Keeton v. Wells Fargo Corp., No. 08-CV-990.

• Decision Date: 21 January 2010
• Docket Number: No. 08-CV-990.
• Citation: 987 A.2d 1118
• Parties: Bonita KEETON, Appellant, v. WELLS FARGO CORPORATION, et al., Appellees.
• Court: D.C. Court of Appeals

987 A.2d 1118

Bonita KEETON, Appellant, v. WELLS FARGO CORPORATION, et al., Appellees.

No. 08-CV-990.

District of Columbia Court of Appeals.

Argued November 5, 2009.

Decided January 21, 2010.

Anita Ghosh and Daniel DiLuccia, Student Attorneys, with whom Elliott S. Milstein, Supervising Attorney, and Sheri Strickler and Natalie Huls, Student Attorneys, were on the brief, for appellant.

David R. Mahdavi, McLean, VA, with whom John G. Calender, Washington, DC, was on the brief, for appellee.

Cyril V. Smith, Baltimore, MD, with whom David Reiser, Washington, DC and Eric Angel, were on the brief, for amicus curiae The Legal Aid Society of the District of Columbia.

Before GLICKMAN and KRAMER, Associate Judges, and NEBEKER, Senior Judge.

KRAMER, Associate Judge:

This dispute concerns the alleged unconscionability of an arbitration clause in a standardized-form consumer contract of adhesion. Because of the procedural posture of the case—it is before us after the trial court granted appellee's motion to dismiss—we summarize the relevant facts as appellant has alleged them.

Ms. Keeton is a school bus driver with four dependent children who appears in forma pauperis. Easterns is a used car dealership chain with seventeen locations throughout the region. On July 28, 2005, Ms. Keeton purchased a used Sports Utility Vehicle (a 2001 Mazda Tribute XL) ("SUV") from Easterns for $19,955. Acting as the agent for Wells Fargo, a national banking concern, Easterns provided financing for the purchase. At the conclusion of the transaction, Ms. Keeton agreed to pay Easterns (and through Easterns, Wells Fargo) $389.92 per month for the next six years, for a total sum of $28,074. The fair market value of the SUV, if it had been in excellent condition, was $11,400. Within the first year, the SUV broke down twice, while Ms. Keeton continued to make payments. Her subsequent attempts to refinance failed because the value of the SUV was far below the loan amount, and she defaulted just over one year after she had made the purchase. Soon thereafter, Wells Fargo repossessed and resold the SUV for $6,100. Wells Fargo then demanded that Ms. Keeton pay the difference between the amount she still owed and the resale value of the SUV, or $13,368.95. In response, Ms. Keeton sued both Easterns and Wells Fargo in the Superior Court, alleging that Easterns violated the D.C. Consumer Protection Procedures Act ("CPPA")¹ by knowingly failing to disclose the SUV's fair market value. In addition to the CPPA claim, Ms. Keeton alleged that Easterns and Wells Fargo had engaged in fraud and fraudulent misrepresentation, and that the sale contract² was unconscionable. Appellees filed a Motion to Dismiss and to Compel Arbitration,³ which the trial court granted, dismissing the case with prejudice. This appeal followed. Our review is de novo.⁴

At the outset, we need to satisfy ourselves that we have jurisdiction.⁵ Although appellees have conceded the issue, "[p]arties cannot waive subject matter jurisdiction by their conduct or confer it . . . by consent, and the absence of such jurisdiction can be raised at any time."⁶ We have previously held that orders to compel arbitration are not appealable, and we have even construed an ambiguous order to dismiss as a stay,⁷ but we have never considered the situation where a trial court dismissed a case with prejudice in addition to compelling arbitration. Because such an order is unambiguously final,⁸ we hold that appellate jurisdiction exists where the trial court has effectively prevented a plaintiff from litigating the issue in the future.⁹

Turning to the merits, we detect several problems with the dismissal order. First, our well-settled unconscionability standard calls for a strongly fact-dependent inquiry.¹⁰ This standard, coupled with the requirement that a court conduct "an expedited evidentiary hearing"¹¹ when parties dispute the validity of the arbitration clause, makes the order below impossible to affirm.¹² For example, appellant argued that she lacked meaningful choice as part of her unconscionability allegation, which Easterns countered by pointing out that she could have purchased a used car from another dealer. It was error for the court to adopt Easterns's contention without conducting any fact-finding to determine the impact of the existence of other dealerships on appellant's options.¹³ The court also impermissibly determined that "the parties reasonably entered into the agreement." Given the factual nature of a reasonableness determination, especially in light of the unconscionability standard which demands a more developed record, the court's ruling was premature at best. On remand, the trial court should allow discovery, followed by an evidentiary hearing to determine the unconscionability of the arbitration clause.¹⁴

In addition, the trial court, relying on the Supreme Court's opinion in First Options v. Kaplan,¹⁵ concluded that the arbitrator should determine the validity of the arbitration clause, as required by the language of Easterns's arbitration clause.¹⁶ The court erred by conflating two distinct legal concepts. First Options involved an arbitrability dispute. An arbitrability dispute is over what the parties have agreed to submit to the arbitrator's authority, that is, the scope, but not the validity, of an arbitration clause.¹⁷ A challenge that the clause is unconscionable disputes its validity, not its scope, and it is up to the courts, not arbitrators, to adjudicate the validity of an arbitration clause.¹⁸ Regardless of what authority Easterns's form contract purported to confer on the arbitrator, the validity of the arbitration clause itself was for the court to decide.¹⁹

After consideration of the record on appeal, the briefs of the parties, and the oral argument at which appellee conceded that the dismissal of the complaint with prejudice was error, we remand this case. On remand, the trial court should ensure that the parties have an opportunity to develop the record with respect to all the disputed factual issues central to a proper determination of unconscionability. Some of these issues are: the significance of the imbalance of power in arbitrator selection given Easterns's status as a "repeat player" in the arbitration system, the fact that the clause reserves some litigation avenues to Easterns while entirely barring Ms. Keeton from seeking judicial action, as well as the costs imposed on Ms. Keeton by the arbitration procedure and their impact on her ability to seek redress.²⁰ Should the court still find the arbitration clause valid after considering a fully developed record, it should, instead of dismissing the case, stay the proceedings pending the outcome of the arbitration.²¹

Reversed and remanded.

1. D.C.Code §§ 28-3901 to -3905.

2. Ms. Keeton signed a Buyer's Order, a standardized-form contract with terms prepared in advance by Easterns. There is no evidence that any of the terms were open to negotiation or were, in fact, negotiated.

3. Easterns and Wells Fargo moved to dismiss pursuant to the arbitration clause, which is among the seventeen "Additional Conditions of Sale" on the back of the Buyer's Order. It reads, in its entirety, as follows:

ARBITRATION TERMS—The parties agree that all disputes, claims or controversies arising from or relating to the Purchaser's purchase of the Vehicle, the Agreement or the relationship which result (sic) from the Agreement, or the validity of this arbitration clause or the Agreement shall be resolved by binding arbitration by one arbitrator located in the Northern Virginia area selected by the Dealer (or the assignee of any Retail Installment Sales Contract) with the consent of the Purchaser. Judgment upon the award rendered may be entered in any court having jurisdiction. The parties agree and understand 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 that the Dealer (or the Assignee of any Retail Installment sales Installment Sales (sic) Contract) may proceed with Court action in the event the purchaser fails to pay any sums due under the Agreement. THE PARTIES VOLUNTARILY AND KNOWINGLY WAIVE ANY RIGHT THEY HAVE TO JURY TRIAL EITHER PURSUANT TO ARBITRATION UNDER THIS CLAUSE OR PURSUANT TO COURT ACTION BY THE ASSIGNEE (AS SET FORTH HEREIN ABOVE). Except as provided herein, the parties agree and understand that all disputes arising under case law, statutory law, and all other laws, including, but not limited to all contract, tort or property disputes will be subject to binding arbitration in accordance with the terms thereof. The parties agree that the arbitration shall have all power provided by law and the agreement. The parties agree that the cost of arbitration shall be borne equally between the parties, provided however, that the arbitrator may, in the interests of justice, order that the losing party pay the prevailing party's costs. A Dispute is any question as to whether something must be arbitrated, as well as any allegation concerning a violation of state or federal statute that may be the subject of binding arbitration, any purely monetary claim greater than $1,000.00 in the aggregate whether contract tort, or other, arising from the negotiation of and terms of the Buyer's Order, any service contract or insurance product, or any retail installment sale contract or lease (but this arbitration provision, does not apply to and shall not be binding on any assignee thereof); provided, however, that your failure to provide consideration to be paid by you (including your failure...