Richard A. Berent v. CMH Homes, Inc.

IN THE SUPREME COURT OF TENNESSEE
AT KNOXVILLE
November 3, 2014 Session

RICHARD A. BERENT v. CMH HOMES, INC., ET AL.

Appeal from the Circuit Court for Hamilton County
No. 12C1524-II Ward Jeffrey Hollingsworth, Judge

No. E2013-01214-SC-R11-CV - Filed June 5, 2015

In this appeal, we are asked to overrule established precedent regarding the
circumstances under which an arbitration provision in a consumer adhesion contract is
rendered unconscionable and unenforceable based on non-mutual remedies, i.e., mandating
arbitration for the consumer but reserving a judicial forum for the merchant. This case
involves an adhesion contract for the sale of a manufactured home. The contract includes
an arbitration provision under which the sellers retain the right to seek relief in a judicial
forum for limited purposes. After the buyer took possession of the home, he filed a lawsuit
against the sellers for breach of contract, and the sellers filed a motion to compel arbitration.
The trial court denied the motion to compel. In reliance on this Court’s decision in Taylor
v. Butler, 142 S.W.3d 277 (Tenn. 2004), the trial court held that the non-mutuality of
remedies in the arbitration provision rendered it unconscionable and invalid. The Court of
Appeals affirmed, also relying on Taylor. We granted permission to appeal to address
whether the ruling in Taylor is preempted by the Federal Arbitration Act under the reasoning
in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), and to address whether
Taylor should be overruled or modified in light of the current majority view in other
jurisdictions on the validity of arbitration contracts that include non-mutual remedies. We
hold that Taylor did not adopt a per se rule that any degree of non-mutuality of remedies in
an arbitration provision in an adhesion contract renders the provision unconscionable and
unenforceable. Consequently, the ruling in Taylor is not preempted by federal law. In
addition, after reviewing the law in other jurisdictions, we decline to overrule or modify the
ruling in Taylor. Applying Taylor to the contract in this case, we conclude that the sellers’
retention of a judicial forum for limited purposes does not render the arbitration agreement
unconscionable. Accordingly, we reverse the decisions of the Court of Appeals and the trial
court and remand to the trial court for further proceedings.
 Tenn. R. App. P. 11 Appeal by Permission; Judgment of the Court of Appeals
Reversed and Case Remanded to the
Circuit Court for Hamilton County

H OLLY K IRBY, J., delivered the opinion of the Court, in which S HARON G. L EE C.J., and
C ORNELIA A. C LARK, G ARY R. W ADE, and J EFFREY S. B IVINS, JJ., joined.

William S. Rutchow and Jennifer S. Rusie, Nashville, Tennessee, for the appellants, CMH
Homes, Inc., and Vanderbilt Mortgage and Finance, Inc.

Andrew S. Basler, Chattanooga, Tennessee, the appellee, Richard A. Berent.

OPINION

F ACTS AND P ROCEEDINGS B ELOW

In December 2010, Plaintiff/Appellee Richard A. Berent bought a manufactured home
in Hamilton County, Tennessee, from Defendant/Appellant CMH Homes, Inc. The parties
executed a contract setting forth the terms of the sale and the parties’ obligations (hereinafter
“Installment Contract”). Mr. Berent financed the home through Appellant/Defendant
Vanderbilt Mortgage and Finance, Inc., a subsidiary of CMH Homes. After the sale, CMH
Homes assigned its rights under the Installment Contract to Vanderbilt Mortgage and
Finance. In this opinion, we refer to CMH Homes and Vanderbilt Mortgage and Finance
collectively as the “Sellers.”

After installation of the home, Mr. Berent found that it was not installed to his
satisfaction. According to Mr. Berent, the improper installation of the home resulted in
drainage issues, mold, and a host of other problems. Despite his complaint, the problems
were not remedied.

Frustrated, Mr. Berent decided to sue the Sellers. In December 2012, he filed a
complaint against the Sellers in the Circuit Court of Hamilton County, Tennessee, alleging
breach of contract, breach of express and implied warranties, fraud, and violation of the
Tennessee Consumer Protection Act (“TCPA”). Mr. Berent asserted in his complaint that
the Installment Contract on the sale of the manufactured home was void as unconscionable.

In response, the Sellers filed a motion to compel arbitration. The motion was based
on the arbitration provision (“Arbitration Agreement”) contained in the Installment Contract.
The Arbitration Agreement included the following two paragraphs:

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 A. Agreement to Arbitrate: Buyer and Seller (sometimes called the “Parties”)
agree to mandatory, binding arbitration (“Arbitration”) of all disputes, claims,
controversies, grievances, causes of action, including, but not limited to,
common law claims, contract and warranty claims, tort claims, statutory
claims, and, where applicable, administrative law claims, and any other matter
in question (“Claims”) arising from or relating to this Contract, any
products/goods, services, insurance, or real property (including improvements
to the real property) sold or financed under this Contract, any events leading
up to this Contract, the collection and servicing of this Contract, and the
interpretation, scope, validity or enforceability of this Contract (with the
exception of this agreement to arbitrate, the “Arbitration Agreement”). The
interpretation, scope, validity, or enforceability of this Arbitration Agreement
or any clause or provision herein and the arbitrability of any issue shall be
determined by a court of competent jurisdiction.

....

G. Exceptions: Notwithstanding any other provision of this Arbitration
Agreement, Buyer agrees that Seller may use judicial process (filing a lawsuit):
(a) to enforce the security interest granted in this Contract or any related
mortgage or deed of trust, and (b) to seek preliminary relief, such as a
restraining order or injunctive relief, in order to preserve the existence,
location, condition, or productive use of the Manufactured Home or other
Collateral. Buyer and Seller also agree that this Arbitration Agreement does
not apply to any Claim where the amount in controversy is less than the
jurisdictional limit of the small claims court in the jurisdiction where the Buyer
resides, provided, however, that the Parties agree that any such small claims
Claim may only be brought on an individual basis and not as a class action.
Bringing a court proceeding described in this paragraph G., however, shall not
be a waiver of Seller’s or Buyer’s right to compel Arbitration of any other
Claim that is covered by this Arbitration Agreement, including Buyer’s
counterclaim(s) in a suit brought by Seller.

(Underlining and emphasis in original). Thus, the parties agreed to submit to arbitration all
disputes “arising from or relating to” the Installment Contract, except that neither would be
required to arbitrate small claims. As a further exception, the Arbitration Agreement
permitted the Sellers to file a lawsuit in court “to enforce the security interest” or “to seek
preliminary relief” against Mr. Berent to preserve the manufactured home.

Mr. Berent argued against the motion to compel arbitration. He contended that the

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Arbitration Agreement is procedurally and substantively unconscionable and, therefore,
unenforceable. In support of his argument, Mr. Berent relied primarily on this Court’s
decision in Taylor v. Butler. Specifically, Mr. Berent cited the holding in Taylor that the
arbitration clause at issue in that case was “unconscionable and therefore void because it
reserves the right to a judicial forum for [the defendant] while requiring [the plaintiff] to
submit all claims to arbitration.” Taylor, 142 S.W.3d at 287.

The trial court was persuaded by Mr. Berent’s argument. It entered an order holding
that the Arbitration Agreement “is similar to the one struck down in Taylor and is therefore
to be considered unconscionable and unenforceable.” Accordingly, the trial court denied the
Sellers’ motion to compel arbitration. The Sellers appealed as of right. See Tenn. Code
Ann. § 29-5-319(a)(1) (2012).

The Court of Appeals affirmed the decision of the trial court. Berent v. CMH Homes,
Inc., No. E2013-01214-COA-R3-CV, 2014 WL 813874, at *6 (Tenn. Ct. App. Feb. 28,
2014). The intermediate appellate court noted that Taylor had twice been applied “to
invalidate an arbitration provision that had a similar one-sided effect of allowing one party
access to the judicial system and restricting the other party’s access.” Id. at *4 (citing Brown
v. Tenn. Title Loans, Inc., 216 S.W.3d 780, 786-87 (Tenn. Ct. App. 2006), and McGregor
v. Christian Care Ctr. of Springfield, L.L.C., No. M2009-01008-COA-R3-CV, 2010 WL
1730131, at *6-7 (Tenn. Ct. App. Apr. 29, 2010)). Finding that the Arbitration Agreement
signed by Mr. Berent had a “one-sided effect” that was “similar” to the agreements held
unconscionable in Brown and McGregor, the Court of Appeals concluded that Taylor
compelled a conclusion that the Arbitration Agreement is unconscionable. Berent, 2014 WL
813874, at *4.

In the Court of Appeals, the Sellers argued against the application of Taylor, claiming
that the rule established in that case is preempted by the Federal Arbitration Act (“FAA”),
relying primarily on the U.S. Supreme Court decision in AT&T Mobility LLC v.
Concepcion. The Court of Appeals rejected that contention, reasoning that “the FAA does
not preempt the application of a generally applicable state-law contract defense such as
unconscionability.” Berent, 2014 WL 813874, at *5.

The Sellers also argued that Taylor should be overturned as the law of the state
because the view espoused therein is no longer the majority view. Id. The Court of Appeals
declined to address this argument, commenting that it is not the prerogative of the
intermediate appellate court to rule on the “continued viability” of a Supreme Court decision.
Id. Therefore, the Court of Appeals affirmed the trial court’s ruling that the Arbitration
Agreement in this case is unconscionable and unenforceable. Id. at *6.

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 The Sellers sought permission to appeal to this Court to address the “viability” of our
decision in Taylor, in light of the U.S. Supreme Court’s decision in Concepcion and the
majority view in other jurisdictions on non-mutual remedies in arbitration agreements. We
granted permission to appeal to clarify Taylor and its application to the facts of this case.

A NALYSIS

In this appeal, the Sellers argue that this Court should reconsider, and ultimately
overrule, the decision in Taylor v. Butler, 142 S.W.3d 277 (Tenn. 2004). They characterize
Taylor as having created a per se rule that any degree of non-mutuality in the remedies
available to the parties in an arbitration agreement included in an adhesion contract renders
the arbitration agreement unconscionable and, therefore, unenforceable. The Sellers argue
that the per se rule adopted in Taylor runs afoul of the U.S. Supreme Court’s decision in
AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), which held that any state rule
that specifically disfavors arbitration agreements is preempted by the Federal Arbitration Act.
131 S. Ct. at 1746-48. Even if the ruling in Taylor is not preempted by federal law, the Sellers
argue, this Court should reconsider Taylor. They note that, since Taylor was decided, most
of the cases on which Taylor relied have been overruled or abrogated and that “the vast
majority of jurisdictions” now hold that non-mutuality of remedies, standing alone, does not
render an arbitration agreement unconscionable. In the alternative, should the Court not
choose to overrule Taylor, the Sellers argue, it should nevertheless reverse the trial court’s
decision and hold that the Arbitration Agreement at issue is enforceable.

In response, Mr. Berent argues that Taylor does not create a per se rule that any degree
of non-mutuality of remedies in an arbitration agreement renders it unconscionable. Mr.
Berent insists that, under Taylor, courts are to assess the fairness of arbitration agreements on
a case-by-case basis to determine validity based on any state common-law defense, such as
fraud, duress, or unconscionability, so Taylor need not be reconsidered. Applying Taylor
here, Mr. Berent urges this Court to hold that the Arbitration Agreement in the instant case
is unconscionable and unenforceable or to at least to remand the issue to the trial court for
further proceedings on the issue.

The issues in this case do not involve disputed facts. When the facts are not disputed,
we review the denial of a motion to compel arbitration de novo, with no presumption of
correctness in the trial court’s decision. See Owens v. Nat’l Health Corp., 263 S.W.3d 876,
882 (Tenn. 2007); McGregor, 2010 WL 1730131, at *3. The issue of whether an arbitration
clause is unconscionable under applicable contract principles is also a question of law, subject
to de novo review. See Owens, 263 S.W.3d at 882; Spann v. Am. Exp. Travel Related Servs.
Co., 224 S.W.3d 698, 707 (Tenn. Ct. App. 2006). Accordingly, our review of all of the issues
in this case is de novo, according no deference to the trial court’s decision.

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 Taylor v. Butler

We start with an overview of Taylor v. Butler. In Taylor, the plaintiff purchased a car
from the defendant car dealer. The parties signed a purchase contract that included an
arbitration provision. The arbitration provision stated that all disputes between the parties
arising from the sale of the car were to be settled by binding arbitration under the Federal
Arbitration Act. Taylor, 142 S.W.3d at 280. The provision carved out an exception for the
defendant car dealer, however, stating that the dealer could file a lawsuit in state court to
“pursue recovery of the vehicle under the Tennessee Uniform Commercial Code and
Collection of Debt due.” Id. at 284 (quoting the buyer’s order).

After signing the purchase contract with the arbitration provision, the plaintiff put a
down payment on the car and financed the remainder of the purchase price through the
defendant car dealer. The defendant delivered the car to the plaintiff purchaser and, according
to the plaintiff, told her that her request for long-term financing had been approved. A week
later, the defendant notified the plaintiff that, in fact, her request for long-term financing had
not been approved. The defendant dealer then rescinded the sale and repossessed the car,
along with the plaintiff’s personal items that were in the car. Despite the repossession of the
car, the defendant dealer retained the plaintiff’s down payment. Id. at 280-81.

The plaintiff purchaser in Taylor filed suit in chancery court against the defendant car
dealer. She alleged in her complaint that the defendant violated the TCPA and committed
fraud in the inducement of the purchase contract. The defendant filed a motion to dismiss the
lawsuit based on the arbitration provision in the purchase contract. The trial court granted the
motion to dismiss, and the plaintiff purchaser appealed. The Court of Appeals reversed. It
declined to compel the plaintiff to arbitrate a claim “pursuant to an arbitration provision that
was fraudulently induced.” Id. at 281. The defendant car dealer sought permission to appeal
to this Court, which was granted.

This Court affirmed the decision of the intermediate appellate court, albeit on a
different basis. It first held that, under the FAA, claims of fraudulent inducement are subject
to arbitration unless the fraudulent inducement claim goes directly to the arbitration provision
itself. Id. at 282 (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-
04 (1967)). It then went on to address the plaintiff’s other argument, that the arbitration
provision in the purchase contract was unenforceable as unconscionable.1 The plaintiff
contended that the arbitration provision was unconscionable because it provided for non-
mutual remedies to the contracting parties, that is, it permitted the defendant car dealer to file

1
The Court noted that the issue of whether a valid agreement to arbitrate exists should be decided
by the courts before submitting the remainder of the claim to arbitration. Taylor, 142 S.W.3d at 283-84.

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a lawsuit in state court for its claims, but it required the plaintiff to arbitrate all of her claims.
Id. at 283.

The Taylor Court noted that the “savings clause” in the FAA requires enforcement of
arbitration agreements save “upon such grounds as exist at law or in equity for the revocation
of any contract.” Id. at 284 (quoting 9 U.S.C. § 2). Thus, the FAA permits states to regulate,
and even invalidate, an arbitration agreement by application of general state-law contract
defenses such as fraud, duress, or unconscionability. Id. at 284 (quoting Doctor’s Assoc., Inc.
v. Casarotto, 517 U.S. 681, 687 (1996)). The Taylor Court then summarized the doctrine of
unconscionability:

If a contract or term thereof is unconscionable at the time the contract
is made, a court may refuse to enforce the contract, or may enforce the
remainder of the contract without the unconscionable term. See Restatement
(Second) of Contracts § 208 (1981). “The determination that a contract or term
is or is not unconscionable is made in the light of its setting, purpose and effect.
Relevant factors include weaknesses in the contracting process like those
involved in more specific rules as to contractual capacity, fraud, and other
invalidating causes. . . .” Restatement (Second) of Contract[s] § 208, cmt. a
(1981).

Enforcement of a contract is generally refused on grounds of
unconscionability where 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.” Haun v. King, 690
S.W.2d 869, 872 (Tenn. Ct. App. 1984) (quoting In re Friedman, 64 A.D.2d 70,
407 N.Y.S.2d 999 (1978)); see also Aquascene, Inc. v. Noritsu Am. Corp., 831
F. Supp. 602 (M.D. Tenn. 1993). An unconscionable contract is one in which
the provisions are so one-sided, in view of all the facts and circumstances, that
the contracting party is denied any opportunity for meaningful choice. Id.

Id. at 285.

In addressing the plaintiff’s argument, the Taylor Court noted that the issue
presented—framed as “whether an arbitration provision in a consumer contract which reserves
a right to access to the courts only for the merchant and not the consumer is voidable on the
basis of unconscionability”—was an issue of first impression in Tennessee. Id. For guidance,
then, the Court looked to cases from other jurisdictions that had addressed so-called “one-
sided arbitration provisions.” Id. at 285-86 (discussing Iwen v. U.S. W. Direct, 977 P.2d 989,

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996 (Mont. 1999); Arnold v. United Cos. Lending Corp., 511 S.E.2d 854, 862 (W. Va. 1998)).
It described the majority view as holding that an arbitration agreement in which the drafter
of the agreement reserves the right to a judicial forum but limits the consumer to arbitration
of his claims is “unconscionable and oppressive” because it is “one-sided and unreasonably
favorable to the drafter.” Id. at 285-86 (quoting Iwen, 977 P.2d at 996); see also
Showmethemoney Check Cashers, Inc. v. Williams, 27 S.W.3d 361, 366 (Ark. 2000);
Williams v. Aetna Fin. Co., 700 N.E.2d 859, 866-67 (Ohio 1998); Lytle v. CitiFinancial
Servs., Inc., 810 A.2d 643, 665 (Pa. Super. Ct. 2002)). The Court described the minority view
as “reach[ing] the opposite conclusion,” and found “the majority view to be more persuasive.”
Taylor, 142 S.W.3d at 286 n.4 (rejecting cases adopting the “minority” view, citing Stout v.
J.D. Byrider, 228 F.3d 709, 715-16 (6th Cir. 2000); Conseco Fin. Serv. Corp. v. Wilder, 47
S.W.3d 335, 342-43 (Ky. Ct. App. 2001)).

Turning to the agreement at issue, the Taylor Court observed that the buyer’s order, in
which the arbitration provision was included, was a contract of adhesion, in that it was “a
standardized contract form that was offered on essentially a ‘take it or leave it’ basis without
affording [the plaintiff] a realistic opportunity to bargain.” Id. at 286. It allowed that
contracts of adhesion are not per se invalid under Tennessee law, but cautioned that such a
contract may be unenforceable if it is “beyond the reasonable expectations of an ordinary
person, or oppressive or unconscionable.” Id. (citing Buraczynski v. Eyring, 919 S.W.2d 314,
320 (Tenn. 1996)). It emphasized: “Courts will not enforce adhesion contracts which are
oppressive to the weaker party or which serve to limit the obligations and liability of the
stronger party.” Id. The Court commented that the arbitration provision in the buyer’s order
permitted the defendant car dealer to sue the purchaser in court for any claim to recover the
vehicle or collect a debt, surmising that this would encompass virtually any claim the car
dealer might have against the purchaser. Id. In contrast, the plaintiff purchaser was left with
arbitration as the only available forum. Id. Considering all of these factors, the Court found
that the arbitration provision was “unreasonably favorable to [the car dealer] and oppressive
to [the plaintiff],” and so held it to be “invalid and unenforceable.” Id. at 286-87.

A dissenting opinion was filed in Taylor, asserting that “the mere fact that there are
different forums available to the parties in this case does not make the arbitration provision
unconscionable.” Taylor, 142 S.W.3d at 287 (Holder, J., dissenting). The dissent was of the
view that “an arbitration provision granting one party the option to litigate its claims while
binding the other party to arbitrate all of its claims is not unconscionable” because the “lack
of symmetry does not rise to the level of being shocking or unfairly oppressive.” Id. at 288
(Holder, J., dissenting).

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 Preemption

Initially, the Sellers characterize Taylor as having adopted a per se rule that any non-
mutuality of remedies in an arbitration agreement included in an adhesion contract renders the
agreement unenforceable. Based on this characterization, they argue that Taylor’s holding is
preempted by the FAA because it constitutes a state rule that disfavors arbitration agreements,
relying primarily on Concepcion. In response, Mr. Berent asserts that Taylor does not create
a per se rule against non-mutual remedies in arbitration agreements, so its holding is not
preempted by the FAA.

By way of background, we note that the doctrine of preemption is rooted in the
Supremacy Clause of the United States Constitution:

This Constitution, and the Laws of the United States which shall be made in
Pursuance thereof; and all Treaties made, or which shall be made, under the
Authority of the United States, shall be the supreme Law of the Land; and the
Judges in every State shall be bound thereby, any Thing in the Constitution or
Laws of any State to the Contrary notwithstanding.

U.S. Const. art. VI, cl. 2. “As ‘the supreme law of the land,’ federal law sometimes preempts,
or supplants, otherwise permissible state laws, rendering them inert and ineffectual. The
scope of this preemption is a federal question, and thus the boundaries of the preemption
doctrine are prescribed by United States Supreme Court precedent.” Morgan Keegan & Co.
v. Smythe, 401 S.W.3d 595, 605 (Tenn. 2013) (citing Leggett v. Duke Energy Corp., 308
S.W.3d 843, 852-54 (Tenn. 2010)).

Here, the Sellers argue that our ruling in Taylor is preempted by the FAA, because it
conflicts with the FAA’s policy favoring arbitration. The FAA does not expressly preempt
state law, nor does it “reflect a congressional intent to occupy the entire field of arbitration.”
Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 477 (1989).
Nevertheless, a state law may be “pre-empted to the extent that it actually conflicts with
federal law—that is, to the extent that it ‘stands as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress.’”2 Id. (quoting Hines v.

2
English courts traditionally disfavored arbitration agreements and refused to enforce them. Early
American courts adopted this hostility toward arbitration agreements, and the unwillingness to enforce
arbitration agreements became firmly embedded into our common law. Scherk v. Alberto-Culver Co., 417
U.S. 506, 510 n.4 (1974). “The courts . . . felt that the precedent was too strongly fixed to be overturned
without legislative enactment.” Southland Corp. v. Keating, 465 U.S. 1, 13 (1984) (quoting H.R. Rep. No.
96, 68th Cong., 1st Sess. 1-2 (1924)).

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Davidowitz, 312 U.S. 52, 67 (1941)). In Volt, the U.S. Supreme Court capsulized Congress’s
objective in enacting the FAA:

The FAA was designed “to overrule the judiciary’s long-standing refusal to
enforce agreements to arbitrate,” and to place such agreements “ ‘upon the
same footing as other contracts.’ ” While Congress was no doubt aware that the
Act would encourage the expeditious resolution of disputes, its passage “was
motivated, first and foremost, by a congressional desire to enforce agreements
into which parties had entered.” Accordingly, we have recognized that the
FAA does not require parties to arbitrate when they have not agreed to do so,
nor does it prevent parties who do agree to arbitrate from excluding certain
claims from the scope of their arbitration agreement. It simply requires courts
to enforce privately negotiated agreements to arbitrate, like other contracts, in
accordance with their terms.

Id. at 478 (citations omitted); see Prima Paint Corp., 388 U.S. at 405 n.12 (noting that the
FAA was designed “to make arbitration agreements as enforceable as other contracts, but not
more so”).
In Concepcion, the U.S. Supreme Court addressed whether the FAA preempted an
established California common-law rule that a class-action waiver in an arbitration agreement
is unconscionable and renders the arbitration agreement invalid.3 Concepcion, 131 S. Ct. at
1746 (citing the rule in Discover Bank v. Superior Court, 113 P.3d 1100, 1110 (Cal. 2004)).
Ultimately, it held that the California common-law rule was contrary to the purpose of the
FAA, because arbitration is not well-suited for class actions. Therefore, “[r]equiring the
availability of classwide arbitration interferes with the fundamental attributes of arbitration
and thus creates a scheme inconsistent with the FAA.” Id. at 1748. The Court explained that
“agreements to arbitrate [may] be invalidated by generally applicable contract defenses, such
as fraud, duress, or unconscionability, but not by defenses that apply only to arbitration or
that derive their meaning from the fact that an agreement to arbitrate is at issue.” Id. at 1746
(emphasis added; internal quotations omitted) (quoting Doctor’s Assocs., Inc. v. Lombardi,
517 U.S. 681, 687 (1996)). Thus, it held that the California rule that class-action waivers are
unconscionable was preempted by the FAA because the common-law rule stood “as an
obstacle to the accomplishment and execution of the full purposes and objectives of
Congress.” Id. at 1753 (quoting Hines, 312 U.S. at 67).

3
Under the so-called Discover Bank rule, class-action waivers in consumer arbitration agreements
were deemed unconscionable if (1) the waiver was contained in an adhesion contract, (2) disputes between
the parties would likely have involved small amounts of damages, and (3) the party with inferior bargaining
power alleged a deliberate scheme to defraud. Concepcion, 131 S. Ct. at 1746 (citing Discover Bank v.
Superior Court, 113 P.3d 1100, 1110 (Cal. 2004)).

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 Obviously, the facts in Concepcion involved only a common-law rule regarding the
conscionability of class-action waivers in arbitration agreements. Since Concepcion was
decided, however, a number of courts have considered whether, under the rule in Concepcion,
the FAA preempts a state common-law rule that non-mutuality of remedies in the arbitration
provision of an adhesion contract is per se unconscionable and renders the arbitration
provision unenforceable. Some have held that the FAA does not preempt such a state
common-law rule. See Noohi v. Toll Bros., Inc., 708 F.3d 599, 611-12 (4th Cir. 2013)
(interpreting Maryland law); Alltell Corp. v. Rosenow, No. CV-13-995, 2014 WL 4656609,
at *5-6 (Ark. Sept. 18, 2014). Others addressing the same issue have concluded that the FAA
does preempt a state common-law rule requiring strict mutuality in an arbitration agreement.
THI of N.M. at Hobbs Ctr., LLC v. Patton, 741 F.3d 1162, 1170 (10th Cir. 2014) (interpreting
New Mexico law); Torrence v. Nationwide Budget Fin., 753 S.E.2d 802, 812 (N.C. 2014);
see Mortensen v. Bresnan Commc’ns, LLC, 722 F.3d 1151, 1154 (9th Cir. 2013) (holding
“that the FAA preempts Montana’s reasonable expectations/fundamental rights rule” set forth
in Iwen, 977 P.2d at 995).

To determine whether the ruling in Taylor is preempted under the FAA, it is first
necessary for us to clarify whether Taylor adopted a strict, per se rule that any degree of non-
mutuality in the parties’ remedies in an arbitration agreement renders the agreement
unconscionable and unenforceable. Taylor did not include an express statement to that effect,
so we look to its overall analysis in making this determination.

On the question of unconscionability, Taylor framed the issue simply as “whether an
arbitration provision in a consumer contract which reserves a right to access to the court only
for the merchant” is unconscionable. Taylor, 142 S.W.3d at 285. It then discussed cases from
other jurisdictions that appeared to adhere to a more rigid per se rule that any degree of non-
mutuality of remedies in an arbitration agreement is unconscionable. Taylor, 142 S.W.3d at
285-86 (discussing Arnold, 511 S.E.2d at 861-62, and Iwen, 977 P.2d at 996). The majority
also cited cases reaching “the opposite conclusion” and described them as representing the
“minority of courts.” Taylor, 142 S.W.3d at 286 n.4 (citing Stout, 228 F.3d at 715-16, and
Wilder, 47 S.W.3d at 342-43). The majority in Taylor commented, “We find the majority
view to be more persuasive.” Taylor, 142 S.W.3d at 286 n.4. The Sellers apparently rely on
this part of the opinion in Taylor to characterize it as adopting a per se rule that any degree
of non-mutuality of remedies will render an arbitration provision unconscionable.

We note, however, that Taylor did not discuss whether the same result would be
reached for an arbitration agreement containing any degree of non-mutuality of remedies.
Under Tennessee law, the question of whether a given contract is unconscionable depends on
“all the facts and circumstances of a particular case.” Owens, 263 S.W.3d at 889. Taylor
emphasized that principle, stating that a contract will be deemed unconscionable if “the

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provisions are so one-sided, in view of all the facts and circumstances, that the contracting
party is denied any opportunity for meaningful choice.” Taylor, 142 S.W.3d at 285 (emphasis
added). The Court observed that the arbitration provision was in an adhesion contract, where
the consumer was given only the choice to “take it or leave it.” Taylor stressed how
completely one-sided the arbitration provision was. It noted that, although the consumer was
required to arbitrate any claim she might have against the merchant, the merchant retained the
right to file an action in court for “practically all claims that it could have” against the
consumer. Id. at 286. The Court added: “Indeed, it is hard to imagine what other claims [the
merchant] would have against [the consumer,] other than” the claims for which the merchant
retained a judicial forum. Id. To be sure, Taylor underscored the importance of mutuality of
remedies in evaluating whether a consumer adhesion contract is unconscionable. In analyzing
the issue, however, it clearly took into account the particulars of the contract at issue, such as
the degree of non-mutuality and the kinds of claims for which the merchant retained a judicial
forum.

Tennessee courts that have applied Taylor have not applied it as adopting a per se rule.
In two cases addressing the same issue, the appellate courts followed the legal framework of
Taylor and applied it to the specific arbitration agreements presented. In Brown v. Tennessee
Title Loans, Inc., the Court of Appeals held that an arbitration provision in the plaintiffs’ loan
documents was unconscionable because the lender (the drafter) reserved its right to a judicial
forum for all intents and purposes but limited the plaintiffs solely to arbitration. Brown, 216
S.W.3d at 786. Similarly, in McGregor v. Christian Care Center of Springfield, L.L.C., the
appellate court held that an arbitration provision in a nursing home agreement was
unconscionable when it required the resident to submit all claims to arbitration but reserved
a judicial forum for its claim for damages against the resident. McGregor, 2010 WL 1730131,
at *6. Both courts noted the similarities between the arbitration provisions at issue and the
one in Taylor. Neither applied a per se rule invalidating an arbitration agreement that
contained any degree of non-mutuality of remedies. In fact, in Brown, the Court of Appeals
relied in part on a case decided in Wisconsin in which the Court stated that “a one-sided
arbitration provision may not be unconscionable under the facts of all cases.” Brown, 216
S.W.3d at 787 (quoting Wisconsin Auto Title Loans, Inc. v. Jones, 714 N.W.2d 155, 173
(Wisc. 2006)).

Taylor has been applied as well in other contract cases, outside the realm of arbitration
agreements, in which unconscionability or a contract of adhesion was at issue, and none
characterized Taylor as having adopted a per se rule. See, e.g, Trigg v. Little Six Corp., No.
E2013-01929-COA-R9-CV, 2014 WL 3734577, at *5, 10 (Tenn. Ct. App. July 28, 2014);
Vintage Health Res., Inc. v. Guiangan, 309 S.W.3d 448, 461-62 (Tenn. Ct. App. 2009);
Reagan v. Kindred Healthcare Operating, Inc., No. M2006-02191-COA-R3-CV, 2007 WL
4523092, at *11-12 (Tenn. Ct. App. Dec. 20, 2007); Robert J. Denley Co., Inc. v. Neal Smith

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Constr. Co., No. W2006-00629-COA-R3-CV, 2007 WL 1153121, at *7 (Tenn. Ct. App. Apr.
19, 2007).

We concede that the Court’s opinion in Taylor is not a model of clarity. The framing
of the issue, coupled with excerpts from the analysis taken out of context, could be construed
as endorsing a per se rule that an arbitration agreement in a consumer adhesion contract that
reserves a judicial forum to the merchant for any purpose will be deemed unconscionable.
Viewing the Taylor analysis in its entirety, however, yields a different conclusion. The
analysis included a thorough review of Tennessee contract law and a detailed discussion of
the particulars of the arbitration provision at issue. It is clear that Taylor applied the doctrine
of unconscionability in a nuanced manner, weighing the degree of one-sidedness in the
arbitration provision as an important factor, but not the only factor, and viewing the arbitration
provision in the context of the overall contract and the surrounding circumstances. As stated
by one commentator in an early discussion of unconscionability: “It is not possible to define
unconscionability. It is not a concept, but a determination to be made in light of a variety of
factors not unifiable into a formula.” James J. White & Robert S. Summers, Uniform
Commercial Code § 4-3 (2d ed.), quoted in Baptist Mem’l Hosp. v. Argo Constr. Corp., 308
S.W.3d 337, 346 n.5 (Tenn. Ct. App. 2009). Thus, Taylor’s application of the doctrine of
unconscionability to this Arbitration Agreement is consistent with the application of the
doctrine to any contract.

We are mindful that lack of mutuality of remedies in a contract is a type of “one-
sidedness” that is likely peculiar to arbitration agreements. We must take care to consider the
admonition in Concepcion that, under the doctrine of preemption, state courts cannot adopt
“defenses that apply only to arbitration or that derive their meaning from the fact that an
agreement to arbitrate is at issue.” Concepcion, 131 S. Ct. at 1746. At the same time,
Concepcion makes it clear that state courts may apply standard common-law defenses to
arbitration agreements, including unconscionability. Id. Unconscionability in any type of
agreement normally includes consideration of how “one-sided” the contract is. See, e.g.,
Vintage, 309 S.W.3d at 461-62 (considering the one-sidedness of an employment contract,
citing Taylor); Baines v. Baines, No. E2009-00180-COA-R3-CV, 2009 WL 3806131, at *6-7
(Tenn. Ct. App. Nov. 13, 2009) (analyzing an agreement to provide marital support, citing
Taylor). Consequently, a determination of unconscionability in the context of an arbitration
agreement will likely include consideration of the remedies available to each party to the
agreement. Nevertheless, the fact that Taylor makes mutuality of remedies an important
consideration in determining unconscionability does not overly burden arbitration agreements,
so long as all of the circumstances of the particular agreement are taken into account.

Thus, the FAA permits courts to invalidate an arbitration agreement for reasons such
as unconscionability so long as they “place arbitration agreements on an equal footing with

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other contracts.” Concepcion, 131 S. Ct. at 1745. Taylor does just that. Cf. Noohi, 708 F.3d
at 612-13 (upholding Maryland’s law as not preempted because it does not bar categories of
arbitration claims and it treats arbitration agreements like any other contract); Alltel Corp.,
2014 WL 4656609, at *5 (“[W]ere we not to consider mutuality or other elements of a
contract when examining the validity of an arbitration agreement, . . . we would be treating
arbitration agreements differently from other contracts.”). Accordingly, we hold that the
ruling in Taylor is not preempted by the FAA.

Public Policy

We next address Sellers’ argument that we should overrule Taylor based on public
policy considerations. The Sellers maintain that Taylor created a per se rule that is now
followed in only a minority of jurisdictions, and note that some of the cases cited with
approval in Taylor have now been overruled or abrogated. In essence, the Sellers contend that,
in the development of the common law on arbitration agreements, Tennessee has been left
behind, because a majority of jurisdictions that have addressed the issue since Taylor was
decided in 2004 have held that lack of mutuality in the remedies available to parties to an
arbitration agreement does not render the arbitration provision unconscionable.

We have already addressed the premise of the Sellers’ argument by clarifying that
Taylor did not, in fact, adopt a per se rule that any degree of non-mutuality of remedies in an
arbitration provision in a consumer adhesion contract renders the arbitration provision
unconscionable and unenforceable. However, we go on to consider the Sellers’ other
arguments.

First, we acknowledge that some of the cases cited favorably in Taylor have been
abrogated by subsequently decided cases in their respective jurisdictions. For example, in
Dan Ryan Builders, Inc. v. Nelson, West Virginia’s highest court abrogated the holding in
Arnold v. United Companies Lending Corp. to the extent that it created a per se rule against
non-mutuality in arbitration agreements, suggesting that such a rule might be preempted by
the FAA.4 Dan Ryan Builders, Inc. v. Nelson, 737 S.E.2d 550, 560 (W. Va. 2012) (abrogating
Arnold, 511 S.E.2d at 857-58); see also Miller v. Equifirst Corp. of W. Va., No. 2:00-0335,
2006 WL 2571634, at *11 (S.D. W. Va. Sept. 5, 2006) (distinguishing Arnold). Similarly, the
Supreme Court of Pennsylvania abrogated the holding in Lytle v. CitiFinancial Services, Inc.
that non-mutuality in arbitration agreements was presumptively unconscionable, because that

4
The reasoning in Arnold was specifically quoted and relied upon as support for our decision in
Taylor. See Taylor, 142 S.W.3d at 285.

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rule “swept too broadly.”5 Salley v. Option One Mortg. Corp., 925 A.2d 115, 129 (Pa. 2007)
(abrogating Lytle, 810 A.2d at 665). In addition, the Ninth Circuit called into question the
validity of Iwen, holding that Montana’s “reasonable expectations/fundamental rights rule”
was likely preempted by the FAA under the rule in Concepcion because it “disproportionally
affect[ed] arbitration agreements.”6 Mortensen, 722 F.3d at 1161 (questioning the validity of
Iwen, 977 P.2d at 995). Notably, however, these cases cited in Taylor were not overruled;
they were either limited on their facts or called into question based on the concern that a per
se rule would be preempted by the FAA. Moreover, as we have clarified above, the analysis
employed in Taylor is not inconsistent with the modified rule adopted in the jurisdictions that
abrogated cases cited favorably in Taylor. Therefore, we do not consider the legal foundation
of Taylor to have been completely undermined.

We next consider the Sellers’ argument that Taylor is now out of step with the
approach utilized in the majority of jurisdictions. From our examination of cases from other
jurisdictions, there appears to be little uniformity among courts regarding their policies on the
enforceability of an arbitration provision containing non-mutual remedies, specifically in the
context of an adhesion contract.7 This is likely because states have differing views about
unconscionability as the doctrine is applied to arbitration agreements and because the cases
involve a wide variety of arbitration agreements. Thus, any attempt to synthesize the cases
neatly into a “majority” and a “minority” view must necessarily founder. Nevertheless, some
general observations can be made.

Some courts have determined that complete mutuality in an arbitration agreement is
not required so long as the agreement is supported by adequate consideration. See Harris v.
Green Tree Fin. Corp., 183 F.3d 173, 180-81 (3d Cir. 1999) (interpreting Pennsylvania law);
Barker v. Golf U.S.A., Inc., 154 F.3d 788, 792 (8th Cir.1998) (interpreting Oklahoma law);
Doctor’s Assocs., Inc. v. Distajo, 66 F.3d 438, 453 (2d Cir. 1995) (interpreting Connecticut
law); Coup v. Scottsdale Plaza Resort, LLC, 823 F. Supp. 2d 931, 952 (D. Ariz. 2011); Pate
v. Melvin Williams Manufactured Homes, Inc. (In re Pate), 198 B.R. 841, 844-45 (S.D. Ga.
1996); Willis Flooring, Inc. v. Howard S. Lease Constr. Co. & Assocs., 656 P.2d 1184, 1185
(Alaska 1983); Rains v. Found. Health Sys. Life & Health, 23 P.3d 1249, 1255 (Colo. App.

5
Lytle was cited with approval in Taylor. Taylor, 142 S.W.3d at 286.
6
Iwen was quoted with approval in Taylor. Taylor, 142 S.W.3d at 285-86.
7
Some jurisdictions have inconsistent rules among their own courts. Compare Armendariz v. Found.
Health Psychare Servs., Inc., 6 P.3d 669, 771 (Cal. 2000) (holding that an arbitration agreement must have
“a modicum of bilaterality” in order to be conscionable), with Gray v. Conseco, Inc., No. SA CV 00-
322DOC(EEX), 2000 WL 1480273, at *4-5 (C.D. Cal. 2000) (disagreeing with Armendariz “in so far as it
held that its rule did not single out and impose a special burden on arbitration agreements”).

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2001); Schreier v. Solomon, No. 277687, 2008 WL 4330192, at *3-4 (Mich. Ct. App. Sept.
23, 2008); State ex rel Vincent v. Schneider, 194 S.W.3d 853, 859 (Mo. 2006); Sablosky v.
Edward S. Gordon Co., 535 N.E.2d 643, 646 (N.Y. Ct. App. 1989); see also In re FirstMerit
Bank, N.A., 52 S.W.3d 749, 757 (Tex. 2001) (noting that “[m]ost federal courts . . . have
rejected” claims of unconscionability because “an arbitration clause does not require mutuality
of obligation, so long as the underlying contract is supported by adequate consideration”).
These courts appear less concerned with whether the arbitration provision is contained in an
adhesion contract. If there is consideration to support the entire contract, they reason, the
arbitration provision is not invalid simply because the choice of forum is not identical for the
parties. But see Gibson v. Neighborhood Health Clinics, Inc., 121 F.3d 1126, 1131 (7th
Cir.1997) (interpreting Indiana law and finding lack of consideration when the employee, but
not the employer, was required to submit any claims to arbitration); Vassilkovska v.
Woodfield Nissan, Inc., 830 N.E.2d 619, 625 (Ill. App. Ct. 2005) (holding that, because there
was no mutual promise to arbitrate, there was no consideration for the arbitration agreement).

Other courts have upheld arbitration agreements containing non-mutual remedies
because they do not deem lack of symmetry in choice of forum to be unconscionable. See,
e.g., Blue Cross Blue Shield of Ala. v. Rigas, 923 So. 2d 1077, 1087 (Ala. 2005) (citing Green
Tree Fin. Corp. of Ala. v. Wampler, 749 So. 2d 409, 416 (Ala. 1999)); Lackey v. Green Tree
Fin. Corp., 498 S.E.2d 898, 902-03 (S.C. Ct. App. 1998). These courts reason that a contrary
rule would impose a special burden on agreements to arbitrate and, therefore, would conflict
with the federal policy favoring arbitration.

Still other courts address the issue of whether an arbitration agreement is
unconscionable based on a flexible, case-by-case approach, “taking into consideration all of
the facts and circumstances of a particular case.” Dan Ryan Builders, Inc., 737 S.E.2d at 558;
Brewer v. Mo. Title Loans, 364 S.W.3d 486, 495-96 (Mo. 2012); Vincent v. Neyer, 745
N.E.2d 1127, 1133 (Ohio Ct. App. 2000) (declining to extend Williams v. Aetna Fin. Co., 700
N.E.2d 859 (Ohio 1998)8 ); Motsinger v. Lithia Rose-FT, Inc., 156 P.3d 156, 163 (Or. Ct. App.
2007); Salley, 925 A.2d at 123-24; Jones, 714 N.W.2d at 173; see also Hagy v. Demers &
Adams, LLC, No. 2:11-cv-530, 2012 WL 359577, at *8 (S.D. Ohio Feb. 2, 2012) (indicating
that lack of mutuality does not necessarily indicate substantive unconscionability, but “[t]hat
does not mean, of course, that an arbitration clause can never be so lacking in fairness, due
to blatant one-sidedness, that it can escape being deemed unconscionable”). These courts
consider factors such as the respective positions of the parties, whether the contract itself is
procedurally unconscionable (e.g., contract of adhesion), whether there is a business
justification for the one-sidedness, and the like.

8
Williams leaned toward a per se unconscionability rule, and it was cited with approval in Taylor.
Taylor, 142 S.W.3d at 286.

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 Lastly, a few jurisdictions adhere to what amounts to a per se rule, that any degree of
non-mutuality of remedy included in an arbitration provision in an adhesion contract renders
the arbitration provision unconscionable and unenforceable.9 See, e.g., The Money Place,
LLC v. Barnes, 78 S.W.3d 714, 716-17 (Ark. 2002); Armendariz v. Found. Health Psychcare
Servs., Inc., 6 P.3d 669, 691-92 (Cal. 2000); Iwen, 977 P.2d at 995-96.10 Courts adhering to
this view generally emphasize the fact that, in a contract of adhesion, the weaker party is
powerless to bargain on his own behalf, and it is unfair for the stronger party to reserve for
itself a judicial forum for most—or all—of its claims while requiring the weaker to waive any
right to a judicial forum.

Having held that Taylor does not, in fact, establish a per se rule against any degree of
non-mutuality in arbitration agreements included in adhesion contracts, we respectfully
disagree with the Sellers’ argument that Tennessee’s approach is inconsistent with the
majority of other jurisdictions. Clearly, the Taylor Court stressed the importance of mutuality
of remedies in determining whether an arbitration agreement in an adhesion contract is
unconscionable. We recognize that not all courts in other jurisdictions agree. Indeed, some
courts have aligned with the view expressed in the dissenting opinion in Taylor. Many courts,
however, employ an approach not unlike the analysis in Taylor. The Taylor decision relied
on longstanding principles of contract law, specifically the doctrine of unconscionability as
applied to contracts of adhesion, to hold that the arbitration provision at issue in that case was
“unreasonably favorable to [the defendant merchant] and oppressive to [the plaintiff
consumer].” Taylor, 142 S.W.3d at 287. Thus, we do not deem it necessary or prudent to
overrule or modify our ruling in Taylor at this time.

Application of Taylor to Arbitration Agreement

With the ruling in Taylor intact, we now apply it to review the trial court’s decision.

9
Although Arkansas has consistently required mutuality in arbitration agreements, at least two
unpublished cases from Arkansas federal courts have held that non-mutual arbitration agreements are
enforceable if supported by adequate consideration, reasoning that a contrary rule would conflict with the
purposes of the FAA. See Se. Stud & Components, Inc. v. Am. Eagle Design Build Studios, LLC, 588 F.3d
963, 966-67 (8th Cir. 2009) (recognizing Enderlin v. XM Satellite Radio Holdings, Inc., No. 4:06-CV-0032,
2008 WL 830262 (E.D. Ark. Mar. 25, 2008), and Scherrey v. A.G. Edwards & Sons, Inc., No. 02-2286, 2003
U.S. Dist. LEXIS 11010, at *10 (W.D. Ark. Apr. 15, 2003)).
10
As we have noted, the Ninth Circuit has held that the “reasonable expectations/fundamental rights
rule” of Montana is preempted by the FAA under the reasoning in Concepcion. Mortensen, 722 F.3d at
1154. The Supreme Court of Montana, however, has not addressed the continued validity of Iwen since
Mortensen.

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 To briefly recap, the arbitration provision at issue in Taylor was contained in a contract
of adhesion between a car dealer and a purchaser. It required the plaintiff purchaser to
arbitrate all disputes, but reserved for the defendant car dealer the right to seek redress in a
judicial forum for practically all claims it might have against the purchaser. Id. at 284.
Considering the fact that the arbitration provision was included in a contract of adhesion, and
that the terms overall were “unreasonably favorable to [the car dealer] and oppressive to [the
purchaser],” Taylor held that it was unconscionable, and therefore invalid. Id. at 286-87.

In the instant case, the Arbitration Agreement was part of the Installment Contract for
sale of the manufactured home to Mr. Berent. Like the buyer’s order in Taylor, the
Installment Contract can fairly be characterized as a contract of adhesion; it was presented to
Mr. Berent on a “take it or leave it” basis, without giving Mr. Berent any realistic bargaining
power.
While that fact is significant, it is not dispositive. As recognized in Taylor, contracts
of adhesion are not per se unenforceable in Tennessee. Rather, the enforceability of a contract
of adhesion “depends upon whether the terms of the contract are beyond the reasonable
expectations of an ordinary person, or oppressive or unconscionable.” Id. at 286. The terms
of the contract in Taylor differ significantly from the terms of the Arbitration Agreement at
issue in this case. In Taylor, the arbitration provision was completely one-sided, and the
opinion contains no indication that the defendant car dealer offered any justification for the
imbalance. In contrast, in this case, the Arbitration Agreement requires both parties to submit
their disputes (except for small claims) to arbitration.11 As an exception to this general rule,
the Sellers are permitted to seek relief in a judicial forum “to enforce their security interest”
in the manufactured home or “to seek preliminary relief.” While the exact meaning of these
terms is subject to some interpretation, the provisions appear to state generally that the Sellers
can file an action in court to foreclose on the property, but any deficiency against Mr. Berent
must be sought through arbitration.12

The Sellers point out that both Mr. Berent and the Sellers have the option of seeking
injunctive relief in court pursuant to the Consumer Rules of the American Arbitration
Association (“AAA Rules”), so long as that relief is in support of arbitration. See AAA Rules

11
Mr. Berent does not argue that the “small claims” exception renders the arbitration provision
unconscionable.
12
At oral argument, counsel for the Sellers conceded that, under the terms of the Arbitration
Agreement, any claim by the Sellers for a deficiency judgment against Mr. Berent must be filed in an
arbitration proceeding.

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R-37(d).13 They claim that this provides some balance to any one-sidedness in the Arbitration
Agreement. But the Sellers also point out that the AAA Rules do not give the arbitrator the
authority to grant certain types of relief to protect their security interest, so the availability of
a judicial forum for foreclosures would protect both parties. See, e.g., Torrance v. Aames
Funding Corp., 242 F. Supp. 2d 862, 872 (D. Or. 2002); Walther v. Sovereign Bank, 872 A.2d
735, 749 (Md. 2005). Thus, they argue that the exception for judicial foreclosure proceedings
is necessary to protect their security interest in the manufactured home. Preservation of the
Sellers’ security interest while the parties arbitrate their monetary disputes, the Sellers claim,
provides a business justification for the limited exception for foreclosure proceedings.

In other jurisdictions, this type of “carve-out” has generally been upheld as reasonable
and not unfair to the consumer. See Erving v. Va. Squires Basketball Club, 468 F.2d 1064,
1067 (2d Cir. 1972) (“[T]he only way to preserve the status quo during the pendency of the
arbitration is by the granting of injunctive relief.”); Lawrence v. Comprehensive Bus. Servs.
Co., 833 F.2d 1159, 1163 (5th Cir. 1987) (citing Erving and indicating that an arbitration
clause that allowed one party to seek judicial injunction is not unconscionable); Torrance, 242
F. Supp. 2d at 872 (indicating that foreclosure claims permitted under an arbitration
agreement are not unreasonable or oppressive because foreclosures “are heavily regulated by
statute,” which promotes efficiency and “effective protections for both sides”); Walther, 872
A.2d at 749 (stating that “foreclosure proceedings . . . do not act solely to protect the interests
of the mortgage lender against a defaulting debtor but instead provide protections for both

13
AAA Rule R-37(d) was submitted after oral argument in the Sellers’ filing of supplemental
authority. That rule provides:

R-37. Interim Measures (a preliminary decision made by the arbitrator involving part or all
of the issue(s) in dispute in the arbitration)

(a) The arbitrator may grant whatever interim measures he or she decides are necessary,
including granting an injunction and ordering that property be protected.

(b) Such interim measures may take the form of an interim award, and the arbitrator may
require a security payment for the costs of such measures.

(c) When making a decision on an interim measure, the arbitratory may grant any remedy,
relief, or outcome that the parties could have received in court.

(d) A party to an arbitration agreement under these [AAA] Rules may instead file in state
or federal court for interim relief. Applying to the court for this type of relief, including
temporary restraining orders, is consistent with the agreement to arbitrate and will not be
considered a waiver of the right to arbitrate.

AAA Rule R-37 (emphasis added).

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sides”); Mansfield v. Vanderbilt Mortg. and Fin., Inc., 29 F. Supp. 3d 645, 656 (E.D.N.C.
2014) (noting that an exception for foreclosure proceedings is common and that arbitration
is an impracticable forum for foreclosure proceedings); Lackey, 498 S.E.2d at 905
(recognizing that judicial foreclosure “provide[s] specific procedures for protection of
collateral and the parties during the pendency of the proceedings” for both parties); State ex
rel. Ocwen Loan Serv’g, LLC v. Webster, 752 S.E.2d 372, 396 (W. Va. 2013) (“foreclosure
exception” in an arbitration agreement is “not only common” but is “quite necessary in order
to effectuate foreclosure and a retaking of the subject property by lawful processes, where
needed, without breach of the peace”) (quoting Miller, 2006 WL 2571634, at *11)). One
court has commented that such a carve-out is “hardly surprising in that the foreclosure of
mortgages is a uniquely judicial process.” Delta Funding Corp. v. Harris, 912 A.2d 104, 115
(N.J. 2006).

We recognize that a provision that permits the Sellers to seek foreclosure in court
might result in parallel proceedings, in court and in arbitration. Such a “split-forum” effect
results from the fact that any claim brought by the consumer in arbitration might track
defenses asserted by the consumer in foreclosure proceedings. While not optimal, this
“split-forum effect can be viewed as an acceptable corollary to the general policy favoring
arbitration of claims.” Salley, 925 A.2d at 128. On similar facts, one court explained:

As [the defendant] argues, there is a facially apparent business
justification for such an exception, as the safeguards thereby preserved assure
regularity and consistency for the benefit of both lender and borrower, and
accordingly, there are sound pragmatic and policy reasons why foreclosure
proceedings should be pursued in a court of law. While there is no question
that the reservation facilitates the split-forum effect . . . , again, the federal and
state consumer protection laws invoked by [the plaintiff] mitigate this burden
for meritorious claims properly brought under their provisions. . . . As such, the
split-forum effect can be viewed as an acceptable corollary to the general policy
favoring arbitration of claims.

Id. (citations omitted; footnote omitted); see also Dean Witter Reynolds, Inc. v. Byrd, 470
U.S. 213, 221 (1985) (indicating that, when some claims are arbitrable and others are not,
“piecemeal” litigation in different fora is acceptable when necessary to enforce the parties’
agreement to arbitrate).

Viewing the Arbitration Agreement in the context of the overall circumstances, we
must conclude that it is not unconscionable. While the Arbitration Agreement is contained
in an adhesion contract and has some degree of non-mutuality in the parties’ choice of forum,
it is not nearly as “one-sided” as the arbitration agreement in Taylor. Moreover, the Sellers

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articulate a reasonable business justification for the carve-out for foreclosure proceedings on
the manufactured home. Under these circumstances, the Arbitration Agreement is not
unreasonably favorable to the Sellers or “beyond the reasonable expectations of an ordinary
person, or oppressive or unconscionable.” Taylor, 142 S.W.3d at 286. Accordingly, we
reverse the holding of both the trial court and the Court of Appeals that the Arbitration
Agreement is unconscionable and unenforceable.

Mr. Berent argues that, in the event that this Court finds that the Arbitration Agreement
is not unconscionable under Taylor, his “allegation of fraud calls into question whether there
is adequate consideration to support even a conscionable agreement.” In essence, he asks us
to remand the case to the trial court with instructions to address his allegations of fraud in the
formation of the agreement to arbitrate. In response, the Sellers argue that Mr. Berent had the
opportunity to submit evidence on fraud in the trial court but failed to do so. Consequently,
the Sellers ask this Court to reverse and remand with instructions for the trial court to compel
arbitration.

It is difficult to discern from this record whether, or to what extent, Mr. Berent had an
opportunity in the trial court to argue or prove fraud in the formation of the agreement to
arbitrate. Regardless, the trial court did not address Mr. Berent’s allegations of fraud because
it relied solely on Taylor in denying the Sellers’ motion to compel arbitration. Moreover, any
issue regarding fraud in the formation of the agreement to arbitrate is outside the scope of our
grant of permission for this appeal. Therefore, we will leave it for the trial court on remand
to determine whether or to what extent further proceedings should be conducted to address
Mr. Berent’s claims of fraud.

C ONCLUSION

The decision of the trial court is reversed, and the case is remanded to the trial court
for further proceedings consistent with this opinion. Costs on appeal are taxed to Appellee
Richard Berent, for which execution may issue if necessary.

_________________________________
HOLLY KIRBY, JUSTICE

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