IN THE SUPREME COURT OF MISSISSIPPI

NO. 2002-IA-00963-SCT

NORWEST FINANCIAL MISSISSIPPI, INC., WELLS

FARGO FINANCIAL MISSISSIPPI, INC. AND

CENTURION LIFE INSURANCE COMPANY

v.

PAULA F. McDONALD, EULA LINDSEY, BARBARA

J. JONES, DARRYL MATTHEWS, AZALENE HARE

AND KEVIN JONES

DATE OF JUDGMENT: 06/03/2002

TRIAL JUDGE: HON. ROBERT G. EVANS

COURT FROM WHICH APPEALED: JASPER COUNTY CIRCUIT COURT

ATTORNEYS FOR APPELLANTS: FRED L. BANKS, JR.

LUTHER T. MUNFORD

REUBEN V. ANDERSON

REBECCA L. HAWKINS

JOE BASENBERG

LOUIS CLIFTON NORVELL

ATTORNEYS FOR APPELLEES: JOHN F. HAWKINS

RANCE N. ULMER

JAMES MICHAEL TERRELL

ROBERT GORDON METHVIN, JR.

NATURE OF THE CASE: CIVIL - CONTRACT

DISPOSITION: REVERSED AND REMANDED - 01/13/2005

MOTION FOR REHEARING FILED:

MANDATE ISSUED:

BEFORE COBB, P.J., CARLSON AND DICKINSON, JJ.

COBB, PRESIDING JUSTICE, FOR THE COURT:1 Lender Norwest Financial Mis sissippi, Inc. subsequently changed its name to Wells Fargo

Financial Mississippi, Inc. Centurion Life Insurance Co. provided credit insurance for the Norwest loans

and is a Wells Fargo affiliate.

2 One of the borrowers, Azalene Hare, did not sign an arbitration agreement and is not a party to

this interlocutory appeal.

2 ¶1. This is an interlocutory appea l filed by Norwest Financial Mississippi, Inc., Wells Fargo

Financial Mississippi, Inc. 1 and Centurion Life Insurance Co. (lenders) from an order of the

Circui t Court of Jasper County, Mississippi, denying the lenders’ motion to compel arbitration

in the lawsuit brought by Paula F. McDonald, Eula Lindsey, Barbara J. Jones, Darryl Matthews,

Azalene Hare and Kevin J ones (borrowers). Loans ranging from $100 to $1,657 were made

by Norwest to the borrowers between 1995 and 1999.

FACTS

¶2. Each of the borrowers obtained consumer loans from the lenders. According to the

borrowers, when potential borrowers approach these lenders for loan s, it is because, in all

likelihood, they are unable for credit reasons to obtain financing from a bank or credit union

with lower risk unde

rwriting guidelines. Some of the borrowers lived in rural areas and had only

a high school education, although none claimed to be unable to read and write. Five of the six

borrowers had signed arb itration agreements with the lenders. 2 When the borrowers asked about

the papers they were signing, they claim that the lenders simply stated that borrowers were only

signing to get their money. The borrowers claim that they were never told that they were giving

up their rights to a jury trial by signing the arbitration documen t s, although each borrower

signed a document that was the same or similar to the following:3 ARBITRATION AGREEMENT

This Arbitration Agreement (“Agreem ent”) is between NORWEST FINANCIAL

MISSISSIPP I, INC. (“Us” or “We” or “Our”), including our assignees, agents,

employees, officers, d irectors, shareholders, parent companies, subsidiaries,

affiliates, predecessors and successors, and the Borrower (“You” or “Your”).

The parties agree as follows:

(1) RIGHT TO ELECT TO ARBITRATE: Any party covered by this

A greement may elect to have any claim, dispute or controversy (“Claim”)

of any kind arising out of or relating to your Loan Agreement, or an y prior

or future dealings between us, res olved by binding arbitration. A Claim

may include, but shall not be limited to, the issue of whether any

particular claim must be submitted to arbitration, or the facts and

circumstances involved with your signing of this Agreement, or your

willingness to abi

de by the terms of this Agreement or the validity of this

Agreement. Any such election may be made at any time. Both parties

a gree that neither party has to initiate an arbitration proceeding before

exercising remedies of self-he lp repossession, non-judicial foreclosure,

replevin or other simil

a r remedies. The filing of a lawsuit or the pursuit

of other self-help remedies does not mean that eithe r party has waived the

right to subsequently elect to submit a Claim to arbitration.

(2) RULES: If arbitration is elected, it will be conducted pursuant to the

Commercial Arbitration Rules of the American Arbit r ation Association

(“Rules”). If you have any questions concerning the American Arbitration

Association, or if you w ish to obtain a copy of their Rules and forms, you

may call (800)778-7879. Any hearing will take place in the county of

your residence. The arbitrator shall be neutral and either party may

require that the arbitrator be a retired federal ju dge. The arbitrator shall

apply all applicab le law and shall provide a written decision that includes

findings of fac t and conclusion of law. Judgment upon the award issued

by the arbitrator may be entered in any court having jurisdiction.

(3) UNITED STATES ARBITRATION ACT: The parties agree the Loan

Agreement involves “commerce” as defined i n the United States

Arbitration Act (“USAA”), Titl e 9, United States Code, and this

Agreement shall be governed by the provisions of the USAA.4

(4) F EES AND COSTS: Any party who initiates the arbitration proceeding

will be responsibl

e for payment of the filing fee required under the Rules.

The arbitrator will then determine and state in hi s written decision who

must pay the remaining arbitration costs and/or how the costs will be

shared. Each party shall be responsible for their own attorney, witness,

and/or expert fees a nd costs unless the Loan Agreement provides

otherwise.

(5) LIMITATIONS OF RIGHTS: IF ARBITRATION IS ELECTED BY

EITHER PARTY UNDER THIS AGREEMENT (A) YOU WILL NOT

HAVE THE RIGHT TO GO TO COUR T OR TO HAVE A JURY

TRIAL; ( B) YOU WILL NOT HAVE THE RIGHT TO ENGAGE IN

PRE-ARBITRATION DISCOVERY EXCEPT AS PROVIDED IN THE

RULES; ( C) YOU WILL NOT HAVE THE RIGHT TO HAVE ANY

CLAIM ARBITRATED AS A CLASS ACTION UNDER THE RULES

OR UNDER ANY OTHER RUL E S OF CIVIL PROCEDURE; (D)

THE AR BITRATOR’S DECISION WILL BE FINAL AND BINDING

W ITH LIMITED RIGHTS TO APPEAL; (E) THIS AGREEMENT

SUPERSEDES ANY PRIOR ALTERNATIVE DISPUTE

RESOLUTION AND/OR ARBITRATION AGREEMENT THAT MAY

EXIST BETWEEN YOU AND US; (F) IF ANY PROVISION OF THIS

AGREEMENT IS H ELD TO BE INVALID, THE INVALID

PRO VISION SHALL NOT AFFECT THE ENFORCEMENT OF ANY

OTHER PROVISION OF THIS AGREEMENT.

READ THIS ARB ITRATION AGREEMENT CAREFULLY. IT LIMITS

CERTAIN RIGHTS , INCLUDING YOUR RIGHT TO PURSUE A CLAIM

IN COURT AND YOUR RIGHT TO HAVE A JURY TRIAL.

[Signature lines]

¶3. The borrowers sued the lenders based on the lenders’ sale of credit insurance, claiming

among other things that the insurance was u nnecessary, overpriced, and misrepresented. The

lenders filed a motion to compel arbitration for the fiv e borrowers who signed the arbitration

agreements, and by order dated June 6, 2002, the circuit court denied their motion, fin ding the

arbitration agreements unconscionable. The court also denied the lenders’ Motion for3 It is not clear from the record when this suit was filed.

4 One of the terms of the agreement was the requirement that Centurion pay all arbitration fees.

5 Borrower Matthews subsequent ly dismissed Norwest/Wells Fargo from the arbitration

proceeding, saying the arbitration claims against them were made by mistake (this motion was opposed by

the lenders).

6 Information regarding the arbitration was presented to this Court in their Motion to Take Judicial

Notice filed by the lenders on May 17, 2004. This motion contained as attachments: 1) Darryl Matthews’s

Demand and Statement of Claims to the American Arbitration Association (AAA) dated 3/9/04 against

Norwest, Wells Fargo and Centurion; 2) letter from AAA dated 3/15/04 requesting parties to clarify the

nature of their claims so that fees may be determined; 3) Notice of Partial Dismissal filed 3/16/04, whereby

5 Interlocutory Ap peal. Following the lenders’ petition to this Court, we issued a stay of the

circuit court proceedings and granted their petition for interlocutory appeal. See M.R.A.P. 5.

¶4. Centurion also filed suit in the federal district court of the Southern District of

Mississippi and moved to compel arbitration of the claims against it. 3 On June 9, 2003, the

federal district court, in accordance with an agreement between Centurion and the borrowers,

ordered the borrowers to submi t their claims against Centurion to arbitration pursuant to the

terms of the agreement. 4 The order also stayed the Jasper County circuit court proceedings

against Centurion until completion of the arbitration proceedings.

¶5. In J uly, 2004 this Court granted a Motion to Take Judicial Notice filed by

Norwest/Wells Fargo which showed that the five borrowers defending this appeal each had filed

arbitration cl

aims against the lenders in March, 2004, with the American Arbitration

Association (AAA). 5 These arbitration claims were filed subsequent to the order of the federal

district court, but the arbitration claims were filed not only against Centurion, but also against

Norwest and Wells Fargo. 6Matthews dismissed Norwest and Wells Fargo, 4) and letter from AAA dated 5/12/04 to parties stating

that the fee for Matthews would be $150.00 and the fee for the lenders would be a minimum of $625 (fee

was based on “actual damage s” being less than $10,000, but not affecting parties’ ability to file for

compensatory and/or punitive damages). Appellees objected to this motion solely because documentation

was submitted for only one of the borrowers. In response to the borrowers’ objection, the lenders

submitted documents for the other four borrowers which w ere the same except that only Matthews

dismissed Norwest and Wells Fargo from the arbitration proceedings. No other objections were raised.

6 ¶6. We now hold that the trial c ourt erred in denying the motion to compel arbitration, and

we reverse and remand this case for further proceedings consistent with this opinion.

ANALYSIS

¶7. On appeal from a decision refusing to compel arbitratio n, the appellate court reviews the

matter of unconscionability de novo because it presents questions of law. P arke rson v. Smith

,

817 So.2d 529, 532 (Miss . 2002) (plurality opinion). The Federal Arbitration Act provides that

arbitration agreements “shall be valid, irrevocable, and enforce able, save upon such grounds as

exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Thus, whether an

agreement to arbitrate may be held unenforceable because it is uncons cionable is determined

in reference to state law contract principles. D octor’s Assocs., Inc. v. Casarotto , 517 U.S. 681,

686-87, 116 S.Ct. 1652, 1656, 134 L.Ed.2d 902 (1 996). “The usual defenses to a contract such

as fraud, unconscionability, duress, and lack of consideration may be applied to i nvalidate an

arbitration agreement, so long as the law under which the provi s ion is invalidated is not

applic able only to arbitration provisions.” E ast Ford, Inc. v. Taylor

, 826 So.2d 709, 714

(Miss. 2002).7

¶8. The circuit court based its decisi on to deny the motion to compel arbitration on its

finding that the arbitration agreements were unconscio nable. The circuit court order read, in

pertinent part:

The Court finds that the P laintiff’s arguments regarding unconscionability

are well taken. The Court reaches the conclusion as to unconscionability based

on the concurring opinion in Parkerson v. Smith

, 2002 WL 358 678 (Miss.

2002), such concurring opinion being written by Justice Diaz and joined in by

J ustice McRae, Justice Easley, and Justice Graves. The Court further finds

per suasive Plaintiffs’ unconscionability argument regarding lack of meaningful

choice as set out in American General v. Branch , 793 So.2d 738 (Ala. 2000).

For these reasons, as well as others set out by Plaintiffs in their written

submissions an

d in open Court, Defendants’ Motion to Compel Arbitration is

denied.

¶9. Two Mississippi federal dist rict court cases which have upheld the use of the lenders’

arbitration clause are: W ells Fargo Financial Acceptance v. J ackson , No. 4:01-CV-260MA

(N.D. Miss. 2002) (Mills, J.) and Slade v. Wells Fargo Financial Acceptance

, No. 3:01-CV216WS (S.D. Miss. 2002) (Wingate, J.).

¶10. In Jackson

, the plaintiffs claimed that the arbitrat ion agreement was procedurally

unconscionable because they were unaware of the full meaning of the agreement, no one tried

to explain the meaning

of arbitration, and the contract was presented on a “take it or leave it”

basis. The court held that the plaintiffs offered no evidence of difficulty reading the arbitration

agreement, nor was there other evidence of a disparity in sophistication, nor were the plaintiffs

prevented from reading the agreement or rushed through it. The court then quoted the same

language from the ar

bitration agreement as quoted in the present opinion, supra, stating that

there was lack of ev

idence as to unconscionability. In S lade

, the district court determined that8

the motion to compel arb itration should be granted by conducting a two-step inquiry: (1)

whether the parties agreed to arbitrate the dispute in question and (2) whether the dispute in

question falls within the scope of the arbitration agreement. There was no discussion of

unconscionability of the agreement in this opinion, as the order mainly discussed whether the

claim fell within the scope of the arbitration clause. The court cited Harvey v. Joyce , 199 F.3d

790, 793 (5th Cir. 2000), in holding that doubts concerning the scope of arbitrable issues are

resolved in favor of arbitration, whether the problem at hand is the construction of the contract

language itsel

f or an allegation of waiver, delay, or some other defense to arbitrability. We

agree with the courts that the Norwest arbitration agreement is not unconscionable.

¶11. We addressed the inapplicability of Justice Diaz’s P arkerson concurring

opinion in

McKenzie Ch eck Advance of Mississippi, LLC v. Hardy , 866 So.2d 446, 454 (Miss. 2004).

As in Hardy

, not only are the borrowers in the case sub judice not required to pay the lenders’

attorney’s fees if they lose, the cost of initiating arbitration is much less than the minimum of

$500 as found in Parkerson, as will be discussed below. Additionally, the lenders do not have

the burden to prove lack of unconscionability, as argued in the P arkerson concurring opinion.

The party resisting arbitration must shoulder the burden of proving a defense to arbitration.

Green Tree Financial Corp.

- Alabama v. Randolph

, 531 U.S. 79, 92, 121 S.Ct. 513, 522,

148 L.Ed.2d 373 (2000).

¶12. The borrowers argue that the arbitration agreements are procedurally and sub stantively

unconscionable and unenforceable for the following reasons: they are adhesion contracts; the9

borrowers lacked a meaning ful choice because they could not obtain another consumer loan

without executing an arbitration agreement; and that the fees contained in the arbitration

provisions are unreasonable and speculative. The lenders claim that the borrowers have not met

their burden to show that the arbitration agreements are unconscionable.

¶13. This Court has explained the doctrine of unconscionability as follows:

Unconscionability has been defined as an absence of meani ngful choice

on the part of one of the partie s, together with contract terms which are

unreasonably favorable to the other party. . . .

In Terre Haute Cooperage v. Branscome , 203 Miss. 493, 35 So.2d 537

(1948), this Court defined an unconscionable contract as '... one such as no man

in his senses and n

ot under a delusion would make on the one hand, and as no

honest and fair man would accept on the other....' "

The indicators of procedural unconscionability genera lly fall into two

areas: (1) lack of knowledge, and (2) lack of voluntariness. A lack of knowledge

is demonstrated

by a lack of understanding of the contract terms arising from

inconspicuous print or the use of complex, legalistic language, disparity in

sophistication of parties, and lack of opportunity to study the contract and inquire

about contract terms. A lack of voluntariness is demonstrated in contracts of

adhesion when there is a great imbalance in the parties' relative bargaining power,

the stronger party's terms are unnegotiable, and the weaker party is prevented by

market fact

ors, timing or other pressures from being able to contract with

another party on more favorable terms or to refrain from contracting at all.

Entergy Miss., Inc. v. Burdette Gin Co., 726 So.2d 1202, 1207 (Miss. 1998)(internal citations

omitted).

A. Adhesion contract

¶14. The borrowers argue that they are unsophisticated consumers with limited means and

limited education. They claim that the use of complex, legal terms in the subject arbitration

agreements presented on a “take it or leave it” basis, combined with the borrowers’ lack of

ability to understand such terms, proved a la ck of knowledge, a lack of voluntariness, a lack of10

meaningful choice and a signific ant disparity in bargaining power of the two parties.

Additionally, they claim that because the arbitration agreement was a contract of adhesion, it

is unconscionable and unenforceable.

¶15. An arbitration agreement may not be labeled unconscionable simply beca use it carries

with it aspects of adhesion. E ast Ford, Inc. v. Taylor

, 826 So.2d at 716. Additionally, courts

have the ability to restrict enforcement of specific terms of a contract that are viewed as

unco nscionable. Courts will generally enforce an arbitration agreement in a contract of

adhesion unless the agreement is 1) not within the objectively reasonable expectations of the

parties, or 2) unconscionably unfair. R ussell v. Perf ormance Toyota, Inc. , 826 So.2d 719, 726

(Miss. 2002). However, consumers who sign contracts are charged with knowledge of the

documents they execute. Id. at 726.

¶16. As lenders point out, none of the borrowers ci te either a lack of a basic education or

inability to read, none of the borrowers are unemployed, and each borrower received and signed

multiple notices that all disputes would be subject to arbitrat ion. In addition to arbitration

notices in their finance contrac ts, each borrower signed a stand-alone, one-page arbitration

agreement printed in 12 point typeface. Four such one-page signed arbitration agreements are

included in the record. The fifth borrower does not dispute that he signed the arbitration clause,

but it is not included in the record.

¶17. The borrowers claim that the lenders did not explain what arbitration was and did not tell

the borrowers that

they were giving up their rights to a jury trial. In W ashington Mutual Fin.11

Group, LLC v . Bailey , 364 F.3d 260 (5 t h Cir. 2004), the court ruled that under Mississippi law,

the inability of borrowers to read did not render them incapable of po ssessing adequate

knowl edge of the arbitration agreement they signed. I d. at 264-65. The court also concluded

that the trial court erred by finding the agreement unconscion able under Mississippi law

becaus e the lenders failed to specifically inform the plaintiffs that they were signing an

arbitration agreement. In the present case, each borrower signed a single-page arbitration

agreement, written in plain language. None of the borrowers claimed to be unable to read.

There is no claim tha t the borrowers asked anyone to explain the process of arbitration or to

explain what arbitration meant; the borrowers simply sta te that no one informed them that they

were signing an arbi

tration agreement, or told them what an arbitration agreement was. Any

reasonable person reading this document prior to signing it would expect to be subject to

arbitration and would know that they were waiving their right to a jur y trial. There is also no

evidence that a reasonable person would not sign this document in return for a desired loan.

B. The borrowers’ lack of meaningful choice

¶18. Each borrower produced an affidavit stating that a search of the yello w pages in his or

her area convinced the m that they could not get a loan without signing an arbitration clause. One

of the borrowers stated tha t he had been turned down “in the past” by a bank and assumed he

could not get a bank loan. There was no mention of any steps besides these that borrowers

undertook in an

effort to get a loan without signing an arbitration agreement. There is no

evidence that an

y borrower even balked at the idea of signing the arbitration agreement. There

was no evidence

submitted that the borrowers could not get a competitive loan from another12

company or even that t

hey could not do without the loan. The borrowers have not met their

burden of showing that the arbitration clause was unconscionable in this regard.

C. Unreasonable and speculative fees

¶19. Because this question is arbitration-specific, it must be decided as a matter of federal

l aw. R ussell v. Performance Toyota, Inc.

, 826 So.2d at 722. The U.S. Supreme Court has held

that arbitration costs m

ight be so high as to preclude a litigant from seeking a remedy. G reen

Tree

, 531 U.S. at 79, 121 S.Ct. at 522. The lenders’ argument that because they have initiated

the arbitration the borrowers will not have to pay a fee, rings hollow. There is no evidence that

the lenders would have initiated this arbitration claim had the borrowers not first filed a suit in

circuit court. Had the borrowers taken their claims to the AAA rather than circuit court, the

borrowers would have been responsible for the arbitration fees according to the arbitration

agreements. Requiring borrowers to first file state court actions in order to have arbitration

fees paid by lenders thwarts the concept of lowering overall litigation costs that arbitration is

meant to foster.

¶20. The borrowers cite the Parkerson concurring opinion for the proposition that this Court

may invalidate an arbitration provision that requires plaintiffs to pay excessive arbitration fees.

817 So.2d at 535-37 (D iaz, J., concurring). In P arkerson

, Justice Diaz’s concurring opinion

stated that the contract was unconscionable be cause Parkerson could not afford to pay the high

costs of starting arbitration, which was a minimum f iling fee of $500 per Rule 51 of the

Commercial Rules of the AAA.7 Copies of these letters were presented to this Court by the lenders in their Motion to Take Judicial

Notice and in the lenders’ reply to the borrowers’ response in opposition to this motion. The borrowers

do not dispute that the $125 fee quoted by AAA is correct.

8 The letter contained a caveat that the fee is subject to change if the claim amount changes or

additional information is received regarding the nature of the claims. The amount quoted was based on a

letter from Matthews’s attorney stating that the compensatory claim amount was $1,100,000.

13 ¶21. In the present case, the five bo rrowers are each suing for $1,000,000 in compensatory

and $5,000,000 in punitive damages. The borrowers argue that the AAA’s Commercial

Arbitration Rules provide for a filing fee of $13,000 and a case service fee of $3,000 for all

claims over $10,000,000. However, in letters sent by AAA to each borrower, 7 the fee for

arbitration was quoted to be only $125 for the borrower and $625 for the lender, 8 b ased on an

“actual damage” amount of less than $10,00 0. The AAA letter to the borrowers provided the

following explanation for the lower fees:

The AAA applies the Supplem entary Procedures for Consumer-Related

Disp utes to arbitration clauses in agreements between individual consumers and

businesses where the business has a standardi zed, systematic application of

arbitration clauses with customers and where the terms and conditions of the

pu rchase of standardized, consumable goods or services are non-negotiable or

primar ily non-negotiable in most or all of its terms, conditions, features, or

choices. . . .

Pursu a nt to section C-8 of the Consumer Rules, the AAA assesses a filing fee

based on the actual damages portion of the claim. We do not consider

monetary amounts for punitive, exemplary or compensatory claims when

making thi s determination, and as a guideline we use the monetary amount

of the contract or transaction to set an upper limit on the claim amount for

administrative fee purposes only.

This is an administrative determ ination and does not impose any limits on

what a party may claim in the arbitration. Its sole purpose is to determine

an appropriate administrative fee for the size and complexity of the dispute

so that arbitration remains an affordable dispute reso lution option,

regardless of which party is responsible for paying these costs.14

(emphasis added).

¶22. A maximum $125 fee should not prevent anyone from pursuing a remedy via ar bitration.

Additionally, the totality of evidence presented on the issue of the borrowers not being able to

pay the costs of arbitration is an affidavi t from each of the borrowers stating the amount of

money they earned per month and a statement that they could not afford arbitration fees. We

conclude that the borrower s have not met the burden of showing that their arbitration fees are

unconscionable.

CONCLUSION

¶23. The tr

ial court erred in denying the motion to compel arbitration. All but one of the

borrowers have c ommenced arbitration proceedings against all lenders and do not dispute the

maximum fees to be paid by the borrowers as being $125. This fee does not prohibit the

borrowers from seeking a remedy through arbitration. Additionally, the borrowers have not met

the burden

of proving either procedural or substantive unconscionability in their contracts with

the lenders. We therefore reverse the trial court’s order denying the motion to compel

arbitration, and we remand this case to the circuit court with direct ions that it order that claims

b r ought in connection with the borrowers’ contracts with the lenders must be submitted to

arbitration according to the contracts.

¶24. REVERSED AND REMANDED.

SMITH, C.J., WALLER, P.J., CARLSON AND DICKINSON, JJ., CONCUR.

GRAVES, J., DISSENTS WITHOUT SEPARATE WRITTEN OPINION. DIAZ, EASLEY

AND RANDOLPH, JJ., NOT PARTICIPATING.