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Jorja Trading, Inc. v. Willis

Court of Appeals of Arkansas, Division III

November 28, 2018



          Bassett Law Firm, LLP, by: Scott E. Wray and Grace K. Johnson, for appellants.

          The Story Law Firm, PLLC, by: Travis W. Story and Gregory F. Payne, for appellees.

          LARRYD. VAUGHT, Judge

         This is an interlocutory appeal of the Washington County Circuit Court's order denying the joint motion to compel arbitration filed by appellants Jorja Trading, Inc.; Automatic Auto Finance, Inc.; Cashfish Motor Pawn, Inc.; Virginia Rivers; and Monte Johnston. We affirm the circuit court's order.

         Appellees Leah Willis and Adrian Bartholomew purchased a 2002 Suzuki XL7 vehicle from Automatic Auto Finance (AAF) on October 27, 2015. AAF then assigned the sales contract to Jorja Trading. Appellees defaulted on their payment obligations under the sales contract. Jorja Trading filed a complaint against Willis and Bartholomew in the small claims division of the Washington County District Court (Springdale Division) on May 13, 2016. Both parties were properly served. Bartholomew filed an answer on June 29, 2016. Willis did not file an answer. After a hearing on September 21, 2016, the court entered judgment against the appellees, who then appealed the judgment to the circuit court. Appellees filed an answer and a counterclaim, which asserted fourteen causes of action stemming from alleged usury and UCC violations. On December 13, 2016, Jorja Trading filed a motion to dismiss counterclaim and alternative motion to dismiss and compel arbitration. The other appellants subsequently also filed motions to dismiss and compel arbitration. After appellees filed an amended answer and counterclaim, the court ruled that the pending motions to dismiss and compel arbitration were moot. Appellants then filed a new joint motion to dismiss and compel arbitration of the amended counterclaims and third-party claims. The circuit court held a hearing on December 20, 2017, after which it denied the appellants' joint motion to compel arbitration based on its finding that the arbitration agreement lacked mutuality of obligation and had been waived. This timely appeal follows.

         We review a circuit court's order denying a motion to compel arbitration de novo on the record. Hickory Heights Health & Rehab, LLC v. Cook, 2018 Ark.App. 409, S.W.3d, (citing Courtyard Gardens Health & Rehab., LLC v. Quarles, 2013 Ark. 228, 428 S.W.3d 437). Arbitration is simply a matter of contract between parties. Id. Whether a dispute should be submitted to arbitration is a matter of contract construction, and we look to the language of the contract that contains the agreement to arbitrate and apply state-law principles. Id. The same rules of construction and interpretation apply to arbitration agreements as apply to agreements generally; thus, we will seek to give effect to the intent of the parties as evidenced by the arbitration agreement itself. Id. Finally, the construction and legal effect of an agreement to arbitrate are to be determined by this court as a matter of law. Id.

         In deciding whether to grant a motion to compel arbitration, two threshold questions must be answered. First, is there a valid agreement to arbitrate between the parties? Second, if such an agreement exists, does the dispute fall within its scope? GGNSC Holdings, LLC v. Lamb, 2016 Ark. 101, 487 S.W.3d 348. In answering these questions, doubts about arbitrability must be resolved in favor of arbitration. Id. We are also guided by the legal principle that contractual agreements are construed against the drafter. Carter v. Four Seasons Funding Corp., 351 Ark. 637, 97 S.W.3d 387 (2003). "We are not bound by the circuit court's decision, but in the absence of a showing that the circuit court erred in its interpretation of the law, we will accept its decision as correct on appeal." Erwin-Keith, Inc. v. Stewart, 2018 Ark.App. 147, at 9, 546 S.W.3d 508, 512 (citing Madison Cos., LLC v. Williams, 2016 Ark.App. 610, 508 S.W.3d 901).

         First, appellants argue that the circuit court erred in determining that the arbitration agreement was not valid because it lacked mutuality of obligation. One of the necessary elements for a valid and enforceable contract under Arkansas law is that the parties must both be bound by mutual obligations. Hot Spring Cty. Med. Ctr. v. Ark. Radiology Affiliates, PA., 103 Ark.App. 252, 255, 288 S.W.3d 676, 679. While Arkansas law does not require that the mutual obligations be a mirror image of each other, "an obligation must rest on each party to do or permit to be done something in consideration of the act or promise of the other; that is neither party is bound unless both are bound." Hamilton v. Ford Motor Credit Co., 99 Ark.App. 124, 128, 257 S.W.3d 566, 570 (2007).

         Here, the circuit court found that the arbitration agreement lacked mutual obligations because, while it appears to allow both parties to employ self-help remedies and prohibits both parties from filing a class-action lawsuit, both of those provisions work to the exclusive benefit of the appellants; the appellants are not actually obligated to do or forgo anything meaningful. The arbitration agreement states that both parties "retain the right to self-help remedies, such as repossession." Appellants argue that if the vehicle had been improperly repossessed or was being held by the appellants for some other unlawful reason, the appellees would also have the option of self-help pursuant to the arbitration agreement. We disagree.

         The term "self help" is a legal term of art which, according to Black's Law Dictionary, means to protect one's own property or person and not resort to legal action to do so. Under Arkansas law, repossession is exclusively authorized for parties with a secured interest in the property. Ark. Code Ann. § 4-9-609 (Repl. 2001). In Gorman v. Ratliff, 289 Ark. 332, 337, 712 S.W.2d 888, 890 (1986), the Arkansas Supreme Court invalidated a self-help provision in a lease contract because "no entry by a landlord onto property occupied by another is given by Act 615, except by first resorting to legal process. Accordingly, self-help action is prohibited [under Arkansas law]." The Arkansas Supreme Court went on to hold that, "[f]or these reasons those provisions of the lease authorizing the landlord's self-help remedy are invalid." Gorman, 289 Ark. at 338, 712 S.W.2d at 891. In Durbin v. City of W. Memphis, Ark., No. 3:14-CV-00052-KGB, 2015 WL 1470141 (E.D. Ark. Mar. 31, 2015), the United States District Court for the Eastern District of Arkansas reviewed the current status of self-help law in Arkansas and explained:

The Arkansas Supreme Court subsequently has interpreted Gorman broadly, stating that Gorman "outlawed the use of self-help measures to regain property." Duhon v. State, 774 S.W.2d 830, 835 (Ark. 1989). Further, considering Gorman and Duhon, the Attorney General of Arkansas has opined that installing a device that would enable a landlord to cut off utility service to tenants in the event of nonpayment of rent would run afoul of Gorman's prohibition of self-help eviction. See Ark. Op. Att'y Gen. No. 2006-223, 2007 WL 201187 (Jan. 23, 2007).

Durbin, 2015 WL 1470141, at *6.

         In the present case, while the arbitration agreement purports to give both parties the right to employ self-help remedies, "such as repossession," Arkansas Code Annotated section 4-9-609 authorizes a repossession only by a ...

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