Elsie Sadler v. Green Tree Servicing , 466 F.3d 623 ( 2006 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 05-3850
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Elsie Sadler, Terry Sadler, *
*
Appellees, *
* Appeal from the United States
v. * District Court for the
* Western District of Missouri.
Green Tree Servicing, LLC, *
*
Appellant. *
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Submitted: May 19, 2006
Filed: October 17, 2006
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Before WOLLMAN, BOWMAN, and RILEY, Circuit Judges.
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BOWMAN, Circuit Judge.
Green Tree Servicing appeals from the District Court's denial of its motion to
compel arbitration of claims made by plaintiffs Elsie and Terry Sadler in this lawsuit.
Our jurisdiction over the appeal from the arbitrability determination is invoked under
the Federal Arbitration Act, 9 U.S.C. § 16(a)(1)(C) (2000) ("An appeal may be taken
from . . . an order . . . denying an application . . . to compel arbitration . . . ."). We
reverse and remand.
The genesis of this case is a thirty-year loan on a mobile home that
BankAmerica Housing Services made to Elsie Sadler (then Smith) in 1997. She
executed a Retail Installment Contract and Security Agreement1 that included
provisions for arbitration of disputes and waiver of jury trial. In December 2004,
Green Tree took over servicing the loan. At that time, Elsie and Terry Sadler lived
together in the mobile home and had made all required monthly payments.
Nevertheless, in January 2005, Green Tree sent a notice of default and in April 2005,
a notice of foreclosure. Unable to resolve the dispute, the Sadlers removed their
possessions from the mobile home. In June 2005, Green Tree sent notice that the
mobile home had been sold with a deficiency of over $18,000. Counsel for the
Sadlers has represented to this Court that the couple never missed a payment before
the foreclosure. In fact, at oral argument, counsel said that the Sadlers continued to
make post-foreclosure monthly payments according to the terms of the Agreement.
The Sadlers filed a diversity suit in the District Court alleging conversion,
negligent infliction of emotional distress (as to Elsie Sadler only), and violations of
Missouri statutory law resulting from Green Tree's handling of the foreclosure. The
complaint also included claims for punitive damages and attorney fees and a request
for a jury trial.
Green Tree moved to dismiss the complaint or, in the alternative, to compel
arbitration pursuant to the terms of the Agreement executed by Elsie Sadler. The
District Court held, inter alia, that Terry Sadler could not be compelled to arbitrate the
dispute because he was not a party to the Agreement. The court also concluded that
the Sadlers' claims were not otherwise subject to arbitration because they were based
on Green Tree's "self-help" remedy, that is, the foreclosure. In the court's view,
because Green Tree exercised this remedy, which is allowed under the terms of the
1
The Agreement is actually captioned "RETAIL INSTALLMENT
CONTRACT, SECURITY AGREEMENT, WAIVER OF TRIAL BY JURY AND
AGREEMENT TO ARBITRATION OR REFERENCE OR TRIAL BY JUDGE
ALONE." For obvious reasons, we have abbreviated that title for this opinion.
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Agreement without first resorting to arbitration, it would be unconscionable to require
the Sadlers to arbitrate claims that arise out of Green Tree's "self-help."
After briefing was completed in this case but before oral argument, we
requested supplemental letter briefs from both parties. In our order, we noted that the
Agreement's section on arbitration of disputes included this language: "Any
controversy concerning whether an issue is arbitrable shall be determined by the
arbitrator(s)." Order of April 26, 2006 (quoting Retail Installment Contract and
Security Agreement at 5 (Arbitration of Disputes and Waiver of Jury Trial
subpara. b)). We asked, "Does that provision require that the arbitrability vel non of
the Appellees' claims be determined in the first instance by arbitrators rather than the
court?" Id. Having studied the terms of the Agreement and considered the parties'
supplemental briefs and arguments on the question, we conclude that the answer must
be "yes."
Lack of subject-matter jurisdiction of a lawsuit cannot be waived by the
parties—or ignored by the courts—at any stage of the litigation. Hunter v.
Underwood, 362 F.3d 468, 476 (8th Cir. 2004). We are therefore obligated to assure
ourselves that the District Court, by holding that the claims were not arbitrable,
properly asserted subject-matter jurisdiction, regardless of whether the parties raised
the question themselves. In this case, we took the further step of requesting
supplemental briefing on the issue, giving the parties an opportunity to tell us their
views before we addressed the question.
"Just as the arbitrability of the merits of a dispute depends upon whether the
parties agreed to arbitrate that dispute, so the question 'who has the primary power to
decide arbitrability' turns upon what the parties agreed about that matter." First
Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995) (citations omitted).
That is, we look to the Agreement to see if the parties affirmatively addressed the
question of who decides arbitrability. The presumption is that disputes about
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arbitrability are for the court to resolve unless there is clear and unmistakable evidence
that the parties agreed to have the arbitrator determine arbitrability. Id. at 944–45.
The section of the Agreement addressing arbitration and waiver of jury trial has
four subparagraphs: "a. Dispute Resolution," "b. Arbitration," "c. Judicial Reference
or Trial by a Judge," and "d. Self-Help, Foreclosure, and Provisional Remedies." The
unequivocal agreement to have the arbitrator resolve "[a]ny controversy concerning
whether an issue is arbitrable" is found in subparagraph b. The Sadlers point out,
however, that their claims go to the remedies invoked by Green Tree, and those
remedies are enumerated in subparagraph d. The language in that subparagraph
allows the parties "to exercise self-help remedies," including foreclosure, "before,
after or during the pendency of any arbitration under subparagraph (b) above." It is
the Sadlers' position that "subparagraph d carves out an exception to the paragraph's
general arbitration requirement," so "the requirement to arbitrate disputes about
arbitrability [found in subparagraph b] does not apply to those cases described in
subparagraph d." Letter Brief of Appellees at 2–3. They base this assertion on the
construction of the Agreement's arbitration provision, with the four separate
subparagraphs; their gloss on the interrelation of the subparagraphs; and the opinion
of the Missouri Court of Appeals in GreenPoint Credit, L.L.C. v. Reynolds, 151
S.W.3d 868 (Mo. Ct. App. 2004).2 Because their claims arise from Green Tree's
subparagraph d actions, which could be (and were) taken without first resorting to
arbitration, the Sadlers contend that the arbitrability agreement in subparagraph b
2
In GreenPoint Credit, L.L.C. v. Reynolds, 151 S.W.3d at 875, the court held
that it would be unconscionable to compel arbitration of a borrower's counterclaims
that were made in responsive pleadings to the lender's replevin case filed in state
court—when the replevin action itself was excepted from arbitration by agreement of
the parties. In this case, however, Green Tree does not seek to compel arbitration for
counterclaims the Sadlers made in Green Tree's foreclosure action, but for claims
lodged by the Sadlers in a separate, post-foreclosure lawsuit. In any event, the
question of who should determine the arbitrability of the counterclaims was not at
issue in GreenPoint.
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should not apply. But the Sadlers' argument founders on the final sentence of
subparagraph d (emphasis added): "Neither the obtaining nor the exercise of any such
[self-help] remedy shall serve as a waiver of the right of either you or me to demand
that the related or any other dispute or controversy be determined by arbitration as
provided above." We hold that the questions of arbitrability in this case are indeed
for the arbitrator and that the District Court erred in deciding that the Sadlers' claims
were not subject to arbitration.
We vacate the District Court's order and remand to that court with instructions
to grant Green Tree's motion to compel arbitration, leaving the disputes about
arbitrability to the arbitrator.3
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3
We have taken with the case the Sadlers' motion to modify the record. The
evidence that they would have us consider is irrelevant to the jurisdictional issue and
to our decision that the arbitrability of the claims should be decided by an arbitrator.
We therefore deny the motion as moot.
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