Opinion ID: 1844233
Heading Depth: 1
Heading Rank: 3

Heading: The Unconscionability Claim

Text: The per curiam opinion holds that the arbitration agreement in the loan agreement is unconscionable because its terms are grossly favorable to American General Finance and because the Ashbys had no meaningful choice in obtaining an arbitration-free loan. This Court has held that agreements to arbitrate are not in themselves unconscionable. Ex parte McNaughton, 728 So.2d 592, 598 (Ala. 1998). `An unconscionable ... contractual provision is defined as a ... provision such as no man in his sense and not under delusion would make on the one hand, and as no honest and fair man would accept on the other.' Southern United Fire Ins. Co. v. Howard, 775 So.2d 156, 163 (Ala.2000) (quoting Layne v. Garner, 612 So.2d 404, 408 (1992)). In Branch, this Court suggested that unconscionability consists of two essential elements: (1) terms that are grossly favorable to a party that has (2) overwhelming bargaining power. 793 So.2d at 748. [19] The per curiam opinion states in conclusory terms that the arbitration agreement is overwhelmingly favorable to American General Finance because: (1) the agreement is too broad; (2) the agreement provides that the arbitrator shall consider questions of arbitrability; [20] (3) the agreement lacks mutuality of remedies; and (4) the agreement limits recovery of punitive damages to five times any economic damages. 873 So.2d at 174-75. None of these issues, considered individually, provide grounds to find the arbitration clause unconscionable. Courts routinely support arbitration in cases involving broad arbitration clauses. See, e.g., Pritzker v. Merrill Lynch, Pierce Fenner & Smith, 7 F.3d 1110, 1114 (3d Cir.1993)(upholding an arbitration agreement that required all controversies which may arise between us, including but not limited to, any transaction or the construction, performance or breach of this or any other agreement between us, whether entered into prior, on or subsequent to the date hereof, shall be determined by arbitration); Bess v. Check Express, 294 F.3d 1298, 1308 (11th Cir.2002)(upholding an arbitration clause where the arbitration agreement here, like that in [ American General Finance, Inc. v. ] Branch, [793 So.2d 738 (Ala.2001) ], is unusually broad); [21] Dean Witter Reynolds, Inc. v. McDonald, 758 So.2d 539, 540 (Ala.1999)(upholding an arbitration clause that required arbitration in all controversies between me or my agents and you or your agents, representatives or employees arising out of or concerning any such accounts, any transactions between us or for such accounts, or the construction, performance, or breach of this or any other agreement between us, whether entered into prior to, on or subsequent to the date below....). A broad arbitration clause merely indicates that parties have agreed to adjudicate their entire dispute in an arbitral forum. A clause that requires parties to submit a dispute about the arbitrability of their dispute to the arbitrator cannot be unconscionable. [22] To hold otherwise would impermissibly single out the provisions of arbitration agreements for suspect status, Harris v. Green Tree Fin. Corp., 183 F.3d 173, 183 (3d Cir.1999), and place such agreements on a different footing [from] other contracts. 183 F.3d at 183. Courts may not ... invalidate arbitration agreements under state laws applicable only to arbitration provisions. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996). A rule that states it is unconscionable for parties to agree to submit disputes about arbitrability to an arbitrator is a rule that necessarily applies only to arbitration clauses and therefore runs afoul of the holding in Doctor's Associates. A lack of mutuality of remedy will not render an arbitration clause unconscionable. [P]roperly understood, the concept of mutuality of remedy has no application to arbitration agreements.... The doctrine of mutuality of remedy is limited to the availability of the ultimate redress for a wrong suffered by a plaintiff, not the means by which that ultimate redress is sought. A plaintiff does not seek as his ultimate redress an arbitration proceeding or a court proceeding. Instead, he seeks legal relief (e.g., damages) or equitable relief (e.g., specific performance) for his injury and he uses the proceeding as a means to obtain that result. McNaughton, 728 So.2d at 598. [23] In any event, the lack of mutuality of remedy, alone, is not sufficient to support a claim of unconscionability. Vann v. First Community Credit Corp., 834 So.2d 751, 754 (Ala.2002). See also Mason v. Acceptance Loan Co., 850 So.2d 289, 301 (Ala.2002)(stating that a lack of mutuality of remedy cannot alone be determinative of unconscionability); Green Tree Fin. Corp. of Alabama v. Wampler, 749 So.2d 409, 417 (Ala.1999)(We simply cannot declare a violation of public policy when one party is required to arbitrate while the other retains a choice.); Willis Flooring, Inc. v. Howard S. Lease Constr. Co. & Assocs., 656 P.2d 1184, 1186 (Alaska 1983)(Arbitration is not so clearly more or less fair than litigation that it is unconscionable to give one party the right of forum selection.). Finally, limitations on the damages a party may recover do not make an arbitration clause unconscionable. As I stated in my dissent in Cavalier Manufacturing, Inc. v. Jackson, 823 So.2d 1237, 1252 (Ala. 2001)(See, J., dissenting): The weight of authority supports the conclusion that the parties to an arbitration agreement are free to agree that an arbitrator may not award punitive damages. See also Baravati v. Josephthal, Lyon & Ross, Inc., 28 F.3d 704, 709 (7th Cir.1994)(parties to adjudication have considerable power to vary the normal procedures, ... and surely can stipulate that punitive damages will not be awarded); Bonar v. Dean Witter Reynolds, Inc., 835 F.2d 1378, 1387 n. 16 (11th Cir.1988)(noting that a clear provision in a contract prohibiting arbitrators from awarding punitive damages would be enforceable); Davis v. Prudential Sec., Inc., 59 F.3d 1186, 1192 n. 6 (11th Cir.1995)(Presumably, therefore, even after the Supreme Court's decision in Mastrobuono[ v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995)], parties wishing to avoid the imposition of punitive damages in arbitration may simply expressly exclude punitive damages in the arbitration agreement.). I also note that if the parties litigate their dispute in court, Alabama law limits punitive damages to three times actual damages; thus, the per curiam opinion holds unconscionableor, at least, considers as a factor in finding an agreement unconscionable as against the defendant that the defendant allows a punitive-damages award against him that is greater than that permitted by the Legislature. See § 6-11-21(a), Ala.Code 1975. [24] The per curiam opinion in this case does not explain why these four elements, each of which considered singly is permissible, operating together somehow make the agreement unconscionable. In Branch, the Court explained that these elements operating together were grossly favorable to the lender because the Lenders have reserved for themselves the right to full redress for their claims, but denied that right to Branch. In other words, the contract limits not only the right to a specific forum, but the right to a remedy itself. 793 So.2d at 750. The Court's rationale in Branch assigns a suspect status to arbitration agreements [and] flies in the face of Doctor's Associates, 517 U.S. at 687, 116 S.Ct. 1652, where the Supreme Court of the United States explicitly stated that `[c]ourts may not ... invalidate arbitration agreements under state laws applicable only to arbitration provisions.' McNaughton, 728 So.2d at 598 (alterations in original). The main opinions in Branch and in this case hold that the arbitration agreement in American General Finance's loan agreement is unconscionable, not because the parties agree to limit the available remedies, but because the limited remedies are to be determined in an arbitral forum in which threshold questions of arbitrability are to be determined by the arbitrator. That result is not permitted by the Federal Arbitration Act. See Doctor's Associates, 517 U.S. at 687, 116 S.Ct. 1652. The fact that a remedy is to be determined in an arbitral forum may not make an arbitration clause unconscionable. The per curiam opinion also finds that American General Finance possessed overwhelming bargaining power and that the Ashbys lacked a meaningful choice. American General Finance argues that Mrs. Ashby failed to present any evidence indicating that she and Mr. Ashby even attempted to shop for a loan from another company. The per curiam opinion concludes that the trial court did not err in concluding that the arbitration agreement in the note and security agreement was unconscionable in the absence of evidence indicating that the Ashbys sought other alternatives to the American General Finance loan. 873 So.2d at 177. The per curiam opinion, citing Branch as authority, concludes that the Ashbys would have had to expend considerable time and effort to locate the remaining two companies.... 873 So.2d at 178. The per curiam opinion held that American General Finance possessed overwhelming bargaining power merely because the Ashbys `would have had to expend considerable effort even to find' the 1 or 2 of the 16 companies that would not have required arbitration. 873 So.2d at 178 (quoting Branch, 793 So.2d at 751). I dissented in Branch because Branch had presented no evidence that she shopped around before borrowing from American General. 793 So.2d at 754 (See, J., dissenting). In both Green Tree Financial Corp. of Alabama v. Vintson, 753 So.2d 497, 504 (Ala.1999), and Green Tree Financial Corp. v. Lewis, 813 So.2d 820, 825 (Ala.2001), cases decided, respectively, before and after this Court decided Branch, this Court held that the borrowers, who failed to present evidence indicating that they had shopped around for a loan, had not demonstrated that they lacked a meaningful choice when presented with an arbitration clause by the lenders. I see no meaningful difference between the evidence presented in Vintson or Lewis and that presented by Mrs. Ashby. Mrs. Ashby has presented no evidence indicating that she and Mr. Ashby actually shopped for a loan agreement that did not contain an arbitration clause (or, for that matter, that they cared); therefore, I would hold that the trial court erred in finding that the Ashbys lacked a meaningful choice. Even, however, had Mrs. Ashby presented evidence tending to show that the Ashbys had shopped for a loan, she still could have failed to present evidence tending to show that the Ashbys lacked a meaningful choice. The per curiam opinion states: The trial court also determined, and we agree, that the Ashbys had no input into negotiating the terms of or drafting the arbitration agreement. 873 So.2d at 179. In Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 170 F.3d 1, 17 (1st Cir.1999), the United States Court of Appeals for the First Circuit held that an employee had failed to demonstrate that an arbitration clause in an employment contract was unconscionable, or that he lacked a meaningful choice, even though the district court found that signing the U-4 Form [securities dealer-registration form] was a prerequisite for employment as a securities broker.... The fact that every firm in the securities industry required every employee to sign the same arbitration agreement and that employees were not free to alter or remove the arbitration agreement from their employment contracts was not sufficient to demonstrate that the employee lacked a meaningful choice when deciding whether to sign the agreement. See Rosenberg 170 F.3d at 17. The First Circuit Court of Appeals stated: inequality in bargaining power `is not a sufficient reason to hold that arbitration agreements are never enforceable in the employment context'.... Absent a showing of fraud or oppressive conduct ... the contract is not unenforceable on these grounds. 170 F.3d at 17 (footnote omitted). Therefore, Mrs. Ashby would need to demonstrate substantially more than the fact that most lenders, or even every lender, incorporated an arbitration clause into a loan agreement before she could demonstrate that she and Mr. Ashby lacked a meaningful choice when deciding whether to sign the loan agreement. [25] Therefore, I dissent from Part II of the Analysis section of the per curiam opinion; I would hold that Mrs. Ashby has failed to prove that the arbitration clause in the Ashbys' loan agreement with American General Finance is unconscionable.