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Thompson v. Lithia ND Acquisition Corp. #1

Supreme Court of North Dakota

June 7, 2017

Lynne Thompson, Plaintiff and Appellant
Lithia ND Acquisition Corp. #1 d/b/a Lithia Ford Lincoln Mercury of Grand Forks, Defendant and Appellee

         Appeal from the District Court of Grand Forks County, Northeast Central Judicial District, the Honorable Jon J. Jensen, Judge.

          David C. Thompson (argued), Grand Forks, ND, and DeWayne A. Johnston (on brief), Grand Forks, ND, for plaintiff and appellant.

          Ryan C. McCamy (argued), Fargo, ND, and Thaddeus E. Swanson (on brief), Fargo, ND, for defendant and appellee.


          VandeWalle, Chief Justice.

         [¶ 1] Lynne Thompson appealed from a district court order compelling arbitration, a judgment confirming the arbitration award, and an order denying her motion to vacate the judgment or for a new trial. We affirm, concluding the district court did not err in compelling arbitration or confirming the arbitrator's award.


         [¶ 2] In April 2014, Thompson sued Lithia ND Acquisition Corp. #1, seeking to rescind a contract to purchase a vehicle and for damages for unjust enrichment and unlawful sales practices. Lithia moved to dismiss Thompson's complaint and to compel arbitration, arguing there was an enforceable agreement to arbitrate. Thompson responded to the motion, arguing the arbitration agreement was unenforceable and unconscionable and claiming she was entitled to a jury trial on the issue of the enforceability.

         [¶ 3] On June 10, 2014, after a hearing on the motion, the district court entered an order staying the action and compelling arbitration. The court ruled Thompson failed to provide sufficient evidence entitling her to a jury trial on the issue of whether the arbitration agreement was enforceable. Thompson moved for reconsideration of the order compelling arbitration. The district court denied Thompson's motion and confirmed the order staying the action and compelling arbitration. The court also ordered arbitration be completed by January 6, 2015.

         [¶ 4] In a letter dated January 16, 2015, the district court requested the parties update it on the status of the case and stated it was aware the parties were having difficulty finding an arbitrator. In a letter dated February 18, 2015, Lithia advised the court that the parties attempted to settle the matter but the attempt had stalled and it would be "initiating the matter with a suitable arbitrator pursuant to the contracts."

         [¶ 5] In an order dated February 15, 2015, the district court ordered the parties to appear on April 2, 2015, and show cause why the proceedings should not be dismissed. Thompson filed a "pre-hearing response" to the order to show cause, arguing the proceedings should not be dismissed and Lithia should be required to provide the funds to locate and retain an arbitrator who is a retired judge and is certified by the American Arbitration Association ("AAA"). In a March 17, 2015 letter, Lithia informed the court it had filed a demand for arbitration with the AAA on March 6, the file was "under review" with AAA, and it would be willing to conduct the arbitration with one of three named local arbitrators.

         [¶ 6] On March 19, 2015, the district court entered an order cancelling the hearing on the order to show cause and extending the deadline. The court stated Thompson had the burden to pay the costs of the arbitration, the AAA rules do not require the use of an "AAA-certified" arbitrator if the parties' agreement names an arbitrator or specifies a method of appointing an arbitrator, the agreement states the arbitrator shall be a retired judge, and an AAA-certified arbitrator was not required. The court ordered the parties to select a retired judge as the arbitrator or Thompson to select one of three named arbitrators if the parties could not agree, or Wickham Corwin would be appointed if an arbitrator was not selected by April 15, 2015.

         [¶ 7] The parties completed arbitration with Corwin as the arbitrator, and the arbitrator's final decision and award was filed in the district court on August 3, 2015. The arbitrator decided Thompson failed to establish she was entitled to relief, there was no legal basis to award Thompson damages, and Thompson stopped payment on the $6, 000 check she provided for payment on the vehicle. The arbitrator awarded Lithia $6, 000 in damages.

         [¶ 8] On October 28, 2015, Thompson moved to vacate the arbitration award. Thompson argued the district court failed to comply with AAA procedural rules by mandating Corwin serve as the arbitrator, the arbitrator was not impartial, and the evidence supported her claims. Lithia opposed the motion to vacate, arguing the arbitrator was properly appointed and impartial. On March 3, 2016, the district court denied the motion to vacate and ordered entry of judgment. The court ruled the March 19, 2015 order, which led to Corwin serving as arbitrator, did not unlawfully preempt the AAA rules and Thompson consented to the selection of the arbitrator by failing to object until the arbitrator's decision was issued, and the arbitrator was neutral and the decision was not irrational. The court also ordered neither party would recover their costs and attorneys fees. On June 14, 2016, a judgment for $6, 266.05 was entered in favor of Lithia.

         [¶ 9] On August 10, 2016, Thompson moved for a new trial under N.D.R.Civ.P. 59 and relief from judgment under N.D.R.Civ.P. 60(b), arguing the judgment should be vacated because federal arbitration law was not applied, the selection of the arbitrator was contrary to AAA rules, and the court did not have jurisdiction to confirm the arbitration award because Lithia did not move to confirm the award within the one-year statute of limitations. The district court denied Thompson's motion.


         [¶ 10] Thompson argues the district court misapplied the law by failing to apply the Federal Arbitration Act ("FAA") to these proceedings. Citing DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463 (2015), Thompson claims state arbitration law does not apply, except state law related to her unconscionability arguments.

         [¶ 11] The FAA is codified at 9 U.S.C. §§ 1 to 16 and governs the enforcement of arbitration agreements in contracts involving interstate commerce. 26th St. Hosp., LLP v. Real Builders, Inc., 2016 ND 95, ¶ 14, 879 N.W.2d 437. The basic purpose of the FAA is "to overcome courts' refusals to enforce agreements to arbitrate." Allied-Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265, 270 (1995). This Court has held state law is preempted by the FAA insofar as it conflicts with the FAA by impeding the accomplishment and execution of the full purposes and objectives of the FAA. Superpumper, Inc. v. Nerland Oil, Inc., 1998 ND 144, ¶ 15, 582 N.W.2d 647; see also Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 477 (1989) (stating state law is preempted "to the extent that it actually conflicts with federal lawthat is, to the extent that it 'stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'"). However, "a state is not obligated to altogether ignore its own procedural requirements in light of the procedural aspects of the FAA, provided the state-enacted procedure does not defeat the rights granted by Congress." Superpumper, at ¶ 16.

         [¶ 12] In DIRECTV, 136 S.Ct. at 468-69, the Supreme Court held the FAA allows parties to an arbitration agreement to choose what law governs some or all of the agreement's provisions, but the law must be consistent with the FAA. The contract at issue stated the entire arbitration agreement was unenforceable if the "law of your state" made class-arbitration waivers unenforceable. Id. at 466. State law made class-arbitration waivers unenforceable when the parties entered into the contract containing the arbitration agreement, but the Court later ruled that state law was preempted and invalidated by the FAA. Id. at 466. The lower court held the parties to the contract were free to select state law as it would have been without federal preemption, the parties selected state law making the class arbitration waiver unenforceable, and therefore the arbitration provision was unenforceable. Id. at 467. The Supreme Court recognized the parties likely believed when they drafted the contract that the words "law of your state" included state law that made class-arbitration waivers unenforceable, but that law was ruled invalid under the FAA. Id. at 468-69. The Court held the arbitration agreement was enforceable and the lower court's interpretation was preempted by the FAA because the interpretation did not place arbitration contracts "on equal footing with all other contracts" and did not give due regard to the federal policy favoring arbitration. Id. at 471.

         [¶ 13] Thompson appears to argue DIRECTV holds the FAA preempts all state arbitration law; however, she interprets the DIRECTV holding too broadly. The Supreme Court explained its decision "falls well within the confines of (and goes no further than) present well-established law." DIRECTV, 136 S.Ct. at 471; see also Kindred Nursing Ctrs. Ltd. P'ship v. Clark, No. 16-32, 2017 ...

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