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Arbitration: Fifth Circuit Refuses to Extend Non-signatory Law to Unsigned Arbitration Clause (Web)

In Southern Energy, Inc. v. Godwin, 2006 WL 1582646 (5th Cir.(Miss), May 31 2006) (available at, the Fifth Circuit Court of Appeals affirmed the denial of summary judgment on a motion to compel arbitration and remanded the case where the arbitration clause appeared in the warranty section of a Homeowner’s Manual, reasoning that no valid arbitration agreement was signed by the parties and that equitable estoppel could not initially be raised on appeal. 

In 1997, the Godwins purchased a mobile home from Rose Mobile Homes, a Southern Energy dealer in Mississsippi. Southern Energy manufactured the home in Alabama. The Godwins lived in the home, which was installed in Mississippi.

After the purchase of the home, the Godwins discovered in the home a “Home Owner’s Manual” informing customers of an express limited warranty. There was no signature line in the Manual and no signature card to be returned.

The Manual’s Table of Contents did not suggest an arbitration provision. Rather, within the warranty section, several paragraphs provided remedies for problems concerning the homes.
Pursuant to the Manual, if problems are not satisfactorily remedied, customers are “entitled” to settle their disputes through binding arbitration in accordance with the Commercial Rules of Arbitration of the American Arbitration Association.

In 1998 and 1999, warranty work was twice performed on the Godwins’ home. Following this, the Godwins requested repair work four more times.  According to Southern Energy’s records, there was no warranty for the repair work completed after the last four requests were made.

In October 2002, the Godwins filed an action against Southern Energy in Mississippi state court, arguing among other things, that Southern Energy had breached its express warranty. The following year, Southern Energy responded to the action by moving to compel arbitration in federal district court. It moved for summary judgment, relying on an affidavit detailing the Godwins’ requests and that work was performed twice under the warranty.

The Godwins opposed summary judgment by providing Willard Godwin’s affidavit which stated among other things that

-“he never signed a written contract or agreement with Southern Energy;
-he never orally agreed to arbitrate any disputes that might arise;
-prior to purchase, he never saw, read or was informed of the Manual or its provisions;
-after purchase, he read only portions of the Manual; and
-when he had repair work performed, he was never informed that having work done under the warranty subjected him to binding arbitration.”

The District Court for the Southern District of Mississippi denied Southern Energy’s summary judgment motion to compel arbitration, holding that the Godwins did not agree to arbitration and their ability to provide an affidavit showing that they did not consent to arbitration distinguished their case from situations where homeowners had no evidence of such lack of consent.

Southern Energy appealed the district court’s ruling, contending only that the Godwins were required to arbitrate under a valid arbitration agreement. Southern Energy admitted, however, at oral argument that its only basis for relief was equitable estoppel.

“The doctrine of equitable estoppel precludes a party from claiming the benefits of a contract while simultaneously attempting to avoid the burdens that contract imposes as well.”  Wash. Mut. Fin. Group, L. L. C. v.Bailey, 364 F. 3d 260, 267 (5th Cir. 2004) (wife claiming under contract signed by husband held bound by arbitration clause).

In agreement with several other circuits, the Fifth Circuit noted that equitable estoppel may be used to compel non-signatories to arbitrate when they are claiming benefits under the contract. “Equitable estoppel permits a non-signatory to be bound to a contract from which a non-signatory has benefitted.”
The Fifth Circuit did not, however, extend this concept to any situation, in which, just as in the case at issue, there was no signatory at all to the arbitration clause.

Moreover, Southern Energy failed to adequately claim equitable estoppel in the district court and summary judgment issues not raised in district court will not be considered on appeal. In addition, Southern Energy’s claim for equitable estoppel was barely mentioned in its brief on appeal.

Based on the above-mentioned reasoning, the Fifth Circuit Court of Appeals affirmed the district court’s ruling regarding the denial of summary judgment and remanded the matter for further proceedings.

- Zoltan Elek, CPR Intern