Reilly v. Avery Auto Sales Inc

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ALABAMA

EASTERN DIVISION

JENNIFER REILLY, )

)

Plaintiff, )

)

v. ) Case No.: 1:21-cv-00857-CLM

)

AVERY AUTO SALES, INC., et al., )

)

Defendants. )

)

MEMORANDUM OPINION

Plaintiff Jennifer Reilly signed a contract with Avery Auto Sales, Inc. to buy

a Jeep. Reilly financed her Jeep purchase through Credit Acceptance Corporation

and entered a Vehicle Service Contract (“VSC”) with First Automotive Service

Corporation. Reilly now sues Avery Auto, First Automotive, and Credit Acceptance,

claiming (a) breach of warranty against all defendants and (b) violations of the Fair

Credit Reporting Act (“FCRA”) against Credit Acceptance.

Defendant Credit Acceptance seeks to compel arbitration and asks the court

to dismiss Reilly’s claims against it with prejudice. See Doc. 2. Credit Acceptance

says that the court must compel arbitration because the Retail Installment Contract

(“the Contract”) contains a broad arbitration clause and Reilly’s claims fall under

the arbitration clause.

For the reasons stated within, the court will GRANT Credit Acceptance’s

motion to compel arbitration of Reilly’s claims against it but DENY its motion to

dismiss Reilly’s claims with prejudice (doc. 2). The court will instead STAY the

claims against Credit Acceptance under Section 3 of the Federal Arbitration Act, 9

U.S.C. § 3 and REMAND the remaining state law claims to state court.

STATEMENT OF THE ALLEGED FACTS

Jennifer Reilly bought a 2010 Jeep Liberty from Avery Auto. (Doc. 1-1, ¶ 5.)

Reilly executed the purchase of the Jeep by agreeing to and signing the Contract,

without altering the provisions of the Contract. (Doc. 2-1, ¶¶ 3, 5.) The Contract

contains an arbitration provision, which states that at the request of either party

(before or after the start of a lawsuit), the “Dispute shall be fully resolved by binding

arbitration.” (Doc. 2-1 Ex. 1 at 9.) The arbitration provision defines a “Dispute” like

this:

A “Dispute” is any controversy or claim between You and Us rising out

of or in any way related to this Contract, including, but not limited to,

any default under this Contract, the collection of the amounts due under

this Contract, the purchase, sale, or delivery set-up, quality of the

Vehicle, advertising for the Vehicle or its financing, or any product or

service included in this Contract. “Dispute” shall have the broadest

meaning possible, and includes contract claims, and claims based on

tort, violations of laws, statutes, ordinances or regulations or any other

legal or equitable theories.

Id.

The Contract contains a provision showing that Reilly opted to purchase an

extended 12-month/12,000-mile warranty or service contract through First

Automotive for $1,499.00. (See Doc. 2-1 Ex. 1 at 6.) In a separate document, Reilly

entered a VSC with First Automotive, stating that Reilly would pay $1,499.00 and

that First Automotive would cover the costs of repairing or replacing covered

damaged or defective automobile parts for twelve months or 12,000 miles,

whichever came first. (Doc. 1-1, ¶¶ 7–8.) The VSC itself does not have an arbitration

clause.

Credit Acceptance Corporation accepted assignment of the Contract from

Avery Auto (Doc 2-1, ¶ 3). Reilly made payments to Credit Acceptance in

accordance with the Contract. (Doc. 1-1, ¶ 6; Doc. 2-1, ¶ 4.)

The Jeep’s head gasket and engine started having issues in September 2018,

so Reilly took the Jeep to get repaired under the warranty. (Id. ¶¶ 9–12). Avery Auto,

First Automotive, and Credit Acceptance told Reilly that they would not pay for the

cost of repairing the Jeep’s head gasket or engine. (Id. ¶ 13). Reilly left the

inoperable Jeep at the repair shop. (Id.) Representatives of Credit Acceptance

repossessed the Jeep. (Id.) Credit Acceptance reported negative credit information

to credit agencies. Reilly asserts that Credit Acceptance reported inaccurate

information and that Credit Acceptance failed to remove the inaccurate information

despite her requests. (Id. ¶¶ 23–27.)

Reilly sued Avery Auto, First Automotive, and Credit Acceptance. (See Doc.

1-1.) In Count I, Reilly alleges breach of warranty, asserting that Credit Acceptance,

Avery Auto, and First Automotive failed to repair the Jeep in accordance with the

express warranty she bought. (Id. ¶¶ 16–21.) In Count II, Reilly alleges that Credit

Acceptance violated the Fair Credit Reporting Act (“FCRA”) by reporting

inaccurate credit information in her customer file. (Id. ¶¶ 22–27.)

STANDARD OF REVIEW

In ruling on a motion to compel arbitration, this court applies a standard like

the standard of review applied to rule on a motion for summary judgment. See In re

Checking Account Overdraft Litig., 754 F.3d 1290, 1294 (11th Cir. 2014)

(describing an order compelling arbitration as “summary-judgment-like” because it

is “in effect a summary disposition of the issue of whether or not there has been a

meeting of the minds on the agreement to arbitrate”). A motion for summary

judgment should be granted if “no genuine dispute as to any material fact” remains

in the action and “the movant is entitled to judgment as a matter of law.” FED. R.

CIV. P. 56(a). A fact is material “if, under the applicable substantive law, it might

affect the outcome of the case.” Harrison v. Culliver, 746 F.3d 1288, 1298 (11th Cir.

2014). A genuine dispute as to a material fact exists where “the nonmoving party

has produced evidence such that a reasonable factfinder could return a verdict in its

favor.” Looney v. Moore, 886 F.3d 1058, 1062 (11th Cir. 2018).

ANALYSIS

I. The court will grant the motion to compel arbitration.

The Federal Arbitration Act (“FAA”) provides that any arbitration provision

in a written “contract evidencing a transaction involving commerce1 . . . shall be

valid, irrevocable, and enforceable.” 9 U.S.C. § 2 (footnote added). This provision

“reflect[s] both a liberal federal policy favoring arbitration, and the fundamental

principle that arbitration is a matter of contract.” AT&T Mobility LLC v. Concepcion,

563 U.S. 333, 339 (2011). Following these policies, “courts must place arbitration

agreements on equal footing with other contracts and enforce them according to their

terms.” Id. When determining whether to grant a motion to compel arbitration, courts

must “consider: (1) whether there is a valid agreement to arbitrate; and (2) whether

the dispute in question falls within the scope of that agreement.” Carusone v.

Nintendo of Am., Inc., No. 5:19-CV-01183-LCB, 2020 WL 3545468, at *3 (N.D.

Ala. June 30, 2020) (quoting Scurtu v. Int'l Student Exch., 523 F. Supp. 2d 1313,

1318 (S.D. Ala. 2007)). “To resolve these questions, courts apply state-law

1 The United States Supreme Court has “interpreted the term ‘involving commerce’ in the FAA as

the functional equivalent of the more familiar term ‘affecting commerce’” which allows the

enforcement of arbitration provisions within “the broadest permissible exercise of Congress’

Commerce Clause power.” Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003) (citation

omitted). The transfer or payment of money across states affects commerce under the Commerce

Clause. See Montgomery Cty. Comm'n v. Fed. Hous. Fin. Agency, 776 F.3d 1247, 1258–59 (11th

Cir. 2015). Plaintiff Reilly, a citizen of Alabama, financed the purchase of her 2010 Jeep Liberty

with Defendant Credit Acceptance, a Michigan Corporation. (Doc. 1 ¶¶ 1, 4, 6.) So the “involving

commerce” requirement of the FAA is satisfied in this case.

principles relating to ordinary contract formation and interpretation, construed

through the lens of the federal policy favoring arbitration.” Scurtu, 523 F. Supp. 2d

at 1318; see also Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1368 (11th

Cir. 2005) (“[When] determining whether a binding agreement arose between the

parties, courts apply the contract law of the particular state” where the dispute

occurred.).

A. Existence of a valid arbitration agreement between the parties

The threshold question of whether an arbitration agreement exists is “simply

a matter of contract.” Bazemore v. Jefferson Cap. Sys., LLC, 827 F.3d 1325, 1329

(11th Cir. 2016) (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938,

943 (1995)). But “while doubts concerning the scope of an arbitration clause should

be resolved in favor of arbitration, the presumption does not apply to disputes

concerning whether an agreement to arbitrate has been made.” Id. at 1329. So

without an agreement to arbitrate, “a court cannot compel the parties to settle their

dispute in an arbitral forum.” Klay v. All Defendants, 389 F.3d 1191, 1200 (11th Cir.

2004).

Reilly bought the Jeep by signing a Contract with Avery Auto that contained

an arbitration provision. Reilly made no alterations to the Contract. (Doc. 2-1, ¶¶ 1–

5.) “[W]hen a competent adult . . . signs a contract, [they] will be held to be on notice

of all the provisions contained in that contract and will be bound thereby.” Ex parte

Brown, 26 So. 3d 1222, 1227 (Ala. 2009). Because Reilly signed the Contract and

made no alterations to it, she is bound to the arbitration provision in the Contract.

See id. Credit Acceptance accepted assignment of the Contract from Avery Auto.2

(Doc. 2-1 ¶ 3.) So a valid arbitration agreement exists between Reilly and Credit

Acceptance.

B. Scope of the arbitration agreement

Reilly argues that the scope of the Contract’s arbitration provision does not

cover the warranty she bought through the VSC. (See id. at 3–4). Under the FAA,

“any doubts concerning the scope of arbitral issues should be resolved in favor of

arbitration.” Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–

25 (1983). “[T]he party resisting arbitration bears the burden of proving that the

claims at issue are unsuitable for arbitration.” Green Tree Fin. Corp.-Alabama v.

Randolph, 531 U.S. 79, 91 (2000). “[A]n order to arbitrate [a] particular grievance

should not be denied” if the party resisting arbitration cannot show “with positive

assurance that the arbitration clause is not susceptible of an interpretation that covers

the asserted dispute.” AT&T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643,

650 (1986). In distinguishing between broad and narrow arbitration provisions,

2 Reilly does not dispute the validity of the Retail Installment Contract’s assignment by Avery

Auto Sales, Inc. to Credit Acceptance Corporation. The arbitration provision in the Retail

Installment Contract states that a valid assignee can include, but is not limited to, Credit

Acceptance Corporation. (See. Doc. 2-1 Ex. 1 at 4.)

courts have concluded that “the phrase ‘any controversy or claim arising out of or

relating to’ . . . covers a broad range of disputes.” Harris v. Palm Harbor Homes,

Inc., 198 F. Supp. 2d 1303, 1306 (M.D. Ala. 2002) (quoting Ex parte Crisona, 743

So.2d 452, 456 (Ala. 1999)); see also Moses H. Cone Mem’l Hosp., 460 U.S. at 5.

When a court finds that an arbitration provision is broad, “only the most forceful

evidence” can overcome the federal presumption in favor of arbitration. AT&T

Techs., Inc., 475 U.S. at 650.

Here, the optional extended warranty was part of the Contract that contains

the arbitration provision. (Doc. 1-1 ¶¶ 7–8.) Specifically, the Contract includes the

$1,499.00 purchase price for the warranty, the 12-month/12,000-mile term, and the

name of the company that would provide the extended warranty or service

contract—First Automotive. (Doc. 2-1 p. 6.) The Contract then states, “Refer to the

optional extended warranty or service contract for details about coverage and

duration.” (Id.) Reilly argues that because the VSC contains no arbitration provision

itself, her claim for breach of warranty is not subject to an arbitration provision. (See

Doc. 10 at 2–4.) But the language in the Contract sufficiently links the Contract and

the VSC. Further, in Reilly’s complaint, she acknowledges that she “entered into

[the] vehicle protection warranty contract with Defendant First Automotive Service

Corporation as part of the purchase of” the Jeep—a purchase governed by the

Contract that contains the arbitration provision. (Doc. 1-1, ¶ 7.)

Because the Contract contains a provision showing that Reilly bought the

optional extended warranty or service contract and because the Contract specifically

references the VSC, the VSC and extended warranty issues are sufficiently related

to the Contract. So warranty-related disputes fall within the scope of the Contract’s

broad arbitration provision. See Moses H. Cone Mem’l Hosp., 460 U.S. at 5. Reilly

has failed to show with “positive assurance” or “forceful evidence” that the scope of

the arbitration provision within the Contract does not cover her claims. (See Doc.

10.) Reilly’s claims against Credit Acceptance for violating the FRCA and for

breaching the warranty are thus disputes within the scope of the broad arbitration

provision in the Contract and are therefore subject to arbitration.

* * *

In sum, the court will compel arbitration because (a) the Contract contains a

valid arbitration agreement and (b) Reilly’s claims for FRCA violations and breach

of warranty fall under the broad arbitration provision.

II. The court will stay the case, rather than dismiss it with prejudice.

The court must next decide whether to grant Credit Acceptance’s motion to

dismiss Reilly’s claims with prejudice or stay the case until the parties begin

arbitration. The FAA provides that “the court in which the suit is pending . . . shall

on the application of one of the parties stay the trial of the action until such

arbitration has been had in accordance with the terms of the agreement . . .” 9 U.S.C.

§ 3. “Upon finding that a claim is subject to an arbitration agreement, the court

should order that the action be stayed pending arbitration” rather than be dismissed.

Bender v. A.G. Edwards & Sons, Inc., 971 F.2d 698, 699 (11th Cir. 1992) (holding

that the district court erred in dismissing and remanding “with instructions that an

order be issued staying [federal] and state law claims pending arbitration”).

When there is no substantive claim and “the only cause of action . . . [is] for

an order compelling arbitration,” an order to stay the case until the conclusion of

arbitration is not required. See United Steel, Paper & Forestry, Rubber, Mfg.,

Energy, Allied Indus. & Serv. Workers Int’l Union AFL-CIO-CLC v. Wise Alloys,

LLC, 807 F.3d 1258, 1268 (11th Cir. 2015). But when “the plaintiff brought claims

on issues referable to arbitration, and in response, the defendants sought to compel

arbitration,” then a stay is mandatory. Id.; see also Holmes v. Credit Acceptance

Corp., No. 5:20-CV-0613-LCB, 2021 WL 942080, at *4 (N.D. Ala. Feb. 5, 2021),

appeal dismissed, No. 21-10765-GG, 2021 WL 2414028 (11th Cir. Apr. 5, 2021)

(staying the case because ‘“granting a motion to stay when a party moves to compel

arbitration is the proper remedy’ based on the plain language of 9 U.S.C. § 3”

(citation omitted)).

Reilly is suing on substantive claims referable to arbitration. In her complaint,

Reilly asserted a claim for FCRA violations and a claim for breach of warranty.

(Doc. 1-1 ¶¶ 16–27.) In response, Credit Acceptance argued that these claims were

subject to the Contract’s Arbitration Agreement and moved to compel arbitration.

(See Doc. 2.) Because the claims for FCRA violations and breach of warranty are

substantive claims that can be arbitrated, the court must first stay the proceedings.

See United Steel, 807 F.3d at 1268.

So this court will stay the claims against Credit Acceptance and deny Credit

Acceptance’s motion to dismiss the case with prejudice.

III. The court will remand the state law claims.

The court has original jurisdiction over Reilly’s FCRA claim against Credit

Acceptance, and the court exercised supplemental jurisdiction over the related state

law claims. See 28 U.S.C. § 1331; 18 U.S.C. § 1367. As explained in Parts I–II, the

court will stay both claims against Credit Acceptance until the parties begin

arbitration; then the court will dismiss those claims without prejudice.

That leaves Reilly’s state-law breach of warranty claims against Avery Auto

and First Automotive. The court does not have original jurisdiction over these

claims, and neither Avery Auto nor First Automotive has asserted a right to

arbitration. The court will not continue to exercise supplemental jurisdiction over

these purely state law claims under 28 U.S.C. § 1367. So once Reilly and Credit

Acceptance have entered arbitration, the court will (a) dismiss the claims against

Credit Acceptance without prejudice, then (b) remand the breach of warranty claims

against Avery Auto and First Automotive back to state court.

CONCLUSION

For the reasons stated above, the court will GRANT Credit Acceptance’s

motion to compel arbitration (doc. 2), DENY Credit Acceptance’s motion to dismiss

the plaintiffs claims with prejudice (doc. 2), STAY the claims against Credit

Acceptance under Section 3 of the Federal Arbitration Act, 9 U.S.C. § 3,° and

REMAND the state law claims against the other defendants to state court.

Reilly and Credit Acceptance must inform the court when arbitration has

begun. When they do, the court will dismiss the claims against Credit Acceptance

without prejudice and remand the claims against the other defendants. The dismissal

of the claims against Credit Acceptance will allow Reilly or Credit Acceptance to

refile this case, to confirm, vacate, or modify any arbitration award.

The court will enter a separate order that carries out this ruling.

DONE on December 21, 2021.

Lavegl Me te

COREY L/MAZE) 7

UNITED STATES DISTRICT JUDGE

3 See Shearson/Am. Exp., Inc. vy. McMahon, 482 U.S. 220, 226 (1987) (“[Section 3 of the Federal

Arbitration Act] provides that a court must stay its proceedings if it is satisfied that an issue before

it is arbitrable.”’)

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