Editorial

The Tennessee Supreme Court reversed a trial court’s ruling that an arbitration agreement between a purchaser and a manufactured homebuilder was unfair and unenforceable, so it permitted the purchaser to sue the manufactured homebuilder in court.

Richard Berent purchased a manufactured home from the manufacturer. In the purchase contract, Berent agreed that any disputes arising from that contract would go to arbitration. Resolving disputes in arbitration is an alternative to going to court; the arbiter’s decision is legally binding, and arbitration proceedings are intended to be more efficient and less expensive than filing a lawsuit in court.

Soon after the purchase, Berent noticed drainage issues, mold, and other problems in the home. He filed a lawsuit in Hamilton County Circuit Court against the homebuilder, alleging faulty installation of the home and seeking damages. The homebuilder asked the trial court to compel Berent to arbitrate the dispute, citing the parties’ agreement to resolve all disputes outside of court in arbitration.

In response, Berent argued that the arbitration agreement was invalid and unenforceable. He argued that the agreement was unfairly one-sided in favor of the homebuilder because it required both parties to arbitrate their disputes but permitted the homebuilder to file foreclosure proceedings in court. The trial court agreed with Berent and denied the motion to compel arbitration. The homebuilder appealed, and the Court of Appeals upheld the trial court’s decision.

The homebuilder was granted permission to appeal to the Supreme Court. On appeal, the homebuilder argued that the precedent upon which the lower courts relied was no longer good law. The Supreme Court clarified that those cases were still good law, and that arbitration agreements that are completely one-sided are not enforceable.

It held, however, that Berent’s agreement was not completely one-sided. The agreement applied equally to both parties, and the exception for foreclosures was a narrow and reasonable one. The Court noted that many courts have upheld arbitration agreements with a similar exception, because courts are best suited to handle foreclosures, and the rules governing state foreclosure proceedings protect both the buyer and the seller.

Thus, the Supreme Court upheld the arbitration agreement despite the carve-out for foreclosure proceedings because the exception was limited. The Court found there was a reasonable business justification for the exception, and the overall circumstances surrounding the contract were not overly one-sided or unfair. Therefore, it held that the agreement was enforceable. The Court returned the case to the trial court for further proceedings.

To read the Richard Berent v. CMH Homes, Inc. opinion, authored by Justice Holly Kirby, go to TNCourts.gov.