Opinion ID: 34854
Heading Depth: 2
Heading Rank: 1

Heading: District Court's Authority to Review Hill's Procedural Unconscionability Claim

Text: 9 A two-step inquiry governs whether parties should be compelled to arbitrate a dispute. First, the court must determine whether the parties agreed to arbitrate the dispute. Once the court finds that the parties agreed to arbitrate, it must consider whether any federal statute or policy renders the claims non-arbitrable. R.M. Perez & Assocs., Inc. v. Welch, 960 F.2d 534, 538 (5th Cir.1992). In conducting this two-step inquiry, courts must not consider the merits of the underlying action. Snap-On Tools, 18 F.3d at 1267. 10 The first step of the process entails determining whether there is a valid agreement to arbitrate between the parties; and... whether the dispute in question falls within the scope of that arbitration agreement. Webb v. Investacorp, Inc., 89 F.3d 252, 258 (5th Cir.1996). These questions are decided according to state law. Id. While there is a strong federal policy favoring arbitration, the policy does not apply to the initial determination whether there is a valid agreement to arbitrate. Will-Drill Res., Inc. v. Samson Res. Co., 352 F.3d 211, 214 (5th Cir.2003). Nonetheless, once a court determines that an agreement to arbitrate exists, the court must pay careful attention to the strong federal policy favoring arbitration and must resolve all ambiguities in favor of arbitration. Primerica Life, 304 F.3d at 471 (citing Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984)). 11 The Supreme Court has held that under the FAA, the federal courts may only consider issues relating to the making and performance of the agreement to arbitrate. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). In Prima Paint, the Court held that the making of an agreement to arbitrate was not called into question by a general allegation that the entire contract was void because of fraudulent inducement. See id. Because the defense asserted in Prima Paint did not attack the making of the agreement to arbitrate itself, the Court ordered arbitration and noted that the FAA reflects an unmistakably clear congressional purpose that the arbitration procedure, when selected by the parties to a contract, be speedy and not subject to delay and obstruction in the courts. Id. at 404, 87 S.Ct. 1801. 12 This court recently addressed the scope and application of the Prima Paint rule and held that where the very existence of a contract containing the relevant arbitration agreement is called into question, the federal courts have authority and responsibility to decide the matter. See Will-Drill, 352 F.3d at 218. In that case, the party resisting arbitration attacked the essential validity of the contract by arguing that the contract was not signed by all of the necessary parties. Id. at 215. This contention, if accurate, would mean that no contract ever existed, and by proxy, that no agreement to arbitrate was ever concluded. The arbitrator consequently would have no authority to decide anything. Id. 13 Will-Drill distinguished the far more common argument made by a party who does not challenge the existence of a contract, but rather attacks the enforceability of the agreement alleging that the contract is void ab initio or voidable. Id. at 218. Such a scenario calls for application of the severability doctrine contained in Prima Paint. Under this approach, [o]nly if the arbitration clause is attacked on an independent basis can the court decide the dispute; otherwise, general attacks on the agreement are for the arbitrator. Id. (emphasis added); accord Primerica Life, 304 F.3d at 472 (holding that unless a defense relates specifically to the arbitration agreement, it must be submitted to the arbitrator as part of the underlying dispute). In other words, where the existence of the contract is not in question, the court must examine whether the allegations made by the party resisting arbitration challenge the making of the agreement to arbitrate itself as opposed to allegations regarding the contract as a whole. Dillard v. Merrill Lynch, 961 F.2d 1148, 1154 n. 9 (5th Cir.1992) (citing Prima Paint, 388 U.S. at 403-04, 87 S.Ct. 1801) (internal quotation marks omitted). Only if the allegations concern solely the arbitration term and are not generally applicable to the agreement as a whole may the district court properly adjudicate the enforceability of the arbitration clause. See id. (holding that by focus[ing] specifically on the arbitration provision as an adhesive term, the party resisting arbitration had met the threshold requirement to challenge the making of the arbitration agreement). Where a defense does not specifically relate to the arbitration agreement, however, it must be submitted to the arbitrator as part of the underlying dispute. See Primerica Life, 304 F.3d at 472 (holding that a claim that one of the parties lacked the capacity to contract must be submitted to the arbitrator); Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) (noting that the presumption is that the arbitrator should decide allegations of waiver, delay, or a like defense to arbitrability) (internal quotation marks and citations omitted). 14 Hill does not challenge the very existence of the contract. Indeed, her underlying state court action seeks to obtain damages for breach of contract, and she admits in her affidavit before the district court that she signed the offer to lease containing the arbitration clause. Instead, Hill asserts that the arbitration clause is procedurally unconscionable, a claim fundamentally different from the position asserted by the party resisting arbitration in Will-Drill. Hill's argument falls within the Prima Paint separability doctrine, and the court must examine whether Hill's allegations attack the arbitration clause on an independent basis, or constitute a general attack on the contract. Will-Drill, 352 F.3d at 218. 15 In her affidavit, which recites the circumstances under which she signed the offer to lease and lease agreement, and thus undergirds her procedural unconscionability claim, Hill states that she never agreed nor intended to agree to arbitration for two reasons. First, Hill did not read the documents that the salesman asked her to sign because the salesman did not ask her to read them, nor did he tell [her] that [she] needed to read the documents. Hill further says she did not read the documents she signed because she trusted the salesman. Second, no one associated with East Ford ever told [her] that [she] was signing an arbitration agreement, or that she could object to the agreement, and no one explained the term arbitration to her. As this court has held, the general assertions that she did not read or understand the contractual documents or that East Ford did not explain the documents do not suffice to allege fraud in the making of the arbitration clause, but rather address the formation of the entire contract. R.M. Perez, 960 F.2d at 538-39. Hill's affidavit fails to undercut the arbitration clause. 16 Hill's pleadings, on the other hand, informed the district court that the validity of an identical arbitration clause was being considered by the Mississippi Supreme Court. The impetus for Hill's amended motion to dismiss was the court's ruling in Taylor, which found this identical arbitration clause procedurally unconscionable under Mississippi law. Taylor, 826 So.2d at 717. In Dillard, we held that where a party alleges that an arbitration agreement is adhesive, focus[ing] specifically on the arbitration provision as an adhesive term allows the party resisting arbitration to meet the threshold requirements necessary to challenge the making of the arbitration agreement itself. Dillard, 961 F.2d at 1154. Similarly, Hill's line of attack, aimed at the arbitration clause alone and based on the Mississippi Supreme Court's analysis of an identical clause, is sufficiently independent of her general disagreement with the contract. On this basis, the district court had the authority and the responsibility to adjudicate whether the arbitration agreement between Hill and Banc One was procedurally unconscionable. 17