In two opinions filed on March 6, 2012, the Missouri Supreme Court applied recent U.S. Supreme Court arbitration precedent to cases involving binding arbitration agreements. In yesterday’s post I discussed Brewer v. Missouri Title Loans, in which the Missouri Supreme Court held that a binding arbitration agreement was unenforceable due to unconscionability. Today I’ll discuss Robinson v. Title Lenders, Inc. d/b/a/ Missouri Payday Loans, in which the Missouri Supreme Court reversed the lower court’s determination that an arbitration agreement was unenforceable due unconscionability.
Background of Robinson v. Title Lenders, Inc.
The petitioner had borrowed money from Title Lenders, Inc. on 13 occasions, signing a loan agreement each time that contained a binding arbitration provision precluding class arbitration. She brought suit in October 2006 alleging, among other things, violations of the Missouri Merchandising Practices Act and seeking relief for herself as well as a putative class of borrowers. The lender moved to stay the action and to compel the borrower to pursue her claims through either arbitration or small claims court. In March 2009 the trial court stayed the court proceedings and ordered arbitration, but struck the class action waiver, finding it to be unconscionable.
Title Lenders, Inc. appealed, and the appeal was dismissed because the trial court hadn’t disposed of all issues. While the case was pending on remand, the U.S. Supreme Court issued its decision in Stolt-Nielsen, S.A. v. AnimalFeeds International Corp., which held that class arbitration couldn’t be compelled absent express consent by the parties. In light of Stolt-Nielsen, the borrower moved that the trial court deny Title Lenders, Inc.’s motion to stay the suit and Title Lenders, Inc. moved that the trial court modify its order to grant the stay.
Finding that it was precluded from ordering arbitration on a class basis and that compelling arbitration on an individual basis would be unconscionable, the trial court vacated its previous stay and overruled Title Lenders, Inc.’s motions to stay and compel arbitration, and Title Lenders, Inc. appealed.
The effect of Concepcion on Robinson
According to the Missouri Supreme Court, the trial court’s judgment reflected the Missouri Supreme Court’s earlier ruling in Brewer v. Missouri Title Loans, Inc., 323 S.W.3d 18 (Mo. banc 2010) (“Brewer I”), which found an arbitration agreement containing a class waiver to be unconscionable where individual arbitration would effectively result in a borrower being denied a remedy.
Finding that the class arbitration waiver at issue in Brewer I was unconscionable, the Missouri Supreme Court had held in that case that, “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.” However, in light of Concepcion, the U.S. Supreme Court vacated Brewer I and remanded the case to the Missouri Supreme Court, the decision on which was the subject of yesterday’s post.
According to the Missouri Supreme Court’s analysis of AT&T Mobility LLC v. Concepcion in Robinson, the Federal Arbitration Act generally pre-empts state law that would invalidate arbitration agreements; however, the FAA’s “saving clause” allows an arbitration agreement to be declared unenforceable “upon such grounds as exist at law or equity for the revocation of any contract” (9 U.S.C. § 2). Thus, the 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).
However, the Supreme Court held in Concepcion that California’s “Discover Bank Rule,” as it was applied by the courts, violated the spirit of the FAA and applied California’s unconscionability analysis in a way the singled out and disfavored arbitration agreements. In addition, Concepcion expressed disfavor of a state-law rule that forced class arbitrations that hadn’t been agreed to by the parties, because “[t]he point of affording parties discretion in designing arbitration processes is to allow for efficient, streamlined procedures tailored to the type of dispute … [a]nd the informality of arbitral proceedings is itself desirable, reducing the cost and increasing the speed of dispute resolution” (Concepcion at 1749).
Finding that the trial court’s determination that the arbitration provision in Robinson was unconscionable relied on an analysis that singled out or disfavored arbitration, the Missouri Supreme Court reversed the lower court, stating,
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.
According to the Missouri Supreme Court,
The trial court’s judgment, however, was based solely on its determination that the arbitration agreement was unconscionable because its terms were “unduly harsh and not commercially reasonable in the prohibition of class actions and the ability to arbitrate as a class.” The trial court refused to enforce Title Lenders’ arbitration agreement on the basis that it contained class waiver provisions that the court determined would impermissibly deprive Borrower of a meaningful remedy.
Pursuant to Concepcion, the trial court clearly erred in finding that Title Lenders’ arbitration agreement was unenforceable based on its class waiver. Concepcion instructs that, instead of limiting its unconscionability considerations to the presence of the class waiver, the trial court should have assessed whether the arbitration agreement was enforceable in light of Borrower’s additional arguments regarding ordinary state-law principles that govern contracts but that do not single out or disfavor arbitration.
Because the trial court had not adjudicated the petitioner’s other claims of unconscionability, the Missouri Supreme Court instructed the lower court to determine on remand whether the arbitration agreement is enforceable “based on Borrower’s arguments alleging unconscionability that remain relevant post-Concepcion.”