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Baker v. CMH Homes Inc.

United States District Court, W.D. Washington, Tacoma

September 16, 2019

DOUGLAS R BAKER and MARIA KAY DUPUIS-BAKER, as a married couple, Plaintiffs,
v.
CMH HOMES, INC., a Tennessee corporation, dba CLAYTON HOMES, #742, Defendant.

          ORDER ON DEFENDANT'S MOTION TO ALTER, VACATE OR AMEND PURSUANT TO FRCP 59(E) OR ALTERNATIVE MOTION PURSUANT TO CR 60(B), AND REPLACEMENT ORDER ON DEFENDANT'S MOTION TO COMPEL ARBITRATION

          ROBERT J. BRYAN UNITED STATES DISTRICT JUDGE

         THIS MATTER comes before the Court on Defendant CMH Homes, Inc.'s (“CMH”) Motion to Alter, Vacate or Amend Pursuant to FRCP 59(e) or Alternative Motion Pursuant to CR 60(b) (“Motion to Alter”) (Dkt. 24). The Court has considered the motions, documents filed in support of and in opposition to the motions, and the remainder of the record herein, and it is fully advised.

         For the reasons set forth below, the Court should grant, in part, and deny, in part, CMH's Motion to Alter (Dkt. 24). The Court should vacate the Order Denying CMH's Motion to Compel (Dkt. 21) and replace it with this order. And the Court should deny CMH's Motion to Compel (Dkt. 14).

         I. BACKGROUND & PROCEDURAL HISTORY

         A. Background

         This case is an alleged breach of contract and construction dispute, including a Consumer Protection Act violation claim, arising from the alleged breach of contract. Dkt. 14, at 2. In February 2016, Plaintiffs and CMH apparently contracted for the purchase of land and a manufactured home; a preliminary sales agreement was executed on August 26, 2016.[1] Dkts. 14, at 2; 18, at 2. A final sales agreement (“Sales Agreement”) was signed on February 21, 2017. Dkts. 25; and 25-1. CMH contends that the Parties executed a Binding Dispute Resolution Agreement (“BDRA”) as part of the sale, on or about March 9, 2016, and that the Court should compel the Parties to seek arbitration dispute resolution consistent with the BDRA. Dkts. 14, at 2; 24; 27; and 31. Plaintiffs argue that the BDRA is unenforceable, having been superseded and replaced by the Sales Agreement, being unconscionable, and lacking consideration and mutuality. Dkts. 18; 26; and 29.

         B. Procedural History

         On July 1, 2019, in the Order on Defendant's Motion to Compel Arbitration and Stay Proceedings (“Order”), the Court denied CMH's Motion to Compel Arbitration. Dkt. 21. The Court ruled that the February 21, 2017 Sales Agreement superseded and revoked the BDRA. Dkt. 21. The Court concluded that, “[n]otwithstanding liberal federal policy favoring enforcement of arbitration agreements, there does not appear to be a valid, enforceable arbitration agreement here.” Dkt. 21, at 7. Because the Court found that there was no valid, enforceable arbitration agreement, the Court declined to discuss Plaintiffs' secondary argument that the BDRA is unenforceable for lacking consideration and mutuality. Dkt. 21, at 7.

         On July 15, 2019, CMH filed the instant Motion to Alter. Dkt. 24. CMH moved to alter, vacate, or amend the Order (Dkt. 21) for two reasons: (1) CMH alleged the Court did not recognize the scope of the language of the BDRA, and (2) the Court improperly relied upon the unsigned and unsworn declaration of Maria Kay Dupuis-Baker in issuing the Order. Dkt. 24.

         Plaintiffs responded in opposition to the instant Motion to Alter. Dkt. 26. Plaintiffs' response made, in part, two arguments: (1) CMH's Rule 59(e) or 60(b) Motion to Alter was incorrectly filed and should have been filed as a motion for reconsideration governed by LCR 7(h); and (2) CMH has not shown manifest error or new facts or authority sufficient to grant a motion for reconsideration. Dkt. 26.

         CMH replied in support of the instant Motion to Alter. Dkt. 27.

         The Court granted, in part, and denied, in part, and otherwise renoted to September 4, 2019, CMH's instant Motion to Alter. Dkt. 28. The Court amended the Order (Dkt. 21) to cite to the Notice of Errata's signed, sworn declaration (Dkts. 25, at 25-1) and concluded that the Order's reliance on the unsigned, unsworn declaration (Dkts. 19; and 19-1) was harmless. Dkt. 28. The Court granted Plaintiffs leave to file an additional response and granted CMH leave to file a reply. Dkt. 28.

         Plaintiffs filed a Supplemental Response Supporting Opposition to Defendant's Motion to Compel (“Supplemental Response”). Dkt. 29. Plaintiffs maintains that “the BDRA is unenforceable (1) for lack of consideration and mutuality of obligation, and (2) because it was not made a part of the Sales Agreement which clearly contained an integration clause establishing the final manifestation of the contract between the parties.” Dkt. 29, at 1. Plaintiffs add that the BDRA should be stricken as unconscionable. Dkt. 29, at 7.

         CMH filed a Reply in Support of Motion to Stay Proceedings and Compel Arbitration/Motion to Amend (“Reply”). Dkt. 31. CMH maintains that the “BDRA is enforceable and binding, and these proceedings should be stayed while the parties pursue resolution of their dispute via binding private arbitration as contracted.” Dkt. 31, at 1. CMH argues that Plaintiffs never raised unconscionability as a defense to arbitration in response to CMH's Motion to Compel, and it was therefore waived. Dkt. 31, at 8. CMH further argues that Plaintiffs' unconscionability argument is without merit. Dkt. 31, at 8.

         Plaintiffs filed a Notice of Intent to File Surreply (Dkt. 32), and filed a Surreply (Dkt. 33) requesting that the Court strike or disregard two statements in made by CMH in its Reply. Plaintiffs argue that CMH (1) made an unsupported representation in its reply, and (2) introduced a declaration lacking personal knowledge. Dkt. 33. CMH filed a Motion to Strike Surreply and Motion for Leave to Supplement Reply on Defendant's Motion to Compel Arbitration/Motion to Amend (Dkt. 34) not in compliance with LCR 7(g)(4), which the Court need not consider.

         II. DISCUSSION

         The Court has the power to reconsider, revise, alter, or amend the Order for cause. See Fed. R. Civ. P. 60; City of Los Angeles, Harbor Div. v. Santa Monica Baykeeper, 254 F.3d 882, 886-87 (9th Cir. 2001) (quoting Melancon v. Texaco, Inc., 659 F.2d 551, 553 (5th Cir. 1981)) (citing, e.g., Toole v. Baxter Healthcare Corp., 235 F.3d 1307, 1315 (11th Cir. 2000) (stating that when a district court issues “an interlocutory order, the district court has plenary power over it and this power to reconsider, revise, alter or amend the interlocutory order is not subject to the limitations of Rule 59”)); see also LCR 7(h); see generally Dkt. 28. In light of the additional briefing from the Parties regarding enforcement of the BDRA and the need for further consideration, the Court should vacate the Order Denying CMH's Motion to Compel (Dkt. 21) and replace it with this order.

         A. WASHINGTON STATE SUBSTANTIVE LAW APPLIES

         Under the rule of Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), federal courts sitting in diversity jurisdiction apply state substantive law and federal procedural law. Gasperini v. Center for Humanities, Inc., 518 U.S. 415, 427 (1996).

         B. ARBITRATION LEGAL STANDARDS

         The Federal Arbitration Act (“FAA”), 9 U.S.C., established a “liberal federal policy favoring arbitration.” AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1745 (2011). Creating “a body of federal substantive law of arbitrability, ” the FAA applies to “any arbitration agreement within the coverage of the Act.” Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). The FAA applies to any “written provision in … a contract evidencing a transaction involving commerce.” 9 U.S.C. § 2. Pursuant to the FAA, arbitration agreements are “valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.

         “[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.” Moses H. Cone Mem'l Hosp., 460 U.S. at 24-25 (1983). “Courts must indulge every presumption ‘in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.'” Zuver v. Airtouch Commc'ns, Inc., 153 Wn.2d 293, 301 (2004) (quoting Moses H. Cone Mem'l Hosp., 460 U.S. at 25). “The party opposing arbitration bears the burden of showing that the agreement is not enforceable.” Id. at 302.

         “Because the FAA mandates that ‘district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed[, ]' the FAA limits courts' involvement to ‘determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.'” Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008) (emphasis in the original) (quoting Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000)). “If the response is affirmative on both counts, then the Act requires the court to enforce the arbitration agreement in accordance with its terms.” Chiron Corp., 207 F.3d at 1130. If the court determines the matter is subject to arbitration, it may either stay the matter pending arbitration or dismiss it. EEOC v. Waffle House, Inc., 534 U.S. 279, 289 (2002).

         In assessing whether an arbitration agreement or clause is enforceable, the Court should apply ordinary state-law principles that govern the formation of contracts. Lowden v. T-Mobile USA, Inc., 512 F.3d 1213, 1217-18 (9th Cir. 2008). Accordingly, the Court will apply Washington law.

         Washington follows the objective manifestation theory of contracts. Hearst Commc'ns, Inc. v. Seattle Times Co., 154 Wn.2d 493, 503 (2005). “Under this approach, we attempt to determine the parties' intent by focusing on the objective manifestations of the agreement, rather than on the unexpressed subjective intent of the parties.” Id. “We generally give words in a contract their ordinary, usual, and popular meaning unless the entirety of the agreement clearly demonstrates a contrary intent.” Id. Contracts are viewed as a whole; particular language is interpreted in the context of other contract provisions. See Weyerhaeuser Co. v. Commercial Union Ins. Co., 142 Wn.2d 654, 669-70 (2000).

         “If the writing is a complete integration, any terms and agreements that are not contained in it are disregarded.” Lopez v. Reynoso, 129 Wn.App. 165, 171 (2005) (internal citations omitted). “While boilerplate integration clauses can provide strong evidence of integration, they are not operative if they are premised on incorrect statements of fact.” S.D. Deacon Corp. of Washington v. Gaston Bros Excavating, Inc. 150 Wn.App. 87, 93 (2003) (internal citations omitted). “A court may consider evidence of negotiations and circumstances surrounding the formation of the contract, and if the agreement is not completely integrated, additional terms may be proved to the extent they are consistent with the written terms.” Id.

         C. ABRITRATION AGREEMENT ANALYSIS

         Plaintiffs make three primary arguments against the existence of a valid agreement to arbitrate, discussed below. First, the Court discusses whether the Sales Agreement superseded and revoked the BDRA. Second, whether the BDRA lacks consideration and mutuality of obligation. Finally, whether the BDRA is unconscionable.

         1. Whether the Sales Agreement superseded and revoked the BDRA

          The BDRA, dated on or around March 9, 2016, provides, in part: “The Parties agree to mandatory, binding arbitration (‘Arbitration') of all Claims that are not resolved in Mediation …. Any Party to this Agreement may commence arbitration at any time ...


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