John Murphy v. Lowe's Home Centers, Inc. et al. (2015)

RULING ON DEFENDANTS' MOTION TO STRIKE AND MOTION FOR STAY PENDING ARBITRATION

In this case, the plaintiff, John Murphy, a home improvement contractor, alleges that the defendants, Lowe's Home Centers, Inc. and Lowe's Home Centers, LLC, violated their contract with him to send him installation work for customers who purchased kitchen cabinets from a Lowe's location in Waterford, CT. The complaint is in three counts for breach of contract, breach of duty of implied covenant of good faith and fair dealing and negligent misrepresentation.  In response, the defendants have filed a motion to strike and motion for stay pending arbitration.  For the following reasons, the court finds that, in their contract, the parties agreed to arbitrate any disputes relating to their contract, that issues in this case are referable to arbitration, and that the defendants are ready and willing to proceed to arbitration.  Accordingly, and pursuant to General Statutes § 52–409, the case is stayed until arbitration has been had in compliance with the agreement.  Having granted the motion for stay, it is unnecessary to address the other issues raised in the motion to strike.

I

The plaintiff alleges, in essence, as follows:  The defendants are North Carolina corporations with a principal place of business in Wilkesboro, North Carolina.  The defendants operate home improvement centers in various locations selling, inter alia, kitchen cabinets to consumers and services to install such cabinets.  One such home improvement center is located in Waterford, CT. The plaintiff is a home improvement contractor from Westbrook, CT. On May 3, 2010, and again on August 27, 2010, the plaintiff entered into a contract with Lowe's to perform kitchen cabinet installations for Lowe's customers who bought products and/or services from the Waterford store.  Under the contract, the plaintiff was not allowed to perform any services for Lowe's customers outside of that specified in the contract between Lowe's and the customer.  Up until mid–2013, the plaintiff received work from Lowe's on a rotating basis with other contractors.  In mid–2013, the defendants stopped sending installation work to the plaintiff.  On inquiry, plaintiff was told by the installation office that business was slow and that orders were not being placed for installation.  However, he otherwise learned that business was not slow, and that many orders were being placed with other contractors.  Plaintiff confronted the installation office with this information.  In response, he was told that he was not getting work because he had been caught entering into contracts with Lowe's customers in violation of the terms of his contract with Lowe's.  Plaintiff alleges that the accusations are false;  and, when he demanded to see Lowe's proof, Lowe's refused to produce the proof.  This lawsuit then followed.

Pertinent to the dispositive issue, the contract between the parties provided, in part, as follows:

Any dispute between the parties relating to this Contract, or any Order, or the performance of Installation Services shall be resolved by binding arbitration conducted by a single arbitrator under current applicable rules, procedures and protocols of the American Arbitration Association (as may be amended from time to time), in Charlotte, North Carolina, or such other mutually agreeable location.  Either party may demand arbitration ․ The parties agree that this arbitration agreement shall be governed by the Federal Arbitration Act, but if for any reason the Federal Arbitration Act does not apply, then this arbitration agreement shall be governed by the laws of the State of North Carolina, without regard to the choice of law rules of any state ․

Contract (8/27/10), para. 16.  (Emphasis added.)

Additionally, it provided:

Subject to paragraph (16), the parties agree that this Contract shall be governed by and interpreted in accordance with the laws of the State of North Carolina, without regard to the choice of law rules of any state, including, without limitation, the laws governing the release and waiver of any and all lien rights and/or security interest in goods and labor supplied by Installer under the Contract.

Contract (8/27/10), para. 25.

Finally, it provided:

If any provision of this Contract is contrary to any law to which it is subject, such provision shall be ineffective to the extent of such prohibition without invalidating the remaining provisions of this Contract.

Contract (8/27/10), para. 24.

II

In light of the arbitration clause, the defendants argue that the case should be stayed pending arbitration pursuant to General Statutes § 52–409.  That statute provides as follows:

If any action for legal or equitable relief or other proceeding is brought by any party to a written agreement to arbitrate, the court in which such action or proceeding is pending, upon being satisfied that any issue involved in the action or proceeding is referable to arbitration under the agreement, shall, on motion of any party to the arbitration agreement, stay the action or proceeding until an arbitration has been had in compliance with the agreement, provided the person making application for the stay shall be ready and willing to proceed with the arbitration.

General Statutes § 52–409.

The applicability of this statute is not in dispute.  Nor is there a dispute regarding the referability of the case to arbitration.  A review of the briefs and arguments of the parties reveals that both sides are ready and willing to arbitrate.  The dispute is over the location for arbitration.  The defendants want to arbitrate in North Carolina.  The plaintiff wants to arbitrate in Connecticut or New York. Neither side will compromise.  The defendants argue that, absent agreement, the contract requires arbitration in North Carolina;  and that they prefer North Carolina because they are headquartered there.  The plaintiff argues that North Carolina is so inconvenient for him and his witnesses that enforcement of such a provision would be an unconscionable abuse, rendering the entire arbitration clause unenforceable.  He contends that if he is forced to arbitrate in North Carolina, his travel and lodging costs would be around $1,200.00.  That figure does not include meals and costs associated with bringing witnesses to North Carolina for the arbitration, he complains.  In addition, those costs do not include the inconvenience and potential loss of income associated with spending several days out of state, he argues.  He avers that he is a sole proprietor contractor whose annual income for the last five years averaged around $30,000.00 and that it is not worth the expense to him if he is required to arbitrate in North Carolina.  The defendants, he implies, have unfairly manipulated him into a strategic disadvantage, and that if he is forced to arbitrate in North Carolina, he will likely have to drop the matter.

Thus, the central issue is whether the arbitration clause is unconscionable because of the alleged expense imbalance.  Applying North Carolina law, as required by the contract, the leading case is Tillman v. Commercial Credit Loans, Inc., 362 N.C. 93, 655 S.E.2d 362 (2008).  In that case, the North Carolina Supreme Court held that an arbitration clause is unconscionable “only when the inequality of the bargain is so manifest as to shock the judgment of a person of common sense, and where the terms are so oppressive that no reasonable person would make them on the one hand, and no honest and fair person would accept them on the other.”  (Citations omitted.)  Id., 101.  A party asserting that a contract is unconscionable must prove both procedural and substantive unconscionability.  Procedural unconscionability involves “bargaining naughtiness” in the form of unfair surprise, lack of meaningful choice, and an inequality of bargaining power.  Substantive unconscionability, on the other hand, refers to harsh, one-sided, and oppressive contract terms.  Id., 102–03.  Additionally, it has been held that where, as in this case, the arbitration agreement is governed by the Federal Arbitration Act (FAA), the North Carolina courts must consider issues arising under the FAA, and U.S. Supreme Court decisions construing arbitration agreements under the FAA. Torrence v. Nationwide Budget Finance, 753 S.E.2d 802, 809, disc. review denied, 367 N.C. 505, 759 S.E.2d 888 (2014).

Applying those principles to the instant case, the court finds that bargaining power between the parties is unquestionably unequal.  Considering Lowe's unwillingness to compromise on the location of the arbitration now, it is highly unlikely that Lowe's would have bargained with the plaintiff on the arbitration location language in the contract prior to signing.  Nevertheless, in North Carolina, bargaining inequality alone generally cannot establish procedural unconscionability.  Wilner v. The Cedars of Chapel Hill, LLC, 773 S.E.2d 333, 337, disc. review denied, 777 S.E.2d 67 (2015).  Otherwise, procedural unconscionability would exist in practically every contract like this.  With respect to the plaintiff's arguments that the arbitration location requirement is substantively unconscionable because of the expense imbalance, the court is simply not persuaded.  The cited costs do not appear to be prohibitive.  And, there would be expenses and time losses involved in arbitration wherever it is held.  Comparatively, the amount of money at stake in this case is unclear;  however, the plaintiff demanded $40,000.00.  That suggests that arbitration would be worthwhile even in North Carolina.  In sum, the court is not persuaded that the costs to arbitrate in North Carolina and other relative inconveniences are so high as to make arbitration in North Carolina unconscionable under North Carolina law.  Although excessive costs can render an arbitration agreement unconscionable in some cases, it is the plaintiff's burden to show that arbitration would be “prohibitively expensive.”  Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79, 92, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000).  The plaintiff has failed to do so in this case.  The parties agreed to arbitrate, and the court finds that this agreement is not harsh, one-sided, or oppressive.  Accord, Burton's Pharmacy, Inc. v. CVS Caremark Corp., United States District Court, Middle District of North Carolina, No. 1:11CV2 (Sept. 15, 2015), 2015 U.S. Dist. LEXIS 122596 (M.D.N.C., Sept. 15, 2015), adopted 2015 U.S. Dist. LEXIS 139432 (M.D.N.C., Oct. 24, 2015) (North Carolina business agreement to arbitrate in Arizona enforced).

Furthermore, recent U.S. Supreme Court decisions interpreting the FAA make it clear that the defense of unconscionability may not be applied in a manner that stands as an obstacle to the accomplishment of the FAA's objectives, nor may it target the existence of an agreement to arbitrate as the basis for invalidating that agreement.  Torrence v. Nationwide Budget Finance, supra, 753 S.E.2d 810.  Under the FAA, a “written provision in a contract providing for “settle [ment] by arbitration” of “a controversy ․ arising out of” that “contract ․ shall be 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. This savings clause puts arbitration contracts on equal footing with all other contracts.  Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 447, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006).  However, states must give “due regard ․ to the federal policy favoring arbitration.”  Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 476, 109 S.Ct. 1248, 103 L.E.2d 484 (1989).  Thus, in AT & T Mobility, LLC v. Concepcion, 563 U.S. 333, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), where a state court found a cellular telephone service contract provision that waived class arbitration to be unconscionable, the U.S. Supreme Court reversed, finding that decision to stand as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress in enacting the FAA. Id., 352.  Those objectives are to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings.  Id., 344.  The lower court decision was pre-empted by the FAA. Id., 352.  The same result followed in a case where challengers argued that a class arbitration waiver in a credit card contract was unenforceable because the plaintiff's cost of individually arbitrating a claim exceeded the potential recovery.  See American Express Co. v. Italian Colors Restaurant, 133 S.Ct. 2304, 189 L.Ed.2d 417 (2013).  There, the U.S. Supreme Court held that the FAA precluded such a defense because the defense interfered with the fundamental attributes of arbitration.  Id., 2312.  And, most recently, the U.S. Supreme Court upheld a class arbitration waiver in a satellite television service agreement, finding that a lower court's decision that it was unconscionable conflicted with AT & T Mobility, LLC v. Concepcion, failed to place arbitration contracts on an equal footing with all other contracts and, therefore, did not give due regard to the federal policy favoring arbitration.  See DIRECTV, Inc. v. Imburgia, 193 L.Ed.2d 365, 2015 U.S. LEXIS 7999 (December 14, 2015).

The plaintiff's unconscionability defense in the instant case, likewise, obstructs the goals of the FAA and improperly targets the existence of the agreement to arbitrate as the basis for invalidating the agreement.  Accordingly, the plaintiff's unconscionability defense must fail.

Otherwise, the court finds that, in their contract, the parties agreed to arbitrate any disputes relating to the contract, that issues in this case are referable to arbitration, and that the defendants are ready and willing to proceed to arbitration.  Accordingly, the court grants the defendants' motion to stay pending arbitration pursuant to General Statutes § 52–409.

III

Having concluded that the case should be stayed pending arbitration, it is unnecessary to resolve the issues raised in the defendants' motion to strike.

IV

For all of the foregoing reasons, the court finds that, in their contract, the parties agreed to arbitrate any disputes relating to the contract, that issues in this case are referable to arbitration, and that the defendants are ready and willing to proceed to arbitration.  Accordingly, and pursuant to General Statutes § 52–409, the case is stayed until arbitration has been had in compliance with the agreement.  Having granted the motion for stay, it is unnecessary to address the other issues raised in the motion to strike.

Robert F. Vacchelli

Judge, Superior Court

Vacchelli, Robert F., J.