Drawing the Line Between Enforceable and Unenforceable Arbitration Agreements
Going deeper into the post-Concepcion discussion of what arbitration agreements containing class action waivers are enforceable and which are not, Judge Whipple and the Western District of Missouri weigh in with a well-reasoned analysis of another consumer arbitration agreement in another cellular phone contract in Davis v. Sprint Nextel Corp., 2012 WL 5904327 (W.D. Mo. Nov. 26, 2012).
As you might recall, the United States Supreme Court in Concepcion forbade the nullification of arbitration agreements simply because they eliminated classwide arbitration. As you may also recall, the Missouri Supreme Court recognized this new complication in Brewer and Robinson, and grappled with the question of whether the particular arbitration agreements at issue in those cases were in fact unenforceable as unconscionable under generally applicable contract defenses as defined by Missouri law.
Based on the Missouri Supreme Court’s directive in Brewer, Judge Whipple analyzed the unconscionability issue in terms of its impact on the formation of the contract, rather than focusing on procedural and substantive unconscinability. Judge Whipple immediately rejected as contrary to Concepcion the Plaintiff’s argument that the arbitration agreement was unconscionable simply because it foreclosed classwide action. Judge Whipple also rejected the assertion that the arbitration agreement was unconscionable solely because it was a standard, non-negotiable contract and Sprint enjoyed superior bargaining power. To the contrary, the Court noted that the arbitration provision of the contract was neither hidden nor inconspicuous, which would lead any reasonable person to anticipate that any disputes under the contract would be arbitrated.
Judge Whipple ultimately found the arbitration agreement to be more like the consumer-friendly agreement upheld in Concepcion than the less-than-consumer-friendly arbitration agreement negated in Brewer. Specifically, he pointed to the availability of informal resolution processes prior to the commencement of arbitration, provisions allowing the arbitration to take place in the consumer’s county of residence, the availability of small claims court as an alternative forum, and at least partial cost-shifting provisions. Unlike the agreement struck down in Brewer, the Court found no onerous provisions that effectively denied the consumer any viable means of dispute resolution, such as provisions requiring each party to bear its own costs fully, or one-sided rights to forego arbitration and proceed in state court.
Judge Whipple also rejected the Plaintiff’s assertion that a provision limiting Sprint’s damages rendered the arbitration agreement unconscionable, characterizing this instead as a damages issue for the arbitrator to resolve that did not render the agreement unconscionable.
Plaintiff then argued that the arbitration agreement was unconscionable because it required the arbitration to be conducted by the National Arbitration Forum, which had since ceased all consumer arbitrations. But the Court interpreted the arbitration agreement to require only that the arbitration be conducted under NAF rules, while permitting the arbitration to be conducted by any other entity.
Finally, the Court found that the Plaintiff had failed to prove facts demonstrating that Sprint had acted so inconsistently with the arbitration agreement by pursuing delinquent subscribers in state court rather than through arbitration so as to estop Sprint from enforcing the arbitration agreement.
In short, the Court’s analysis provides an excellent roadmap of the the types of provisions that will and will not pass muster under Missouri contract law in a post-Concepcion world.