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In affirming a motion denying arbitration, a Louisiana appellate court held that an arbitration agreement referencing a nonexistent document and transaction is inapplicable to a transaction not referenced by the agreement.
In Easterling v. Royal Manufactured Housing, LLC, No. 07-136, 2007 WL 1611138 (La. Ct. App. June 6, 2007), the Easterlings purchased a manufactured home from Royal. After the Easterling family moved into the home, various defects emerged, such as water leaks and condensation on the interior walls. These defects caused toxic mold to grow. Consequently, the Easterlings filed suit against Royal.
Royal moved to compel arbitration. The Easterlings opposed the motion arguing that the arbitration clause was inapplicable because it referenced a nonexistent document and transaction. The trial court denied the motion and Royal appealed.
The Court held that the arbitration agreement was inapplicable because it referenced a nonexistent transaction. The arbitration agreement referred to a "Retail Installment Sales Contract." However, there was no "Retail Installment," as the Easterlings did not finance their home purchase through Royal. Moreover, the other agreements signed between the Easterlings and Royal were not signed "contemporaneously," as the arbitration agreement had mentioned.
The Court held that the trial court properly severed the arbitration agreement. The Court noted that the United States Supreme Court's holding in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), requires that an arbitrator, rather than a trial court, decide a challenge to a contract's validity. However, Buckeye's holding is not controlling because the Easterlings challenged the arbitration agreement itself, rather than the underlying contract.
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