Brewer v. Mo. Title Loans

• Decision Date: 06 March 2012
• Docket Number: No. SC 90647.,SC 90647.
• Citation: Brewer v. Mo. Title Loans, 364 S.W.3d 486 (Mo. 2012)
• Parties: Beverly BREWER, Respondent, v. MISSOURI TITLE LOANS, Appellant.
• Court: Missouri Supreme Court

364 S.W.3d 486

Beverly BREWER, Respondent,

v.MISSOURI TITLE LOANS, Appellant.

No. SC 90647.

Supreme Court of Missouri, En Banc.

March 6, 2012.

Jonathan F. Andres and Martin M. Green, Green Jacobson PC, St. Louis, for Missouri Title Loans.

John Campbell, John Simon and Erich Vieth, The Simon Law Firm, St. Louis, for Brewer.

Gregory C. Mitchell, Jamie J. Cox and Johnny K. Richardson, Brydon, Swearengen & England PC, Jefferson City, for Missouri Automobile Dealers' Association.

RICHARD B. TEITELMAN, Chief Justice.

Missouri Title Loans, Inc. appeals a judgment finding that a class arbitration waiver contained in its loan agreement, promissory note and security agreement (agreement) is unenforceable.In Brewer v. Missouri Title Loans, Inc.,323 S.W.3d 18(Mo. banc 2010), this Court affirmed the judgment insofar as it held that the class arbitration waiver is unconscionable and reversed that part of the judgment ordering that the claim be submitted to an arbitrator to determine suitability for class arbitration.This Court held that the appropriate remedy was to strike the entire arbitration agreement.

The United States Supreme Court vacated Brewer in Missouri Title Loans, Inc. v. Brewer,––– U.S ––––, 131 S.Ct. 2875, 179 L.Ed.2d 1184(2011), and remanded the case to this Court for further consideration in light of AT & T Mobility, LLC v. Concepcion,––– U.S. ––––, 131 S.Ct. 1740, 179 L.Ed.2d 742(2011).Applying Concepcion,this Court finds that the presence and enforcement of the class arbitration waiver does not make the arbitration clause unconscionable.This Court instead applies traditional Missouri contract law in looking at the agreement as a whole to determine the conscionability of the arbitration provision.This Court holds that Brewer has demonstrated unconscionability in the formation of the agreement.The appropriate remedy is revocation of the arbitration clause contained within the agreement.Consequently, the judgment is affirmed in part and reversed in part, and the case is remanded.

FACTS

Beverly Brewer borrowed $2,215 from the title company.The loan was secured by the title to Brewer's automobile.The annual percentage rate on the loan was 300 percent.The agreement provided that Brewer must resolve any claim against the title company in binding, individual arbitration governed by the Federal Arbitration Act(the act).No customer ever successfully has renegotiated the terms of the contract, including the arbitration provisions.Although the agreement provided that Brewer waived her right to litigate a dispute in court, the title company specifically retained its “right to seek possession of the Collateral in the event of default by judicial or other process including self-help repossession.”In other words, the title company may utilize the courts to repossess the customer's vehicle, but the customer must go to arbitration to complain about violations of its rights under the contract.

In addition, the agreement stated that “[t]he parties agree to be responsible for their own expenses, including fees for attorneys, experts and witnesses.”Unlike some arbitration contracts, such as the contract at issue in Concepcion, the agreement did not provide an attorney fee multiplier or guaranteed minimum recovery if the consumer is awarded more than the title company's last offer.The arbitration contract in Concepcion provided that a consumer who is awarded more than AT & T's last offer is entitled to a minimum recovery of $7,500 and to double his or her attorney's fees.Concepcion,131 S.Ct. at 1744.The cumulative real-world effect of the arbitration provisions in this case is that a consumer's minimum and maximum recovery from the title company are identical—$0.00—for no consumer ever has filed an individual claim for arbitration against the title company.

Brewer made two payments to the title company of more than $1,000, but the payment only reduced her loan principal by 6 cents.Brewer filed a class action petition against the title company alleging violations of numerous statutes, including the state merchandising practices act.The title company filed a motion to dismiss or to stay the claims and to compel Brewer to arbitrate her claims individually.The trial court held a hearing and entered a judgment finding the class arbitration waiver in the loan agreement unconscionable and unenforceable.The trial court also considered a number of the other aspects of the clause, finding that it would be difficult for a consumer to understand that there was a disparity of bargaining power, that the provision was one-sided because only customers gave up their rights while the title company could pursue self-help or relief in the courts, and that the title company had admitted that the provision that each party be responsible for its own costs and attorney's fees in arbitration placed a high burden on consumers.It also found that they too rendered the agreement unconscionable when considered as an individual action.The court ordered the claim to proceed to arbitration to determine whether it was suitable for class arbitration.

The title company appealed, asserting that the act preempted the trial court's decision, that the class arbitration waiver was not unconscionable, and that the waiver was a valid and permissible exculpatory clause under Missouri law.This Court held that the class arbitration waiver was unconscionable and struck the arbitration agreement in its entirety.

The United States Supreme Court granted the title company's petition for writ of certiorari.Mo. Title Loans, Inc. v. Brewer,––– U.S. ––––, 131 S.Ct. 2875, 179 L.Ed.2d 1184(2011).The Court vacated Brewer I and remanded the case to this Court for further consideration in light of Concepcion,131 S.Ct. 1740.

On remand, the title company asserts that the act wholly preempts Missouri's common law of unconscionability.Alternatively, the title company asserts that the availability of statutory attorney's fees negates Brewer's unconscionability defense because the fee provisions make it possible for consumers with small dollar claims to obtain counsel.Before addressing the title company's arguments, this Court must first address the law established in Concepcion.

ANALYSIS

I.AT & T v. Concepcion

Determining the law established in Concepcion is complicated.Justice Scalia authored an opinion joined by Chief Justice Roberts and justices Kennedy, Alito and Thomas, but Justice Thomas also filed a concurring opinion in which he indicated that, although he concurred in Justice Scalia's opinion, he suggested a slightly different analysis than Justice Scalia.Concepcion,131 S.Ct. at 1754(Thomas, J., concurring).Justice Breyer filed a dissenting opinion, in which justices Ginsbug, Sotomayor and Kagan joined.

As a result, Concepcion is best understood by considering Justice Scalia's majority opinion as further informed by Justice Thomas' concurrence.Both opinions, for slightly different reasons, stand for the proposition that the act generally does not permit a state to bar class action waivers by finding an arbitration agreement unconscionable on the basis of a class action waiver alone.The Scalia opinion does not state, however, that the federal act otherwise preempts traditional state law defensesto contract formation such as unconscionability, duress or fraud, and Justice Thomas is clear that he would apply those defenses.But Concepcion teaches these defenses cannot be used in a way that would hold otherwise valid arbitration agreements unenforceable for the sole reason that they bar class relief.That was what had happened in Concepcion.

In Concepcion,the plaintiffs sued AT & T in federal district court alleging they improperly were charged sales tax on the retail value of cellular phones provided for free under the terms of their service contract.Id. at 1744.The plaintiffs' suit was consolidated with a class action alleging in part that AT & T had engaged in false advertising and fraud by charging sales tax on the phones it had advertised as free.Id.AT & T filed a motion to compel individual arbitration pursuant to its contract with the plaintiffs.The district court specifically found that the arbitration agreement “was ‘quick, easy to use’ and likely to ‘promp[t] full or ... even excess payment to the customer without the need to arbitrate or litigate.’ ”Id. at 1745.The district court also found that the provision of a $7,500 premium in the event the consumer was awarded more than AT & T's final written settlement offer served as “substantial inducement” for the consumer to pursue individual arbitration as opposed to class arbitration.Id.Although individual arbitration was more beneficial to a consumer than class arbitration, the district court held that the arbitration provision was unconscionable under the California Supreme Court's decision in Discover Bank v. Superior Court,36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100(2005).Id.

Given this factual context, the question framed by the Scalia opinion is “whether § 2[of the ACT] preempts California's [Discover Bank ] rule classifying most collective-arbitration waivers in consumer contracts as unconscionable.”Id. at 1746.Discover Bank held that a class action waiver in a consumer contract of adhesion is unconscionable when consumer claims against the defendant are predictably small and the plaintiff alleges a scheme to cheat consumers.Id.Notably absent from the formulation of the Discover Bank rule is any finding that the consumer is worse off under individual arbitration as opposed to class arbitration or that the individual terms of the arbitration agreement are otherwise onerous or unfair.Id. at 1750, 1753.The practical effect of the Discover Bank rule, therefore, is to invalidate class arbitration waivers in most consumer contracts even if traditional factors of unconscionability are absent.¹

The lack of any requirement of showing actual...