Opinion ID: 1844233
Heading Depth: 1
Heading Rank: 2

Heading: Trial Court's Consideration of Arbitrability and Unconscionability

Text: Mrs. Ashby argues that she is not required to arbitrate her dispute with American General Finance because, she argues, the arbitration clause in the loan agreement is unconscionable. The arbitration clause in the loan agreement states, in part: [b]orrower(s) and [American General Finance] agree that, except as otherwise set forth in this provision, all claims, disputes, or controversies of every kind and nature between Borrower(s) and Lender shall be resolved by arbitration; the agreement also states that [b]orrower(s) and Lender further agree that all issues and disputes as to the arbitrability of claims must also be resolved by the arbitrator. American General Finance argues that not only does the loan agreement require Mrs. Ashby to arbitrate her dispute, but it also requires that any issues concerning the arbitrability of the dispute and the unconscionability of the arbitration clause be resolved by an arbitrator. The per curiam opinion finds that the issues presented in this case are virtually identical to those presented in American General Finance, Inc. v. Branch, 793 So.2d 738 (Ala.2000). The arbitration clause at issue in Branch required the parties to submit to an arbitrator any dispute as to arbitrability. Branch argued that she could not be compelled to arbitrate her dispute because, she said, the arbitration clause was unconscionable. Chief Justice Hooper dissented in Branch because he believed the presence of the clause requiring that disputes about arbitrability be submitted to an arbitrator required the Court to treat the arbitrability question and the unconscionability question as distinct issues, and he believed the issue of arbitrability was to be submitted to the arbitrator. [15] 793 So.2d at 753-54. I also dissented in Branch. I believed that Branch had not demonstrated that she had no meaningful choice with respect to the arbitration provision. 793 So.2d at 754. In First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995), the Supreme Court of the United States held that the question, `who has the primary power to decide arbitrability' turns upon what the parties agreed about that matter (emphasis in original). If the parties agreed in the arbitration agreement that the arbitrator shall decide questions of arbitrability what is called a First Options clausethen with the exception of whether the parties actually agreed to a First Options clause, an arbitrator should decide all questions of procedural and substantive arbitrability. See Howsam v. Dean Witter Reynolds, Inc., supra. The Supreme Court has stated: [O]ne might call any potentially dispositive gateway question a `question of arbitrability'.... The Court's case law, however, makes clear that, for purposes of applying the interpretive rule [of what constitutes a threshold issue for judicial determination], the phrase `question of arbitrability' has a far more limited scope. The Court has found the phrase applicable in the kind of narrow circumstance where contracting parties would likely have expected a court to have decided the gateway matter, where they are not likely to have thought that they had agreed that an arbitrator would do so, and, consequently, where reference of the gateway dispute to the court avoids the risk of forcing parties to arbitrate a matter that they may well not have agreed to arbitrate. Howsam, 537 U.S. at 83-84, 123 S.Ct. at 592 (citation omitted). The Supreme Court of the United States also has held that even when an ambiguous contractual provision is susceptible of constructions that may cast doubt on the enforceability of the arbitration agreement itself, such a contractual ambiguity does not raise the type of `gateway' question of arbitrability ... appropriate for a court to answer ... in the first instance, but instead is the type of question to be decided by an arbitrator. PacifiCare Health Sys., Inc. v. Book, 538 U.S. 401, 407 n. 2, 123 S.Ct. 1531, 1536 n. 2, 155 L.Ed.2d 578 (2003)(holding that the question as to whether a remedial limitation clause in a contract prohibits an award of treble damages under the Racketeer Influenced and Corrupt Organizations Act is not a question of arbitrability for a court to decide, but is itself a question to be decided by the arbitrator). [16] If parties to a dispute have previously agreed to an arbitration agreement that itself contains a First Options clause and if one of the parties contests in court the arbitrability of the dispute, the only issue properly before the trial court is whether the parties unmistakably agreed to the First Options clause. See Ex parte Perry, 744 So.2d 859, 867 (Ala.1999). Of course, when the trial court considers whether parties have agreed to arbitrate the question of arbitrability, it should apply ordinary state-law principles that govern the formation of contracts. First Options, 514 U.S. at 944, 115 S.Ct. 1920. Generally, [c]ontract defenses that are... applicable under state law, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements.... Ex parte Perry, 744 So.2d at 869 (Lyons, J., dissenting). In the case of a First Options clause, however, the only relevant state-law issue is whether the parties objectively revealed an intent to submit the arbitrability issue to arbitration. First Options, 514 U.S. at 944, 115 S.Ct. 1920. Moreover, a court may not find a clause that requires an arbitrator to decide issues of arbitrability unconscionable on its face, because to do so would be invalidating an arbitration provision based on state law applicable only to arbitration provisions, in violation of the rule set out in Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996). A court holding that a First Options clause is unconscionable would be holding that an arbitration clause is unconscionable merely for requiring the parties to submit an aspect of their dispute to arbitration. [17] In this case, the trial court properly considered the fraud in the factum issues because those issues go to whether the Ashbys agreed to arbitrate their dispute with American General Finance and Merit Life. Because the arbitration agreement in this case contains a First Options clause, the trial court erred when it considered the question whether the arbitration clause in the loan agreement was unconscionable. Once the trial court considered two threshold issueswhether the arbitration agreement contained a First Options clause and whether the First Options clause was obtained by fraud or duressall other issues of arbitrability should have been decided by an arbitrator. The per curiam opinion accepts the language from Branch that states, `[w]here the attack is addressed to the arbitration clause itself, as opposed to the contract as a whole, the court, and not the arbitrator, resolves the issue.' 873 So.2d at 174 (quoting Branch, 793 So.2d at 748, quoting in turn Green Tree Fin. Corp. v. Wampler, 749 So.2d 409, 413 (Ala.1999)). The per curiam opinion fails properly to distinguish between Mrs. Ashby's argument that the Ashbys never agreed to arbitrate their dispute because they were not aware of the arbitration agreements (the fraud in the factum claim) and Mrs. Ashby's argument that the arbitration agreement included in the loan agreement is unconscionable. Moreover, Mrs. Ashby does not allege that the First Options clause itself is unconscionable. [18] Therefore I dissent from those portions of Part I and Part II of the Analysis section of the per curiam opinion that hold that it was proper for the trial court to consider the unconscionability issue.