Court Opinion

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Opinions of the United
1999 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

7-1-1999

Harris v. Green Tree Fin Corp
Precedential or Non-Precedential:

Docket 97-2029

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Recommended Citation
"Harris v. Green Tree Fin Corp" (1999). 1999 Decisions. Paper 186.
http://digitalcommons.law.villanova.edu/thirdcircuit_1999/186

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Filed July 1, 1999

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 97-2029/98-1018

CHARLES HARRIS; CHRISTINE HARRIS;
WILLIE DAVIS; NORA WILSON, on behalf of themselves
and all others similarly situated

v.

GREEN TREE FINANCIAL CORPORATION;
GREEN TREE CONSUMER DISCOUNT COMPANY;
LAWRENCE M. COSS; FREDMONT BUILDERS;
P. ANGELO & SONS INC; FRANK R. LUCCI, JR.;
TYRONE DENITTIS

       Green Tree Financial Corporation,
       Green Tree Consumer Discount Company,
       Lawrence M. Coss,
       Appellants in 97-2029

       Frank R. Lucci, Jr.,
       Tyrone DeNittis,
       Appellants in 98-1018

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 97-cv-01128)
District Judge: Honorable John P. Fullam

Argued September 17, 1998

Before: STAPLETON and ROTH, Circuit Judges, and
HOEVELER,1 District Judge
_________________________________________________________________

1. Honorable William M. Hoeveler, United States District Court Judge for
the Southern District of Florida, sitting by designation.
(Opinion filed: July 1, 1999)

       Jeffrey L. Kodroff, Esquire
       Anthony Chu, Esquire
       Spector & Roseman, P.C.
       2000 Market Street, 12th Floor
       Philadelphia, PA 19103

       Michael D. Donovan, Esquire
        (Argued)
       David A. Searles, Esquire
       Donovan Miller, LLC
       1608 Walnut Street, Suite 1400
       Philadelphia, PA 10103

       Kenneth A. Jacobsen, Esquire
       Chimicles, Jacobsen & Tikellis
       One Haverford Centre
       361 West Lancaster Avenue
       Haverford, PA 19041-0100

       Kenneth I. Trujillo, Esquire
       Trujillo, Rodriguez & Richards, LLC
       226 West Rittenhouse Square
       The Penthouse
       Philadelphia, PA 19103

        Attorneys for Appellees
       Charles Harris; Christine Harris;
       Willie Davis; Nora Wilson

       David H. Pittinsky, Esquire (Argued)
       Alan S. Kaplinsky, Esquire
       Burt M. Rublin, Esquire
       Martin C. Bryce, Jr., Esquire
       Ballard Spahr Andrews & Ingersoll,
        LLP
       1735 Market Street, 51st Floor
       Philadelphia, PA 19103-7599

        Counsel for Green Tree Financial
       Corporation; Green Tree Consumer
       Discount Company; Lawrence M.
       Coss: Appellants in 97-2029 and
       Appellees in 98-1018

                                2
Jeffry S. Pearson, Esquire
Solomon, Berschler, Warren, Schatz
 & Flood, P.C.
522 Swede Street
Norristown, PA 19401

 Attorneys for Frank R. Lucci, Jr.;
Tyrone Denittis: Appellees in
97-2029 and Appellants
in 98-1018

Jeffrey S. Saltz, Esquire
Law Office of Jeffrey S. Saltz, P.C.
1515 Market Street, Suite 1000
Philadelphia, PA 19102

 Attorney for Amici-Appellants
 in 97-2029

Cathy Ventrell-Monsees, Esquire
Deborah M. Zuckerman, Esquire
AARP Foundation Litigation
601 E. Street, N.W.
Washington, D.C. 20049

 Attorneys for Amici-Appellees
 American Association of Retired
 Persons; National Association of
 Consumer Advocates; National
 Consumer Law Center; Public
 Citizen, Inc.

Alan M. White, Esquire
Irv Ackelsberg, Esquire
Community Legal Services, Inc.
Law Center North Central
3638 North Broad Street
Philadelphia, PA 19140

 Attorneys for Amicus-Appellee
 Consumer Education Protective
 Association, Inc. in 97-2029

                        3
OPINION OF THE COURT

ROTH, Circuit Judge:

In this action, we consider the District Court's denial of
a motion to compel arbitration and stay proceedings
pending arbitration. We exercise jurisdiction over this
matter under the Federal Arbitration Act ("FAA" or the
"Act"), 9 U.S.C. S et seq., which permits appeal as a matter
of right from orders denying motions to compel arbitration.
Since this appeal presents a legal question concerning the
applicability and scope of an arbitration agreement, our
standard of review is plenary. See Pritzker v. Merrill Lynch,
7 F.3d 1110, 1113 (3d Cir. 1993). Because we find the
arbitration clause at issue in this case enforceable, we will
reverse the order of the District Court, denying the motion
to compel arbitration.

I. Factual and Procedural Background

This action was filed in the United States District Court
for the Eastern District of Pennsylvania on February 14,
1997, by Charles Harris, Christine Harris, Willie Davis, and
Nora Wilson (collectively, the "Harrises"). 2 The Harrises
claim to be victims of a fraudulent home improvement
scheme. This scheme allegedly was orchestrated and
perpetrated by Green Tree Financial Corporation ("Green
Tree"); Green Tree's subsidiary, Green Tree Consumer
Discount Company ("GT Discount"); Lawrence M. Coss, the
Chief Executive Officer of Green Tree; and several building
contractors. These contractors include Fredmont Builders,
P. Angelo & Sons, Inc., Frank R. Lucci, Jr., and Tyrone
DeNittis.3

The home improvement scheme of which the Harrises
claim to be victims worked as follows. Using direct
_________________________________________________________________

2. The Harrises sought class certification and thus are putative class
members.

3. Together with Green Tree and GT Discount, defendants Coss, Lucci,
and DeNittis appeal the District Court's decision.

                               4
marketing techniques, Green Tree allegedly recruited
dozens of home improvement contractors, including those
identified above. These contractors allegedly were enlisted
for the purpose of obtaining high-interest rate secondary
mortgage contracts from homeowners, which were to be
sold and assigned to Green Tree or GT Discount. Green
Tree allegedly instructed the contractors to obtain such
mortgages by, inter alia: marketing themselves as Federal
Housing Authority ("FHA") and U.S. Department of Housing
and Urban Development ("HUD") approved home
improvement dealers; targeting relatively unsophisticated,
low- to middle-income, senior citizens; promising that the
work would be performed at an affordable cost and that no
payment would be required until the customer was satisfied
completely with the workmanship; using standardized loan
contracts that were generated by Green Tree or GT
Discount; inserting a clause in these contracts that allowed
the mortgagee to charge exorbitant amounts for collateral
protection insurance ("CPI"); and employing high-pressure
sales tactics to solicit customers, such as in-home sales
and telemarketing. Cmplt. PP 1, 3, 9.

The contractors allegedly used all of these strategies in
soliciting the Harrises. Cmplt. PP 29, 37-39, 50, 62. After
the Harrises agreed to the home improvement work
described by the relevant contractor in his sales
presentation, the contractor allegedly presented to them
several standardized loan contracts, including a secondary
mortgage contract ("the standard form contract"). Cmplt.
PP 4, 15, 40-45, 51-52, 66. The Harrises claim that they
were told that they had to sign these standardized
contracts before construction could begin or be completed
on their homes; thus, the Harrises signed the forms. Cmplt.
PP 46, 51-52, 66. Almost immediately after the loan papers
were signed, the contractors allegedly sold and assigned the
loans and mortgages to Green Tree or GT Discount. Cmplt.
PP 4, 41, 53, 66.

Thereafter, the contractors performed home improvement
work on the Harrises' homes. The Harrises contend,
however, that the contractors either did not perform the
work, specifically promised in the contracts, or performed
the promised work, but in an unsatisfactory manner.

                                5
Cmplt. PP 4, 46, 54-56, 74-75. On numerous occasions, the
Harrises allegedly complained to Green Tree about the
nature and quality of work performed by these contractors,
but to no avail. Cmplt. PP 48, 56 57, 76.

Thus, the Harrises allege that they received little of value
from the contractors, yet were saddled with a sizeable debt
secured by mortgages on their homes. Cmplt. #9E9E # 4, 77.
Rather than risk the loss of their homes, the Harrises have
paid Green Tree according to the allegedly fraudulent and
misleading terms outlined in the mortgage contracts.
Cmplt. PP 4, 47, 77.

As a result of this sequence of events, the Harrises'
brought suit against Green Tree, GT Discount, Coss, and
the contractors identified above pursuant to the Racketeer
Influenced and Corrupt Organizations Act ("RICO"), 18
U.S.C. 1961 et seq., and the Pennsylvania Unfair Trade
Practices and Consumer Protection Law, 73 P.S. 201-1 et
seq. In addition, the Harrises alleged common law breach of
contract, unjust enrichment, promissory estoppel, breach of
fiduciary duty, tortious interference, fraudulent
misrepresentation, and negligent misrepresentation claims.

In response to the Harrises' suit, Green Tree and the
other defendants moved to compel arbitration and stay all
proceedings in this action pending completion of
arbitration. This motion was based on an arbitration clause
that is contained in the secondary mortgage contracts
signed by the Harrises. The clause, which appears in small
print on the back and near the bottom of the one page form
contract, provides as follows:

       ARBITRATION - All disputes, claims, or controversies
       arising from or relating to this contract or the
       relationships which result from this contract, or the
       validity of this arbitration clause or the entire contract,
       shall be resolved by binding arbitration by one
       arbitrator selected by us with consent of you. This
       arbitration contract is made pursuant to a transaction
       in interstate commerce, and shall be governed by the
       Federal Arbitration Act at 9 U.S.C. section 1. Judgment
       upon the award rendered may be entered in any court
       having jurisdiction. The parties agree and understand

                                6
       that they choose arbitration instead of litigation to
       resolve disputes. The parties understand that they
       have a right or opportunity to litigate disputes through
       a court, but that they prefer to resolve their disputes
       through arbitration, except as provided herein. THE
       PARTIES VOLUNTARILY AND KNOWINGLY WAIVE
       ANY RIGHT THEY HAVE TO A JURY TRIAL, EITHER
       PURSUANT TO ARBITRATION UNDER THIS CLAUSE
       OR PURSUANT TO A COURT ACTION BY US (AS
       PROVIDED HEREIN). The parties agree and
       understand that all disputes arising under the case
       law, statutory law, and all other laws including, but
       not limited to, all contract, tort, and property disputes,
       will be subject to binding arbitration in accord with
       this contract. The parties agree and understand that
       the arbitrator shall have all powers provided by the law
       and the contract. These powers shall include all legal
       and equitable remedies, including, but not limited to,
       money damages, declaratory relief, and injunctive
       relief. Notwithstanding anything hereunto the contrary,
       we retain an option to use judicial or non-judicial relief
       to enforce a mortgage, deed of trust, or other security
       agreement relating to the real property secured in a
       transaction underlying this arbitration agreement, or to
       enforce the monetary obligation secured by the real
       property, or to foreclose on the real property. Such
       judicial relief would take the form of a lawsuit. The
       institution and maintenance of an action for judicial
       relief in a court to foreclose upon any collateral, to
       obtain a monetary judgment or to enforce the mortgage
       or deed of trust, shall not constitute a waiver of the
       right of any party to compel arbitration regarding any
       other dispute or remedy subject to arbitration in the
       contract, including the filing of a counterclaim in a suit
       brought by us pursuant to this provision.

App. at 72-73.

On May 30, 1997, the Harrises filed a motion opposing
arbitration. The Harrises argued that the arbitration clause
was invalid and unenforceable because the clause lacked
the requisite mutuality and was unconscionable. Moreover,
the Harrises argued that the arbitration clause could not be

                               7
enforced because they had been fraudulently induced to
enter into the secondary mortgage contracts.

After argument on defendants' motion to compel
arbitration, the District Court issued a Memorandum and
Order denying the motion.4 Because the clause "purports to
bind only one of the contracting parties, the plaintiff
borrower" and "leaves [Green Tree] free to litigate their
claims if they wish to do so," the Court found it a "one-
sided arrangement" that was "unconscionable." Harris v.
Green Tree Fin. Corp., No. 97-1128, slip op. at 2 (E.D. Pa.
Dec. 17, 1997). Thus, the apparent basis for the denial of
Green Tree's motion to compel arbitration was the Court's
determination that the arbitration clause lacked the
requisite mutuality and, therefore, was unconscionable.5

II. Discussion

The parties do not dispute that the home improvement
contracts involved in this dispute involve "commerce," as
defined in 9 U.S.C. S 1. Thus, the arbitration clause at
issue here falls within the scope of the FAA. See Becker
Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585
F.2d 39, 43 (3d Cir. 1978).

Originally passed in 1925, the FAA was enacted to
"revers[e] centuries of judicial hostility to arbitration
agreements" by "plac[ing] arbitration agreements upon the
same footing as other contracts." Pritzker v. Merrill Lynch,
Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1113 (3d Cir.
1993) (quoting Shearson/American Express, Inc. v.
McMahon, 482 U.S. 220, 225-26 (1987)). The FAA makes
agreements to arbitrate enforceable to the same extent as
_________________________________________________________________

4. The district judge also denied the Harrises motion for   an order
precluding defendants from contacting any of the putative   class
members with settlement offers. Harris, No. 97-1128, slip   op. at 3. Our
disposition of the arbitration issue makes this aspect of   the order moot
on appeal.

5. There is disagreement between the parties regarding the basis for the
Court's denial of the motion to compel arbitration. The Harrises argue
that the decision was based on unconscionability, while Green Tree
contends that it was based upon a lack of mutuality. We address both
potential bases for the District Court's ruling on appeal.

                               8
other contracts. Seus v. Nuveen & Co., 146 F.3d 175, 178
(3d Cir. 1998). Thus, federal law presumptively favors the
enforcement of arbitration agreements. In re Prudential Ins.
Co. of Am. Sales Practice Litig., 133 F.3d 225, 231 (3d Cir.
1998).

Federal law determines whether an issue governed by the
FAA is referable to arbitration. See Prima Paint Corp. v.
Flood & Conklin Mfg. Co., 388 U.S. 395, 401-03 (1967); see
also First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938,
943 (1995)("[A]rbitration is simply a matter of contract
between the parties; it is a way to resolve those disputes--
but only those disputes--that the parties have agreed to
submit to arbitration."). Pursuant to 9 U.S.C.SS 3-4,6 a
federal court is authorized to compel arbitration if a party
to an arbitration agreement institutes an action that
involves an arbitrable issue and one party to the agreement
has failed to enter arbitration. See Southland Corp. v.
Keating, 465 U.S. 1, 11-12 (1984).

Questions concerning the interpretation and construction
of arbitration agreements are determined by reference to
federal substantive law. See Moses H. Cone Mem'l Hosp. v.
_________________________________________________________________

6. Section three of the FAA provides, in pertinent part,

        If any suit or proceeding be brought in any of the courts of the
        United States upon any issue referable to arbitration under an
        agreement in writing for such arbitration, the court... upon being
        satisfied that the issue involved in such suit or proceeding is
        referable to arbitration under such an agreement, shall on
        application of one of the parties stay the trial of the action
until
        such arbitration has been had in accordance with the terms of the
        agreement....

9 U.S.C. S 3.

Section four of the FAA provides, in pertinent part,

        A party aggrieved by the alleged failure, neglect, or refusal of
        another to arbitrate under a written agreement for arbitration may
        petition any United States district court which, save for the
        agreement, would have jurisdiction ..., for an order directing that
        such arbitration proceed in the manner provided for in such
        agreement.

9 U.S.C. S 4.

                                9
Mercury Constr. Corp., 460 U.S. 1, 25 n. 32 (1983)("[The
FAA] creates a body of federal substantive law establishing
and regulating the duty to honor an agreement to arbitrate.
..."); Becker, 585 F.2d at 43. In interpreting such
agreements, federal courts may apply state law, pursuant
to section two of the FAA.7 Thus, generally applicable
contract defenses may be applied to invalidate arbitration
agreements without contravening the FAA. Doctor's
Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996); see
also Perry v. Thomas, 482 U.S. 483, 492 (1987).

If, however, a court deems a controverted arbitration
clause a valid and enforceable agreement, it must refer
questions regarding the enforceability of the terms of the
underlying contract to an arbitrator, pursuant to section
four of the FAA. Prima Paint, 388 U.S. at 395 ("Under
[section four of the FAA] with respect to a matter within the
jurisdiction of the federal courts save for the existence of an
arbitration clause, the federal court is instructed to order
arbitration to proceed once it is satisfied that`the making
of the agreement for arbitration or the failure to comply
(with the arbitration agreement) is not in issue' "); Great
Western Mortgage Corp. v. Peacock, 110 F.3d 222, 228 (3d
Cir. 1997)("Once such [a valid arbitration] agreement is
found, the merits of the controversy are left for disposition
to the arbitrator."); see also 13B C. W RIGHT, A. MILLER, & E.
COOPER, FEDERAL PRACTICE AND PROCEDURE, S 3569 (2d ed.
1984)("[E]ven in a diversity suit or an action in state court
if a ... transaction ... in interstate ... commerce is involved,
the substantive rules contained in the [FAA], ... are to be
applied regardless of state law.").

Accordingly, we decline to address arguments made by
the Harrises that go to the validity of the home
_________________________________________________________________

7. Section two of the FAA provides, in pertinent part,

       A written provision in ... a contract evidencing a transaction
       involving commerce to settle by arbitration a controversy
thereafter
       arising out of such contract or transaction, or the refusal to
perform
       the whole or any part thereof, ... shall be valid, irrevocable, and
       enforceable, save upon such grounds as exist at law or in equity
for
       the revocation of any contract.

9 U.S.C. S 2.

                               10
improvement contracts. We leave those issues for the
arbitrator. Here, we will address only those arguments
directed to the validity and enforceability of the arbitration
clause.

1. Mutuality

The doctrine of mutuality requires a contract to be based
on an exchange of reciprocal promises. See 1A ARTHUR L.
CORBIN, CORBIN ON CONTRACTS S 152, at 3 (1963). Modern
contract law largely has dispensed with the requirement of
reciprocal promises, however, provided that a contract is
supported by sufficient consideration. See RESTATEMENT
(SECOND) OF CONTRACTS S 79 (1981). Nevertheless, the District
Court apparently concluded that the arbitration clause at
issue here is unenforceable due to lack of mutuality
because it gives Green Tree the right to litigate arbitrable
issues in court, while the Harrises may only invoke
arbitration.

Our decision in Becker, 585 F.2d at 39, provides
guidance on the question of whether the arbitration clause
should have been deemed unenforceable for lack of
mutuality. Becker involved a contract that contained an
arbitration clause that gave a West German company the
option to arbitrate an issue in an American or German
court or to litigate in an American court, while another
party to the agreement, an American company, could only
invoke arbitration in an American court. Id. at 42-47. The
American company argued that this arbitration clause was
unenforceable because of a lack of mutuality of obligations
(i.e. the German company's choice of forum). Id . at 47 n. 15.8
We declined to adopt a requirement of equivalency of
obligation, however. Id. In so doing, we stated, "We know of
no such doctrine of complete mutuality as a matter of
federal law, and, because Becker U.S.A.'s argument has no
_________________________________________________________________

8. The central issue in Becker concerned whether the agreement
containing the arbitration clause in fact was governed by the clause; the
Court found that it was. 585 F.2d at 44-46. We then considered the
American company's alternative argument that even if the agreement fell
within the scope of the arbitration clause, the clause was unenforceable
due to lack of mutuality. Id. at 47 n. 15.

                               11
support in logic, reason or precedent, we decline the
invitation to adopt such a principle." Id.

Our finding in Becker that mutuality is not a requirement
of a valid arbitration clause is consistent with that of most
other federal courts that have considered this issue. See
e.g. Doctor's Associates, Inc. v. Distajo, 66 F.3d 438, 451-53
(2d Cir. 1995) (holding that mutuality of obligation or
remedy not required to enforce arbitration agreement if
underlying contract is supported by consideration); Wilson
Elec. Contractors, Inc. v. Minnotte Contracting Corp., 878
F.2d 167, 168-69 (6th Cir. 1989) (rejecting claim that
arbitration clause is an independent contract that requires
separate consideration to be enforceable); Dorsey v. H.C.P.
Sales, Inc., 1999 WL 257687 at *3 (N.D. Ill. Apr. 20,
1999)(holding that arbitration clause is not unenforceable
for lack of identical obligations); Randolph v. Green Tree
Fin. Corp., 991 F. Supp. 1410, 1421-22 (M.D. Ala. 1997)
(rejecting claim that arbitration clause that required one
party to arbitrate all claims, while giving the second party
the option not to arbitrate anything was invalid); Pate v.
Melvin Williams Mfg. Homes, Inc., 198 B.R. 841, 844
(Bankr. S.D. Ga. 1996) (rejecting argument that arbitration
agreement lacked mutuality because defendant company
could sue over certain issues, while consumer had to
arbitrate all claims). This substantive federal law stands for
the proposition that parties to an arbitration agreement
need not equally bind each other with respect to an
arbitration agreement if they have provided each other with
consideration beyond the promise to arbitrate.

Many state courts have considered this issue, as well,
including in actions involving Green Tree. Like this Court in
Becker and other federal courts, these state courts have
concluded that an arbitration clause need not be supported
by equivalent obligations. See, e.g., Smith v. Sanderson
Group, Inc., 1999 WL 357412 at *8 (Ala. June 4,
1999)(rejecting claim that arbitration clause is
unenforceable due to lack of mutuality of remedy); Parker v.
Green Tree Fin. Corp., 1999 WL 130281 at * 2-4 (Ala. March
12, 1999) (rejecting claim that arbitration clause is
unenforceable due to lack of mutuality of remedy and
unconscionability); Lackey v. Green Tree Fin. Corp., 498

                               12
S.E.2d 898, 904 (S.C. App. 1998) (holding that mutuality of
obligation existed because consideration flowed to each
contracting party); Ishmael v. Dutch Housing Inc., No.
96AP100084, 1996 Ohio App. LEXIS 3974 *4-6 (Ohio Ct.
App. 1997) (rejecting consumer's argument that defendant's
exclusion from requirement to arbitrate certain issues made
arbitration clause unenforceable).

While Pennsylvania courts appear not to have considered
whether mutuality is required in arbitration agreements,
Pennsylvania law, consistent with the most recent
restatement of contracts, does not otherwise require both
parties to an agreement to have equivalent obligations to
satisfy the standard of mutuality of obligation. See Greene
v. Oliver Realty, Inc., 526 A.2d 1192, 1195 (Pa. Super.
1987); Darlington v. General Elec., 504 A.2d 306, 316 (Pa.
Super. 1986). As long as the requirement of consideration
is met, mutuality of obligation is present, even if one party
is more obligated than the other. Greene, 526 A.2d at 1195
("Modern contract law recognizes that, `if the requirement of
consideration is met, there is no additional requirement of
... equivalence in the values exchanged....' "). Each promise
need not be supported by separate consideration. Id. at
1195.

Thus, the District Court's understanding of the
significance of the "one-sided" nature of the arbitration
clause contained in the contracts signed by the Harrises
was in error. See Harris, No. 97-1128, slip op. at 2. It is of
no legal consequence that the arbitration clause gives
Green Tree the option to litigate arbitrable issues in court,
while requiring the Harrises to invoke arbitration.

2. Unconscionability

Unconscionability is a "defensive contractual remedy
which serves to relieve a party from an unfair contract or
from an unfair portion of a contract." Germantown Mfg. Co.
v. Rawlinson, 491 A.2d 138, 145 (Pa. Super. 1985) (quoting
D. DOBBS, HANDBOOK ON THE LAW OF REMEDIES 707 (1973)). The
party challenging a contract provision as unconscionable
generally bears the burden of proving unconscionability.
Bishop v. Washington, 480 A.2d 1088, 1094 (Pa. Super.
1984); see also Argo Welded Products, Inc. v. J.T. Ryerson
Steel & Sons, 528 F. Supp. 583, 592-93 (E.D. Pa. 1981).

                                13
In evaluating claims of unconscionability, courts
generally recognize two categories, procedural, or"unfair
surprise," unconscionability and substantive
unconscionability. See Ferguson v. Lakeland Mut. Ins. Co.,
596 A.2d 883, 885 (Pa. Super. 1991); Bishop, 480 A.2d at
1095; Germantown, 491 A.2d at 145-46. Procedural
unconscionability pertains to the process by which an
agreement is reached and the form of an agreement,
including the use therein of fine print and convoluted or
unclear language. See E. ALLAN FARNSWORTH, CONTRACTS S 4.28
(2d ed. 1990). This type of unconscionability involves, for
example, "material, risk-shifting" contractual terms which
"are not typically expected by the party who is being asked
to `assent' to them" and "often appear[ ] in the boilerplate of
a printed form." Germantown, 491 A.2d at 145-46.
Substantive unconscionability refers to contractual terms
that are unreasonably or grossly favorable to one side and
to which the disfavored party does not assent. See id., at
145-147; Denlinger, Inc. v. Dendler, 608 A.2d 1061, 1068
(Pa. Super. 1992). Thus, "[u]nconscionability requires a
two-fold determination: that the contractual terms are
unreasonably favorable to the drafter and that there is no
meaningful choice on the part of the other party regarding
acceptance of the provisions." Bensalem Township v.
International Surplus Lines Ins. Co., 38 F.3d 1303, 1312 (3d
Cir. 1994) (quoting Worldwide Underwriters Ins. Co. v.
Brady, 973 F.2d 192, 196 (3d Cir. 1992)).

       a. Procedural Unconscionability

In finding the arbitration clause at issue here
unenforceable, the District Court wrote, "The relevant
documents do contain (in very small print, on the reverse
side) an arbitration clause...." Harris, No. 97-1128, slip op.
at 1-2. This parenthetical language suggests the court's
skepticism about the form of the arbitration clause.
Although it is not clear that this skepticism was the basis
for the court's denial of Green Tree's motion to compel
arbitration, the Harrises argue on appeal that we should
find the arbitration clause unenforceable because of its
form. Specifically, the Harrises argue that the clause is
procedurally unconscionable because it appears infine

                               14
print on the back of the relevant standard form contracts
and because it did not appear at all in work orders that
contractors required them to sign before beginning repairs
or improvements to their homes.

Pennsylvania law provides support for certain claims of
procedural unconscionability that are based on
inconspicuous or unclear contractual language, in
particular, if the contracting parties have unequal
bargaining power. See Moscatiello v. Pittsburgh Contractors
Equip. Co., 595 A.2d 1190, 1196-97 (Pa. Super. 1991)
(finding disclaimer of warranties clause that appeared in
fine print and on reverse side of sales agreement
unconscionable, where disadvantaged party was not an
experienced buyer); Germantown, 491 A.2d at 145-47
(finding unenforceable confession of judgment clause that
appeared in fine print in boilerplate language of standard
form contract, where party clearly did not understand its
significance). These cases do not, however, concern
arbitration clauses and are, therefore, inapposite to this
case. Moreover, other Pennsylvania law conflicts with the
holdings of these cases. See e.g. Standard Venetian Blind
Co., v. American Empire Ins. Co., 469 A.2d 563, 566 (Pa.
1983) (stating that failure to read or lack of knowledge of
clearly drafted contractual provision does not warrant
avoidance or nullification of its provisions).

In any event, the FAA and federal law construing the Act
govern the result in this case, and this authority does not
support the Harrises' claim of procedural unconscionability.
For instance, in Troshak v. Terminix Int'l Co., 1998 WL
401693 (E.D. Pa. 1998), the District Court for the Eastern
District of Pennsylvania has held that language that is clear
and ambiguous must be recognized and enforced. Id. at * 2
(citing Spigelmire v. School Dist. of Braddock, 43 A.2d 229
(Pa. 1945)). Thus, the Troshak court rejected a claim that
an arbitration clause was unconscionable merely because it
was on the reverse side of a contract; since the language
directing the contracting party to the reverse side of the
contract was clear and in plain view, the court found assent
to the agreement. Id. at *3 (citing Standard, 469 A.2d at
566). Similarly, in McCullough v. Shearson Lehman Bros.,
Inc., 1988 WL 23008, at *3 (W.D. Pa. Feb. 18, 1988), the

                                15
District Court for Western District of Pennsylvania rejected
an argument that an arbitration clause was
unconscionable, where it was not printed more prominently
than other parts of the contract. Accord Cantella & Co., Inc.
v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996) (holding that
clause is not "hidden" if it appears on the back of a single-
page document, where the "ARBITRATION" notice is in
bold, and given a presumption that a party who signs a
contract knows its contents).

Moreover, the Harrises' claim is not supported by Doctor's
Associates, Inc. v. Casarotto, 517 U.S. 1652 (1996), the
recent Supreme Court case construing the relationship
between section two of the FAA and a Montana statute
regulating the form of arbitration agreements. The statute
at issue in Doctor's Associates required"[n]otice that a
contract is subject to arbitration" to be "typed in underlined
capital letters on the first page of the contract." Id. at 684.
However, the arbitration clause at issue in the case was set
out in ordinary type on page nine of a standard form
agreement. Id. Thus, the clause did not conform to the
requirements of the Montana statute; therefore, the
Montana Supreme Court found the arbitration agreement
unenforceable. Id. The Supreme Court reversed, holding
that section two of the FAA preempted the Montana
statute's notice requirements. Id. at 688. In so doing, the
Supreme Court explained that courts may not invalidate
arbitration agreements under state laws that single out the
provisions of arbitration agreements for suspect status;
such provisions must be placed "upon the same footing as
other contracts." Id. at 687 (quoting Scherk v. Alberto-
Culver Co., 417 U.S. 506, 511 (1974)).9
_________________________________________________________________

9. The Court further noted in Doctor's Associates that the respondent
had urged at oral argument that the arbitration clause might be
invalidated as an unexpected provision in a contract of adhesion. The
Court reiterated that the Montana Supreme Court had not based its
decision on such a theory and the Court was not reviewing it. The Court
cautioned, however, that "a court may not `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 ... the state legislature cannot'." 517 U.S. at 687-88, n.3
(quoting Perry v. Thomas, 482 U.S. 483, 493, n.9 (1987).

                               16
Thus, we find that the arbitration clause involved in this
action was not procedurally unconscionable.

       b. Substantive Unconscionability

According to the Harrises, the arbitration clause is
substantively unconscionable because it allows Green Tree
the option of litigating disputes, while it provides no such
choice to them. They also argue that the clause is
unconscionable because it allegedly provides that Green
Tree does not have to obtain the Harrises' consent in
selecting the arbitrator.

This argument overlaps substantially with the issue of
mutuality, addressed above. As stated above, the mere fact
that Green Tree retains the option to litigate some issues in
court, while the Harrises must arbitrate all claims does not
make the arbitration agreement unenforceable. We have
held repeatedly that inequality in bargaining power, alone,
is not a valid basis upon which to invalidate an arbitration
agreement. See Great Western, 110 F.3d at 229 (citing
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 33
(1991)); Pritzker, 7 F.3d at 1118.

The Harrises then claim that the arbitration clause is
unenforceable because Green Tree does not need to obtain
the Harrises' consent in selecting the arbitrator. We note,
however, that the language of the arbitration clause does
not comport with the Harrises' interpretation of their rights
regarding the choice of arbitrator. Rather, the clause
provides that the arbitrator will be "selected by us [Green
Tree] with the consent of you [the Harrises]." In the event
that Green Tree and the Harrises do not agree on Green
Tree's choice of arbitrator, section five of the FAA provides
that either party may petition the court to appoint an
arbitrator.10 This provision of the Act provides a safety valve
_________________________________________________________________

10. Section five of the FAA provides, in pertinent part,

       If in the [arbitration] agreement provision be made for a method of
       naming or appointing an arbitrator ... such method shall be
       followed; but if no method be provided therein, or if a method be
       provided and any party thereto shall fail to avail himself of such
       method, or if for any other reason there shall be a lapse in the

                                17
for a party to an arbitration agreement who does not
consent to the other party's choice of arbitrator.

Thus, we do not find that the terms of the arbitration
clause are so unreasonably favorable to Green Tree as to
make the clause substantively unconscionable.

III. Conclusion

For the foregoing reasons, we will reverse and remand
this case to the District Court with directions to enter an
order granting defendants' motion to stay and to compel
arbitration.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit
_________________________________________________________________

naming of an arbitrator ... then upon the application of either party
to the controversy the court shall designate and appoint an
arbitrator ... who shall act under the said agreement with the same
force and effect as if he ... had been specifically named therein; and
unless otherwise provided in the agreement the arbitration shall be
by a single arbitrator.

9 U.S.C. S 5.

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