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TD Auto Finance v. Reynolds

TD Auto Finance v. Reynolds

Case No. 
Type of Proceeding: 
Appeal from Circuit Court of Mercer County (Judge Wills)

Does a merger clause in a purchase agreement override arbitration language contained in a separate, previously signed credit application?


Respondents were shopping for a truck.  On November 14, 2014, they signed a credit application with the dealership, Crossroads Chevrolet, authorizing them to conduct a credit check.  The authorization contained an arbitration clause.  Thereafter, Respondents entered into a purchase agreement with the dealership.  The purchase agreement contained a merger clause reading as follows:

HOW THIS CONTRACT CAN BE CHANGED.  This contract contains the entire agreement between you and us relating to this contract.  Any change to this contract must be in writing and we must sign it.  No oral changes are binding.

The purchase agreement itself did not contain any arbitration language.  Once the purchase agreement was completed, the dealership assigned all of its rights to Petitioner, TD Auto Finance.  When Respondents fell behind in their payments, Petitioner repossessed the truck and began dunning Respondents through telephone calls and letters seeking additional fees and costs.  Respondents sued, alleging violations of West Virginia’s consumer laws and other common-law and statutory claims.  Citing the arbitration language in the credit application, Petitioner moved to compel arbitration.  The trial court denied Petitioner’s motion, finding that the merger clause in the purchase agreement prevented the court from enforcing the arbitration language.  Petitioner appeals.

Positions of the Parties: 

Petitioner (TD Auto Finance):

Petitioner argues that the credit agreement application and the purchase agreement must be read together.  Petitioner cites language in the arbitration agreement stating that the parties agree to arbitrate any dispute “which arises out of…any installment sale contract.”  The merger clause in the purchase agreement does not invalidate the earlier agreement by the parties to arbitrate any disputes.  Because the arbitration agreement is a collateral agreement, distinct from the purchase agreement and not inconsistent with it, the two agreements are treated as one and, therefore, both are enforceable.

Respondents (Reynolds):

Respondents make several arguments.  First, they argue that Petitioner was not a signatory to the credit application and, therefore, lacks standing to seek enforcement of the arbitration provisions within it.  Second, Respondents argue that the legal effect of the merger clause in the purchase agreement is to “entirely supplant the credit application.”  Third, Respondents argue that Petitioner’s collection efforts do not come within the scope of the arbitration agreement--i.e., an agreement that was limited to a determination of Respondent’s creditworthiness.

Probable Impact: 

Arbitration  remains one of today’s hot button issues.  One of the few ways to successfully attack an arbitration agreement is on the basis of formation--i.e., as a matter of state law, was there an enforceable arbitration agreement between the parties?  The question of whether a merger clause supplants an earlier agreement to arbitrate is one that can arise in many different consumer settings.  How the Supreme Court answers this question will certainly have an impact on consumer protection for West Virginians for years to come.

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