Chair’s Note: This brief was scanned in from a hard copy
and may contain inaccuracies for that reason.

IN THE COURT OF APPEALS
STATE OF GEORGIA
RESULTS ORIENTED, INC., d/b/a ASSURED HOUSING, Appellant,
v.
RAY MARLIN CRAWFORD, Appellee.
CAVALIER HOMES OF ALABAMA, INC.,
a division of Cavalier Manufacturing, Inc., Appellant,
v.
RAY MARLIN CRAWFORD, Appellee.
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

This Brief Prepared by:

David A. Webster
Georgia Bar No. 744975
300 Hurt Building
50 Hurt Plaza
Atlanta, GA 30303-2914
(404) 681-3070

[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.