Brewer v. Mo. Title Loans Inc

Decision Date31 August 2010
Docket NumberNo. SC90647,SC90647
PartiesBeverly Brewer, Respondent, v. Missouri Title Loans, Inc., Appellant.
CourtMissouri Supreme Court

Beverly Brewer, Respondent,
v.
Missouri Title Loans, Inc., Appellant.

No. SC90647

Supreme Court of Missouri

Opinion issued August 31, 2010


Richard B. Teitelman, J.

Missouri Title Loans, Inc., appeals a judgment finding that a class arbitration waiver contained in its loan agreement is unconscionable and unenforceable. The judgment is affirmed in part and reversed in part. The case is remanded.

FACTS

Beverly Brewer borrowed $2,215 from Missouri Title Loans. She signed a loan agreement, promissory note and security agreement. The loan was secured by the title to Brewer's 2003 Buick Rendezvous. The annual percentage rate on the loan was 300 percent. The loan agreement included language requiring individual arbitration and a waiver of Brewer's right to class arbitration.

Brewer filed a class action petition against Missouri Title Loans alleging violations of numerous statutes, including the Missouri merchandising practices act.

Page 2

Missouri Title Loans filed a motion to dismiss or to stay the claims and to compel Brewer to arbitrate her claims individually. The trial court entered a judgment finding the class arbitration waiver in the loan agreement unconscionable and unenforceable. The court ordered the claim to proceed to arbitration to determine whether it was suitable for class arbitration. Missouri Title Loans appeals.

ANALYSIS

Missouri Title Loans raises three points on appeal. It asserts that the federal arbitration act ("FAA") preempts the trial court's decision, that the class arbitration waiver was not unconscionable, and that the waiver is a valid and permissible exculpatory clause under Missouri law.

I. Standard of Review

The trial court heard evidence on the record at a hearing on Missouri Title Loans' motion. The judgment will be affirmed if it is supported by substantial evidence, is not against the weight of the evidence, and does not erroneously declare or apply the law. Woods v. QC Financial Services, Inc., 280 S.W.3d 90, 94 (Mo. App. 2008). The issue of whether a dispute is subject to arbitration is subject to de novo review. Id.

II. Federal Arbitration Act

The FAA, 9 U.S.C. section 1, et seq., provides that valid arbitration agreements that affect interstate commerce must be enforced unless an exception applies. Kansas City Urology, P.A. v. United Healthcare Servs., 261 S.W.3d 7, 10-11 (Mo. App. 2008). Although the FAA is drafted to favor the enforcement of arbitration provisions, generally applicable state law contract defenses such as fraud, duress and unconscionability may be

Page 3

used to invalidate all or part of an arbitration agreement without contravening the FAA. Swain v. Auto Services, Inc., 128 S.W.3d 103, 107 (Mo. App. 2003)(citing Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996)).

The interplay between Brewer's state law unconscionability defense and the FAA is informed by the recent decision in Stolt-Nielsen v. Animal-Feeds International Corp., 130 S.Ct. 1758, 1776 (2010). In Stolt-Nielsen, the Supreme Court held that where an arbitration agreement is silent with respect to class arbitration, the parties cannot be compelled to submit the dispute to class arbitration. The Court premised its holding on the notion that arbitration is fundamentally a matter of consent, and, as a result, an arbitrator's authority over claims and parties is limited by the scope of the arbitration agreement Id. at 1774-1775. Therefore, "it follows that a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding the party agreed to do so." Id. at 1775. Because the parties in Stolt-Nielsen had reached no agreement on the issue of class arbitration, there was no contractual basis for concluding there was consent to class arbitration. Id. Without consent, the arbitrator lacked the authority to act. Id.

In this case, the arbitration contract was not silent with respect to class arbitration. To the contrary, a central aspect of the arbitration contract between Missouri Title Loans and Brewer was the class arbitration waiver that Brewer is seeking to invalidate. With the waiver, Missouri Title Loans expressly withheld its consent to class arbitration. Although Stolt-Nielsen is factually distinguishable from this case because it involved sophisticated international business entities, the fact remains that the Supreme Court's

Page 4

analysis is premised on the concept of consent. Missouri Title Loans expressly withheld its consent to class arbitration. Were this Court to strike the class action waiver clause, the result would be an agreement that was silent as to class arbitration. As Stoltz-Nielsen requires an affirmative consent to class arbitration before it may be compelled, its rationale would preclude Missouri Title Loans from being forced to submit to class arbitration.

The conclusion that Missouri Title Loans cannot be compelled to participate in class arbitration does not mean that Brewer must submit to individual arbitration. The trial court found that the class arbitration waiver was unconscionable and unenforceable and ordered the case to proceed to arbitration for a determination of whether class arbitration is appropriate. In effect, the trial court, consistent with prior Missouri cases, severed what it found to be an unconscionable clause (the class arbitration waiver) from the otherwise enforceable arbitration contract. Under Stolt-Nielsen, however, class arbitration is not an option in this case because Missouri Title Loans expressly withheld its consent to class arbitration, and absent an express agreement to class arbitration, class arbitration is not an option.

For this reason, simply invalidating the class waiver would not remedy the unconscionable aspects of the arbitration contract should this Court agree that denial of the right to proceed on a class basis is unconscionable on these facts. That is because were the class waiver simply invalidated and severed from the remainder of the arbitration contract, Brewer then would be required to submit to individual arbitration. If this Court were to agree with the trial court that, on the facts of this case, individual

Page 5

arbitration is not economically practical or feasible because the amount in controversy is so small in relationship to the risks and costs involved that a reasonable attorney would not take the case, however, then individual arbitration would not be a feasible remedy. This difficulty could be avoided only by permitting litigation of this matter as part of a class action, and as there is no affirmative agreement to class arbitration, the class action must proceed in court. This is not surprising, for one of the rationales behind allowing class actions is to permit suit to be brought on a class basis where it is not economically or practically feasible to do so on an individual basis. Wood, 280 S.W.3d at 98.

This is not to say that an arbitration agreement is always unconscionable merely because there is no agreement to class arbitration; Stolz-Nielson demonstrates that requiring individual arbitration can be reasonable and enforceable. It is only when the practical effect of forcing a case to individual arbitration is to deny the injured party a remedy--because a reasonable attorney would not take the suit if it could not be brought on a class basis either in court or through class arbitration--that a requirement for individual arbitration is unconscionable. The Court, therefore, turns to the facts of this case to see whether the individual arbitration agreement imposed by Missouri Title Loans was unconscionable here.

III. Unconscionability

An unconscionable arbitration provision in a contract will not be enforced. See State ex rel. Vincent v. Schneider, 194 S.W.3d 853, 856-61 (Mo. banc 2006) (invalidating as unconscionable arbitration clauses requiring the consumer to pay for all arbitration fees and allowing an entity related to one of the parties to select the arbitrator); Whitney

Page 6

v. Alltel Communications, Inc., 173 S.W.3d 300, 308-314 (Mo. App. 2005) (invalidating as unconscionable an arbitration provision barring consumer claims from being raised as class actions). There are procedural and substantive aspects to unconscionability. Procedural unconscionability relates to the formalities of the making of an agreement and encompasses, for instance, fine print clauses, high pressure sales tactics or unequal bargaining positions. Woods, 280 S.W.3d at 94 (citing Whitney, 173 S.W.3d at 308). Substantive unconscionability refers to undue harshness in the contract terms. Whitney, 173 S.W.3d at 308 (quoting Funding Sys. Leasing Corp. v. King Louie Int'l, Inc., 597 S.W.2d 624, 634 (Mo. App. 1979)).

A number of decisions from the Missouri court of appeals has held that there must be both procedural and substantive unconscionability before a contract or a clause can be voided. See Woods, 280 S.W.3d at 94. These cases characterize the test for unconscionability as a balancing test or "sliding scale" between the substantive and procedural aspects. Whitney, 173 S.W.3d at 308. This general rule provides an acceptable analytical framework for most cases because a party who employs procedurally unconscionable bargaining tactics usually does so with the goal of inducing the other party into a one-sided...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT