Opinion ID: 1890282
Heading Depth: 2
Heading Rank: 2

Heading: Accessibility

Text: The Leonards also contend that the arbitration clause is unconscionable, because, they say, it precludes a class action, which, they argue, is the only way plaintiffs with claims as small as the Leonards' claims can obtain relief. More specifically, they state: While a plaintiff with an individual $75,000 claim can probably get a lawyer on a contingent fee to represent him or her, ordinary persons such as the Leonards with a claim less than $500 could not, and thus would have to face Terminix's well-financed, aggressive battery of experienced lawyers by himself or herself in an arbitration, or else pay a lawyer by the hour for legal representation, which makes no sense in relation to the small dollar value claims at issue. Leonards' Brief, at 28 n. 28 (emphasis added). This argument stands on better ground. [2] The Leonards base their contention of economic feasibility on what they describe as the small dollar value of the claims of the Leonards (less than $500). Leonards' Brief, at 21. According to the Leonards, the Commercial Arbitration Rules of the American Arbitration Association (AAA) applicable to this proceeding [3] include: (1) a $500 arbitration filing fee; (2) a minimum $150 administrative fee per party; (3) an administrative fee of $150-$250 per day per party for each hearing date; (4) one-half of the average arbitrator's fee of $700 per day; (5) one-half the cost of the charge for a meeting room; and (6) the cost of an attorney. Terminix responds to this argument by pointing to the allegation in the Leonards' complaint seeking unspecified damages for emotional distress as well as punitive damages, thereby making the claims of sufficient value to avoid the economic-unfeasibility argument. This contention fails for two reasons. First, if the arbitration clause is enforced, Terminix will be entitled, as we held in Part I.A. above, to assert that portion of the arbitration clause barring the Leonards from recovering indirect, special, or consequential damages. Second, even if the arbitration clause is deemed unconscionable and therefore unenforceable, Terminix will have the opportunity to urge application of the authorities relied upon in Part I.A. above to uphold the similar contract provision, independent of the arbitration clause, disclaiming any liability for special, incidental, or consequential damages. The Leonards observe that the rule of law for which they argue is not an attack on arbitration clauses alone, thus running afoul of Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996); their position, they say, would be the same if the contract merely prohibited assertion of claims on a class-wide basis. The cases from the United States Supreme Court announcing favorable disposition toward the enforcement of agreements requiring the settlement of disputes by arbitration are numerous. See, e.g., EEOC v. Waffle House, Inc., 534 U.S. 279, 122 S.Ct. 754, 151 L.Ed.2d 755 (2002); Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991); Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). However, also plentiful are cases from the United States Supreme Court recognizing the importance of relief by way of a class action. See, e.g., Deposit Guaranty Nat'l Bank v. Roper, 445 U.S. 326, 339, 100 S.Ct. 1166, 63 L.Ed.2d 427 (1980) (Where it is not economically feasible to obtain relief within the traditional framework of a multiplicity of small individual suits for damages, aggrieved persons may be without any effective redress unless they may employ the class-action device.). See also to the same effect Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 809, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985); and Eisen v. Carlisle & Jacquelin, U.S. 156, 161, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974). Several courts confronting this issue have been favorably disposed to the view that an arbitration clause that defeats the prospect of class-action treatment in a setting where the practical effect affords the defendant immunity is unconscionable. See, e.g., Knepp v. Credit Acceptance Corp. (In re Knepp ), 229 B.R. 821, 842 (Bankr. N.D.Ala.1999) (If this approach [no classwide arbitration] prevails, the pervasive use of arbitration agreements in consumer contracts could have the effect of eliminating class actions as an option available to aggrieved consumers. If class actions are no longer an option, the vast majority of consumer claims involving relatively small sums of money on an individual basis will be left without a remedy.); Keating v. Superior Court of Alameda County, 31 Cal.3d 584, 609-10, 645 P.2d 1192, 1207, 183 Cal.Rptr. 360, 375 (1982) (If the right to a classwide proceeding could be automatically eliminated in relationships governed by adhesion contracts through the inclusion of a provision for arbitration, the potential for undercutting these class action principles, and for chilling the effective protection of interests common to a group, would be substantial.... If, however, an arbitration clause may be used to insulate the drafter of an adhesive contract from any form of class proceeding, effectively foreclosing many individual claims, it may well be oppressive and may defeat the expectations of the nondrafting party.), rev'd in part and appeal dismissed in part on other grounds, Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984); Rollins, Inc. v. Foster, 991 F.Supp. 1426, 1437 (M.D.Ala.1998); Patterson v. ITT Consumer Fin. Corp., 14 Cal.App.4th 1659, 18 Cal.Rptr.2d 563 (1993); Williams v. Aetna Fin. Co., 83 Ohio St.3d 464, 473, 700 N.E.2d 859, 866-67 (1998); State of West Virginia ex rel. Dunlap v. Berger, 211 W.Va. 549, 567 S.E.2d 265 (2002); and Ting v. AT & T, 182 F.Supp.2d 902, 938-39 (N.D.Cal.2002) (This lawsuit is not about arbitration.... [Under the guise of requiring arbitration, the company] was actually rewriting substantially the legal landscape on which its customers must contend.... [The company] sought to shield itself from liability ... by imposing Legal Remedies Provisions that eliminate class actions, sharply curtail damages in cases of misrepresentation, fraud, and other intentional torts, cloak the arbitration process with secrecy and place significant financial hurdles in the path of a potential litigant. It is not just that [the company] wants to litigate in the forum of its choicearbitration; it is that [the company] wants to make it very difficult for anyone to effectively vindicate her rights, even in that forum. That is illegal and unconscionable....). Justice Woodall's dissenting opinion accuses the Leonards of repackaging of arguments considered and rejected by this Court in Green Tree Financial Corp. v. Wampler, 749 So.2d 409 (Ala.1999), Ex parte Thicklin, 824 So.2d 723 (Ala.2002), Johnnie's Homes, Inc. v. Holt, 790 So.2d 956 (Ala.2001), and Ex parte Dan Tucker Auto Sales, Inc., 718 So.2d 33 (Ala.1998), namely, that expenses the plaintiffs could incur in arbitration render that forum prohibitively expensive. 854 So.2d at 542. Continuing, the dissenting opinion concludes, They can cite no case in which this Court has held an arbitration clause to be unconscionable on the ground of financial hardship. 854 So.2d at 542. The Leonards contend that the arbitration clause mandates a procedure involving costs so great in comparison to the potential recovery that the injured person is effectively precluded from a remedy. Thus, the repackaging actually occurs in the dissenting opinion with its reliance upon cases holding that economic hardship to a person of limited resources does not render an arbitration agreement unconscionable. Such authority does not foreclose a contention that an arbitration clause is unconscionable because economic feasibility precludes presentation of the claim. The line of cases rejecting challenges to arbitration clauses on the ground of unconscionability because of the impecunious circumstances of the plaintiff is distinguishable. That the expenses of arbitration would exceed the amount in controversy is not a problem personal or peculiar to any particular consumer but is, rather, a phenomenon inherent in the transaction itself. [4] In other words, the impracticality of pursuing a claim for a small amount of money at a cost in excess of the value of the claim is just as much an obstacle to the wealthiest member of society as it is to a pauper. Indeed, a wealthy person oblivious to this reality may not long remain wealthy. Suffice it to say that while it is true that the Leonards can cite no case in which this Court has held an arbitration clause to be unconscionable on the ground of financial hardship, by the same token, Terminix can cite no case in which this Court has upheld an arbitration clause in the face of a challenge of unconscionability by reason of economic feasibility. This Court has not been reluctant to declare arbitration agreements or portions thereof unconscionable in a proper case. See, e.g., Harold Allen's Mobile Home Factory Outlet, Inc. v. Butler, 825 So.2d 779 (Ala.2002) (arbitration clause held unconscionable on basis of unilateral appointment of the arbitrator); Ex parte Thicklin, supra, and Cavalier Mfg., Inc. v. Jackson, 823 So.2d 1237, 1245 (Ala.2001) (opinion on return to remand), cert. denied, 535 U.S. 986, 122 S.Ct. 1536, 152 L.Ed.2d 464 (2002) (arbitration clause that precluded punitive-damages award held unconscionable); American General Fin., Inc. v. Branch, 793 So.2d 738 (Ala.2000) (arbitration clause held unconscionable based on combination of unusually broad language, reservation of legal remedies for company but not for consumer, limitation of damages award, and lack of meaningful choice to the consumer). The applicable standards for determining unconscionability are set forth in American General Finance, 793 So.2d at 748 whether there are (1) terms that are grossly favorable to a party that has (2) overwhelming bargaining power. One of the criteria for finding a contract unconscionable is that it be patently unfair. Layne v. Garner, 612 So.2d 404, 408 (Ala.1992). The Leonards have shown that the Terminix contract is a contract of adhesion that has never been modified for any Alabama customer; they have also shown that they were not given any opportunity to accept or reject the arbitration provision. Nor were they given any quid pro quo for agreeing to arbitration and forgoing their constitutional right to a trial by jury. The Leonards are not sophisticated or wealthy consumers with equal bargaining power. The Leonards' choice was to accept the transfer of the Sibleys' contractual relationship with Terminix (with no added cost) or obtain the termite bond from another termite control company, which would have required payment of substantial added costs of at least $1,000 for a new termite treatment by that company. Moreover, Terminix's competitors in Alabama also used arbitration provisions in their contracts at the time the Leonards bought their home. The limitation upon recovery of indirect, special, and consequential damages or loss of anticipated profits in the arbitration clause and elsewhere in the agreement and the preclusion of eligibility for class-action treatment by inserting a provision requiring arbitration deprive the Leonards of a meaningful remedy and lead us to conclude that Terminix has extracted unreasonably favorable and patently unfair terms in its contract of adhesion. Consequently, the arbitration clause is unconscionable and unenforceable. The fact that the Leonards are deprived of a meaningful remedy leads to the defect in the dissent's reliance upon the Constitution of Alabama of 1901 to support Terminix's substantive contractual right to escape the applicability of Rule 23, Ala. R. Civ. P. [5] Justice Woodall states in his dissent: Allowing the Leonards to pursue a class action in derogation of the arbitration agreement would elevate Rule 23, Ala. R. Civ. P., which authorizes and governs such actions, above the substantive, contractual rights of Terminix. The effect would be precisely what the Constitution [Ala. Const. of 1901, Amend. 328, § 6.11] prohibitsit would `abridge' or `modify' the substantive rights of Terminix. 854 So.2d at 543. The fallacy of this argument is that it assumes that Terminix has a right to enforce a contract under the circumstances here presented. The public policy of Alabama as articulated by § 13 of the Constitution of Alabama of 1901 guarantees that every person, for any injury done him,... shall have a remedy by due process of law. As previously noted, one of the criteria for finding a contract unconscionable is that it be patently unfair. Layne v. Garner, 612 So.2d at 408. The guaranty of § 13 is well-suited to informing our judgment on the issue of unfairness. Resort to § 13, instead of recognizing a substantive due-process right as Justice Woodall contends in his dissent, comports with settled principles guiding our judgment on the issue of unconscionability. Title 9 U.S.C. § 2 calls for the enforcement of arbitration agreements save upon such grounds as exist at law or in equity for the revocation of any contract. The invocation of Alabama law relating to unconscionability to declare an arbitration agreement unconscionable and thereby avoid relegation to arbitration of small claims not reasonably susceptible to meaningful redress in that forum does not impermissibly discriminate against arbitration contrary to Doctor's Associates, Inc. v. Casarotto, supra. This is so because a conclusion of unconscionability could apply with equal force to an effort to enforce a contract provision silent as to arbitration yet prohibiting participation in a class action under similar circumstances. This arbitration agreement is unconscionable because it is a contract of adhesion that restricts the Leonards to a forum where the expense of pursuing their claim far exceeds the amount in controversy. The arbitration agreement achieves this result by foreclosing the Leonards from an attempt to seek practical redress through a class action and restricting them to a disproportionately expensive individual arbitration.