# Reply Brief — American General Finance, Inc. v. Branch

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386014_2016%3A4

## Record

- **Collection:** Supreme Court brief
- **Document type:** Reply Brief
- **Published:** January 1, 2001
- **Citation:** 534 U.S. 949

## Text

eP r Supreme Co - US.

SY FYLED
No. 00-1934 ;
SP Te 2001
IN THE ‘
Supreme Court of the Bited Statess4c RK :

AMERICAN GENERAL FINANCE, INC., MERIT
LIFE INSURANCE CO., and YOSEMITE

INSURANCE COMPANY,
Petitioners
v.
MABLE BRANCH,
Respondent

ON PETITION FOR A WRIT OF CERTIORARI
TO THE SUPREME COURT OF ALABAMA

REPLY BRIEF

RosBerT H. RUTHERFORD

F. A. Flowers, III*

BURR & FORMAN LLP
3100 SouthTrust Tower

420 North 20th Street
Birmingham, Alabama 35203
(205) 251-3000

Counsel for Petiitoners

*Counsel of Record

i

STATEMENT PURSUANT TO RULE 29.6

Petitioners’ Rule 29.6 Statements were set forth at
page 11 of their Petition for a Writ of Certiorari, and there are
no amendments to those Statements.

ii

TABLE OF CONTENTS

STATEMENT PURSUANT TO RULE 29.6 ......

TABLE OF CONTEINED ccsccsnscccasscsceses

TABLE OF AUTHORITIES ...2cccccnsssssoses

ARGUMENT IN REPLY ...ccsscccccsscsscess

I.

Il.

Ii.

Respondent Has Completely Misread This
Court’s Decision In First Options of Chicago,
Kec. 0. ROGOOR 6 ib ond nee ca aneeed ernie

There Is Substantial Conflict And Confusion
Among The Federal And State Courts That
Have Addressed The First Options Issue
Presented By This Case. ........cccceeee

Respondent Has Failed To Address The
Argument That The Determinative Factor In
The Decision By The Court Below To
Invalidate The Parties’ Arbitration Agreement
Was The Prevalence Of Arbitration
Agreements In The Marketplace. .........

Respondent’s Own Brief In Opposition
Demonstrates That The Court Below Singled
Out The Parties’ Arbitration Agreement For
Suspect Status In Violation Of The FAA
Based On Lack Of Mutuality Of Remedy. ...

OCONCTAIBOUN oo ciccsccsdnctcnteanesseeuste

Page

ili

TABLE OF AUTHORITIES

Cases: Page(s)

Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265
eee eal a See

ca OE A PON ee er ee

Armendariz v. Foundation Health Pyschcare Servs.,
Inc., 24 Cal. 4th 83, 6 P.3d 669 (2000) ........

Arnold v. United Companies Lending Corp.,
511 S.E.2d 854 (W. Va. 1998) ...............

AT & T Tech., Inc. v. Communications Workers,
BIS UB. GOS (1GGB) oon ccc ccc cc cccocccecce

Berkley v. H & R Block Eastern Tax Serv., Inc.,
30 S.W.3d 341 (Tenn. App. 2000), review denied,
Nov. 6, 2000, cert. denied, 121 S. Ct. 1602
Eee Ae ee

Choice Hotels Int’l, Inc. v. BSR Tropicana Resort,
Inc., 252 F.3d 707 (4th Cir. 2001) ............

Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681
ED ides ee ee ee

Doctor’s Assocs., Inc. v. Distajo, 66 F.3d 438
MEA ee oa lala cw ended css

First Options of Chicago, Inc. v. Kaplan, 514 U.S.
IC ora Sub 6555 6 ou Seki ok ivowews 1, 2,3,4

iv

TABLE OF AUTHORITIES (continued)

Page(s)

Fleming Farms v. Dixie Ag Supply, Inc., 631 So. 2d
or Sh ees errr rer Terr eT cr

Gannon v. Circuit City Stores, Inc., __ F.3d _,
No. 00-3243, 2001 WL 930550 (8th Cir. Aug. 17,
BES ude 8 oka ene ee ea eee

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.
yk |) eT eee eT Te eT ere Tt rer re

Harris v. Green Tree Fin. Corp., 183 F.3d 173
et SPP eer reece ver er ree eter rer

In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571
eee rr er on ee ee

Lloyd v. Service Corp. of Alabama, Inc., 453 So. 2d
Fa GR FD 80s ke GS a

Marcrum v. Embry, 291 Ala. 400, 282 So. 2d 49
fk) DEC Ee rE Ee Cre rere Pere rr ee y See

Mastrobuono v. Shearson Lehman Hutton, Inc.,
poets S| ae eer re rer ee

Moses H. Cone Memorial Hosp. v. Mercury Constr.
Cor, SER UA ECR) kes eexenhess cute

Munoz v. Green Tree Fin. Corp., 343 S.C. 531,
ge ee a ee eee

PaineWebber, Inc. v. Bybyk, 81 F.3d 1193 (2d Cir.
NE kid nan adgne ences deeeietiniieue

Vv

TABLE OF AUTHORITIES (continued)

Page(s)
Perry v. Thomas, 482 U.S. 483 (1987) ........... 3, 6,7
Prevot v. Phillips Petroleum Co., 133 F. Supp. 2d

Pot CODD. We, BOA) ooo vec vecvnaaencnne,, 2
Prima Paint Corp. v. Flood & Conklin Mfg. Co.,

Oe NER POP UIOED oo ok dn acd ok 3,4
Rodriquez de Quijas v. Shearson/American Express,

Inc., 490 U.S. 477 (1989) ................... 8,9
Sablosky v. Edward S. Gordon Co., 73 N.Y.2d i33,

335 N.E.2d 643 (1989) ..................... 8
Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974) .. 6
Shearson/American Express, Inc. v. McMahon,

GOS US, SIO) nko bo eevee cca, 9
Showmethemoney Check Cashers, Inc. v. Williams,

342 Ark. 112, 27 S.W.3d 361 (2000) .......... 8
Southland Corp. v. Keating, 465 U.S. 1 (1984) ... 6,7

Southland Farms, Inc. y. Ciba-Geigy Corp.,
575 So. 2d 1077 (Ala. 1991) ................ 6

Sphere Drake Ins. Ltd. v. All American Ins. Co.,
256 F.3d 587 (7th Cir. 2001) ................ +

Volt Info. Sciences, Inc. v. Board of Trustees of
Leland Stanford Junior Univ., 489 U.S. 468
eae EET EE eT eee mone ue, 3,4

vi

TABLE OF AUTHORITIES (continued)
Page(s)

Willis Flooring, Inc. v. Howard S. Lease Constr. Co.,
656 P.26 1194 (Alas. IGGS) occccccsccccccees 8

Wilson Elec. Contractors, Inc. v. Minnottee
Contracting Corp., 878 F.2d 167 (6th Cir.
SOD 060008 065460606000b vse 8

United States Constitution:

U.S. Comat. ast. Vi, Gi. sccccccvesessscseverss 6
Statutes:

PUBL GS scccccccvcseccsscrescsesecsesevsa 7
Miscellaneous:

Restatement (Second) of Contracts § 363 (1981) .. 7
S. Rep. No. 536, 68th Cong., Ist Sess. (1924) .... 5

|

ARGUMENT IN REPLY

Respondent has engaged in all sorts of strained legal
and logical gymnastics in an attempt to convince this Court
that the questions presented for review by this case do not
warrant consideration by the Court. Respondent’s own Brief
in Opposition, however, demonstrates that the questions
presented are far from settled and that a decision by this Court
resolving these issues is necessary.

I. Respondent Has Completely Misread This Court’s

Decision In First Options of Chicago, Inc. v. Kaplan.

Respondent’s entire argument on the first question
presented is totally undermined by her blatant misreading
of this Court’s decision in First Options of Chicago, Inc. v.
Kaplan, 514 U.S. 938 (1995). Contrary to respondent’s
erroneous assertion, the issue before the Court was
emphatically not “whether a court or an arbitrator should
decide this dispute over the scope of the arbitration
agreement.” (Brief in Opp. 13) (emphasis added). This
Court’s opinion in First Options is clear that the Kaplans
denied that “they agreed to arbitrate” at all. 514 U.S. at 942.
The Court characterized this disagreement over the question
whether a valid and enforceable arbitration agreement existed
between the parties as one “about the arbitrability of the
dispute.” Jd. (emphasis in original). Respondent is simply
wrong in stating that the issue before the Court was whether
a particular claim or dispute fell within “the scope of a
presumptively valid arbitration clause.” (Brief in Opp. 13).

The Court in First Options then considered the question
whether the trial court or the arbitrator should decide “the
arbitrability of the dispute” between the parties — whether
a valid and enforceable arbitration agreement existed between
them. 514 U.S. at 942. The Court held that the “parties may

2

agree to arbitrate arbitrability” when “there is clear and
unmistakable evidence that they did so.” 514 US. at 943-
44. This is so, the Court explained, because the question
whether the “parties agree[d] to submit the arbitrability
question itself to arbitration,” like other issues involving
arbitration, “is simply a matter of contract between the
parties” that depends upon whether “the parties objectively
revealed an intent to submit the arbitrability issue to
arbitration” in their agreement. Jd. The parties clearly did so
here. (See Pet. App. 3a). Indeed, the parties’ agreement to
“arbitrate all issues of arbitrability” is “inclusive, categorical,
unconditional and unlimited.” PaineWebber, Inc. v. Bybyk,
81 F.3d 1193, 1199-1200 (2d Cir. 1996).

II. There Is Substantial Conflict And Confusion Among
The Federal And State Courts That Have Addressed
The First Options Issue Presented By This Case.

Respondent asserts that no court has held that “parties
must go to arbitration to find out whether or not they entered
into a valid and enforceable arbitration agreement in the first
place.” (Brief in Opp. 15 n.4). Respondent is mistaken.
See In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571,
573 n.3 (Tex. 1999) (holding that “whether the terms and
conditions of an arbitration agreement are themselves
unconscionable is a matter which must be submitted to the
designated arbitrator”); see also Berkley v. H & R Block
Eastern Tax Serv., Inc., 30 S.W.3d 341, 344 (Tenn. App. 2000)
(relying on First Options and holding that the parties agreed
“to arbitrate the question of the validity and enforceability
of the arbitration clause itself”), review denied, Nov. 6, 2000,
cert. denied, 121 S. Ct. 1602 (2001). Contra Prevot v. Phillips
Petroleum Co., 133 F. Supp. 2d 937, 939-40 (S.D. Tex. 2001)
(holding that the issue of unconscionability of an arbitration

3

clause is always a question for the court). Which view is
correct? Only this Court can provide a definitive answer.

Relying on this Court’s decision in Prima Paint Corp. v.
Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), respondent
asserts that a court must always decide whether arbitration
is proper. Respondent’s reliance is misplaced because this
Court expressly held in Prima Paint that the arbitrator,
not the court, should decide the validity of the contract as a
whole, which would necessarily include a determination by
the arbitrator of the validity of the arbitration provision as a
consequence. 388 U.S. at 404. Respondent’s strained
interpretation of Prima Paint, which did not involve a First
Options clause, is also inconsistent with the “central purpose”
of the FAA, which is “to ensure ‘that private agreements to
arbitrate are enforced according to their terms.’ ” Mastrobuono
v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 53-54 (1995),
quoting Volt Info. Sciences, Inc. v. Board of Trustees of Leland
Stanford Junior Univ., 489 U.S. 468, 479 (1989),.?

1. Respondent has also completely ignored the fact that the
parties expressly incorporated into their arbitration agreement the
Commercial Rules of the American Arbitration Association.
(Pet. App. 3a). Rule 8 of the Commercial Rules grants the arbitrator
the power to rule on, among other things, the “validity of the
arbitration agreement.” (R. 399) (emphasis added). In Apollo
Computer, Inc. v. Berg, 886 F.2d 469 (1st Cir. 1989), the First Circuit
held that the “parties contracted to submit issues of arbitrability to
the arbitrator,” including the “validity of the agreement to arbitrate”
itself, when “the parties agreed that all disputes arising out of or in
connection with their contract would be settled ‘in accordance with
the rules of arbitration of the International Chamber of Commerce.’ ”
886 F.2d at 472-73. The decision below is in direct conflict with the
First Circuit’s decision in Apollo Computer, supra.

2. While respondent emphasizes that her “unconscionability
argument goes to the making and original validity of the asserted
arbitration agreement” (Brief in Opp. 14), the “making” and

(Cont'd)

4

In sum, respondent, like Justice Lyons in his special
concurrence on rehearing in the court below, argues that this
case is controlled by this Court’s decision in Prima Paint, supra,
rather than First Options, supra. Five days after the petition
was filed in this case, the Seventh Circuit, in an opinion by
Judge Easterbrook, grappled with the interplay and proper
application of Prima Paint and First Options. See Sphere
Drake Ins. Ltd. v. All American Ins. Co., 256 F.3d 587, 590-
92 (7th Cir. 2001) (rejecting an argument based on Prima
Paint that “sits uneasily alongside AT & T Technologies and
First Options” because it “disregard{ed] the principle that
arbitration is contractual’). This tension between Prima Paint
and First Options provides a solid reason for granting review in
this case, for only this Court can clarify whether Prima Paint
can be read to hold that the issue of unconscionability of an
arbitration provision is always a question for the court even
when a First Options clause is present.

III. Respondent Has Failed To Address The Argument
That The Determinative Factor In The Decision By
The Court Below To Invalidate The Parties’
Arbitration Agreement Was The Prevalence Of
Arbitration Agreements In The Marketplace.

Petitioners and respondent agree that the question
whether respondent had any “meaningful choice” was, in
the Alabama Supreme Court’s view, outcome determinative.
(See Pet. 18 n.7; Brief in Opp. 16). As respondent states, the
court below in the April Reaves case enforced the identical
arbitration agreement (with all its alleged defects) “against

(Cont’d)

“validity” of the arbitration agreement with respect to the Kaplans
was also the issue in First Options, supra. 514 U.S. at 941-42.
See generally Volt Info. Sciences, Inc. v. Board of Trustees of Leland
Stanford Junior Univ., 489 U.S. at 478-79 (parties are generally free
to structure their arbitration agreements as they see fit without
violating § 4 of the Act).

5

another borrower who was shown to have greater choice as
to arbitration at the time of her loans.” (Brief in Opp. 16).
Indeed, the other indicia of unconscionability discussed by
the court applied equally to the Reaves case decided on the
same day as Branch. But eight (8) of the nine (9) members
of the court rejected the defense of unconscionability in
Reaves. (Pet. App. 28a-29a). Respondent’s own brief,
therefore, refutes her position that the decision below on the
unconscionability issue is fact-specific or fact-intensive, for
the decision below turned solely on the “prevalence” of
arbitration agreements in the marketplace.

Recognizing the fundamental flaw in her position,
respondent has not even addressed petitioners’ argument that
the Alabama Supreme Court’s views on the widespread use
of arbitration agreements run headlong into Congress’
objectives in enacting the FAA in the first place. Section 2
of the FAA “ ‘is a congressional declaration of a liberal
federal policy favoring arbitration agreements, notwithstanding
any state substantive or procedural policies to the contrary.’ ”
Perry v. Thomas, 482 U.S. 483, 489 (1987), quoting Moses
H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24 (1983). In enacting the FAA, Congress “had the needs of
consumers, as well as others, in mind.” Allied-Bruce Terminix
Cos. v. Dobson, 513 U.S. 265, 280 (1995). See generally
S. Rep. No. 536, 68th Cong., Ist Sess., 3 (1924) (the Act, by
avoiding “the delay and expense of litigation,” will appeal
“to big business and little business alike, ... corporate
interests [and] individuals”). As discussed in the petition,
arbitration agreements have since flourished nationwide as
a preferred method of resolving disputes. (Pet. 19-21).

The inescapable conclusion that the court below
invalidated the parties’ arbitration agreement precisely
because other companies, without any input from petitioners,
have accepted Congress’ open invitation to use arbitration
provisions in their contracts is clear from a comparison of

cam

6

the court’s holding in Branch and its holding in Reaves. The
Alabama Supreme Court’s use of the “prevalence” of
arbitration agreements in the marketplace as the “primary
indicium” of unconscionability (Pet. App. 25a), moreover,
is in direct conflict with the FAA’s liberal federal policy
favoring arbitration agreements. As a result, the state law is
preempted by the FAA and cannot stand. See Doctor's
Assocs., Inc. v. Casarotto, 517 U.S. 681, 688 (1996); Perry
v. Thomas, 482 U.S. at 491-92; Southland Corp. v. Keating,
465 U.S. 1, 16 (1984). See generally U.S. Const. art. VI,
cl. 2. Respondent, however, has dodged this argument entirely.

Respondent has also failed to rebut our argument that
the Alabama Supreme Court’s new unconscionability test did
not “ar[iJse to govern issues concerning the validity,
revocability, and enforceability of contracts generally.” Perry
v. Thomas, 482 U.S. at 492 n.9. Prior to its decision in this
case, the court below had held that when a provision in a
contract has become so “widely used and accepted in a
particular trade,” there is “a prima facie case that the usage
is reasonable.” Fleming Farms v. Dixie Ag Supply, Inc., 631
So. 2d 922, 926 (Ala. 1994); Southland Farms, Inc. v. Ciba-
Geigy Corp., 575 So. 2d 1077, 1080 (Ala. 1991). In this case,
on the other hand, the court applied the opposite presumption,
declaring that the parties’ arbitra.ion agreement is
unconscionable precisely because it was “widely used and
accepted in a particular trade.” (Pet. App. 26a-27a). The
court’s new test is preempted by the FAA because it “singl[es]
out arbitration provisions for suspect status” in violation of
Congress’ mandate that the courts must place arbitration
agreements “ ‘upon the same footing as other contracts.’ ”
Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. at 687, quoting
Scherk v. Alberto-Culver Co., 417 U.S. 506, 511 (1974).

3. The court’s decision in Lloyd v. Service Corp. of Alabama,
Inc., 453 So. 2d 735 (Ala. 1984), does not alter this conclusion.
(Cont'd)

7

IV. Respondent’s Own Brief In Opposition Demonstrates
That The Court Below Singled Out The Parties’
Arbitration Agreement For Suspect Status In Violation
Of The FAA Based On Lack Of Mutuality Of Remedy.

Under general principles of contract law in Alabama,
mutuality of remedy is not a requirement for a valid and
enforceable contract. See, e.g., Marcrum v. Embry, 291 Ala.
400, 403, 282 So. 2d 49, 51 (1973). See generally
Restatement (Second) of Contracts § 363, Comment c (1981)
(“the law does not require that the parties have similar
remedies in case of breach”). The court held directly the
opposite in this case. (Pet. App. 24-25). Compare AT & T
Tech., Inc. v. Communications Workers, 475 U.S. 643, 650
(1986) (parties may exclude certain claims or issues from
arbitration in their agreement). The court’s decision is
preempted by the FAA because it “places arbitration
agreements in a class apart from ‘any contract,’ and singularly
limits their validity.” Doctor’s Assocs., Inc. v. Casarotto, 517
U.S. at 688, quoting 9 U.S.C. § 2.4

(Cont'd)

In Lloyd, the court held that “the enforcement of ‘unbargained for’
exculpatory clauses in residential leases [is] against the best interests
of the citizens of Alabama and contrary to public policy.” 453
So. 2d at 740. The court did “not hold that exculpatory clauses in
residential leases are void per se” because of their widespread use
in the marketplace. /d. at 741. And, while market prevalence may
have been a “relevant” factor in Lloyd (Brief in Opp. 17), it was
outcome determinative here. In any event, a state-law test of
unconscionability based on widespread use of arbitration agreements
must give way to the liberal federal policy favoring arbitration
agreements embodied in the FAA as a matter of federal law.
See Perry v. Thomas, 481 U.S. at 493; Southland Corp. v. Keating,
465 U.S. at 16-17.

4. Respondent correctly points out that the Arkansas, California
and West Virginia state courts have held thai lack of mutuality of
(Cont’d)

8

It is clear from the face of respondent’s brief that her
arguments, like the decision by the court below, constitute
“generalized attacks on arbitration” that “ ‘rest on suspicion
of arbitration as a method of weakening the protections
afforded in the substantive law to would-be complainants.’ ”
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 30
(1991), quoting Rodriquez de Quijas v. Shearson/American

(Cont'd)

remedy in an arbitration agreement governed by the FAA renders
the provision either unconscionable or otherwise unenforceable.
See Showmethemoney Check Cashers, Inc. v. Williams, 342 Ark. 112,
121, 27 S.W.3d 361, 367 (2000); Armendariz v. Foundation Health
Pyschcare Servs., Inc., 24 Cal. 4th 83, 118-19, 6 P.3d 669, 692-93
(2000); Arnold v. United Companies Lending Corp., 511 S.E.2d 854,
862 (W. Va. 199 ‘n the other hand, the Second, Third, Fourth
and Sixth Circuits, as well as the courts of at least three states, have
held that lack of mutuality of remedy in an arbitration agreement
governed by the Act does not render the provision unconscionable
or unenforceable. See Choice Hotels Int'l, Inc. v. BSR Tropicana
Resort, Inc., 252 F.3d 707, 711 (4th Cir. 2001); Harris v. Green
Tree Fin. Corp., 183 F.3d 173, 180-83 (3d Cir. 1999); Doctor's
Assocs., Inc. v. Distajo, 66 F.3d 438, 451-53 (2d Cir. 1995); Wilson
Elec. Contractors, Inc. v. Minnottee Contracting Corp., 878 F.2d
167, 169 (6th Cir. 1989); Munoz v. Green Tree Fin. Corp., 343 S.C.
531, 542, 542 S.E.2d 360, 365 (2001); Sablosky v. Edward S. Gordon
Co., 73 N.Y.2d 133, 137-39, 535 N.E.2d 643, 646-47 (1989); Willis
Flooring, Inc. v. Howard S. Lease Constr. Co., 656 P.2d 1184, 1185-
86 (Alas. 1983). This is yet another issue regarding the proper
application of the FAA that is far from settled.

Furthermore, the refusal of the court below to sever the alleged
invalid cap on punitive damages in the parties’ arbitration agreement
pursuant to the agreement’s severability clause (R. 96) is in conflict
with the Eighth Circuit’s decision in Gannon v. Circuit City Stores,
Inc., __ F.3d __, No. 00-3243, 2001 WL 930550 (8th Cir. Aug. 17,
2001). Only one of the cases cited by respondent involved an
arbitration provision containing a cap on punitive damages and none
of the provisions in the cases cited by respondent contained a
severability clause. (See Brief in Opp. 20-21 n.7).

9

Express, Inc., 490 U.S. 477, 481 (1989). As such,

- Fespondent’s arguments and the decision below are “ ‘far out

of step with [this Court’s] current strong endorsement of the
federal statutes favoring this method of resolving disputes.’ ”
Gilmer, supra, quoting, Rodriquez de Quijas, supra.
See generally Shearson/American Express, Inc. v. McMahon,
482 U.S. 220, 232 (1987) (“there is no reason to assume at
the outset that arbitrators will not follow the law’).

We have shown that this case raises important and
recurring questions of federal law under the FAA and that
there is substantial conflict and confusion among the federal
and state courts that have addressed these issues. The Court
should issue the writ because litigants, the federal and state
trial courts, and the federal and state appellate courts, in the
absence of a decision by this Court, will have to waste
additional valuable time and resources briefing, debating and
deciding the substantial questions presented herein.

10

CONCLUSION

For the foregoing reasons, as well as for the reasons
stated in the petition, the petition for a writ of certiorari
should be granted.

Respectfully submitted,

RoBERT H. RUTHERFORD

F. A. Flowers, III*

BURR & FORMAN LLP
3100 SouthTrust Tower

420 North 20th Street
Birmingham, Alabama 35203
(205) 251-3000

Counsel for Petitioners

*Counsel of Record

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386014_2016%3A4. Public record. Not legal advice.