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

Heading: District Court's Application of Mississippi Law

Text: 18 Banc One contends that the district court erred in applying Taylor because the Mississippi Supreme Court's decision impermissibly discriminates against arbitration under the FAA. 1 But the validity of an arbitration provision is a question of state law, see Webb, 89 F.3d at 258, and this court recently reviewed under state law whether an arbitration clause was unconscionable. Carter v. Countrywide Credit Indus., Inc., 362 F.3d 294, 2004 WL 414072 at  (5th Cir. 2004). In this action, the district court correctly applied the Mississippi Supreme Court's ruling in Taylor, which held that an identical arbitration clause was procedurally unconscionable under Mississippi law for a variety of reasons, including the relative position of the parties, the nature of the contract at issue, and the appearance and placement of the arbitration clause relative to the rest of the contract. Taylor, 826 So.2d at 716-17. 19 Although Carter suffices to justify using state law here, we note that the purpose of the FAA is to ensure that arbitration agreements are not treated differently from other contract provisions under state law. See Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996). The Supreme Court has consistently held that generally applicable contract defenses, such as ... unconscionability, may be applied to invalidate arbitration agreements without contravening [the FAA]. Id.; see also Perry v. Thomas, 482 U.S. 483, 492 n. 9, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987). At the same time, however, the Supreme Court has indicated that state courts cannot rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable, for this would enable the court to effect what we hold today the state legislature cannot. As such, while state courts may strike down arbitration clauses based upon generally applicable contract principles, they may not ... decide a contract is fair enough to enforce all its basic terms (price, service, credit), but not fair enough to enforce its arbitration clauses. Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 281, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). That is to say, state courts may properly strike down arbitration clauses, but they may not treat arbitration clauses differently than other contract terms, because to do so would be to put arbitration clauses on an unequal footing in violation of the FAA. See id. (internal quotation marks and citation omitted). 20 Banc One argues that Taylor impermissibly discriminates against arbitration agreements because the Mississippi Supreme Court set out its particular approach to unconscionability in the context of an arbitration dispute. Casarotto, however, held that state unconscionability law may, on occasion, invalidate arbitration clauses so long as the state's approach is not directed specifically at arbitration agreements but instead applies to contract provisions generally. Casarotto, 517 U.S. at 687, 116 S.Ct. 1652. If we were to accept Banc One's argument, a state court would find it extremely difficult to craft a decision holding an arbitration provision unconscionable under state law because, by setting out a particular approach to unconscionability in the context of an arbitration case, the state court would be impermissibly discriminating against arbitration under the FAA. Such a result is too broad and does not comport with Perry, Casarotto, and Allied-Bruce. 21 In Taylor, the Mississippi Supreme Court used standard tools of unconscionability doctrine and applied a prior Mississippi decision outlining its general approach to procedural unconscionability under Mississippi contract law. 826 So.2d at 715-17 (applying the framework set out in Entergy Miss., Inc. v. Burdette Gin Co., 726 So.2d 1202, 1207-08 (Miss.1998)). As a result, its approach does not appear to be aimed specifically at arbitration clauses, but is simply a case-specific application of general Mississippi unconscionability law. 2 See Russell v. Performance Toyota, Inc., 826 So.2d 719, 725-27 (Miss.2002) (holding an arbitration clause in an automobile purchase agreement to be neither procedurally nor substantially unconscionable and distinguishing Taylor ). Under these circumstances, we cannot presume that the Mississippi Supreme Court was attempting to discriminate against arbitration in Taylor. 3 22 Banc One points to a Third Circuit case which appears to indicate that the federal law construing the FAA is authoritative in determining claims of procedural unconscionability. See Harris v. Green Tree Financial Corp., 183 F.3d 173, 182 (3rd Cir.1999) (indicating that the FAA and federal law construing the Act govern the result in this case, and this authority does not support the ... claim of unconscionability). However, in Harris, the Third Circuit only cites federal court decisions that apply state law in support of its holding regarding the procedural unconscionability argument. See id. In addition, this court regularly applies state law to determine whether arbitration clauses are procedurally unconscionable. See, e.g., Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1077 (5th Cir.2002) (citing four Texas cases in ruling on a procedural unconscionability claim); accord Webb, 89 F.3d at 259. We see no reason why Mississippi law should not apply here. 23 Under Mississippi law, authoritatively construed by the state supreme court, an arbitration agreement of exactly the type that was at issue in Taylor is procedurally unconscionable. While Banc One cites a panoply of federal cases that appear to dictate a different result on a wide range of issues, because the arbitration provision at issue here is identical to the one examined by the Taylor court, these federal cases cannot help Banc One avoid controlling Mississippi law. As a result, the district court correctly held that the arbitration provision was procedurally unconscionable and thus unenforceable under Mississippi law. 4