Opinion ID: 1630394
Heading Depth: 2
Heading Rank: 1

Heading: whether the arbitration clause is unconscionable.

Text: ¶ 11. The Federal Arbitration Act provides that arbitration agreements shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C. § 2. The Act establishes a `federal policy favoring arbitration,'... requiring that `we rigorously enforce agreements to arbitrate.' Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220, 226, 107 S.Ct. 2332, 2337, 96 L.Ed.2d 185 (1987) (citations omitted). Absent a well-founded claim that an arbitration agreement resulted from the sort of fraud or excessive economic power that `would provide grounds for the revocation of any contract,' the Arbitration Act `provides no basis for disfavoring agreements to arbitrate statutory claims by skewing the otherwise hospitable inquiry into arbitrability.' Id. (citations omitted). [Q]uestions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration ... The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). This Court has adopted this preference for arbitration. See Smith Barney, Inc. v. Henry, 775 So.2d 722 (Miss.2001); I.P. Timberlands Operating Co. v. Denmiss Corp., 726 So.2d 96, 103-04 (Miss.1998); Hutto v. Jordan, 204 Miss. 30, 36 So.2d 809, 812 (1948). ¶ 12. It has been recognized that in order to determine whether legal constraints exist which would preclude arbitration, courts generally ... should apply ordinary state-law principles that govern the formation of contracts. Bank One, N.A. v. Coates, 125 F.Supp.2d 819, 827 (S.D.Miss.2001) (quoting Webb v. Investacorp, Inc., 89 F.3d 252, 257 (5th Cir. 1996)). However, [c]ourts may not..... invalidate arbitration agreements under state laws applicable only to arbitration provisions. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. at 687, 116 S.Ct. at 1655 (quoting Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281, 115 S.Ct., 834, 843, 130 L.Ed.2d 753 (1995); Perry v. Thomas, 482 U.S. 483, 492 n. 9, 107 S.Ct. 2520, 2527 n. 9, 96 L.Ed.2d 426 (1987)). In other words, the usual defenses to a contract such as fraud, unconscionability, duress, and lack of consideration may be applied to invalidate an arbitration agreement, so long as the law under which the provision is invalidated is not applicable only to arbitration provisions. It was under this prong that the trial court found the arbitration agreement to be unconscionable. ¶ 13. The courts have recognized two types of unconscionability, procedural and substantive. Pridgen v. Green Tree Fin. Servicing Corp., 88 F.Supp.2d 655 (S.D.Miss.2000) (quoting York v. Georgia-Pac. Corp., 585 F.Supp. 1265, 1278 (N.D.Miss.1984)). Procedural unconscionability may be proved by showing a lack of knowledge, lack of voluntariness, inconspicuous print, the use of complex legalistic language, disparity in sophistication or bargaining power of the parties and/or a lack of opportunity to study the contract and inquire about the contract terms. Id. ¶ 14. Substantive unconscionability may be proven by showing the terms of the arbitration agreement to be oppressive. York, 585 F.Supp. at 1278. Substantively unconscionable clauses have been held to include waiver of choice of forum and waiver of certain remedies. In the present case, Taylor argues that the provision is both procedurally and substantively unconscionable. First Taylor argues that the arbitration provision is procedurally unconscionable because although he signed the provision, he did not read it because the salesman did not tell him that he should. Taylor alleges that at the time he signed the contract, he did not know what arbitration was or that he was agreeing to submit to it. Taylor further argues that the location and the typeset of the terms of the agreement render it unconscionable. East Ford argues that none of these factors render the agreement procedurally unconscionable. ¶ 15. Taylor further argues that the arbitration provision is substantively unconscionable because, under the terms of the agreement, only he is required to arbitrate while East Ford retains the right to pursue most, if not all, of its claims against Taylor in a court of law. Furthermore, Taylor points out, that his remedy is limited to actual damages because the arbitration provision prevents an award of punitive damages no matter how egregious the conduct on the part of East Ford might be. East Ford argues that the foregoing reasons are insufficient to find the arbitration clause substantively unconscionable. ¶ 16. In the case below, the circuit court found the arbitration clause to be both procedurally and substantively unconscionable. The circuit court found in relevant part: In the present case, it is clear that an arbitration agreement between Plaintiff and Defendant existed. It is not so clear as to whether the arbitration agreement is enforceable. By reviewing the Offer to Purchase or Lease Vehicle agreement, it is noticeable that certain words are in boldface, large letters which stand out conspicuously to the reader. Defendant states in the Motion to Compel Arbitration that the arbitration agreement appears in bold type. Yet, the Court could not discern any bold printing. The arbitration clause is not in boldface and it appears less than one third the size of many other terms in the document. As a matter of fact, every detail that is inserted onto the agreement concerning the vehicle Plaintiff purchases is in boldface print. However, the arbitration clause along with the additional terms and status and compensation clause are all in very fine print and regular typing font. Defendant also states that the arbitration clause is outlined and separated from the remainder of the Offer to Purchase or Lease Vehicle Agreement. From the Courts [sic] examination of the document, the arbitration clause is enclosed in a box setting along with additional terms and status of and compensation clause. The box setting format is used in other parts of the agreement as well. The arbitration clause also does not have any underlining nor any other effect which would alert the reader of the importance of its terms. Furthermore, the arbitration clause is clearly one-sided. The agreement is a standard, preprinted form unilaterally drafted by East Ford, Inc. The administers of the arbitration agreement, the American Arbitration Association, do not have any authority to award punitive damages. The arbitration clause also states that the only claims which may arise among the parties which are not subject to this arbitration agreement are claims by East Ford, Inc. and those subject to Lemon Law Rights. Even if the consumer proceeds to file a grievance under the Lemon Law, the consumer must first seek resolution before the Dispute Settlement Board. Thus, East Ford is unilaterally allowed to rescind the entire agreement. The only instance where the consumer is allowed to rescind the arbitration agreement is in the purchase of a lemon. East Ford, Inc. has an unfair advantage. Therefore, the arbitration clause in the Offer to Purchase or Lease Vehicle agreement will not be enforced because it is unconscionable both procedurally and substantively. ¶ 17. In Entergy Miss., Inc. v. Burdette Gin Co., 726 So.2d 1202 (Miss.1998), this Court examined unconscionability. Unconscionability has been defined as an absence of meaningful choice on the part of one of the parties, together with contract terms which are unreasonably favorable to the other party. To show that a provision is conscionable, the party seeking to uphold the provision must show that the provision bears some reasonable relationship to the risks and needs of the business. Bank of Indiana, Nat'l Ass'n v. Holyfield, 476 F.Supp. 104, 109 (S.D.Miss. 1979) (citations omitted). 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 not under a delusion would make on the one hand, and as no honest and fair man would accept on the other....' In re Will of Johnson, 351 So.2d 1339, 1341 (Miss.1977). Entergy Miss., Inc., 726 So.2d at 1207. ¶ 18. We went on to discuss procedural unconscionability: The indicators of procedural unconscionability generally 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 factors, timing or other pressures from being able to contract with another party on more favorable terms or to refrain from contracting at all. Holyfield, 476 F.Supp. at 109-10 (citations omitted). Entergy Miss., Inc., 726 So.2d at 1207. ¶ 19. We further found in relevant part: Procedural unconscionability is most strongly shown in contracts of adhesion presented to a party on a `take it or leave it basis.' York, 585 F.Supp. at 1278 (quoting Holyfield, 476 F.Supp. at 108). Entergy Miss., Inc., 726 So.2d at 1207-08. ¶ 20. A contract of adhesion has been described as one that is drafted unilaterally by the dominant party and then presented on a `take-it-or-leave-it' basis to the weaker party who has no real opportunity to bargain about its terms. Such contracts are usually prepared in printed form, and frequently at least some of their provisions are in extremely small print. Bank of Indiana, Nat'l Ass'n v. Holyfield, 476 F.Supp. 104, 108 (S.D.Miss. 1979) (quoting Restatement 2d, Conflicts, § 203, Comment b). As the Fifth Circuit has held, [c]ontracts in which one party has minimal bargaining power, also referred to as contracts of adhesion, are not automatically void. See Hughes Training, Inc. v. Cook, 254 F.3d 588, 593 (5th Cir.2001) (emphasis added) (citing Dillard v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 961 F.2d 1148, 1154 (5th Cir.1992)). Similarly, arbitration agreements are not inherently unconscionable. Bank One, N.A. v. Coates, 125 F.Supp.2d 819, 830 (S.D.Miss.2001) (citing Smith v. EquiFirst Corp., 117 F.Supp.2d 557, 564 (S.D.Miss. 2000)). The fact that an arbitration agreement is included in a contract of adhesion renders the agreement procedurally unconscionable only where the stronger party's terms are unnegotiable and the weaker party is prevented by market factors, 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., 726 So.2d at 1207 (quoting Bank of Indiana, Nat'l Ass'n v. Holyfield, 476 F.Supp. at 109-10). While Burdette concluded that an indemnity clause within a contract of adhesion is presumptively unconscionable, the same is not true for arbitration clauses. Burdette involved an agreement to indemnify, which essentially allows a party to contract away or escape liability. Arbitration agreements merely submit the question of liability to another forum generally speaking, they do not waive liability. Furthermore, Congress has expressed no federal interest in enforcing indemnification agreements as it has in guaranteeing the enforcement of valid arbitration agreements. See Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. As noted, questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration, with any doubt concerning the scope of the agreement resolved in favor of arbitration. Bank One, 125 F.Supp.2d at 827 (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Co., 460 U.S. at 24-25, 103 S.Ct. 927). ¶ 21. As previously stated, the circuit court found in the present case that the arbitration provision appears less than one-third the size of many other terms in the document, appears in very fine print and regular type font. The circuit court further observed that all of the details concerning the vehicle Taylor purchased are in boldface print, while the arbitration provision is not. Additionally, the arbitration provision is preprinted on the document. Taking all of the foregoing into consideration, we find the arbitration clause in this case is procedurally unconscionable. ¶ 22. Although raised by Taylor below, the circuit court did not address Taylor's lack of consideration argument. Because we find that the arbitration clause in this case is procedurally unconscionable, we find it unnecessary to address Taylor's lack of consideration argument, as well as his arguments regarding substantive unconscionability.