Link to Mo. Sup. Ct. Opinion
The Supreme Court of Missouri held that a borrower’s claim of unconscionability must be interpreted in light of the United States Supreme Court’s holding in AT&T Mobility LLC v. Concepcion. Thus, the trial court, instead of limiting its unconscionability considerations to the class arbitration waiver, should have assessed whether the arbitration agreement was enforceable in light of ordinary state law principles that govern contracts but that do not single out or disfavor arbitration.
I. Facts and Holding
Title Lenders is in the business of making payday loans.[2] Lavern Robinson entered into thirteen separate loan agreements with Title Lenders from September 2005 to September 2006.[3] The loan agreements were approved by the Missouri Division of Finance and included all the required disclosures under state and federal law.[4] Each of the loan agreements contained an arbitration clause requiring Robinson to resolve all claims by way of arbitration.[5] The provision also indicated that Robinson waived the right to participate in a class action arbitration claim.[6]
In October 2006, Robinson brought a claim against Title Lenders alleging that “its lending practices violated the Missouri Merchandising Practices Act and certain regulatory statutes.”[7] Robinson sought to represent herself and a class of borrowers who also signed Title Lenders’ loan agreement.[8]
Title Lenders asserted that, under the arbitration provision, Robinson was required to bring her claim via individual arbitration or in small claims court.[9] Robinson subsequently argued that the arbitration provision was unconscionable and therefore unenforceable.[10] Additionally, Robinson argued that the class arbitration waiver “would effectively immunize [Title Lenders] from suits because attorneys would not agree to handle borrowers’ cases unless a class action was available.”[11]
In March 2009, the trial court found that the arbitration provision was unenforceable to the extent that it prohibited class actions.[12] However, the trial court found the rest of the arbitration provision to be enforceable and stayed the case for arbitration.[13] Title Lenders appealed the March 2009 decision, but the case was remanded because the trial court had not addressed one of Robinson’s declaratory-relief counts.[14] While the case was pending on remand, the United States Supreme Court issued Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp.[15] holding that “class arbitration could not be compelled absent express consent by the parties.”[16]
In January 2011, the trial court held that the class waiver rendered the arbitration agreement unconscionable.[17] The trial court relied upon both Stolt-Nielsen and the Supreme Court of Missouri’s opinion in Brewer v. Missouri Title Loans, Inc.[18] (Brewer I).[19] The trial court vacated its previous stay for arbitration and overruled Title Lenders’ motion to stay and compel arbitration. Title Lenders appealed.[20] On appeal, Title Lenders argued that Concepcion required the trial court to stay the case for arbitration despite the class waiver.[21]
In applying Concepcion to the present case, the Supreme Court of Missouri held that the trial court, instead of limiting its unconscionability considerations to the class arbitration waiver, should have assessed whether the arbitration agreement was enforceable in light of ordinary state law principles that govern contracts but that do not single out or disfavor arbitration.[22] Thus, the court reversed the trial court’s decision and remanded the case.
II. Legal Background
A. AT&T Mobility LLC v. Concepcion
In Concepcion, the United States Supreme Court held that the Federal Arbitration Act (FAA) preempted California’s Discover Bank[23] rule, a judicial rule that classified most class arbitration waivers in consumer contracts as unconscionable.[24] Under Concepcion, an arbitration class waiver cannot be the sole reason that a court invalidates an arbitration agreement.[25] In determining the enforceability of an arbitration agreement, Concepcion instructs that a court must consider the FAA section 2 saving clause.[26] The section 2 saving clause allows arbitration agreements “to be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability.”[27] An arbitration agreement cannot be invalidated by any defenses that are applied in a way that singles out or disfavors arbitration.[28] Additionally, a state law rule that is “an obstacle to the accomplishment of the FAA’s objections cannot be used to invalidate an arbitration agreement.”[29]
The dissenting opinion, authored by Justice Breyer and joined by Justices Ginsburg, Sotomayor, and Kagan, concluded that the FAA did not preempt California’s Discover Bank rule.[30] There was no preemption because under the section 2 saving clause, states could invalidate arbitration agreements by applying state contractual defenses, such as unconscionability, so long as the defenses were applied equally to class waivers in both arbitration agreements and in other contracts.[31]
B. Brewer v. Missouri Title Loans, Inc.
In Brewer I, the Supreme Court of Missouri found a class waiver in an arbitration agreement to be unconscionable and declared the entire arbitration agreement unenforceable.[32] The court reasoned that the class waiver denied the borrower a remedy against the lender.[33] The Brewer I court relied upon Stolt-Nielsen, which 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.”[34] Brewer I expanded on Stolt-Nielsen, holding that individual arbitration also should not be compelled when the class arbitration waiver is unconscionable and unenforceable.[35]
The United States Supreme Court granted certiorari in Brewer I and subsequently vacated the judgment, ordering that the Supreme Court of Missouri reconsider Brewer I in light of Concepcion.[36] On remand, the Supreme Court of Missouri applied Concepcion and found that the class arbitration waiver did not make the entire arbitration agreement unenforceable.[37] The Supreme Court of Missouri interpreted Concepcion as “stand[ing] for the proposition that the [FAA] 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.”[38] The court further explained that Concepcion permitted state law contract defenses such as unconscionability, duress, or fraud, but that these defenses could not be used in such a way as to hold arbitration agreements unenforceable for the sole reason that they bar class action relief.[39] The court then applied general principles of Missouri contract law and found that Brewer demonstrated unconscionability in the formation of the agreement.[40]
III. Comment
After Concepcion, courts can no longer invalidate an arbitration agreement based on state public policy concerns.[41] This is true “even if the public policy at issue aims to prevent undesirable results to consumers.”[42] One policy concern that should not be overlooked is that class action waivers in arbitration agreements are essentially exculpatory provisions because they eliminate “an incentive to detect or pursue small-value claims.”[43] The dissent in Concepcion also emphasized this point in explaining that consumers with small dollar claims can benefit from class arbitration.[44]
However, it may be possible to challenge this point in the future, if the facts of the case suggest that claims are not being pursued because of the class arbitration waiver. The United States Supreme Court based its holding in Concepcion on the specific facts of the case, which showed there was little concern that the small dollar claims would not be pursued absent class arbitration.[45] In fact, the Court explained that the terms of the arbitration agreement were quite favorable to the consumers, even though they were not allowed to proceed as a class.[46] Thus, if there was a case where the facts showed that claims were not being pursued because class action arbitration was not available, maybe the United States Supreme Court would find a class action waiver to be unconscionable. Until then, it appears that the Supreme Court of Missouri will continue to find arbitration clauses enforceable, even in cases like Robinson where the facts suggest that claims might not be pursued because of a class arbitration waiver.
- Lauren K. Shores, CPA
[1] No. SC91728 (Mo. Mar. 6, 2012) (en banc), available at http://www.courts.mo.gov/file.jsp?id=52914. The West reporter citation is Robinson v. Title Lenders, Inc., 364 S.W.3d 505 (Mo. 2012) (en banc). Title Lenders, Inc. does business as Missouri Payday Loans.
[2] Id. at 3-4.
[3] Id. at 3.
[4] Id.
[5] Id. The agreement also noted that some claims could be brought in small claims court. Id.
[6] Id.
[7] Id. at 4.
[8] Id. at 4-5.
[9] Id. at 5.
[10] Id.
[11] Id.
[12] Id at 7.
[13] Id.
[14] Id.
[15] 130 S.Ct. 1758 (2010).
[16] Robinson, No. SC91728, slip op at 7.
[17] Id. at 8.
[18] 323 S.W.3d 18 (Mo. banc 2010) (Brewer I), vacated, Missouri Title Loans, Inc. v. Brewer, 131 S.Ct. 2875 (2011).
[19] Robinson, No. SC91728, slip op at 8.
[20] Id. at 9.
[21] Id.
[22] Id. at 22.
[23] Discover Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005).
[24] Concepcion, 131 S.Ct. at 1746.
[25] Id. at 1748.
[26] Id. at 1746-48 (citing 9 U.S.C. § 2).
[27] Id. at 1746 (internal quotations omitted).
[28] Id. at 1748.
[29] Id.
[30] Id. at 1756-57 (Breyer, J., dissenting).
[31] Id. at 1756-57 (Breyer, J., dissenting).
[32] Brewer I, 323 S.W.3d at 20-24.
[33] Id.
[34] Id. at 20 (citing Stolt-Nielson, 130 S.Ct. at 1774-76).
[35] Id. at 20-21.
[36] Mo. Title Loans, Inc. v. Brewer, 131 S.Ct. 2875 (2011).
[37] Brewer v. Missouri Title Loans, No. SC90647 (Mo. Mar. 6, 2012) (en banc) (Brewer II), available at http://www.courts.mo.gov/file.jsp?id=52913. The opinion has not yet been released for publication but can be found at Brewer v. Missouri Title Loans, 2012 WL 716878 (Mo. 2012) (en banc).
[38] Id. at 5.
[39] Id. at 5.
[40] Id. at 1-2.
[41] Robinson, No. SC91728, slip op. at 19 (citing Concepcion, 131 S.Ct. at 1753). See also Marmet Health Care Center, Inc., v. Brown, 132 S.Ct. 1201 (2012) (holding that state-law policy considerations cannot be used to invalidate a pre-dispute arbitration agreement related to personal injury and wrongful death claims against nursing homes).
[42] Robinson, No. SC91728, slip op. at 19 (citing Concepcion, 131 S.Ct. at 1753).
[43] Id. at 20 n.12.
[44] See Concepcion, 131 S.Ct. at 1760-71 (Breyer, J., dissenting).
[45] Id. at 1753.
[46] Id.
