Seller's agreement(s) with Assignee." It is signed by the President of Crossroads Chevrolet LLC. Petitioner TD Auto Finance's name has been typed into the form.
Respondents ultimately defaulted on their loan and petitioner TD Auto Finance began collection efforts by referral to collection agencies—petitioners Focus Receivables Management, LLC and Northstar Location Services, LLC. Respondents allege that the collection agencies harassed them by phone even after being advised they were represented by counsel. As a result, they filed a complaint asserting violations of the West Virginia Consumer Credit and Protection Act, among other claims, and naming petitioners as defendants. Petitioners moved to compel arbitration on the basis of the arbitration provision contained in the credit application.
In addition to their claims under the West Virginia Consumer Credit and Protection Act, respondents alleged violations of the West Virginia Computer Crimes Act, intentional infliction of emotional distress, and invasion of privacy.
In a supplemental filing below, petitioners asserted that the issue of arbitrability must be determined by the arbitrator, rather than the circuit court, as a result of the purported delegation provision in the arbitration agreement. The circuit court did not address this issue and petitioners do not raise it in this appeal.
The circuit court denied the motion, finding that the credit application and attendant arbitration clause constituted "an entirely separate transaction" from the RISC inasmuch as "typically" a credit check and application precedes the negotiations regarding the sale. Accordingly, it found that the credit application and RISC were not part of the same transaction and therefore were not required to be construed together. Further, the circuit court found that petitioners’ failure to have an arbitration agreement signed at the same time as the RISC, included in the RISC, or at a minimum, incorporated by reference into the RISC, was fatal to its claim for arbitration. Petitioners then filed the instant appeal.
The circuit court noted that there was no evidence presented as to specifically when the arbitration agreement was signed, but found that "the auto dealer cannot make an offer especially as to financing rate terms until after the buyer has a credit check." As indicated supra , counsel for petitioners conceded to this order of events.
II. STANDARD OF REVIEW
This Court has held that "[w]hen an appeal from an order denying a motion to dismiss and to compel arbitration is properly before this Court, our review is de novo ." Syl. Pt. 1, W. Va. CVS Pharmacy, LLC v. McDowell Pharmacy, Inc ., 238 W.Va. 465, 796 S.E.2d 574 (2017). With this standard in mind, we consider the parties’ arguments.
III. DISCUSSION
With respect to a trial court's consideration of a motion to compel arbitration, this Court has held:
When a trial court is required to rule upon a motion to compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1 – 307 (2006), the authority of the trial court is limited to determining the threshold issues of (1) whether a valid arbitration agreement exists between the parties; and (2) whether the claims averred by the plaintiff fall within the substantive scope of that arbitration agreement.
Syl. Pt. 2, State ex rel. TD Ameritrade, Inc. v. Kaufman , 225 W.Va. 250, 692 S.E.2d 293 (2010). This case therefore requires this Court to determine whether the circuit court erred in determining that no valid arbitration agreement existed. To do so, we turn to governing West Virginia contract law: "[T]he issue of whether an arbitration agreement is a valid contract is a matter of state contract law and capable of state judicial review." State ex rel. Clites v. Clawges , 224 W. Va. 299, 305, 685 S.E.2d 693, 699 (2009) (emphasis in original). See also Chesapeake Appalachia, L.L.C. v. Hickman , 236 W. Va. 421, 436, 781 S.E.2d 198, 213 (2015) (observing that whether a valid arbitration agreement exists is determined "[u]nder general principles of state contract law"); Syl. Pt. 4, in part, State ex rel. Richmond Am. Homes of W. Va., Inc. v. Sanders , 228 W. Va. 125, 717 S.E.2d 909 (2011) ("[T]he trial court may rely on general principles of state contract law in determining the enforceability of the arbitration clause.").
The issue before the Court is whether the arbitration provision respondents agreed to in the credit application survives the "merger clause" in the RISC, which states that the RISC constitutes the "entire agreement" between the parties. This Court has explained that "[a] ‘merger clause’ is ‘[a] provision in a contract to the effect that the written terms may not be varied by prior or oral agreements because all such agreements have been merged into the written document.’ " Frederick Bus. Properties Co. v. Peoples Drug Stores, Inc ., 191 W. Va. 235, 240 n.2, 445 S.E.2d 176, 181 n.2 (1994) (quoting Black's Law Dictionary 989 (6th ed. 1990)). Under the credit application, there is a clear agreement to arbitrate with TD Auto Finance; however, the RISC contains no such arbitration agreement nor reference to the prior agreement, and explicitly purports to be the "entire agreement" between the parties.
Petitioners contend that the RISC is effectively a "third-party" contract that cannot affect its arbitration rights under the credit application inasmuch as Crossroads, and not TD Auto Finance, executed the RISC. As more fully discussed infra , this argument is without merit.
Petitioners contend that the arbitration agreement contained in the credit application and the RISC, which is silent on dispute resolution, are not in conflict and unmistakably demonstrate an agreement to arbitrate any claims involving petitioner TD Auto Finance. Citing highly similar extra-jurisdictional caselaw, petitioners contend that the arbitration agreement and RISC are "separate and distinct" collateral documents executed as part of a singular transaction and therefore must be construed together. Respondents, also citing factually-similar caselaw supportive of its position, maintain that the scope and purpose of the credit application was substantially unrelated to the ultimate vehicle purchase and therefore is merely a prior agreement which was "merged" into the RISC. The RISC, which respondents contend is the governing document, contains no requirement to arbitrate.
Several courts have had opportunity to examine the effect of a merger clause on separately executed arbitration agreements in cases with similar facts—vehicle purchasers who agree to arbitrate in one document but contemporaneously sign an installment sales contract that contains no arbitration provision, but includes a merger clause stating that it is the "entire agreement." These courts have universally cited to some iteration of the following well-recognized contract principle: "[A]bsent anything to indicate a contrary intention, written instruments executed at the same time, by the same contracting parties, for the same purpose, and in the course of the same transaction will be considered and construed together as one contract or instrument, even though they do not by their terms refer to each other." 11 Williston on Contracts § 30:26 (4th ed.).
For example, in Johnson ex rel. Johnson v. JF Enterprises, LLC, 400 S.W.3d 763, 768 (Mo. 2013), the Missouri Supreme Court rested its resolution on the "general rule that contemporaneously signed documents relating to one subject matter or transaction are construed together[.]" The Johnson court found that a separate, stand-alone arbitration agreement was enforceable where it was executed as one of a "pile of documents" which were executed "within minutes of each other, in a single sitting, as part of a single sales transaction." Id . at 768. Explaining that "[t]o protect the sanctity of the parties’ written contract, all the provisions in the writing can and should be harmonized and given effect," it concluded that a valid arbitration agreement was created. Id . at 768. See also Kates v. Chad Franklin Nat'l Auto Sales North, LLC , No. 08-0384-CV-W-FJG, 2008 WL 5145942, at *4 (W.D. Mo. Dec. 1, 2008) (finding stand-alone arbitration agreement applicable and observing "the merger clause does not prohibit the forming of a separate arbitration agreement contemporaneously with the other contracts in this matter.").
Similarly, in Najera v. David Stanley Chevrolet, Inc ., 406 P.3d 592 (Okla. Civ. App. 2017), the court found an arbitration agreement contained in a previously executed purchase agreement was not rendered a nullity by the merger clause in the RISC. The court reasoned that by signing numerous documents contemporaneously, the totality of the documents formed the agreement and that to conclude that the RISC was the "only and complete agreement of the parties, execution of these other [contemporaneously-executed] documents would be rendered nugatory." Id . at 597. See also Ramick v. Howard-GM II, Inc ., 414 P.3d 397, 400 (Okla. Civ. App. 2018) (requiring RISC to be construed with purchase agreement requiring arbitration where contracts were " ‘relating to the same matters’ " and " ‘parts of substantially one transaction’ " (citations omitted)). The Najera court relied on the Tenth Circuit's reasoning in Mooneyham v. BRSI, LLC , 682 Fed. Appx. 655, 660 (10th Cir. 2017) which found that the merger clause may have precluded "incorporation of other agreements into the RISC[ ] [b]ut the clause doesn't preclude incorporation of other agreements into the transaction as a whole."
Importantly, however, the Purchase Agreement in Najera containing the arbitration provision also provided that the agreement "and all written contracts relating to the same transaction ... and made as part of substantially the same transaction ... shall be taken together and read as one document setting forth the terms of the parties agreement ." Id . at 595 (emphasis in original). See also Bank Julius Baer & Co., Ltd. v. Waxfield Ltd ., 424 F.3d 278 (2d Cir. 2005) abrogated on other grounds by Granite Rock Co. v. Int'l Bhd. of Teamsters , 561 U.S. 287, 130 S.Ct. 2847, 177 L.Ed.2d 567 (2010) (finding merger clause "at odds" with Purchase Agreement incorporation clause providing that rights and remedies in Agreement, including arbitration, are "cumulative and not exclusive of any rights or remedies provided under any other agreement").
Courts in other states have used similar reasoning to conclude that a merger clause does not necessarily foreclose the enforceability of agreements reached in collateral documents, where they are contemporaneously executed as part of a single transaction. See Ritter v. Grady Automotive Group, Inc ., 973 So.2d 1058, 1062 (Ala. 2007) (finding stand-alone arbitration agreement valid and holding merger clause "does not bar evidence of contemporaneous collateral agreements between the parties"); Lowe v. Nissan of Brandon, Inc ., 235 So.3d 1021 (Fla. Dist. Ct. App. 2018) (upholding arbitration agreement in Purchase Agreement where executed with other purchase documentation contemporaneously); Wells Fargo Auto Finance, Inc. v. Wright , 304 Ga.App. 621, 698 S.E.2d 17, 19 (2010) (finding stand-alone arbitration agreement valid where "retail sales contract, installment contract, and the [Arbitration] Agreement were executed simultaneously"); Bartkus v. Thomas Motors Of Joliet, Inc. , No. 09-C-3005, 2009 WL 2766719 (N.D. Ill. Aug. 27, 2009) (suggesting that contemporaneous execution of RISC and purchase order requiring arbitration supersedes merger clause).
The Fourth Circuit has reached the same conclusion under similar facts, which has been followed as precedent by the Maryland Court of Appeals. See Rota-McLarty v. Santander Consumer USA, Inc ., 700 F.3d 690, 700 (4th Cir. 2012) ("[T]he Buyer's Order and RISC were made a part of a single transaction, and should be interpreted together[.]"); see also Ford v. Antwerpen Motorcars Ltd ., 443 Md. 470, 117 A.3d 21 (2015) (citing Rota-McLarty in support of rejection of merger clause in RISC as supplanting separate agreement to arbitrate in Buyer's Order).
Other courts, however, have interpreted merger clauses more strictly, refusing to allow predecessor or contemporaneous documents, which purport to add to or alter the "final agreement," to require arbitration or other matters. In Duval Motors Co. v. Rogers , 73 So.3d 261 (Fla. Dist. Ct. App. 2011), the purchaser signed a Retail Buyer's Order containing an arbitration agreement, as well as a RISC containing the identical merger language as in the case at bar. The Duval court explained that the purpose of a merger clause is " ‘to affirm the parties’ intent to have the parol evidence rule applied to their contracts.’ " Id . at 265 (citations omitted). And as such, the parol evidence rule "precludes consideration of ... evidence ‘to contradict, vary, defeat, or modify a complete and unambiguous written instrument, or to change, add to, or subtract from it, or affect its construction.’ " Id . (citations omitted). The court therefore found that the integration or merger clause precluded applicability of the arbitration provision in the other document. See also Weiszhaar v. Hampton Automotive Group, Inc ., No. 5:12-cv-46/RS-GRJ, 2012 WL 2034783 (N.D. Fla. June 6, 2012) (same).
Likewise, the Florida appeals court in HHH Motors, LLP v. Holt , 152 So.3d 745, 748 (Fla. Dist. Ct. App. 2014) found that a purchase agreement containing an arbitration provision did not survive the merger clause in the RISC, stating succinctly: "If [the dealer] intended for credit buyers to be subject to the arbitration clause, then it could have said so in the RISC, but did not." Accord Harbor Village Home Center, Inc. v. Thomas , 882 So.2d 811, 816 (Ala. 2003) (finding that retail installment contract was "fully integrated agreement of the parties" and rejecting arbitration agreement which contained no purchase terms nor merger clause of its own); Ex parte Palm Harbor Homes, Inc ., 798 So.2d 656, 661 (Ala. 2001) (finding that drafters of installment contract "could easily have included in the merger clause a specific reference to ... free-standing instruments, thus identifying the instrument as a part of the integrated agreement" but failure to do so precluded consideration of arbitration provisions contained in free-standing documents); Salvagne v. Fairfield Ford, Inc ., 794 F. Supp.2d 826, 832 (S.D. Ohio 2010) (finding RISC to be "standing alone, a fully integrated contract that by its terms was binding" and rejecting argument that terms contained in delivery agreement may alter RISC); Gonzalez v. Consumer Portfolio Servs., Inc ., No. CL04-00092, 2004 WL 2334765 (Cir. Ct. of Va., Rockingham Co. Sept. 2, 2004) (refusing to enforce arbitration due to merger clause in RISC and construing contract against drafter).
Like the courts above, this Court has also recognized, generally, that contemporaneous documents which comprise a single transaction may be construed together:
"Separate written instruments will be construed together and considered to constitute one transaction where the parties and the subject matter are the same, and where there is clearly a relationship between the documents." Syllabus point 3, McCartney v. Coberly , ––– W.Va. ––––, 250 S.E.2d 777 (1978), overruled on other grounds by Syllabus point 2, Overfield v. Collins , 199 W.Va. 27, 483 S.E.2d 27 (1996).
Syl. Pt. 1, McDaniel v. Kleiss , 202 W. Va. 272, 503 S.E.2d 840 (1998). Elaborating on this general rule, the McDaniel Court explained that "we have found a single contract to exist where the two agreements were signed contemporaneously or where the earlier contract was specifically referenced in the later contract." Id . at 279, 503 S.E.2d at 847. We have not, however, had occasion to address the effect of a merger clause on this general principle.
While the cases argued by the parties represent divergent approaches to the effect of a merger clause on contemporaneously-executed documents and are tantalizingly similar in their facts, we find that this case does not require the Court to cast its lot with one approach or the other. Rather, our general rule on the construction of competing contractual agreements along with the particular facts of this case are sufficient to resolve the issue at hand. As noted above, our rule provides that contemporaneously executed agreements between the same parties and relating to the same subject matter may be construed together as part of one contract or transaction. Commensurately, the distinguishing factors in the cases cited by petitioners reveal that the competing documents were 1) signed contemporaneously as part and parcel of a larger purchase transaction; and 2) were either purchase-type agreements which, like the RISC, purport to govern the purchase or stand-alone arbitration agreements executed during consummation of the transaction.
In this case, however, it is undisputed that the credit application 1) was signed before and not contemporaneously with the RISC in consummation of the purchase; and 2) was not, by its subject matter, part or parcel of the purchasing documents or transaction. The credit application is merely an authorization to investigate respondents’ credit score and employment information and present that information to various finance companies to determine which company may wish to extend financing to them. The credit application is not part of the purchase transaction documentation and governs an entirely different subject matter—the credit investigation and approval process. There is nothing about a simple credit application which ostensibly purports to govern any of the terms of the ultimate vehicle purchase or financing. See Lowe , 235 So.3d at 1027 (" ‘The test for determining arbitrability of a particular claim under a broad arbitration provision is whether a "significant relationship" exists between the claim and the agreement containing the arbitration clause, regardless of the legal label attached to the dispute.’ " (quoting Murphy v. Courtesy Ford, LLC , 944 So.2d 1131, 1133 (Fla. Dist. Ct. App. 2006) ); cf. Ashland Oil, Inc. v. Donahue , 159 W. Va. 463, 469, 223 S.E.2d 433, 437 (1976) (finding lease agreement and dealer contract sufficiently related where both "deal with the operation of a gasoline station at identified premises[;] provide for the same initial term and automatic extensions from year to year; [ ] provide for the sale and delivery of gasoline; [ ] provide for the conduct of the business on the part of Donahue with skill and diligence").
In this regard, the McDaniel case is instructive. In McDaniel , the Court examined an insurance policy and subsequent release to determine whether their terms were conflicting and which document governed the parties’ responsibilities as pertained to preserving the insurance company's subrogation rights. The Court determined that the policy and release, while plainly related to each other, were "two separate and distinct contracts" by virtue of the "difference in the subject matter addressed in each document[.]" Id . at 278-79, 503 S.E.2d at 846-47. Acknowledging the relationship between the two documents, the Court stated that "absent the existence of the automobile insurance policy, there would have been no reason for Aetna to negotiate the release." Id . at 279, 503 S.E.2d at 847. However, it found that "this fact alone [is] insufficient upon which to find that the two documents are so closely related that they become a single contract." Id . While the insurance contract may have given rise to the coverage for the loss described in the release, the release itself purported to govern the terms of a "particular known loss." Id .
Similarly, here, while the credit application may have been a common precursor to a vehicle purchase governed by a RISC, the completely different subject matter of the two documents and lack of contemporaneous execution—which also demonstrates their distinct purposes—are insufficient to view them as part of a single transaction. Therefore, the RISC and its merger clause—stating that it represents the "entire agreement" between the parties as pertains to the purchase of the vehicle—must govern. The RISC's failure to include an arbitration provision or incorporate by reference any prior arbitration agreement, therefore, is fatal to petitioners’ demand for arbitration.
Petitioners, however, maintain that the arbitration agreement language in the credit application specifically extended the requirement to arbitrate to any subsequently-executed RISC and therefore serves to effectively "reach out" and incorporate itself into the RISC. As indicated, the arbitration provision in the credit application states that it applies to "any installment sale contract or lease agreement, or any resulting transaction or relationship ...." This language, however, is fully at odds with the purpose of the merger clause contained in the RISC: to merge any preexisting agreements into one, final agreement governed exclusively by the terms contained within the four corners of the RISC. To make the preexisting arbitration agreement applicable to the RISC, the opposite must have occurred: the final, "entire" agreement—the RISC—should have incorporated the prior arbitration agreement by reference. Cf. Art's Flower Shop v. Chesapeake & Potomac Tel. Co ., 186 W.Va. 613, 615, 413 S.E.2d 670, 672 (1991) (finding prior contract incorporated by reference where subsequent contract specifically stated " ‘all other terms and conditions to remain as previously signed’ "). Other courts have similarly rejected this attempted "reverse incorporation." See Salvagne , 794 F. Supp.2d at 833 ("[T]he RISC must clearly reach out and incorporate the [prior] Spot Delivery Agreement, not the other way around."); Duval Motors , 73 So.3d at 269 ( [T]he important inquiry is whether the [final] RISC incorporates the [prior Buyer's Order], not whether the [Buyer's Order] incorporates the RISC.").
Further, the unlimited scope of such an attempted "reverse incorporation" leads to an absurd, theoretical possibility: that respondents would be obligated to arbitrate any claim arising out of any subsequent transaction or relationship regardless of how attenuated in time or subject matter. This untenable reading, coupled with tedious and frequently indecipherable competing documents foisted upon vehicle purchasers make Justice McDonald's sardonic comment particularly apt: "[A] lay person interested in buying a [ ] car would be well advised to bring along a lawyer, a magnifying glass, and perhaps an English major, to decipher [sales contracts]." Antwerpen Motorcars , 117 A.3d at 29 (McDonald, J., concurring).
Finally, we dispense with petitioners’ contention that, since Crossroads was the original signatory to the RISC, petitioners’ rights under the credit application arbitration agreement cannot be affected by the terms of what is essentially a third-party contract between respondents and Crossroads. As assignee of the RISC, petitioner TD Auto Finance stands in the shoes of Crossroads. Therefore, for purposes of examining the formation, validity, and enforceability of the RISC and defenses thereto, the fact that petitioner TD Auto Finance is not an original signatory, but rather an assignee, is of no consequence. As is universally-recognized:
[A]n assignee acquires no greater right than that possessed by his assignor, and he stands in his shoes; and an assignee takes subject to all defenses and all equities which could have been set up against an instrument in the hands of an assignor at the time of the assignment.
Syl. Pt. 10, Lightner v. Lightner , 146 W.Va. 1024, 124 S.E.2d 355 (1962). Therefore,
" ‘[t]he assignee is subject to any defenses that would have been good against the [assignor]; the assignee cannot recover more than the assignor could recover; and the assignee never stands in a better position than the assignor .’ " "[A]n assignee gains nothing more, and acquires no greater interest than had his assignor." In other words, "the common law puts the assignee in the assignor's shoes, whatever the shoe size."
***
Corbin on Contracts states, "[t]he essential purpose of the principle is to protect the obligor, the party who must perform the correlative duty of the assigned right," so that the risk to the obligor is not materially enlarged over the risk created by its agreement with the assignor. In other words, the purpose behind the rule is that an assignee has rights and liabilities identical to those of its assignor.
Sunridge Dev. Corp. v. RB & G Eng'g, Inc ., 230 P.3d 1000, 1003-04 (Utah 2010) (citations omitted) (emphasis added). Therefore, to the extent that Crossroads could not have compelled respondents to arbitrate their claims due to the absence of such an agreement in the RISC, neither can petitioners. Accordingly, we conclude that the arbitration provisions in the credit application did not survive the merger clause of the RISC, thereby nullifying respondents’ obligation to arbitrate their claims against petitioners.
In a similar vein, while not argued by respondents, we further find that petitioners are likely estopped from disavowing the merger clause contained in the RISC. When respondents defaulted on their vehicle loan, petitioners sought to collect the debt presumably pursuant to the terms of the RISC, as its assignee. Petitioners cannot avail themselves of the terms of the RISC for purposes of collection, but disavow the applicability of certain other of its terms: "[A] party may be estopped from asserting [defenses which] preclude[ ] enforcement of the contract's [provisions] when he has consistently maintained that other provisions of the same contract should be enforced to benefit him." Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH , 206 F.3d 411, 418 (4th Cir. 2000). See Invista S.A.R.L. v. Rhodia, S.A ., 625 F.3d 75, 85 (3d Cir. 2010) (noting estoppel prevents party "from ‘cherry-picking’ the provisions of a contract that it will benefit from and ignoring other provisions that don't benefit it or that it would prefer not to be governed by"); see also, e.g. Lowe , 235 So.3d at 1027 (observing that "the essential terms of the contract for the [ ] claim Ms. Lowe raises" were contained in arbitration-requiring Purchase Agreement).
IV. CONCLUSION
For the reasons set forth hereinabove, we affirm the June 8, 2018, order of the Circuit Court of Mercer County, West Virginia, denying petitioners’ motion to compel arbitration.
Affirmed.
JUSTICE HUTCHISON concurs and reserves the right to file a separate opinion.
CHIEF JUSTICE ARMSTEAD and JUSTICE JENKINS dissent and reserve the right to file separate opinions.
Hutchison, J., concurring:
I write separately to emphasize what this case is and what it is not about. I also write to point out that the position propounded by petitioner TD Auto Finance would create chaos in the law of contracts.
First, and foremost, this case is not about arbitration. Admittedly, the contract provision the parties are dickering over concerns arbitration. Additionally, in its brief, TD Auto Finance cites a string of federal arbitration cases, insists that this Court's authority is "extremely limited," and argues that federal law emphatically mandates that we send this case to arbitration. This argument ignores, however, the fundamental rule that arbitration contracts are subject to interpretation using general principles of state contract law, not federal law. See , e.g. , Perry v. Thomas , 482 U.S. 483, 492 n.9, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987) ("[S]tate law, whether of legislative or judicial origin, is applicable if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally."); Chesapeake Appalachia, L.L.C. v. Hickman , 236 W. Va. 421, 435, 781 S.E.2d 198, 212 (2015) ("[A]n agreement to arbitrate is a contract. The rights and liabilities of the parties are controlled by the state law of contracts."). Moreover, the federal law cited by TD Auto Finance is largely irrelevant because, at its heart, this case has absolutely nothing to do with arbitration.
This case is a dull, run-of-the-mill, state-law contract interpretation case. Every first-year law student knows that a contract is defined as one party's acceptance of another's offer of specific terms (along with an exchange of consideration). Dan Ryan Builders, Inc. v. Nelson , 230 W. Va. 281, 287, 737 S.E.2d 550, 556 (2012) ("The elements of a contract are an offer and an acceptance supported by consideration."). If any one of the three elements (offer, acceptance, or consideration) is missing, then no contract is formed. Logically, an offer – with all of its terms – must precede the opposite party's acceptance of those very same terms. "As a general principle, an offeree cannot actually assent to an offer unless the offeree knows of its existence." Schnabel v. Trilegiant Corp. , 697 F.3d 110, 121 (2d Cir. 2012). Accordingly (and this shouldn't have to be said), an offeree cannot "know" about an offer and assent to it before it even exists. See Taubman Cherry Creek Shopping Ctr., LLC v. Neiman-Marcus Grp., Inc. , 251 P.3d 1091, 1095 (Colo. App. 2010) ("[W]e are aware of no precedent holding that parties can clearly know of and assent to contract terms that do not yet exist[.]").
This case is about a sub-doctrine of contract law, the doctrine of "incorporation by reference." The long-standing rules of contracts recognize that parties can make a new contract, and in that new contract refer to other, existing documents or contracts. Stated another way, a party can offer to form a contract using terms written in other documents; the opposing party may then accept those terms. Those other materials must be clearly identified so there is no doubt by both parties as to what they are agreeing to. As noted above, an offeree cannot assent to something that does not exist.
This Court summarized the doctrine of incorporation in this way:
In the law of contracts, parties may incorporate by reference separate writings together into one agreement. However, a general reference in one writing to another document is not sufficient to incorporate that other document into a final agreement. To uphold the validity of terms in a document incorporated by reference, (1) the writing must make a clear reference to the other document so that the parties’ assent to the reference is unmistakable; (2) the writing must describe the other document in such terms that its identity may be ascertained beyond doubt ; and (3) it must be certain that the parties to the agreement had knowledge of and assented to the incorporated document so that the incorporation will not result in surprise or hardship.
Syllabus Point 2, State ex rel. U-Haul Co. of W.Va. v. Zakaib , 232 W. Va. 432, 752 S.E.2d 586 (2013) (emphasis added).
The key term throughout the U-Haul Court's discussion of the incorporation doctrine is the word "assent." When a court weighs the validity of a provision incorporated into a contract by reference, the court's focus is whether the contracting parties knew of and assented to the incorporated provision. A meeting of the minds and mutuality of assent are the most basic ingredients of a contract.
Central to the notion of "assent" is that the parties must know, at the moment they form their contract, what they are agreeing to: if a term in the new, incorporating contract is buried in an older, existing document, then the reference in the new contract has to be clear "so that the parties’ assent to the reference is unmistakeable." Id . In most instances, to incorporate by reference some collateral document, the new, incorporating contract must expressly and sufficiently describe another document that exists . As one court said, "what is being incorporated must actually exist at the time of the incorporation , so the parties can know exactly what they are incorporating." Gilbert St. Developers, LLC v. La Quinta Homes, LLC , 174 Cal. App. 4th 1185, 1194, 94 Cal.Rptr.3d 918 (2009). See also In re Plumel's Estate , 151 Cal. 77, 90 P. 192, 193 (1907) ("in order to make out a case for the application of the doctrine of incorporation by reference, the paper referred to must not only be in existence at the time of the execution of the attested or properly executed paper, but that it must be referred to in the latter as an existent paper, so as to be capable of identification."). Where the term referred to in a new contract is not in existence at the time the parties form the principal contract, the enforceability of the term is in jeopardy.
As a general principle, incorporating nonexistent, future terms into a present contract usually imperils the enforceability of those terms:
Where the document referred to is not in existence at the time the principal contract is made, the enforceability of the incorporated terms may be jeopardized. Where the principal agreement contains the essential elements of a valid contract, and further binds the parties to terms to be established by one party in futuro , the danger exists that the critical elements of knowledge of, and assent to, the additional terms will be missing. If the provisions to be incorporated will only explain or particularize the obligations of the parties under the principal contract, there is no obstacle to the enforcement of those supplemental provisions. But where the added terms, established by one of the parties, modify or contradict a material term of the original valid contract, the incorporated terms must fall.
Hous. Auth. of City of Hartford v. McKenzie , 36 Conn. Supp. 515, 519, 412 A.2d 1143, 1145-46 (Super. Ct. 1979). Accord Lamb v. Emhart Corp. , 47 F.3d 551, 559 (2d Cir. 1995). See also Taubman Cherry Creek Shopping Ctr., LLC v. Neiman-Marcus Grp., Inc. , 251 P.3d 1091, 1095 (Colo. App. 2010) (finding parties did not agree to incorporate into their contract amendments to American Arbitration Association rules made after adoption of the contract. "Indeed, we are aware of no precedent holding that parties can clearly know of and assent to contract terms that do not yet exist when, as here, the term is in abrogation of statutorily expressed public policy, the parties do not expressly agree to be bound by future amendments, neither party has any control over subsequent amendments, and there is no ascertainable standard for the promulgation of amendments or new rules."); Gilbert St. Developers, LLC v. La Quinta Homes, LLC , 174 Cal. App. 4th 1185, 1194, 94 Cal. Rptr. 3d 918, 924 (2009) (Same. "Incorporating the possibility of a future rule by reference simply doesn't even meet the basic requirements for a valid incorporation by reference under simple state contract law. ... A rule that does not exist at the time of incorporation by reference fails the elementary test of being known or easily available at the time of incorporation.").
Likewise, parties cannot agree today to make a future contract, unless the parties have assented to all the material terms of the future contract.
[U]nless an agreement to make a future contract is definite and certain upon all the subjects to be embraced, it is nugatory.
To be enforceable, a contract to enter into a future contract must specify all its material and essential terms and leave none to be agreed upon as the result of future negotiations. Where a final contract fails to express some matter, as, for instance, a time of payment, the law may imply the intention of the parties; but where a preliminary contract leaves certain terms to be agreed upon for the purpose of a final contract, there can be no implication of what the parties will agree upon. If any essential term is left open to future consideration, there is no binding contract, and an agreement to reach an agreement imposes no obligation on the parties thereto.
Gulf Coast Hospice LLC v. LHC Grp. Inc. , 273 So. 3d 721, 735 (Miss. 2019).
See , e.g ., Atl. Credit & Fin. Special Fin. Unit, LLC v. Stacy , No. 17-0615, 2018 WL 5310172, at *5 (W. Va. Oct. 26, 2018) (memorandum decision) (acknowledging "the strong and liberal public policy favoring arbitration under the Federal Arbitration Act, 9 U.S.C. §§ 1 – 307 [.]"); Parsons v. Halliburton Energy Servs., Inc ., 237 W. Va. 138, 146, 785 S.E.2d 844, 852 (2016) (observing that "[b]oth federal and state laws reflect a strong public policy recognizing arbitration as an expeditious and relatively inexpensive forum for dispute resolution.").
That brings me to the problem in the instant case: the one of temporality. Time goes forward; as much as we would like, we cannot roll back the clock. Likewise, incorporation by reference is unidirectional, that is, it "occurs in one direction: it pulls material into the incorporating contract." Care Grp. Heart Hosp., LLC v. Sawyer , 93 N.E.3d 745, 755 (Ind. 2018). When parties make a new contract, they can agree to incorporate into the contract terms from another document that already exists. Parties cannot agree to the opposite: they generally cannot insist that a term in a present contract automatically incorporate itself into a new, future agreement that does not exist. One cannot assent to something that does not exist. Incorporation by reference pulls existing material into the new, incorporating contract; it does not push material terms into nonexistent, as-yet-unassented-to future contracts.
The petitioners are arguing to subvert this basic rule of contract law and are essentially making an argument for "reverse incorporation." Let me explain, in the context of the sparse record from the circuit court.
Freddie and Shelby Reynolds signed a "retail installment sales contract" ("RISC") with Crossroads Chevrolet to buy a pickup truck. The RISC contained a zipper clause which plainly says that the RISC "contains the entire agreement between" Crossroads and the Reynoldses. The clause says that the RISC is the complete and final agreement, and it says the terms of the RISC supersede any other understandings or oral agreements regarding the Reynoldses’ decision to buy a pickup truck from Crossroads. There is no agreement to arbitrate anywhere in the RISC. TD Auto Finance is nowhere mentioned in the terms of the RISC. Moreover, there is no language suggesting, in any way, that the RISC incorporates by reference some pre-existing document.
A "zipper clause" is defined as a "contractual provision that operates as both an integration clause and as a no-oral-modification clause." Black's Law Dictionary 1855 (10th Ed. 2009). See Pace v. Honolulu Disposal Serv., Inc ., 227 F.3d 1150, 1159 (9th Cir. 2000) ("Notable in this case is the inclusion of a ‘zipper clause’ ... so called because the combination of the integration and no-oral-modification clauses is intended to foreclose claims of any representations outside the written contract aside from those made in another written document executed by the parties."). Synonymously, an "integration clause" is a "contractual provision stating that the contract represents the parties’ complete and final agreement and supersedes all informal understandings and oral agreements relating to the subject matter of the contract." Black's Law Dictionary at 929. Other synonyms include "merger clause" and an "entire-agreement" or "entire-contract" clause.
See , e.g. , Johnson ex rel. Johnson v. JF Enterprises, LLC , 400 S.W.3d 763, 768 (Mo. 2013) ("The order in which documents are signed is irrelevant where, as here, the circumstances demonstrate that they were part of a single transaction. Under the general rule that contemporaneously signed documents relating to one subject matter or transaction are construed together, the parties intended to give effect to all the documents Ms. Johnson executed in her purchase of the vehicle. Because there is no evidence of contrary intent, this Court considers the purchase documents together to determine the parties’ intent as to the scope of the merger clause and of the arbitration agreement."); Wells Fargo Auto Fin., Inc. v. Wright , 304 Ga. App. 621, 698 S.E.2d 17 (2010) (enforcing arbitration agreement executed as part of automobile purchase despite merger clause in retail installment contract executed as part of same transaction).
Put simply and logically, neither the Reynoldses nor Crossroads Chevrolet assented to arbitrate disputes regarding the RISC.
Without any input by, or apparently any knowledge to, the Reynoldses, Crossroads Chevrolet assigned the RISC to TD Auto Finance. TD Auto Finance now claims that Mr. and Mrs. Reynolds have defaulted on the RISC, have forfeited the pickup truck purchased in the RISC, and that the Reynoldses owe additional damages under the terms of the RISC. TD Auto Finance has persistently, and possibly in violation of West Virginia's credit protection laws, been pursuing repayment of monies due under the RISC.
Despite having built their entire substantive case on the RISC, TD Auto Finance focuses this appeal on a wholly separate, preexisting document: the credit application. The credit application in this case is a form prepared by "RouteOne" (and we know this because at the top of each page, in bold text, is the heading "RouteOne®."). RouteOne bills itself as a company that "provides automobile financing system solutions, which include credit applications ... to provide a single portal to accommodate the entire credit application process for [automobile] dealers and finance sources." An auto dealer like Crossroads Chevrolet can use a RouteOne credit application, and the RouteOne computer system, to access "a network of 1,500+ finance sources" to help customers finance their vehicle purchases. At some point – we don't know when because there is no record – Mr. and Mrs. Reynolds signed a credit application permitting Crossroads Chevrolet to do a credit check through RouteOne. The first six substantive paragraphs of the application are written in terms of the Reynoldses "authorizing" a credit check. The first six paragraphs identify two parties: "I" and "You." "I" is obviously Mr. and Mrs. Reynolds, as in "I authorize." The term "You" is defined in the application as the "dealer and any finance company, bank or other financial institution to which the Dealer submits my application[.]"
"RouteOne Overview," https://www.routeone.com/about-us/media-room (last accessed March 26, 2020). RouteOne represents that it was "created in 2002 by Ally Financial, Ford Motor Credit, TD Auto Finance, and Toyota Financial Services to offer automotive dealerships an alternative to existing systems." Id.
The burden of establishing prima facie evidence of an agreement to arbitrate is a light one. "A party ‘me[ets] the prima facie burden by providing copies of [a] written and signed agreement[ ] to arbitrate.’ " MHC Kenworth-Knoxville/Nashville v. M & H Trucking, LLC , 392 S.W.3d 903, 906 (Ky. 2013) (quoting Louisville Peterbilt, Inc. v. Cox , 132 S.W.3d 850, 857 (Ky. 2004). "This does not require the movant to show the ‘agreement would be enforceable , merely that one existed.’ " Chang v. United Healthcare , No. 19-CV-3529 (RA), 2020 WL 1140701, at *3 (S.D.N.Y. Mar. 9, 2020) (quoting Begonja v. Vornado Realty Tr. , 159 F. Supp. 3d 402, 409 (S.D.N.Y. 2016) ).
"Credit Application System," https://www.routeone.com/dealers/credit-application (last accessed March 26, 2020). At another point on its internet web site, RouteOne claims to have an even larger number of finance sources, saying: "The RouteOne system streamlines the credit application process with a single point of entry, providing you [auto dealers] access to a network of 1,700+ finance sources, and 200+ Dealership Service Providers." https://www.routeone.com/dealers/products-and-services (last accessed March 26, 2020). We note, however, that elsewhere on its site RouteOne identifies only 89 "eContracting Finance Sources." "RouteOne Finance Sources," https://www.routeone.com/financesources (last accessed March 26, 2020). Whatever the number, RouteOne represents that its credit application system was designed by dealers for dealers, and that "[w]ith RouteOne's credit application platform, [auto dealers will] get access to a large network of finance sources to give you and your customers a wide range of vehicle financing options." https://www.routeone.com/dealers/credit-application.
See also Green Tree Fin. Corp.-Alabama v. Randolph , 531 U.S. 79, 91, 121 S. Ct. 513, 522, 148 L. Ed. 2d 373 (2000) ("[T]he party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration."); Harrington v. Atl. Sounding Co., 602 F.3d 113, 124 (2d Cir. 2010) ("A party to an arbitration agreement seeking to avoid arbitration generally bears the burden of showing the agreement to be inapplicable or invalid."); Mounts v. Midland Funding LLC , 257 F. Supp. 3d 930, 936 (E.D. Tenn. 2017) ("The burden is on the party opposing arbitration to show that the agreement is not enforceable."); Arnold v. Owensboro Health Facilities, L.P ., No. 4:15-CV-00104-JHM, 2016 WL 502061, at *3 (W.D. Ky. 2016) ("[T]he party seeking to compel arbitration has the initial burden of establishing the existence of a valid agreement to arbitrate, but once prima facie evidence of the agreement has been presented, the burden shifts to the party opposing arbitration."); Royston, Rayzor, Vickery, & Williams, LLP v. Lopez , 467 S.W.3d 494, 499-500 (Tex. 2015) ("[O]nce it is established that a valid arbitration agreement exists and that the claims in question are within the scope of the agreement, a presumption arises in favor of arbitrating those claims and the party opposing arbitration has the burden to prove a defense to arbitration. " (emphasis added)).
Any reasonable, prudent reading of the first six paragraphs would have lead the Reynoldses to think they were allowing Crossroads Chevrolet and whatever "finance company, bank or other financial institution" to which Crossroads Chevrolet submitted the application to search their credit.
TD Auto Finance bases its whole theory on the seventh paragraph, buried at the bottom of page 3, which explicitly says it "applies to applications submitted to TD AUTO Finance LLC Only[.]" Remember, RouteOne's webpage says it has credit arrangements with over a thousand finance companies, banks, and institutions. There is nothing in the record saying Mr. or Mrs. Reynolds knew that Crossroads Chevrolet was submitting their credit application to TD Auto Finance, so it takes a leap of legal faith to say the Reynoldses "assented" to anything in the seventh paragraph.
Still, that seventh paragraph says that if Crossroads Chevrolet submits the application to TD Auto Finance, then an arbitration agreement exists between "YOU AND TD AUTO FINANCE LLC." The arbitration language does not apply to any other financier, only TD Auto Finance. However, it bears noting that, in this paragraph, the drafter of the RouteOne credit application has changed the meaning of "You." In the prior six paragraphs, "You" meant the dealership and the "finance company, bank or other financial institution." In paragraph seven, "you" suddenly has to be interpreted as Mr. and Mrs. Reynolds.
Basic rules of English and clarity of meaning aside, and despite the fact that the credit application is missing an entire page, counsel for Mr. and Mrs. Reynolds concedes that an arbitration agreement exists between the Reynoldses and TD Auto Finance, at least regarding the credit application.
I have read the arbitration language relied upon by TD Auto Finance and find it to be somewhat garbled, at least when read by someone who isn't a lawyer. As it is written, the language requires the arbitration of "any claim or dispute ... between our employees, parents, subsidiaries, affiliate companies, agents, successors or assignees[.]" Non-lawyers would read that language as requiring arbitration of any dispute between TD Auto Finance and its own employees, parents, subsidiaries, etc. It is only when you realize that the document elsewhere defines "our" as including "the Applicant, Co-Applicant, ... and Dealer, and TD Auto Finance" that lawyers can find the meaning relied upon by TD Auto Finance.
"Terms such as ‘relating to’ and ‘in connection with’ have been afforded exceptionally broad meaning by this Court." Elk Run Coal Co., Inc. v. Canopius U.S. Ins., Inc. , 235 W. Va. 513, 521 n.10, 775 S.E.2d 65, 73 n.10 (2015). See also Contractors Ass'n of W. Va. v. W. Va. Dep't of Pub. Safety, Div. of Pub. Safety , 189 W. Va. 685, 697, 434 S.E.2d 357, 369 (1993) ("The ordinary meaning of ‘relating to’ is that there is a connection between two subjects, not that the subjects have to be the same.").
The problem in this case is that TD Auto Finance wants to contort the arbitration clause to apply beyond the credit application – namely, it wants the Court to incorporate the clause into the agreement reached later (the RISC). To support this stretch, TD Auto Finance makes its plea for the Court to create a "reverse incorporation" rule. Buried on page six of the credit application is language claiming to extend the credit application's arbitration agreement to "any installment sale contract ... or any resulting transaction or relationship[.]" In other words, TD Auto Finance claims that when the Reynoldses signed the credit application, they were assenting to incorporate some of the terms of the application into a future contract that may, or may not, ever exist. As the majority opinion makes clear, that argument rubs completely against the grain of contract law.
Incorporation by reference is a one-way street, where a new contract pulls in existing documents that are unmistakably identified in the new contract so that the knowledge and assent of the parties to the incorporation of the documents is clear. Parties cannot draft a contract that injects terms into future, non-existent contracts. TD Auto Finance's reverse-incorporation argument is especially offensive when you consider that the future contract at issue here has completely different parties . Remember, TD Auto Finance was not a party to the RISC; it only became a "party" when Crossroads Chevrolet assigned the RISC, sometime after Mr. and Mrs. Reynolds had assented to the terms of the RISC. In other words, TD Auto Financing is arguing that a few paragraphs of the application signed by the Reynoldses should be incorporated into the Reynoldses’ contract with Crossroads Chevrolet.
If arbitration of the RISC was a provision that was material and important to TD Auto Finance, then it should have refused to accept Crossroad Chevrolet's assignment of the RISC that did not contain an arbitration provision. Alternatively, it could have insisted that Crossroads Chevrolet place an arbitration provision into its RISC form before Crossroads Chevrolet offered it to Mr. and Mrs. Reynolds. TD Auto Finance did none of these things.
The arguments proffered by TD Auto Finance would, if adopted by this Court, have brought havoc to the law of contracts. In the business context, it is routine for companies to sign a series of contracts over many months or years. Under TD Auto Finance's theory, one party could slip a term into an early contract that "self-incorporates" years later into a subsequent contract. Worse, those terms could be in conflict. I could foresee an early contract requiring arbitration of "this and any other" dispute, and a later contract giving the parties the right to seek a courtroom resolution of disputes. Which provision controls? As I said, TD Auto Finance's position is contrary to the law of contracts and a recipe for chaos.
When Crossroads Chevrolet offered a pickup truck for sale according to the terms in the RISC, Crossroads Chevrolet's offer did not contain an arbitration provision. When Mr. and Mrs. Reynolds accepted the offer, they did not assent to arbitrate any disputes with Crossroads Chevrolet. Accordingly, under basic, run-of-the-mill rules of contract interpretation, the Reynoldses are not bound to arbitrate their dispute with TD Auto Finance regarding the RISC.
I otherwise respectfully concur with the majority's opinion.
Jenkins, Justice, dissenting:
By affirming the circuit court's order refusing to enforce an arbitration agreement that was executed by the purchasers of a vehicle during the course of the purchase, the majority has misconstrued the plain facts, ignored the applicable burden of proof, and wrongly decided this case. Therefore, I respectfully dissent.
The majority opinion erroneously accepts the flawed argument of the petitioners, Fred and Shelby Reynolds ("the Reynoldses"), that the merger clause that was included in the Retail Installment Sale Contract ("RISC") supplants the credit application and the arbitration contract it contained. In doing so, the majority opinion acknowledged, but failed to apply, the following principle:
"Separate written instruments will be construed together and considered to constitute one transaction where the parties and the subject matter are the same, and where there is clearly a relationship between the documents." Syllabus point 3, McCartney v. Coberly , ––– W. Va. ––––, 250 S.E.2d 777 (1978), overruled on other grounds by Syllabus point 2, Overfield v. Collins , 199 W. Va. 27, 483 S.E.2d 27 (1996).
Syl. pt. 1, McDaniel v. Kleiss , 202 W. Va. 272, 503 S.E.2d 840 (1998). Under this holding, the arbitration contract included in the credit application executed by the Reynoldses was part of the transaction for their purchase of the vehicle and should have been enforced.
Although nothing in the holding from McDaniel v. Kleiss requires that the documents be executed contemporaneously, the majority added this requirement and then used it to avoid construing the credit application and RISC together, even though a clear relationship between the documents existed. The majority found the documents were not "contemporaneously" executed because the credit application necessarily must be executed before the RISC. This splitting hairs rationale ignores the simple facts of this case.
It is undisputed that the credit application, which contained the arbitration contract, was executed by the Reynoldses and submitted to TD Auto Finance. Although the RISC was signed by the Reynoldses and a representative of Crossroads Chevrolet, LLC., Crossroads assigned its interest in the RISC to TD Auto Finance, thus the contracting parties were the same. The credit application and RISC were executed on the same day and both furthered the Reynoldses’ purchase of a vehicle from Crossroads Chevrolet. Under these facts, and in light of the strong public policy favoring arbitration under both state and federal law,1 the arbitration agreement should have been enforced. Indeed, other courts have enforced an arbitration contract that was included in one document that was part of a larger transaction despite the fact that another document that was part of the same transaction contained a merger clause.2 To find otherwise ignores the nature of the transaction. As one court has observed with respect to a transaction for the purchase of an automobile where one of the documents executed contained a merger clause:
[T]he parties in the present case signed numerous documents ... such as ... a "Credit Application, [an] Agreement to Purchase Insurance, ... [an] Odometer Disclosure Statement and other necessary documents ...." If we were to conclude that the RISC constitutes the only and complete agreement of the parties, execution of these other documents would be rendered nugatory. Such a result would fail to effectuate the intent the parties clearly expressed by executing the various agreements together.
Najera v. David Stanley Chevrolet, Inc. , 406 P.3d 592, 597 (Okla. Civ. App. 2017) (footnote omitted).
In this case there simply was no evidence presented to warrant treating the credit application as anything other than a part of the automobile purchase transaction. Once TD Auto Finance produced prima facie evidence of the agreement to arbitrate,3 the burden shifted to the Reynoldses, as the parties opposing arbitration, to show the agreement was not enforceable:
"The party moving to compel arbitration ‘must make a prima facie initial showing that an agreement to arbitrate existed before the burden shifts to the party opposing arbitration to put the making of that agreement in issue .’ " Begonja v. Vornado Realty Tr ., 159 F. Supp. 3d 402, 409 (S.D.N.Y. 2016) (quoting [ Hines ] v. Overstock.com, Inc ., 380 F. App'x 22, 24 (2d Cir. 2010) ).
Chang v. United Healthcare , No. 19-CV-3529 (RA), 2020 WL 1140701, at *3 (S.D.N.Y. Mar. 9, 2020) (emphasis added).4 See, e.g. , State ex rel. Wells v. Matish , 215 W. Va. 686, 692, 600 S.E.2d 583, 589 (2004) (observing that "the burden of proving excessive costs is upon the party challenging the arbitration provision."); Syl. pt. 4, State ex rel. Dunlap v. Berger , 211 W. Va. 549, 567 S.E.2d 265 (2002) (same). The Reynoldses failed to meet their heavy burden. "The party seeking to avoid the arbitration agreement has a heavy burden." Louisville Peterbilt, Inc. v. Cox , 132 S.W.3d 850, 857 (Ky. 2004).
The appendix record for this appeal includes a credit application that was executed by the Reynoldses in connection with their purchase of a vehicle from Crossroads Chevrolet. The credit application contained a highly visible paragraph that used bold and all uppercase lettering and alerted the Reynoldses that the arbitration clause contained therein would apply if the application was submitted to TD Auto Finance. By signing the application, the Reynoldses acknowledged that they had read and understood the arbitration contract. More importantly, they agreed to arbitrate "[a]ny claim or dispute, whether in contract, tort or otherwise ..., which arises out of or relates to this application and important Contract of Arbitration, any installment sale contract or lease agreement, or any resulting transaction or relationship ...." (Emphasis added). The Reynoldses then executed the RISC and financed the purchase of their vehicle. They eventually defaulted on their loan and, in their suit filed in the circuit court, sought damages arising from the efforts of TD Auto Finance to collect the debt.
TD Auto Finance plainly made its prima facie case by producing the arbitration contract agreed to by the Reynoldses, which broadly applied to any dispute that "relates to"5 the credit application, including "any installment sale contract." Even the majority opinion concludes that, "[u]nder the credit application, there is a clear agreement to arbitrate with TD Auto Finance ...." Once TD Auto Finance met its prima facie case, the burden shifted to the Reynoldses to establish that the arbitration contract was not enforceable. Because they failed to meet this burden, the arbitration agreement should have been enforced.
For the reasons explained above, I respectfully dissent. I am authorized to state that Chief Justice Armstead joins me in this dissenting opinion.