In this week’s ALWU, we share with you a decision from the Eleventh Circuit Court of Appeals concerning arbitration and forum selection clauses and a decision from the Alabama Supreme Court and the duty to warn.

Inetianbor v. CashCall, Inc., No. 13-13822 (11th Cir. Oct. 2, 2014) (holding that where a forum selection clause is integral to an arbitration agreement and the forum is unavailable, the arbitration provision fails)

This case came before the Eleventh Circuit Court of Appeals on appeal by CashCall, Inc. from the United States District Court for the Southern District of Florida. Appellee Abraham Inetianbor borrowed $2,600 from Western Sky Financial, LLC and paid CashCall, the servicer of the loan, $3,252.65 over the span of twelve months. Believing that he had paid off his loan in full, Mr. Inetianbor refused to pay CashCall when he received a bill from the servicer, and CashCall declared the loan in default and reported the default to credit agencies.

Mr. Inetianbor brought suit against CashCall and CashCall moved to compel arbitration pursuant to the agreement Mr. Inetianbor had executed with Western Sky. Specifically, the arbitration provision stated that arbitration “shall be conducted by the Cheyenne River Sioux Tribal Nation by an authorized representative . . . .” The case was initially sent to arbitration but upon attempting to comply with the order multiple times, Mr. Inetianbor was informed that the Tribe is not involved with arbitration. Because the Tribe was unavailable to hear the dispute between the parties, the Court then denied the motion to compel arbitration and CashCall appealed.

In determining whether arbitration could be compelled in this case, the 11th Circuit restated its precedent that “the failure of the chosen forum preclude[s] arbitration” whenever “the choice of forum is an integral part of the agreement to arbitrate, rather than an ancillary logistical concern” (citing Brown v. ITT Consumer Fin. Corp., 211 F.3d 1217, 1222 (11th Cir. 2000)). First, the Court analyzed whether the forum selection clause was “integral” to the arbitration agreement, explaining that a court must consider “how important the term was to one or both of the parties at the time they entered into the agreement.” In this case, the loan agreement specifically referenced the Tribe a number of times and was intentional about requiring the Tribe to be involved in dispute resolution. Plus, the use of the word “shall” persuaded the Court that the parties intended arbitration to be conducted exclusively by the Tribe and pursuant to the rules and jurisdiction of the Tribe. The Court rejected CashCall’s argument that the forum selection clause could be severed from the remainder of the arbitration agreement because the forum clause was an “essential part” of the arbitration agreement, as it “pervaded” the entire agreement. Thus, the Court found the forum selection clause to be “integral” to the arbitration provision, meaning no other forum could be substituted into the agreement.

After determining that the Tribe’s involvement was required by the arbitration agreement, the Court reviewed the “unavailability” of the chosen forum. The Court then explained that the district court did not err when finding the forum unavailable, as the Tribe itself had written letters explaining that it does not authorize arbitration. Because the forum specifically and intentionally selected by the parties was unavailable, the parties were not required to arbitrate.

Yanmar America Corporation v. Randy Nichols, No. 1130214 (Ala. September 30, 2014) (holding that assumed duty to warn extends to foreseeable users of equipment but breach of that duty only occurs when actions increase the risk to potential user)

In 2005, Autrey Nichols (“Autrey”) purchased a Yanmar tractor from Northside Motors, LLC (“Northside”). While being used by Randy Nichols (“Randy”), Autrey’s brother, the tractor rolled over and Randy was thrown from the tractor sustaining serious injuries. Randy sued Yanmar Japan, Yanmar America, Arctec (the dealer who sold the gray-market tractor to Northside) and Northside asserting claims under the Alabama Extended Manufacturer’s Liability Doctrine (“AEMLD”) and breach of implied warranty. Randy alleged that (i) the tractor was “unreasonably dangerous because it was designed, manufactured, distributed and sold without a roll-over protection structure”, (ii) defendants were “negligent in designing, manufacturing, distributing, and selling the tractor without a roll-over protection structure”, and (iii) “defendants breached the implied warranty of fitness for a particular purpose”. Randy later amended his complaint to include, among other things, allegations of recklessness and negligence in (i) manufacturing parts with knowledge that those parts were being used on gray-market tractors, (ii) issuing warnings and failing to warn, and (iii) performing dealer audits. Yanmar Japan filed a motion to dismiss for lack of in personam jurisdiction, which the trial court granted.

Randy voluntarily dismissed his claims against Northside and moved the trial court to dismiss Arctec as a result of a pro tanto settlement, which the trial court did. This left only Yanmar America as a defendant and Yanmar America moved for summary judgment, arguing, among other things, that it had not “negligently failed to warn Artec that Yanmar gray-market tractors did not meet United States safety standards.” The trial court denied Yanmar America’s motion and the case proceeded to trial. At the close of Randy’s evidence, Yanmar America moved for a judgment as a matter of law, which the trial court denied. The jury awarded Randy $900,000 in damages and Yanmar America appealed.

The issue on appeal was whether Yanmar America the duty to warn, admittedly assumed by Yanmar America, extended to Randy and whether it had breached that duty. Though a party may initially owe no duty to warn because it is not the supplier or manufacturer of the equipment at issue, a party can assume that duty and be held liable for negligently performing said duty thereafter. Yanmar America acknowledged at trial that it had voluntarily undertaken the duty to warn by, among other things, issuing safety notices in 1992, 2005 and 2008, and implementing a parts blocking program in 2002, but denied that duty included the duty to warn “every potential user” including Randy. In discussing whether the duty to warn extended to Randy, the Alabama Supreme Court noted that “the ultimate test of a duty to use [due] care is found in the foreseeability that harm may result if care is not exercised.” In holding that the duty to warn extended to Randy, the Court stated that it was obvious that Yanmar America’s duty to warn extended to Autrey as the owner of the tractor and that it was just as foreseeable that someone other than Autrey, in this case Randy, would use the tractor and likewise “be in need of a warning via Autrey”.

The Court next addressed whether Yanmar America breached its duty to warn. The Court noted that “liability can be imposed on one who voluntarily undertook the duty to act only where the actor ‘affirmatively either made, or caused to be made, a change in the conditions which change created or increased the risk of harm.” Because the warnings by Yanmar America never reached Randy, Yanmar America’s failure to include more information in the warnings did not increase any risk to Randy over that risk that already existed. The Court, in reversing the judgment of the trial court, held that because Randy failed to present substantial evidence that the risk to Randy was increased by any actions of Yanmar America, Yanmar America was entitled to judgment as a matter of law.