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In construing Buckeye Check Cashing, Inc. v. Cardegna, 126 S. Ct. 1204 (2006), the Tennessee Court of Appeals held that the court, not an arbitrator, must decide mental capacity in determining the existence of an arbitration agreement.
In Rhymer v. 21st Mortg. Corp., No. E2006-00742-COA-R3CV, 2006 WL 3731937 (Tenn. Ct. App. Dec. 19, 2006), Trivett bought a mobile home from 21st Mortgage. When Trivett's legal custodian, Rhymer, sued 21st Mortgage on his behalf, 21st Mortgage moved to compel arbitration pursuant to an arbitration clause in the sales contract. In opposing the motion, Rhymer argued that Trivett was incompetent to enter into the arbitration agreement by virtue of his mental incapacity. The trial court granted the motion to compel arbitration.
On appeal, the Court held that the trial court should have decided Trivett's mental capacity before ordering arbitration because, as the Court noted, section 4 of the Federal Arbitration Act ("FAA") requires "judicial resolution of issues that go to the 'making' of an arbitration agreement." Under Buckeye, a claim of fraudulent inducement is subject to arbitration, but the Court reasoned that there is a distinction between challenges to the validity of a contract based on a party's conduct (e.g., fraudulent inducement) and challenges based on a party's status (e.g., mental incapacity). Based on that reasoning and Tennessee case law holding that a contract with an incompetent person is void, the Court remanded the case to the trial court for a ruling on Trivett's competency.
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