Opinion ID: 1780860
Heading Depth: 2
Heading Rank: 1

Heading: is the arbitration clause unconscionable and thus unenforceable?

Text: ¶ 43. The Gatlins claim that the arbitration clause is unconscionable because it imposes prohibitive forum costs and deprives them of legal remedies (punitive damages) that would be available but for the arbitration clause. Sanderson Farms responds by asserting that the unconscionability argument was not properly preserved for appeal and was not made part of the record until this Court granted the interlocutory appeal. Further, Sanderson Farms argues, the unconscionability argument is an attack on the entire Broiler Production Agreement, not just the arbitration provision; thus, the FAA requires that this claim be heard by the arbitrators, not the court. In my view, Sanderson Farms is incorrect on both counts. ¶ 44. Even though the circuit court decided to deny Sanderson Farms' motion to dismiss on the ground that Sanderson Farms had breached the Agreement and thereby waived the right to compel arbitration, the Gatlins contend that this Court can affirm that decision on other grounds. The Gatlins are correct. This Court may affirm a decision on appeal for a different reason than it was decided by the lower court. See Askew v. Askew, 699 So.2d 515, 519 n. 3 (Miss.1997) (holding that a trial court judgment may be affirmed on grounds other than those relied upon by the trial court); Stewart v. Walls, 534 So.2d 1033, 1035 (Miss.1988) (holding that this Court will affirm the lower court where the right result is reached, even though we may disagree with the reason for the result). Nor is this Court's jurisdiction limited to those issues raised in the petition for interlocutory appeal; rather, this Court's review may extend[] to the full scope of the interests of justice. Pub. Employees Ret. Sys. v. Hawkins, 781 So.2d 899, 900-01 (Miss.2001) (citing McDaniel v. Ritter, 556 So.2d 303, 306-07 (Miss.1989)). ¶ 45. The circuit court did not specifically state that the contract was procedurally unconscionable. However, at the hearing this exchange took place between the court and the attorney representing Sanderson Farms: The Court: Let me ask you this. Do y'all intend on carrying this to the Supreme Court? Don't you? on interlocutory appeal? Mr. Burson: Your Honor, we don't want to. You know, we would do it The Court: Well, I want to see the Supreme Court have an opportunity to look at it myself. This is something, you knowif these people are entering into these contracts and they are required to enter into a contract, andthe only way they can get chickens from these growers is to enter into a contract where it says they've got to arbitrate and they have no remedy at law, I don't know whether that's an appropriate way to require somebody to enter into a contract or not. I really don't. It seems to me like it's a little far-reaching, over-reaching, heavy-handed. I could go on and use other words that might be appropriate or inappropriate. (emphasis added). It would seem that the circuit court found the arbitration clause to be procedurally unconscionable. ¶ 46. In paragraph 8 of their complaint the Gatlins allege: The failure and refusal of the Defendant, Sanderson, to pay the deposit required by the American Arbitration Association, and to commence and go forward with the arbitration, have effectively deprived both Plaintiffs of their legal remedies and due process rights. Such a blatant course of bad faith and unfair dealing by the Defendant is both unconscionable and against public policy and should not be tolerated by the Court. Likewise, the arbitration provisions of paragraphs 26 and 27 of the contract are themselves unconscionable and against public policy and should be deemed by the Court to be unenforceable, as they place an undue burden on the Plaintiff and anyone else in Plaintiffs [sic] position by effectively denying access to all legal remedies except arbitration, which is cost prohibitive to the Plaintiff and anyone else similarly aggrieved by the Defendant. (emphasis added). ¶ 47. The Gatlins' complaint alleged that the arbitration provisions are unconscionable; as such, this issue has been properly preserved for appeal. Unconscionability was raised by the Gatlins' counsel during the trial court's hearing on the motion to compel arbitration, and the trial court repeatedly expressed concern about the issue. Further, the fact that the circuit court held in favor of the Gatlins on the issue of waiver and did not expressly reach the merits of the unconscionability claim does not prevent this Court from affirming the circuit court's view of the latter ground. Therefore, I will examine the unconscionability claim. ¶ 48. The FAA does not preempt state-law claims that an arbitration clause or contract is unconscionable. Casarotto, 517 U.S. at 687, 116 S.Ct. 1652. Under the Prima Paint rule, where a contract includes an arbitration clause, the allegations of fraud, duress, or unconscionability under state law, must go to the arbitration clause in particular, not to the making of the contract as a whole, or else they are for the arbitrator to decide, not for the courts. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Haydu, 637 F.2d 391, 398 (5th Cir.1981) (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 406, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967)) (emphasis added). ¶ 49. 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.' Burdette Gin Co., 726 So.2d at 1207. Further, in order for a contract, or clause therein, to be unconscionable, there must exist unconscionability at the time it was made. Miss.Code Ann. § 75-2-302 (Rev.2002). This Court has said that a contract is unconscionable if it is 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. Terre Haute Cooperage v. Branscome, 203 Miss. 493, 503, 35 So.2d 537, 541 (1948). Neither the Court nor the Legislature labeled this as substantive unconscionability, but it is clear that was what was meant at the time. ¶ 50. In addition to these established aspects of substantive unconscionability, this Court recently adopted the concept of procedural unconscionability. Burdette Gin Co., 726 So.2d at 1207. Procedural unconscionability goes to the making or formation of the contract, as distinguished from substantive unconscionability, which goes to the actual terms of the contract. Id. See also Bank of Indiana, Nat'l Ass'n v. Holyfield, 476 F.Supp. 104, 109-10 (S.D.Miss.1979). In Burdette Gin Co., this Court held that an indemnity clause was procedurally unconscionable on the basis of lack of voluntariness: Burdette Gin had no one to contract with for energy but Entergy Mississippi, Inc., and it was established that Entergy practically never negotiated its contractual terms with clients. 726 So.2d at 1208. Under the circumstances, Entergy was able to essentially unilaterally impose the clause on Burdette Gin. Id. The Court stated that [t]he voluntariness factor alone is enough to find the indemnity clause unconscionable in this case. Id. at 1207-08. ¶ 51. Sanderson Farms claims in its reply brief that it is universally accepted that, to be held unenforceable as `unconscionable,' a contractual provision must be shown to be both procedurally and substantively unconscionable. (emphasis in original). While Sanderson Farms exaggerates, it is true that the case law of other jurisdictions is divided on this question. However, since the appeal in this case was filed, this Court has effectively resolved the uncertainty in favor of allowing procedural unconscionability alone to suffice. Taylor, 826 So.2d at 717. Nevertheless, I will discuss whether the contract was unconscionable, either procedurally or substantively.
¶ 52. The Gatlins argue that the arbitration clause is procedurally unconscionable, because Sanderson Farms unilaterally drafted it, the Agreement containing the clause was presented on a take-it-or-leave-it basis, and they were told the company would discontinue delivering chickens if they refused to sign. In determining whether a contract is procedurally unconscionable, this Court looks to the formation of the contract as follows: 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. Burdette Gin Co., 726 So.2d at 1207. Procedural unconscionability is most strongly shown in contracts of adhesion presented to a party on a take it or leave it basis. Id. at 1208. ¶ 53. The U.S. Supreme Court has forbidden, however, any state restriction on arbitration agreements that would require greater information or choice in the making of agreements to arbitrate than in other contracts. Casarotto, 517 U.S. at 687, 116 S.Ct. 1652 (quoting 2 I. Macneil, R. Speidel, T. Stipanowich, & G. Shell, Federal Arbitration Law § 19.1.1, at 19:4-19:5 (1995)). ¶ 54. The Gatlins claim that the agreement which contains the arbitration clause was unilaterally drafted by Sanderson Farms, pointing out that the agreement refers to Sanderson Farms by name, but Mr. Gatlin is simply referred to as the Grower, except for his signature. The Gatlins further claim that because of financial pressures, chiefly their $250,000 debt owed to Sanderson Farms, they were effectively forced to sign. Sanderson Farms does not dispute that the agreement including the arbitration clause was presented on a take-it-or-leave-it basis and that it would not continue to deliver chickens if Mr. Gatlin refused to sign. ¶ 55. Although the Gatlins' argument goes primarily to the lack of voluntariness, and not the lack of knowledge, Sanderson Farms responded to both, claiming that the undisputed facts show: Sanderson Farms began developing a new Broiler Production Agreement and held a series of meetings with its growers in 1996 at which the growers were given the opportunity to ask questions and provide input regarding the proposed terms of the new agreement. Prior to the meetings, the growers received letters providing them with notice of the meetings and copies of the proposed agreement; the growers were invited to seek legal counsel regarding the terms of the agreement and to bring legal counsel to the meetings, and several did. The terms of the agreement were discussed at the meetings and changes were made in responses to and in an attempt to address the concerns raised and comments received and drafts were sent out to the growers detailing the changes made. In fact, changes were made specifically to the arbitration provision as a result of comments made and discussions had at the meetings. Mr. Gatlin attended the meetings and asked questions and made comments. Mr. Gatlin signed the new Broiler Production Agreement on January 1, 1997, only after having been afforded multiple opportunities to review and provide input regarding the terms and to seek legal counsel. ¶ 56. Notes of those meetings in the record indicate that Mr. Gatlin attended at least one meeting and participated in the discussion: 5. Roy GatlinWhy does the grower have to pay for vitamins? Why are they included in the standard cost? . . . . 16. Roy GatlinFeed mill is better than it used to be. ¶ 57. Additionally, Sanderson Farms denies occupying a monopolistic position in the industry. It claims that in 1997, the year Mr. Gatlin signed the agreement, there were at least seven other major poultry processing companies in the state of Mississippi, and other poultry growers in Jones County were growing for other companies at that time. Hence, in the view of Sanderson Farms, Mr. Gatlin could have taken his business elsewhere rather than accept the arbitration clause. ¶ 58. In our recent decision in Taylor, we held an arbitration clause unenforceable on procedural unconscionability grounds where it was preprinted on the document in type less than one-third the size of many other terms in the document, appears in very fine print and regular type font, whereas all of the details concerning the vehicle Taylor purchased [were] in boldface print. Taylor, 826 So.2d at 716-17. Except for being preprinted, none of these conditions applies to the arbitration clause that Mr. Gatlin signed. Indeed, a special all-bold, all-capitalized notice regarding the arbitration provision was placed just above his signature on the Agreement. ¶ 59. Moreover, Mr. Gatlin's arguments about his lack of voluntariness do not apply strictly to the arbitration clause, but rather to his entering into the Agreement as a whole. Therefore, the rule of Prima Paint, as properly extended to unconscionability by the Fifth Circuit in Haydu, applies. His claims regarding ... unconscionability are ones that, in the event of arbitration, would be decided by an arbitrator, not the [trial] court, since they go to the formation of the entire contract rather than to the issue of misrepresentation in the signing of the arbitration agreement. Haydu, 637 F.2d at 398 (emphasis added). ¶ 60. We have recently applied the rule of Prima Paint in a case of alleged unconscionability in forming an arbitration agreement, holding that where a claim of procedural unconscionability went to the formation of a sales contract as a whole, not to the arbitration agreement in particular, the dispute was to be arbitrated under the FAA. Russell v. Performance Toyota, Inc., 826 So.2d 719, 725-26 (Miss.2002) (citing Rojas v. TK Communications, Inc., 87 F.3d 745, 749, 751 n. 3 (5th Cir.1996)). [11] ¶ 61. Gatlin has failed to meet his burden of presenting substantial evidence that his entering into the arbitration clause itself, as opposed to his making the Agreement as a whole, was procedurally unconscionable. Whatever pressures he faced to sign the Agreement (such as those expounded upon in the plurality opinion) were not specific to the arbitration clause. Moreover, any assertions that Gatlin somehow failed to realize the gravity of his agreement to arbitrate, so that state unconscionability law prevails (as the plurality argues), are barred by Casarotto. This Court cannot hold that Gatlin was entitled to special protections merely because the Agreement contained an arbitration clause. Therefore, Gatlin's alleged lack of voluntariness is reserved by the FAA for the arbitral forum.
¶ 62. The Gatlins claim that the arbitration clause by its express terms closes the courthouse doors to individual growers and imposes excessive costs that prohibit growers from obtaining relief through arbitration, effectively leaving the growers with no recourse for the company's violations of their legal rights. [12] They argue that this effective exclusion from both arbitration and judicial determination is substantively unconscionable. They also claim that the arbitration clause's mutual exclusion of punitive damages is unconscionable. ¶ 63. While procedural unconscionability goes to the formation of the contract, substantive unconscionability goes to its actual terms. Plaintiff may prove substantive unconscionability if she proves the terms of the arbitration clause were oppressive. Smith v. EquiFirst Corp., 117 F.Supp.2d 557, 560 (S.D.Miss.2000). An arbitration agreement typically will not be held unconscionable because of excessively high fees without a likelihood or substantial evidence that excessively high fees are being charged. See, e.g., First Family Fin. Servs. v. Fairley, 173 F.Supp.2d 565, 571 (S.D.Miss.2001). Cf. Fleetwood Enters., Inc. v. Bruno, 784 So.2d 277, 281 (Ala.2000).