LAVERN ROBINSON, ) ) Respondent, ) ) v. ) No. SC91728 ) TITLE LENDERS, INC., ) D/B/A MISSOURI PAYDAY LOANS, ) ) Appellant. )
APPEAL FROM THE CIRCUIT COURT OF THE CITY OF ST. LOUIS The Honorable Donald L. McCullin, Judge
Opinion issued March 6, 2012
At issue in this case is whether a consumer arbitration agreement containing a class action waiver is unconscionable and, therefore, unenforceable. Title Lenders, Inc., a payday loan company, argues that its arbitration agreement containing a class waiver is enforceable and should result in the dismissal of a lawsuit brought by Lavern Robinson (Borrower). Borrower seeks to have the arbitration provision or its class waiver declared unenforceable so that she can proceed with a class action suit or class arbitration against Title Lenders.
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The trial court found that Title Lenders' arbitration agreement is unconscionable and unenforceable because its class waiver deprives borrowers of a meaningful remedy. Title Lenders appeals, and its appeal presents the issue of how the United States Supreme Court's recent decision in AT&T Mobility LLC v. Concepcion, ___ U.S. ___ , 131 S.Ct. 1740 (2011), applies in this case. 1
Concepcion held that the Federal Arbitration Act (FAA) preempted a California judicial rule that deemed unconscionable most class arbitration waivers in consumer contracts. See 131 S.Ct. at 1746 (noting that the question the court was addressing was whether section 2 of the FAA preempted California's "Discover Bank rule," which classified "most collective-arbitration waivers in consumer contracts as unconscionable"). This Court finds that Concepcion instructs that the trial court erred in finding that Title Lenders' arbitration agreement was unconscionable based on its class waiver. Concepcion indicates that, in light of the FAA's section 2 "saving clause," the trial court instead should have adjudicated whether the arbitration agreement was enforceable in light of Borrower's evidence relevant to her claims regarding ordinary state-law principles that govern contracts but that do not single out or disfavor arbitration. For these reasons, the trial court's judgment is reversed.
1 This Court, acting on its own motion, took transfer of this case prior to its disposition by the court of appeals. Jurisdiction is vested in this Court pursuant to M O. CONST. art. V, sec. 10.
Because the trial court has not yet adjudicated Borrower's unconscionability claims that are not related to the arbitration agreement's class waiver, this matter is remanded to the circuit court for further consideration in light of Concepcion and this opinion. I. Background
From September 2005 to September 2006, Borrower entered into 13 separate loan agreements with Title Lenders. Borrower does not contest that each of these agreements was approved by the Missouri Division of Finance and included all necessary disclosures under state and federal law. Each of the loan agreements signed by Borrower contained Title Lenders' standard arbitration agreement language. The arbitration provisions explained arbitration, noted that some claims still might be resolved in small claims "court," provided that arbitrations would be administered by the American Arbitration Association, and indicated that Title Lenders would cover the filing fees and costs for arbitration when "it would be unfair or burdensome" for the borrower to pay. The arbitration agreement indicated that Borrower was waiving a jury trial or access to a class action, but it did not otherwise contain a waiver of any claims, remedies, or damages that would be available to Borrower. The following language in the arbitration agreement noted the class waiver (bolded and capitalized emphasis appears in the agreement, underlined emphasis added by this Court): Only disputes involving you and us may be addressed in the arbitration. The arbitration may not address any dispute on a "class action" basis. This means that the arbitration may not address
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disputes between you and us. The arbitrator shall have the authority to award any legal or equitable remedy or relief that a court in the State of Missouri could order or grant. The arbitrator, however, is not authorized to change or alter the terms of this Agreement or to make any award that would extend to any loan other than your own. BY AGREEING TO ARBITRATE ANY DISPUTE, NEITHER YOU NOR WE WILL HAVE THE RIGHT TO LITIGATE THAT DISPUTE IN COURT, OR TO HAVE A JURY TRIAL ON THAT DISPUTE, OR ENGAGE IN DISCOVERY PROCEEDINGS EXCEPT AS PROVIDED FOR ABOVE OR IN THE ARBITRATION RULES. FURTHER, YOU WILL NOT HAVE THE RIGHT TO PARTICIPATE AS A REPRESENTATIVE OR MEMBER OF ANY CLASS PERTAINING TO ANY DISPUTE SUBJECT TO ARBITRATION. THE ARBITRATOR'S DECISION WILL BE FINAL AND BINDING, EXCEPT TO THE EXTENT IT IS SUBJECT TO REVIEW IN ACCORDANCE WITH APPLICABLE LAWS GOVERNING ARBITRATION AWARDS, OTHER RIGHTS THAT YOU OR WE WOULD HAVE IN COURT MAY ALSO NOT BE AVAILABLE IN ARBITRATION. Borrower signed each of the lending contracts, including the arbitration provisions, and her signature was noted to indicate her understanding and acceptance of all terms in the agreement. Borrower attested in a deposition that she never was threatened, rushed, pressured, or forced into entering the agreements with Title Lenders. She also indicated, however, that she never read the arbitration clauses when she signed the loan contracts. In October 2006, Borrower sued Title Lenders, alleging that its lending practices violated the Missouri Merchandising Practices Act and certain regulatory statutes. Borrower sought to represent herself in the suit, as well as a putative class of borrowers who also had obtained payday loans using Title Lenders' loan
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agreement form. Title Lenders, asserting the arbitration provisions signed by Borrower, moved to stay Borrower's suit and to compel her to pursue her claims via individual arbitration or in the small claims division of the circuit court. Borrower responded that Title Lenders' class waiver in its loan contract arbitration provisions rendered its arbitration agreement unconscionable and, therefore, unenforceable. 2 Borrower also asserted that Title Lenders' class waiver would effectively immunize it from suits because attorneys would not agree to handle borrowers' cases unless a class action was available. She argued that the class waiver was an exculpatory clause that was unenforceable because it was not clear and unambiguous. 3
Arguments and briefs were presented to the trial court. Evidence was presented regarding Borrower's contentions that Title Lenders' arbitration agreement was unconscionable. Borrower's evidence sought to emphasize her lack of sophistication and her lack of understanding of the agreement. She also raised complaints about the agreement's print size, location, and clarity, as well as the high rate of interest available under the loan contract. Title Lenders
2 "Unconscionability has two aspects: procedural unconscionability and substantive unconscionability. Procedural unconscionability deals with the formalities of making the contract, while substantive unconscionability deals with the terms of the contract itself." State ex rel. Vincent v. Schneider, 194 S.W.3d 853, 858 (Mo. banc 2006) (noting that "[p]rocedural unconscionability focuses on such things as high pressure sales tactics, unreadable fine print, or misrepresentation among other unfair issues in the contract formation process," whereas "[s]ubstantive unconscionability means an undue harshness in the contract terms"). Missouri does not permit an unconscionable contract or clause of a contract to be enforced. Id. 3 A clause exculpating a party from liability must be clear and unambiguous. See Alack v. Vic Tanny Int'l of Mo., Inc., 923 S.W.2d 330, 334 (Mo. banc 1996).
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highlighted that Borrower was not coerced or pressured into entering the agreement but rather voluntarily signed it 13 times despite her admissions that she did not read or understand it. 4 Title Lenders' evidence also included that Borrower admitted to preferring to obtain financing from Title Lenders, though she had other sources of financing available from other lenders that did not require her to sign an arbitration agreement. Evidence also was presented regarding Borrower's arguments that the arbitration agreement and its class waiver effectively exculpated Title Lenders from suits. Borrower's evidence included the testimony of two lawyers who opined that consumer lawyers would not take a case like Borrower's case unless it could be pursued as a class action. Title Lenders countered by arguing that there was no evidence that its borrowers had been unsuccessful in retaining counsel to pursue individual claims. Title Lenders sought to compel individual arbitration, and Borrower sought to have the class waiver stricken so she could proceed with class arbitration or a class action suit.
4 The law is clear that a signer's failure to read or understand a contract is not, standing alone, a defense to the contract. See Sanger v. Yellow Cab Co., Inc., 486 S.W.2d 477, 481 (Mo. banc 1972) ("The rule is that the one who signs a paper, without reading it, if he is able to read and understand, is guilty of such negligence in failing to inform himself of its nature that he cannot be relieved from the obligation contained in the paper thus signed, unless there was something more than mere reliance upon the statements of another as to its contents[.]" (internal quotations omitted)); see also Repair Masters Constr., Inc. v. Gary, 277 S.W.3d 854, 858 (Mo. App. 2009) ("The failure to read a document prior to signing it is not a defense, and does not make a contract voidable, absent fraud.").
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In March 2009, the trial court granted Title Lenders' motion to stay Borrower's court case, finding: "The Court has reviewed the evidence and the submissions of the parties and finds that the present dispute is arbitrable ... [and] must be stayed for arbitration." But noting the "unequal bargaining position between the parties when the underlying contract was entered into," the court also found: "[T]he terms of the Arbitration Clause are unduly harsh and not commercially reasonable in the prohibition of class actions and the ability to arbitrate a class. As such, the Arbitration Clause is both procedurally and substantively unconscionable to the extent that it prohibits class actions." The trial court's March 2009 order discussed that the lack of class availability would leave Borrower and similarly situated consumers without a practical remedy for their relatively small claims. It stated that the class waiver provisions are unconscionable insofar as their "practical effect affords [Title Lenders] immunity" from suit. The trial court additionally found that the class waiver is "exculpatory and unenforceable because it is not clear and unambiguous." The trial court struck the class waiver provisions from the arbitration agreement, but it ordered enforcement of the other arbitration provisions absent the class waiver. Titled Lenders appealed the March 2009 judgment, but its initial appeal was dismissed and the case was remanded because the trial court had not addressed one of Borrower's declaratory-relief counts. While the case was pending on remand, the United States Supreme Court held that class arbitration could not be compelled absent express consent by the parties. See Stolt-Nielsen
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S.A. v. AnimalFeeds Int'l Corp., ___U.S. ___, 130 S.Ct. 1758 (2010). Borrower moved that the trial court, in light of Stolt-Nielsen, deny Title Lenders' motion to stay the suit, and Title Lenders moved that the trial court instead modify its order to grant the stay. In a judgment entered in January 2011, the trial court found that it was precluded from ordering arbitration on a class basis but rather only could compel individual arbitration. In support of this holding, the trial court cited Stolt-Neilsen and this Court's opinion in Brewer v. Missouri Title Loans, Inc., 323 S.W.3d 18 (Mo. banc 2010) (Brewer I), vacated, Missouri Title Loans, Inc. v. Brewer, ___ U.S. ___, 131 S.Ct. 2875 (2011), 5 wherein this Court had found unconscionable and unenforceable a class waiver that was included in an arbitration agreement that was part of a title loan contract. See Brewer I, 323 S.W.3d at 20-24. Brewer I had emphasized that individual arbitration, as opposed to class arbitration, would result in the title loan borrower being denied a remedy against the allegedly predatory title loan lender. See id. The trial court's January 2011 judgment again highlighted its previous concerns that the class waiver is unconscionable, noting that enforcement of the
5 In light of its decision in Concepcion, the United States Supreme Court granted certiorari and vacated and remanded this Court's judgment in Brewer I. Mo. Title Loans, Inc. v. Brewer, ___ U.S. ___, 131 S.Ct. 2875 (2011). Concurrent to this Court's consideration of Borrower's case, a different panel of this Court undertook consideration of how Concepcion applies to this Court's previous decision in Brewer I. This Court's post-remand decision of Brewer I is issued concurrent to this opinion. Brewer v. Mo. Title Loans, Inc., ___S.W.3d ___ (Mo. banc 2012) (No. 90647, decided March 6, 2012) (Brewer II). Application of Concepcion to this case is the central reason this Court took transfer of this appeal prior to an opinion by the court of appeals.
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class waiver would "effectively depriv[e] [Borrower] of any meaningful remedy." And the trial court accordingly vacated its previous stay and overruled Title Lenders' motions to stay and compel arbitration. Title Lenders appeals. II. Arguments on Appeal Title Lenders contends that the trial court erred in refusing to enforce Title Lenders' arbitration agreement. It argues that the arbitration agreement is not unconscionable, and it contends that the class waiver is not an unenforceable exculpatory clause. Title Lenders also maintains that Concepcion instructs that the trial court erred in concluding that the class waiver rendered the arbitration agreement unconscionable. Title Lenders requests reversal of the trial court's judgment and asks that the case be remanded with instructions that the trial court stay Borrower's suit and order her to seek redress for her claims through individual arbitration. III. Standard of Review The trial court's judgment will be affirmed unless there is no substantial evidence to support it, it is against the weight of the evidence, or it erroneously declares or applies the law. Woods v. QC Fin. Servs., Inc., 280 S.W.3d 90, 94 (Mo. banc 2008). "Missouri contract law applies to determine whether the parties have entered a valid agreement to arbitrate." State ex rel. Vincent v. Schneider, 194 S.W.3d 853, 856 (Mo. banc 2006). Whether the trial court should have granted a motion to compel arbitration is a question of law that this Court reviews de novo. Id.
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IV. Relevant Caselaw A. Brewer I The trial court's judgment underlying this appeal reflects this Court's previous holding in Brewer I, wherein this Court found a class waiver unconscionable and declared an arbitration agreement unenforceable after discussing that individual arbitration, as opposed to class arbitration, would effectively result in the borrower being denied a remedy. See 323 S.W.3d at 20-
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Brewer I considered the "interplay" between the FAA and a title loan borrower's state-law unconscionability defenses to the underlying arbitration agreement. Id. at 20. Brewer I's holding reflected the Supreme Court's holding in Stolt-Nielsen that "where an arbitration agreement is silent with respect to class arbitration, the parties cannot be compelled to submit the dispute to class arbitration." 323 S.W.3d at 20 (citing Stolt-Nielson, 130 S.Ct. at 1774-76, for the premise that "arbitration is fundamentally a matter of consent ... limited by the scope of the arbitration agreement"). Brewer I concluded that, insofar as "Stolt- Nielsen requires an affirmative consent to class arbitration before it may be compelled," no party could be forced to proceed with class arbitration. 323 S.W.3d at 21. But Brewer I agreed with the trial court's underlying holding that individual arbitration should also not be compelled, as the class arbitration waiver at issue was unconscionable and unenforceable. See 323 S.W.3d at 20-21.
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Brewer I found that the class arbitration waiver in that case was both procedurally and substantively unconscionable. Id. at 22-23. And it rejected the lender's contention that the class waiver was a valid and permissible exculpatory clause under Missouri law. Id. at 24. Brewer I stated: "Given the FAA's prohibition of class arbitration under the facts of this case and the fact that the unconscionable aspects of the arbitration contract are a result of the class arbitration waiver, the appropriate remedy is to strike the arbitration agreement in its entirety." Id.
The United States Supreme Court, however, granted certiorari in Brewer I in May 2011, and it summarily vacated this Court's judgment and ordered that this Court reconsider Brewer I in light of Concepcion. Mo. Title Loans, Inc. v. Brewer, 131 S.Ct. 2875 ("Judgment vacated, and case remanded to Supreme Court of Missouri for further consideration in light of [Concepcion.]"). 6
6 In addition to Brewer I, the United States Supreme Court has cited Concepcion as a reason for granting certiorari and vacating and remanding five other decisions: Branch Banking & Trust v. Gordon, ___ U.S. ___, 132 S.Ct. 577 (2011) (an 11th Circuit case in which the vacated opinion had held that a class action waiver in a consumer contract was unconscionable and in which the consumer had limited viable options for relief; post- Concepcion decision pending); Sonic-Calabasas A, Inc. v. Moreno, ___ U.S. ___, 132 S.Ct. 496 (2011) (a Supreme Court of California case addressing arbitration provisions found to be substantively unconscionable and raising public policy concerns; post- Concepcion decision pending); Affiliated Computer Servs., Inc. v. Fensterstock, ___ U.S. ___, 131 S.Ct. 2989 (2011) (student loan consumer case pending in the 2nd Circuit for determinations about the arbitrability of the issues post-Concepcion); Cellco P'ship v. Litman, ___ U.S. ___, 131 S.Ct. 2872 (2011) (along with Litman v. Cellco P'ship, ___ U.S. ___, 131 S.Ct. 2873 (2011)) (3rd Circuit case determining that, after Concepcion, New Jersey law as to unconscionability was preempted by the FAA because the state law impermissibly sought to impose class arbitration even when it was not contracted— Litman v. Cellco P'ship, 655 F.3d 225, 231 (3d Cir. 2011)); Sonic Auto., Inc. v. Watts, ___ U.S. ___, 131 S.Ct. 2872 (2011) (post-Concepcion, the Supreme Court of South
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Now that this Court's arbitration class waiver precedent in Brewer I has been vacated by Concepcion, this Court cannot decide Title Lenders' appeal without first determining how Concepcion impacts the enforceability of Title Lenders' arbitration agreement and, specifically, its class waiver. B. Concepcion In Concepcion, the United States Supreme Court held that the FAA preempts California's "Discover Bank rule," which "classif[ied] most collective- arbitration waivers in consumer contracts as unconscionable." See Concepcion, 131 S.Ct. at 1751-52. 7
Until Concepcion, Discover Bank had provided for California courts: [Not all] class action waivers [in arbitration agreements] are necessarily unconscionable. But when the waiver is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then, at least to the extent the obligation at issue is governed by California law, the waiver becomes in practice the exemption of the party "from responsibility for [its] own fraud, or willful injury to the person or property of another." [California Civ. Code, sec. 1668.] Under these circumstances, such waivers are unconscionable under California law and should not be enforced.
Carolina reinstated its vacated opinion in this case, as it found that the FAA preemption issues were not preserved; the opinion had determined that class waivers applicable to automobile buyers violated the state's law and public policy protective of automobile buyers' rights to bring class suits—see Herron v. Century BMW, 693 S.E.2d 394, 400 (2010), vacated sub nom. Sonic Auto., Inc. v. Watts, 131 S. Ct. 2872, opinion reinstated 719 S.E.2d 640, 645 (S.C. 2011)). 7 The opinion of the Supreme Court was authored by Justice Scalia, who was joined by Chief Justice Roberts and Justices Kennedy, Alito, and Thomas. Justice Thomas also authored a concurring opinion.
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Discover Bank v. Superior Court, 113 P.3d 1100, 1110 (2005), abrogated by Concepcion, 131 S.Ct. 1740. Concepcion declared that California's "Discover Bank rule" was preempted by the FAA because the rule was "an obstacle to the accomplishment and execution of the full purposes and objectives of Congress" in enacting the FAA. 131 S.Ct. at 1753 (internal quotations omitted). In finding the "Discover Bank rule" untenable under the FAA, Concepcion highlighted that the FAA was enacted to protect arbitration agreements from judicial hostility toward arbitration. 131 S.Ct. at 1745. Concepcion discussed that the application of the "Discover Bank rule" had resulted in courts ordering class arbitrations even when class arbitration was not mutually consented to by the parties 8 or when class arbitration was not more beneficial to consumers. See Concepcion, 131 S.Ct. at 1750-52. Concepcion reasoned that the "Discover Bank rule," as it was applied by the courts, violated the spirit of the FAA by undermining the FAA's intent to place arbitration agreements on equal footing with other contracts and to enforce arbitration agreements by their terms. See Concepcion, 131 S.Ct. at 1745-46. The Supreme Court emphasized that the FAA places arbitration agreements on equal footing with other contracts because the FAA's "saving clause" "preserves generally applicable contract defenses." Id. at 1748. The "saving clause" allows an arbitration agreement to be declared unenforceable "upon such grounds as exist
8 The Supreme Court previously had declared that mutual consent was necessary to compel class arbitration. See Stolt-Nielsen, 130 S.Ct. at 1775-76.
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at law or in equity for the revocation of any contract." See 9 U.S.C. sec. 2. And, as such, the FAA's "saving clause" permits arbitration agreements "to be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability, but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue." Concepcion, 131 S.Ct. at 1746 (internal quotations omitted). 9
Concepcion concluded that the "Discover Bank rule" was preempted by the FAA because "nothing [in the FAA's 'saving clause'] suggests an intent to preserve state-law rules that stand as an obstacle to the accomplishment to the
9 Justice Thomas' concurrence noted that he "reluctantly join[ed] the Court's opinion." Concepcion, 131 S.Ct. at 1754 (Thomas, J. concurring). His concurrence articulated his position that the FAA's section 2 "saving clause," read in light of FAA section 4, preserves for consideration only "grounds related to the making of [an arbitration] agreement." Id. at 1754-55 (Thomas, J. concurring) (reasoning that enforcement of an agreement to arbitrate is required unless a defense concerning the formation of the agreement applies, such as fraud, duress, or mutual mistake). He opined: "Contract defenses unrelated to the making of the agreement—such as public policy—could not be the basis for declining to enforce an arbitration clause." Id. at 1755 (Thomas, J.