Opinion ID: 1817898
Heading Depth: 1
Heading Rank: 7

Heading: Conservative Policy of Enforceability

Text: In contrast, the First and Third Circuits have employed a conservative interpretation in determining the enforceability of arbitration agreements. In Posadas v. The Pool Depot, Inc., 02-1819 (La.App. 1 Cir. 6/27/03), 858 So.2d 611, writ denied, 03-2125 (La.11/7/03), 857 So.2d 502, the First Circuit declared an arbitration agreement adhesionary [12] and unenforceable. The Posadas defendant sought to stay a suit to rescind the contract filed by the purchaser of a swimming pool against the corporation that sold the pool and to compel arbitration in accordance with the arbitration provisions of the defendant's standard form sales contract. In response, the plaintiff sought to declare the arbitration clause adhesionary, and the district court denied the defendant's motion to compel and stay. The First Circuit affirmed, finding the arbitration clause adhesionary and unenforceable because (1) the print of The Pool Depot standard form contract was exceedingly small and (2) the substance of the arbitration provision was unduly burdensome in that it bound the plaintiff to arbitration, while reserving unto the defendant the option of pursuing other remedies to collect monies owed under the agreement. [13] See Posadas, 02-1819, p. 4-5; 858 So.2d at 614. Likewise, in Sutton's Steel & Supply, Inc. v. BellSouth Mobility, Inc., 00-511 (La.App. 3 Cir. 12/13/00), 776 So.2d 589, writ denied, 01-0152 (La.3/16/01), 787 So.2d 316, the defendant sought to compel arbitration and stay proceedings in a class action suit for breach of contract and negligent misrepresentation filed by a class of cellular telephone customers against the service provider in accordance with the arbitration clause [14] contained in the standard form contracts between the defendant and the plaintiffs. In response, the plaintiffs argued the arbitration clause was adhesionary and unconscionable due to defendant's superior bargaining position. The district court denied the defendant's motions to compel and stay, and the Third Circuit affirmed, finding the clause adhesionary because (1) the clause was on the defendant's standard form and was in exceedingly small print; (2) the defendant presented no evidence that the plaintiffs were even in a position to bargain over the arbitration provisions in question; and (3) the substance of the arbitration provision was unduly burdensome and extremely harsh in that while the defendant attempted to bind the plaintiffs to arbitration, it reserved unto itself the option of pursuing other remedies, such as the right to pursue an open account debt and collect attorney fees and costs. The court further found that because the term debt was not defined in the contract it could easily be construed to apply to any action that one might imagine defendant could pursue against the plaintiffs, and therefore, the promise by defendant to arbitrate was totally illusionary and was actually no promise at all. See Sutton's Steel, 00-511, p. 10-11, 776 So.2d at 596-97. Additionally, in Simpson v. Grimes, 02-0869 (La.App. 3 Cir. 5/21/03), 849 So.2d 740, writ denied, 03-2497 (La.12/19/03), 861 So.2d 567, the defendants filed exceptions of lack of jurisdiction, prematurity, and no right or cause of action, seeking to dismiss the plaintiffs suit for losses sustained in a self-directed IRA account against their broker and brokerage due to breach of duty in the management of investments in accordance with the arbitration provisions [15] contained in the parties' contract. In response, the plaintiffs sought to have the provisions declared adhesionary, but the district court granted the defendants' exceptions and stayed the proceedings. On appeal, the Third Circuit reversed, finding the arbitration provisions adhesionary, because of lack of mutuality. The court found that the defendants' agreement signed by the plaintiffs allowed the defendants to retain the right to modify at will any and all provisions of the agreement in question, effectively providing the defendants an escape hatch from its promise to be similarly bound to arbitrate all disputes arising between the parties. See Simpson, 02-0869, p. 11-12; 849 So.2d at 748. Relying on its previous decisions, the Third Circuit in the present case also declared a standard form contract adhesionary because (1) the document was printed in extremely small type and the arbitration clause was not distinguished in any way; (2) the defendants reserved to themselves methods of dispute resolution other than arbitration, which were not available to the auction customer, e.g., the seller had the option to retain the earnest money deposit as liquidated damages and re-offer and resell the property in situations of buyer default; and (3) provisions in the documents provided the defendants the unilateral power to change any or all parts of the contract, including the arbitration clause, simply by verbal announcement at the auction block.