Opinion ID: 75874
Heading Depth: 2
Heading Rank: 3

Heading: The Enforceability of the Arbitration Agreement

Text: 21 Finally, Colburn contends that the arbitration agreement is unconscionable under Alabama law and is void on its face because it is not dated. Because these contentions place in issue the enforceability of the arbitration agreement itself, they are to be decided by the court rather than by the arbitrator. See Prima Paint, 388 U.S. at 404, 87 S.Ct. at 1806 (holding that court should consider issues relating to making and performance of agreement to arbitrate).
22 The FAA allows state law to invalidate an arbitration agreement, provided the law at issue governs contracts generally and not arbitration agreements specifically. See Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 686-87, 116 S.Ct. 1652, 1656, 134 L.Ed.2d 902 (1996) (stating that generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements). Under Alabama law, unconscionability is an affirmative defense to the enforcement of a contract, and the party asserting that defense bears the burden of proving it by substantial evidence. See Green Tree Fin. Corp. v. Wampler, 749 So.2d 409, 415, 417 (Ala.1999); see also Johnnie's Homes, Inc. v. Holt, 790 So.2d 956, 964 (Ala.2001). Because Alabama law allows unconscionability to invalidate contracts generally, this defense, consistent with the FAA, may also invalidate the arbitration agreement in this case if Colburn proves unconscionability by substantial evidence. 23 Colburn contends that he has met this burden, relying on American Gen. Fin., Inc. v. Branch, 793 So.2d 738 (Ala. 2000), where the Alabama Supreme Court held that an arbitration clause in a loan agreement was unconscionable. Articulating the two essential elements of unconscionability as (1) terms that are grossly favorable to a party that has (2) overwhelming bargaining power, id. at 748, the court identified four indicia of unconscionability in the arbitration clause at issue. First, the arbitration clause — which applied to every dispute relating to every actual or potential transaction, as well as to every person involved in those transactions — was unusually broad in scope and application. Id. Second, the clause vested in the arbitrator the power to decide, in the first instance, whether an issue or dispute was arbitrable. Id. at 749. Third, the arbitration clause lacked mutuality of remedy, requiring the borrower to arbitrate while expressly reserving for the lender the right to a trial by jury. This lack of mutuality was compounded by the limitation on the award recoverable in arbitration, which could not exceed five times the amount of economic loss to the aggrieved party. Id. Thus, unlike the lender, the borrower was confined both in the right to a forum and in the right to the full panoply of relief available in state courts under Alabama law. Id. These three indicia led the court to conclude that the arbitration clause was grossly favorable to the lender. Id. at 750. 24 The fourth indicia of unconscionability — the borrower's inability to obtain the loan without considerable expense of time and resources — went to the lender's overwhelming bargaining power. The court noted that, at the time the borrower obtained her loans, the market was virtually closed to consumers seeking comparable financing without agreeing to arbitration provisions. Id. at 750. Specifically, the record contained evidence that, at the time of the first loan, only two companies in the borrower's geographic area did not require arbitration agreements. By the time of the last loan, the number of companies not requiring arbitration agreements had fallen to one. Id. at 751. This evidence demonstrated that the borrower would have been forced to expend considerable time and resources to obtain the loans without agreeing to arbitrate, and this fact established overwhelming bargaining power. Id. 25 In the same decision, however, the court rejected the same unconscionability argument, raised by a second borrower, as to the same arbitration clause because that borrower did not demonstrate overwhelming bargaining power. At the time the second borrower obtained her loans, the finance companies requiring arbitration agreements in her geographic area were a distinct minority. Moreover, the second borrower testified that she obtained at least two other loans without signing an arbitration agreement, that she did not shop around from other lenders when seeking the loans at issue, that she did not ask any questions about the arbitration clause, and that she did not read the loan agreement. Id. at 751-52. For these reasons, the court held that the second borrower could not demonstrate that she had no meaningful choice but to arbitrate. Id. at 752. 26 We find Branch distinguishable from this case. Although we agree with Colburn that the arbitration agreement here, like that in Branch, is unusually broad, that is the only meaningful similarity between the two cases. Unlike Branch, the arbitration agreement in this case does not give the arbitrator the authority to decide issues of arbitrability, nor does it limit Colburn's right to relief. As pointed out by PayDay and the other defendants, nothing in the agreement prevents the arbitrator from awarding the full panoply of relief available under Alabama law. And while the agreement requires only Colburn to arbitrate his disputes, without mentioning PayDay's rights or obligations in this regard, this lack of mutuality does not, in and of itself, render the arbitration agreement unconscionable. See Wampler, 749 So.2d at 416 (fact that borrower must arbitrate while lender may litigate, standing alone, does not warrant a finding of unconscionability); see also Branch, 793 So.2d at 750 (distinguishing provision that requires only one side to arbitrate and also limits available relief from provision that lacks mutuality but allows all legal and equitable remedies). Thus, we cannot say that the terms of the arbitration agreement grossly favor PayDay. 27 Similarly, we cannot say that Colburn has demonstrated by substantial evidence that PayDay had overwhelming bargaining power. Although Colburn asserts that the market was saturated with arbitration provisions at the time of his deferred payment transactions with PayDay, he supports this assertion by citing only to what he describes as a composite exhibit of forms from various lenders throughout Alabama. (R.3-31, Ex. J.) But this exhibit does not reveal how many lenders in Colburn's geographic area, Tuscaloosa and its vicinity, utilize arbitration agreements in deferred payment transactions. Many of the forms appear to come from the same companies, and the majority of the forms appear to be from companies outside the Tuscaloosa area or of unknown location. Additionally, while Colburn's affidavit stated that he engaged in deferred payment transactions with other lenders (R.3-31, Ex. F at ¶ 3), noticeably absent from the affidavit is any mention of these other lenders requiring arbitration agreements. Likewise, we note that none of the other plaintiffs in this case are alleged to have signed an arbitration agreement, suggesting that PayDay did not always require such an agreement in its deferred payment transactions. Unlike the first borrower in Branch, then, Colburn simply has not established that the deferred payment transaction market was virtually closed to borrowers not agreeing to arbitrate. See also Wampler, 749 So.2d at 417 (concluding that borrower failed to show unconscionability, in part, because record contained no evidence that other similarly situated dealers would insist on arbitration clauses). 28 Furthermore, like the second borrower in Branch, there is no evidence that Colburn asked any questions about the arbitration agreement or that he even read the agreement. In fact, Colburn testified that he did not remember signing the arbitration agreement and that he did not understand what arbitration meant until his attorney explained it to him. Rather, he testified that PayDay told him where he needed to sign, and he did so. (R.3-31, Ex. F at ¶¶ 5-6.) Thus, Colburn has not established sufficient indicia of unconscionability to warrant a determination that the arbitration agreement is unenforceable. 29 Colburn maintains, however, that there are other indicia of unconscionability in this case; specifically, he points out that the arbitration agreement is silent about the costs of arbitration, that PayDay did not explain the arbitration agreement or expressly offer him a choice, and that he was in dire straits financially at the time of the deferred payment transactions. None of these facts renders the arbitration agreement unconscionable. See Holt, 790 So.2d at 960 (A dealer is under no duty to disclose, or explain, an arbitration clause to a buyer.); Wampler, 749 So.2d at 415 (noting that, where clause was silent about costs of arbitration, settled principles of Alabama law prevent court from assuming worst case scenario); id. at 416 (Because the general principles of Alabama contract law do not excuse performance on grounds of financial hardship, we cannot allow a party's poverty, standing alone ..., to constitute a defense to enforcement of an arbitration agreement.). 30 For the foregoing reasons, we conclude that Colburn has not met his burden of proving unconscionability by substantial evidence, and his unconscionability argument does not provide an adequate basis for affirming the district court's denial of PayDay's motion to compel arbitration.
31 Lastly, we find no merit in Colburn's argument that the arbitration agreement in the record is void on its face because it is undated. We know of no generally applicable tenet of Alabama contract law that allows a party to avoid contractual obligations simply because the agreement at issue contains no date. Nonetheless, the lack of a date poses a problem to the enforcement of the arbitration agreement. There is only one arbitration agreement in the record, and it clearly requires arbitration only for disputes arising out of or in connection with a single transaction. We have no evidence about when Colburn signed that agreement or whether he signed any other arbitration agreements. Because Colburn cannot be forced to arbitrate disputes he has not agreed to arbitrate, see Chastain, 957 F.2d at 854, and because we do not know which specific deferred payment transactions might be subject to arbitration agreements, we cannot say which of Colburn's claims must be submitted to arbitration. Factual development is needed. 32 Accordingly, we remand this case to the district court. Pursuant to 9 U.S.C. § 4, the district court should proceed summarily to a trial on the issue of when Colburn signed the arbitration agreement in the record and whether he signed any other such agreements relating to transactions giving rise to his claims. Should the district court find that any of Colburn's claims against PayDay and the other defendants arise out of transactions subject to an arbitration agreement, it should grant the motion to compel arbitration as to those claims.