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Chair’s Note: This brief was scanned in from a hard copy
and may contain inaccuracies for that reason.
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IN THE COURT OF APPEALS
STATE OF GEORGIA
RESULTS ORIENTED, INC., d/b/a ASSURED HOUSING, Appellant,
v.
RAY MARLIN CRAWFORD, Appellee.
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CAVALIER HOMES OF ALABAMA, INC.,
a division of Cavalier Manufacturing, Inc., Appellant,
v.
RAY MARLIN CRAWFORD, Appellee.
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GREEN TREE FINANCIAL SERVICING CORPORATION, Appellant,
v.
RAY MARLIN CRAWFORD, Appellee.
BRIEF OF THE AMICUS CURIAE COMMITTEE
GEORGIA TRIAL LAWYERS ASSOCIATION
The Georgia Trial Lawyers Association
is a voluntary bar organization, composed of about 2,700 Georgia trial
lawyers. GTLA is committed to the preservation of the jury system
and to the principle of full compensation for those injured by the
wrongdoing of others. GTLA often appears as amicus curiae before
the appellate courts of Georgia and federal courts, concerning issues
of significance in compensating victims of injury.
The intent of GTLA in appearing here as amicus curiae is to support
neither Appellants nor Appellee. Rather, GTLA desires and attempts
to show that consumer arbitration agreements should be held unconscionable
in appropriate cases, and further that finding unconscionability is
particularly appropriate as to consumer arbitration agreements.
I. Consumer Arbitration Clauses Offer Myriad Possibilities for Unconscionability.
Arbitration agreements have moved far from their original
purpose, opening up vast possibilities for abuse. Arbitration
originally was designed for business people, who are used to the rough
and tumble of business dealing. Typically, business people had
knowledge of the facts of their disputes; or could assess in advance
the risks that they would not have such knowledge, yet be limited by
constraints on discovery and proof in arbitration as opposed to court
actions. Dealing at arm's length, such business people could decide
in advance that the advantages of speed and potential for quick healing
of ongoing business relationships --and sometimes overall cost savings
-- would be promoted by the relative informality of arbitration.
In recent years, arbitration has moved well beyond this business-to-business
context, in a series of steps each carrying arbitration farther and
farther afield from this arm's-length model. Securities brokers
saw the potential for advantage in dealings with their investors, and
thus have included clauses in trading agreements requiring arbitration.
Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985). For similar
reasons, many employers attempt to require arbitration in employment
contracts. Gilmer v. InterstatelJohnson Lane Corp., 500 U.S. 20 (1991).
And now finally, sophisticated businesses recognize the potential for
advantage in requiring arbitration in contracts not just with business
peers, but also with unsophisticated consumers.
Although the United States Supreme Court and other courts decline to
invalidate such clauses solely because that they bind unsophisticated
participants to arbitration, the courts recognize also the potential
for overreaching in mandatory arbitration. "Of course, the
courts should remain attuned to well-supported claims that the agreement
to arbitrate resulted from the sort of ... overwhelming economic power
that would provide grounds for revocation of any contract." Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 627 (1985).
Compelled arbitration opens up potential for flagrant abuse. Sophisticated
wrongdoers may impose arbitration provisions which are so one-sided
as to preserve all their own rights to judicial access, yet deny any
practical remedy to those wronged. See, e.g., Hooters of America
v. Phillips, 173 F.3d 933 (4th Cir. 1999) (refusing to enforce an arbitration
agreement "utterly lacking in the rudiments of even-handedness,"
where, among other things, the corporate defendant but not the employee
could go to court to vacate or modify an arbitral award where it could
be shown that the arbitration panel exceeded its authority).
Alternatively, businesses may include clauses which not only foreclose
judicial relief, but effectively foreclose consumers from pursuing mandatory
arbitration. The agreements may include provisions such as venue
requirements specifying a distant forum, which make proceeding so onerous
as to frustrate arbitration altogether.
Even in cases short of such extremes, businesses may compel consumers
to arbitrate for their own advantage. Even in the absence of onerous
contractual requirements, businesses can sometimes frustrate arbitration
entirely, sometimes shape it so as to guarantee ultimate success.
For example, costs of arbitration, often many times those of judicial
action, may be prohibitive. See, e.g., Randolph v. Green Tree
Fin. Corp. -Alabama, 178 F.3d 1149 ( llth Cir. 1999). In
any arbitration proceeding where discovery rights are limited, business
respondents may hide key details of business transactions unknown to
the consumer, and thereby preclude effective proof of claims.
Consistent hiring of arbitrators by businesses, compared to one--shot
use by consumers, gives participating and potential future arbitrators
an incentive to rule in favor of business interests.
As the Supreme Court of the United States forthrightly has declared,
"the factfinding process in arbitration usually is not equivalent
to judicial factfinding. The record of the arbitration proceedings
is not as complete; the usual rules of evidence do not apply; and rights
and procedures common to civil trials, such as discovery, compulsory
process, cross-examination, and testimony under oath, are oftenseverely
limited or unavailable." Alexander v. Gardner-Denver Co., 415 U.S.
36, 57-5 8 (1974)
Even more fundamentally, arbitration means giving up the constitutional
right to jury trial. For this reason, the Georgia Supreme Court
has voided an agreement to arbitrate entered into during the course
of litigation. Ekereke v. Obong, 265 Ga. 728, 462 S.E.2d 372 (1995).
For all of these reasons, including the potential for overreaching and
the protections lost in arbitration, the courts need to be cautious
in analyzing arbitration agreements, to see that they are not unconscionable.
II. Courts Decide Arbitration Provisions Are Unconscionable
A. Courts, Not Arbitrators, Are To Decide the Unconscionability
of Arbitration Clauses.
Appellants have suggested that an arbitrator should decide whether the
disputed arbitration provisions should be enforced. Because Mr.
Crawford does not dispute the scope of the arbitration provisions, but
rather their enforceability, the issue is for the courts. Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985)
("the first task of a court asked to compel arbitration of a dispute
is to determine whether the parties agreed to arbitrate that dispute").
Cavalier Homes cites DiMambro-Northend Assocs. v. Blanck-Alvarez, Inc.,
251 Ga. 704, 309 S.E.2d 364 (1983), as erroneous authority for the erroneous
proposition that enforceability of an arbitration provision should be
decided by an arbitrator, not the courts. Results Oriented cites
ADC Construction Co. v. McDaniel Grading, Inc., 177 Ga.App. 223, 338
S.E.2d 733 (1995), for the same purpose. Neither case provides
support for the conclusion which these Appellants urge. In DiMambro-Northend,
the Supreme Court merely decided that the state, as well as federal,
courts are obligated under the FAA to refer claims to arbitration where
a valid arbitration agreement exists. 251 Ga. 704, 309 S.E.2d 364, 366-67
(1983). In ADC Construction, this Court affirmatively decided
whether a valid arbitration agreement binding the parties existed, and
concluded that it did. This Court then held that a dispute over
one party's right to initiate arbitration (challenged on grounds of
"waiver, delay, or a like defense to arbitrability") should
be arbitrated. 177 Ga. App. 223, 226, 338 So. 2d 733, 737 (1985)
(citation omitted).
Both decisions rest upon Moses H. Cone Memorial Hospital v. Mercury
Constr. Corp., 460 U.S. 1 (1983), where (as in DiMambro-Northend),
the parties were bound by an arbitration provision of undisputed validity.
Moses H. Cone held (as in ADC Construction) that disputes involving
"waiver, delay, or a like defense to arbitrability" should
go to arbitration. 460 U.S. at 24-25.
Subsequent decisions make clear that, consistent with Moses H. Cone
and the Arbitration Act, "generally applicable contract law defenses,
such as ... unconscionability, may be applied [by courts] to invalidate
arbitration agreements." Doctor's Assocs. v. Casarotto, 517 U.S.
681, 687 (1996). See also Ex Parte Parker, '730 So. 2d 168, 171
(Ala. 1999) ("A court should refuse to enforce an arbitration agreement
where the record supports a determination of unconscionability.")
(citation omitted).
B. The Courts Should Decide Here Because the Arbitration Provisions,
not the Consumer Contracts in Their Entirety, Are Challenged as Unconscionable.
Appellant Green Tree has suggested that Mr. Crawford's unconscionability
argument is aimed at the contract as a whole, and therefore, under Prima
Paint v Flood & Conklin Mfg,, 388 U.S. 395 (1967), should be resolved
by an arbitrator, not this Court. Green Tree Br. 6, 12-15.[1]
Mr. Crawford has not sought to invalidate the sales contracts because
of unconscionability, however. (Indeed, he has asserted contract and
warranty claims against Appellants that are premised on the contracts'
validity.) Mr. Crawford argues only that the arbitration provisions
are unconscionable. The trial court properly ruled only on the
conscionability of those sections of the contracts. Doctor's Assocs.
v. Casarotto, supra.
III. Overreaching Arbitration Clauses Are Unconscionable.
Remaining sensitive to the potential one-sidedness of
mandatory arbitration clauses in the context of consumer contracts,
the courts should find such requirements unconscionable where businesses
overreach procedurally and substantively. In applying this dual
approach to determining unconscionability, the courts should engage
in a conscious balancing of the two separate elements of this formula:
California courts analyze unconscionability as having
a procedural and a substantive element. Although both elements
must be present before a contract or contract provision is rendered
unenforceable on grounds of unconscionability, they are reviewed in
tandem such that "the greater the degree of substantive unconscionability,
the less the degree of procedural unconscionability that is required
to annul the contract or clause."
Kinney v. United Healthcare Services, Inc., 83 Cal.
Rptr.2d 348, 352 (Cal. Ct. App. 1999). By the same
token, on the other side of the balance, "the greater the unfair
surprise or inequality of bargaining power, the less unreasonable the
risk allocation which will be tolerated." Olsen v. Breeze, Inc.,
48 Cal.App.4th 608, 621 (1996) (citation omitted). The briefs already
submitted explore in depth the procedural unconscionability of these
arbitration clauses. Amicus offers additional insight into their
substantive unconscionability.
A. The Abstract Possibility of Fee Waiver Is Not Inconsistent With Unconscionability.
Courts around the country have held that where fees associated with
arbitration would discourage potential claimants from bringing claims,
arbitration ceases to serve as an alternative forum for dispute resolution
and begins to act as a impediment to substantive remedies. See,
e.g., Randolph v. Green Tree Fin. Corp. - Alabama, supra, and
cases cited therein. One remaining question for this court is
whether the deterrent effect of prospective fees upon Mr. Crawford is
eliminated because the arbitral forum somehow might decide to provide
its administrative services for free.
The likelihood of such a possibility is so remote as to be negligible.
The evidence shows that AAA's administrative fees in this case would
total at least $1500. AAA may be a non-profit organization, but
it is not a charity. It must generate income sufficient to meet
operating costs. Absent contrary evidence, it is not realistic
to assume that such a firm will waive its fees for Mr. Crawford.
That would mean waiving such fees for each claimant of comparably limited
means -- a huge financial burden.
Moreover, adequacy or inadequacy of Mr. Crawford's access to an arbitral
forum cannot turn on AAA's whim, in any event. In order to satisfy
minimum requirements, the relevant procedure affirmatively must include
provision for waiver of fees or other protection against financial barriers
to arbitration. Randolph, 178 F.3d at 1158. Abstract provision
for waiver is not enough.
Further, as a practical matter, even if AAA decided to waive its administrative
fees, this still would leave Mr. Crawford facing impossible financial
barriers. Any fee waiver by AAA as the arbitration administrator
does not apply to the arbitrator's compensation, which averages $700
for each day of service. As is apparent, such costs are potentially
prohibitive; and contrast starkly with court costs, which do not accrue
on a daily basis-
B. Lack of Mutuality May Contribute to the Unconscionability of Mandatory
Arbitration Clauses.
"Lack of mutuality" encompasses not just bne but two separate
doctrines, each potentially capable of invalidating mandatory arbitration
agreements. In some jurisdictions (although not in Georgia), lack
of mutuality may amount to lack of consideration to support a promise
to arbitrate. Gibson v. Neighborhood Health Clinics, Inc., 121
F.3d 1126 (7 th Cir. 1997) (finding unenforceable, under Indiana law,
an arbitration clause that required an employee to arbitrate all disputes
against the employer but not vice versa).
Moreover, courts applying the lack-of-consideration approach must take
a practical look to pierce any ostensibly mutual - but practically one-side
- pledge to invoke arbitration. "[T]he consideration exchanged
for one party's promise to arbitrate must be the other party's promise
to arbitrate at least some specified class of claims. Mere presence
of an arbitration clause is insufficient to enforce the arbitration
agreement." Hull v. Norcom, Inc., '750 F.2d 1547, 1550 (llth Cir.
1985) (mutual promise to arbitrate was illusory where one party reserved
the right to sue in court for any breach).
As Hull indicates, the more sophisticated party may reserve to itself
such substantial rights of judicial access as to make its arbitration
promise an illusion. For example, a holder of a security interest
in a substantial consumer purchase such as a mobile home may save unto
itself the right to sue to repossess. Even though in the abstract
this would seem to leave for mandatory arbitration any money damages
claim, reality belies appearances. Realistically speaking, the
creditor has not promised to arbitrate. Borrowers who fall behind
substantially on their home payments ordinarily are judgment proof.
Ordinarily the only leverage the security holder has available to squeeze
out payment is not a claim for money damages, but rather its threat
to repossess the home. By saving judicial access for that purpose,
it has preserved the only remedy it is likely to use. "Mutuality"
is a pretense in such an arbitration clause. id.
In Georgia, lack of mutuality contributes to the substantive element
of unconscionability, which combined with procedural unconscionability
may void the mandatory arbitration clause:
Faced with the issue of whether a unilateral obligation
to arbitrate is unconscionable, we conclude that it is. The
party who is required to submit his or her claims to arbitration forgoes
the right, otherwise guaranteed by the federal and state Constitutions,
to have those claims tried before a jury. ... Further, except in extraordinary
circumstances, that party has no avenue of review for an adverse decision,
even if that decision is based on an error of fact or law that appears
on the face of the ruling and results in substantial injustice to
that party.... By contrast, the party requiring the other to waive
these rights retains all of the benefits and protections the right
to a judicial forum provides. Given the basic and substantial
nature of the rights at issue, we find that the unilateral obligation
to arbitrate is itself so one-sided as to be substantively unconscionable.
Kinney, 83 Cal. Rptr.2d at 354 (citations omitted)
The West Virginia Supreme Court recently reached a similar
conclusion. The creditor's "acts or omissions could seriously
damage the [borrowers], yet [their] only recourse would be to submit
the matter to binding arbitration. At the same time, [the creditor's]
access to courts is wholly preserved in every conceivable situation
where [it] would want to secure judicial relief against the [borrowers]...
[T]he wholesale waiver of the [borrowers'] rights together with the
complete preservation of [the creditor's] rights 'is inherently inequitable
and unconscionable because in a way it nullifies all the other provisions
of the contract'." Arnold v. United Companies Lending Corp., 511
S.E.2d 854, 861-62 (W.Va. 1998) (citation omitted). The court suggested
that one might expect such a provision in a contract between “rabbits
and foxes.” Id. at 861
Appellants cited several recent Alabama decisions for their erroneous
contention that non-mutuality does not support finding unconscionability.
While the Alabama Supreme Court has stated that lack of mutuality -
without more - does not constitute unconscionability, yet non-mutuality
is a factor to be considered in evaluating the conscionability of an
arbitration clause. Ex Parte Smith, 736 So. 2d 604, 612 (Ala.
1999); Ex Parte Parker, 730 So. 2d 168, 171 (Ala. 1999). (“lack
of mutuality of remedy can be one factor, along with others, that a
court may consider in determining whether an arbitration clause in unconscionable”);
Ex parte Isbell, 708 So. 2d 571, 574 (1997) (refusing to find an agreement
unconscionable where non-mutuality was sole argument).
CONCLUSION
This Court should affirm the decison of the trial court
if it finds that Appeallants have engaged in conduct amounting to procedural
and substantive unconscionability
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This Brief Prepared by:
David A. Webster
Georgia Bar No. 744975
300 Hurt Building
50 Hurt Plaza
Atlanta, GA 30303-2914
(404) 681-3070
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[1] Cavalier Homes and Results Oriented appear to make
a related, also erroneous, point. They seem to suggest that simply
because of a fraud count in Mr. Crawford's complaint, the entire dispute
- including the validity of the arbitration agreement - must be submitted
to arbitration under Prima Paint. Even if fraud going to the overall
contract is for the arbitrators, the issue of the unconscionability
of the arbitration clause is for the courts.
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