Charlene Jenkins v. First American Cash Advance ( 2005 )


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  •                                                                      [PUBLISH]
    
                 IN THE UNITED STATES COURT OF APPEALS
    
                            FOR THE ELEVENTH CIRCUIT               FILED
                             ________________________
                                                          U.S. COURT OF APPEALS
                                                            ELEVENTH CIRCUIT
                                   No. 03-16329                 February 18, 2005
                             ________________________        THOMAS K. KAHN
                                                                    CLERK
                            D. C. Docket No. 03-00094 CV-1
    
    CHARLENE JENKINS, And All Other
    Persons Similarly Situated,
    
    
                                                   Plaintiff-Appellee,
    
                                        versus
    
    FIRST AMERICAN CASH ADVANCE
    OF GEORGIA, LLC, FIRST NATIONAL
    BANK IN BROOKINGS,
    
    
                                                   Defendants-Appellants.
    
                             ________________________
    
                    Appeal from the United States District Court
                       for the Southern District of Georgia
                         _________________________
    
                                 (February 18, 2005)
    
    Before ANDERSON, DUBINA and BLACK, Circuit Judges.
    
    BLACK, Circuit Judge:
          Plaintiff-Appellee Charlene Jenkins entered into several lending
    
    transactions with Defendants-Appellants First American Cash Advance of
    
    Georgia, LLC (First American) and First National Bank in Brookings (FNB).
    
    Each time Jenkins obtained a loan, she signed an Arbitration Agreement, in which
    
    she agreed to either arbitrate or assert in a small claims tribunal, any claim she had
    
    against Defendants. The Arbitration Agreements also required Jenkins to waive
    
    her right to participate in a class action against Defendants. Nonetheless, Jenkins
    
    filed a class action lawsuit against First American and FNB in state court,
    
    asserting the loan agreements violated Georgia usury laws. After removing the
    
    case to federal court, Defendants moved to stay the court proceedings and compel
    
    arbitration. The district court denied Defendants’ motion, finding the Arbitration
    
    Agreements were unconscionable. Pursuant to 9 U.S.C. § 16(a) (2000),
    
    Defendants appealed the denial of their motion to this Court. We reverse and
    
    remand.
    
                                    I. BACKGROUND
    
          FNB is a national bank chartered under the National Bank Act, 12 U.S.C.
    
    § 21–216(d) (2000), with its principal offices in South Dakota. From September
    
    2001 through January 2003, First American, which is located in Georgia, managed
    
    and serviced loans for FNB; however, FNB set the credit scoring criteria for the
    
                                              2
    loans and funded the loans. Customers, like Jenkins, seeking to obtain a loan from
    
    FNB would fill out a loan application at First American’s offices. First American
    
    would electronically transmit the application to FNB for review. FNB would
    
    analyze the loan application and make the final decision on whether or not to
    
    extend credit. If FNB approved the application, it would send a Consumer Loan
    
    Agreement, which included a Promissory Note and an Arbitration Agreement, to
    
    First American. To obtain the loan, the customer would have to sign and date both
    
    the Promissory Note and the Arbitration Agreement.
    
          The type of lending transactions at issue in this case are commonly referred
    
    to as “payday loans.” In general, payday loans are small-dollar, short-term loans
    
    with high interest rates. In such transactions, a borrower receives a modest cash
    
    advance that becomes due for repayment within a short period of time, usually
    
    about 14 days. As security for the loan, the borrower gives a check to the payday
    
    lender in the amount of the cash advance, plus the interest charged by the lender.
    
    The interest rates in payday lending transactions typically range from 20% to 30%
    
    for a two-week advance, which computes to an annual percentage rate of about
    
    520% to 780%. If the borrower has not repaid the lender by the due date, the
    
    
    
    
                                             3
    lender can negotiate the check.1 Alternatively, the borrower may be able to extend
    
    the loan’s due date by paying a fee. This type of extension is referred to as a
    
    renewal or a rollover.
    
           Between June 2002 and September 2002, Jenkins entered into at least eight
    
    payday lending transactions with First American and FNB. Each of these loans
    
    was for less than $500 and had a maturity date between 7 and 14 days. The annual
    
    percentage rates charged by Defendants for these loans ranged from a low of
    
    438% to a high of 938.57%. Most of the loans in question charged an interest rate
    
    of about 469% annually.
    
           Like other FNB customers, Jenkins signed and dated a Promissory Note and
    
    an Arbitration Agreement each time she took out a loan. FNB was explicitly listed
    
    as the lender in the loan documents, and First American was listed as the “loan
    
    marketer/servicer.” Each Promissory Note included a choice-of-law provision,
    
    stating the note was “governed by and construed in accordance with the laws of
    
    South Dakota.” The Arbitration Agreements stipulated that they were governed
    
    by the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1–16 (2000), because the
    
    underlying lending transactions involved interstate commerce. Each Arbitration
    
    
    
           1
             Borrowers’ repayment checks were made payable to FNB and were deposited in a bank
    account in FNB’s name.
    
                                                 4
    Agreement further stated if a court found the FAA did not apply to a particular
    
    transaction, then the Arbitration Agreement would be governed by the arbitration
    
    law of South Dakota.
    
          The Arbitration Agreements signed by Jenkins provided that “all disputes”
    
    between the parties would be resolved by binding arbitration. They further stated
    
    Jenkins waived her right to participate in a class action against Defendants. Under
    
    the Agreements, Jenkins had the right to choose the arbitrator from a list of
    
    national arbitration organizations, or Jenkins and Defendants could agree on a
    
    local arbitrator. The Agreements required Defendants to advance Jenkins’
    
    arbitration costs if she submitted a written request for them to do so. The
    
    Arbitration Agreements also permitted the arbitrator to award reasonable
    
    attorneys’ fees and expenses to the prevailing party “[i]f allowed by statute or
    
    applicable law.”
    
          The Arbitration Agreements provided only one exception to resolving
    
    disputes in arbitration: “All parties . . . shall retain the right to seek adjudication in
    
    a small claims tribunal for disputes within the scope of such tribunal’s
    
    jurisdiction.” The Agreements did, however, require appeals from the small
    
    claims tribunal to be resolved by arbitration. Therefore, by signing the Arbitration
    
    
    
    
                                                5
    Agreements, Jenkins agreed to resolve any claim she had against Defendants by
    
    either submitting the claim to arbitration or raising it in a small claims tribunal.
    
          The main provisions of the Arbitration Agreements were conspicuously
    
    disclosed in bold-faced capital letters:
    
          You acknowledge and agree that by entering into this Arbitration
          Provision:
          (a) YOU ARE WAIVING YOUR RIGHT TO HAVE A TRIAL
                BY JURY TO RESOLVE ANY DISPUTE ALLEGED
                AGAINST US OR RELATED THIRD PARTIES;
          (b) YOU ARE WAIVING YOUR RIGHT TO HAVE A
                COURT, OTHER THAN A SMALL CLAIMS TRIBUNAL,
                RESOLVE ANY DISPUTE ALLEGED AGAINST US OR
                RELATED THIRD PARTIES; and
          (c) YOU ARE WAIVING YOUR RIGHT TO SERVE AS A
                REPRESENTATIVE, AS A PRIVATE ATTORNEY
                GENERAL, OR IN ANY OTHER REPRESENTATIVE
                CAPACITY, AND/OR TO PARTICIPATE AS A
                MEMBER OF A CLASS OF CLAIMANTS, IN ANY
                LAWSUIT FILED AGAINST US AND/OR RELATED
                THIRD PARTIES.2
    
    In addition, each Promissory Note signed by Jenkins included a clause stating:
    
          Arbitration: You acknowledge that you have read, understand and
          agree to the terms contained in the Arbitration Agreement you are
          signing in connection with this Note. By entering into the Arbitration
          Agreement, you waive certain rights, including the right to go to
    
          2
             The class action waiver was also conspicuously disclosed at another point in the
    Arbitration Agreements, where it was further explained: “THE ARBITRATOR SHALL NOT
    CONDUCT CLASS ARBITRATION; THAT IS, THE ARBITRATOR SHALL NOT
    ALLOW YOU TO SERVE AS A REPRESENTATIVE, AS A PRIVATE ATTORNEY
    GENERAL, OR IN ANY OTHER REPRESENTATIVE CAPACITY FOR OTHERS IN
    THE ARBITRATION.”
    
                                                6
          court, to have the dispute heard by a jury (except as specifically
          provided in the Arbitration Agreement), and to participate as part of a
          class of claimants relating to any dispute with Lender, First American
          or their affiliates.
    
          Jenkins nevertheless filed a class action lawsuit against First American and
    
    FNB in the Superior Court of Richmond County, Georgia. In her complaint,
    
    Jenkins alleged the payday loan agreements violate Georgia’s usury statutes, Ga.
    
    Code Ann. §§ 7-4-2, 7-4-18 (2004), and the Georgia Racketeer Influenced and
    
    Corrupt Organizations (RICO) Act, Ga. Code Ann. § 16-14-4 (2003).
    
          First American and FNB removed the case to federal district court. In
    
    federal court, First American and FNB sought to enforce the Arbitration
    
    Agreements signed by Jenkins. Defendants moved pursuant to the FAA to stay
    
    the court proceedings and to compel arbitration. Under the FAA, a written
    
    arbitration provision in “a contract evidencing a transaction involving [interstate]
    
    commerce . . . shall be valid, irrevocable, and enforceable, save upon such grounds
    
    as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2
    
    (2000). The FAA explains when a party to such an agreement fails or refuses to
    
    arbitrate, the other party may petition a federal district court for an order to compel
    
    arbitration. Id. § 4.
    
    
    
    
                                               7
           The district court found the payday lending transactions involved interstate
    
    commerce, and, therefore, the FAA applied. The district court, however, denied
    
    Defendants’ motion to compel arbitration, finding the Arbitration Agreements
    
    were unenforceable because they were unconscionable. Defendants filed a motion
    
    to reconsider and to stay the proceedings pending this appeal. The district court
    
    denied the motion for reconsideration and granted the motion to stay the
    
    proceedings. This appeal followed.
    
                    II. JURISDICTION AND STANDARD OF REVIEW
    
           Pursuant to 9 U.S.C. § 16(a) (2000), we have jurisdiction over this appeal.
    
    9 U.S.C. § 16(a) (2000) (authorizing an immediate appeal of any “final decision
    
    with respect to an arbitration”).3 We review de novo the district court’s denial of a
    
    
           3
             In her brief, Jenkins questions whether removal was appropriate in this case and
    suggests federal jurisdiction does not exist. This argument, however, is without merit. In
    Beneficial National Bank v. Anderson, 
    539 U.S. 1
    , 
    123 S. Ct. 2058
     (2003), the United States
    Supreme Court held actions for usury against a national bank can be removed to federal court
    because the National Bank Act, 12 U.S.C. §§ 85–86 (2000), preempts state usury laws in such
    situations. Id. at 11, 123 S. Ct. at 2064. The Court explained:
            In actions against national banks for usury, [§§ 85 and 86] supercede both the
            substantive and the remedial provisions of state usury laws and create a federal
            remedy for overcharges that is exclusive, even when a state complainant, as here,
            relies entirely on state law. Because §§ 85 and 86 provide the exclusive cause of
            action for such claims, there is, in short, no such thing as a state-law claim of
            usury against a national bank.
    Id., 123 S. Ct. at 2064. Jenkins attempts to evade the Supreme Court’s holding in Anderson by
    contending her usury claims were brought primarily against First American, not FNB. She
    argues FNB was only included in her complaint because she was seeking a declaratory judgment
    finding FNB to be a “sham” lender. Her complaint, however, expressly named both First
    American and FNB as Defendants and charged them both with usury. The complaint
    
                                                  8
    motion to compel arbitration. Musnick v. King Motor Co. of Fort Lauderdale, 
    325 F.3d 1255
    , 1257 (11th Cir. 2003).
    
                                         III. DISCUSSION
    
           The parties raise, inter alia, the following three issues on appeal: (1)
    
    whether the district court erred in applying the FAA to the loan agreements in this
    
    case; (2) whether the district court erred in finding the Arbitration Agreements are
    
    unconscionable; and (3) whether the Arbitration Agreements are unenforceable
    
    because the underlying payday loans are illegal and void ab initio under Georgia
    
    law. We address each of these issues in turn.
    
    A.     Applicability of the FAA
    
           The purpose of the FAA “was to reverse the longstanding judicial hostility
    
    to arbitration agreements that had existed at English common law and had been
    
    adopted by American courts, and to place arbitration agreements upon the same
    
    footing as other contracts.” Gilmer v. Interstate/Johnson Lane Corp., 
    500 U.S. 20
    ,
    
    24, 
    111 S. Ct. 1647
    , 1651 (1991). The FAA’s provisions “manifest a ‘liberal
    
    federal policy favoring arbitration agreements.’” Id. at 25, 111 S. Ct. at 1651
    
    
    
    
    consistently used the plural form of “Defendants.” She asserted that “Defendants violated”
    Georgia usury laws, and that she was “entitled to recover from Defendants all interest charges
    paid by [her].” Because Jenkins charged a national bank with violating Georgia usury laws,
    removal was proper.
    
                                                    9
    (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 
    460 U.S. 1
    , 24,
    
    
    103 S. Ct. 927
    , 941 (1983)). The Supreme Court has “rejected generalized attacks
    
    on arbitration that rest on ‘suspicion of arbitration as a method of weakening the
    
    protections afforded in the substantive law to would-be complainants.’” Green
    
    Tree Fin. Corp. v. Randolph, 
    531 U.S. 79
    , 89–90, 
    121 S. Ct. 513
    , 521 (2000)
    
    (quoting Rodriguez de Quijas v. Shearson/Am. Express, Inc., 
    490 U.S. 477
    , 481,
    
    
    109 S. Ct. 1917
    , 1920 (1989)).
    
          The FAA makes enforceable a written arbitration provision in “a contract
    
    evidencing a transaction involving commerce.” 9 U.S.C. § 2 (2000). The FAA
    
    defines “commerce” as “commerce among the several States.” Id. § 1. The
    
    Supreme Court has “interpreted the term ‘involving commerce’ in the FAA as the
    
    functional equivalent of the more familiar term ‘affecting commerce’—words of
    
    art that ordinarily signal the broadest permissible exercise of Congress’ Commerce
    
    Clause power.” Citizens Bank v. Alafabco, Inc., 
    539 U.S. 52
    , 56, 
    123 S. Ct. 2037
    ,
    
    2040 (2003) (citation omitted). The Court has further explained the phrase
    
    “evidencing a transaction” means only that the transaction turns out, in fact, to
    
    have involved interstate commerce, “even if the parties did not contemplate an
    
    interstate commerce connection.” Allied-Bruce Terminix Cos., Inc. v. Dobson,
    
    
    513 U.S. 265
    , 277–81, 
    115 S. Ct. 834
    , 841–43 (1995).
    
                                             10
           In this case, the district court found the FAA applied because the underlying
    
    payday lending transactions involved interstate commerce. On appeal, Jenkins
    
    challenges this part of the district court’s decision, contending there has been no
    
    showing that the loan agreements involved interstate commerce. Jenkins’
    
    contention is without merit.
    
           The FAA’s broad interstate commerce requirement is satisfied in this case.
    
    The lending transactions were between Jenkins, a Georgia resident, and FNB, a
    
    national bank located in South Dakota.4 Loan applications were electronically
    
    transmitted to South Dakota, where FNB decided whether to approve or refuse the
    
    loans. If the loans were approved, FNB sent the borrowers preprinted Consumer
    
    Loan Agreements, each including an Arbitration Agreement. The district court
    
    explained: “First National Bank’s role in analyzing loan applications, sending the
    
    approved loan applications, funding the loans, and accepting the loan proceeds
    
    constitutes sufficient interstate commerce to satisfy the definition of ‘involving
    
    commerce’ within the meaning of 9 U.S.C. §§ 1, 2.” Jenkins v. First Am. Cash
    
    
    
    
           4
             The district court correctly rejected Jenkins’ assertion that First American, a Georgia
    entity, was the “true” lender. FNB was expressly listed as the lender in the loan documents,
    while First American was listed merely as the “loan marketer/servicer.” FNB approved the
    loans, funded the loans, and set the credit scoring criteria for the loans. Also, repayment checks
    were made out to FNB and deposited in a bank account in FNB’s name.
    
                                                    11
    Advance of Georgia, 
    313 F. Supp. 2d 1370
    , 1373 (S.D. Ga. 2003) (citation
    
    omitted).
    
           We agree with the district court. Here, the parties not only contemplated an
    
    interstate commerce connection when they entered into the lending agreements,5
    
    but the payday lending transactions did, in fact, turn out to involve interstate
    
    commerce. The district court did not err in applying the FAA to the loan
    
    agreements signed by Jenkins.6
    
    B.     Unconscionability
    
           Under the FAA, a written arbitration provision is “valid, irrevocable, and
    
    enforceable, save upon such grounds as exist at law or in equity for the revocation
    
    of any contract.” 9 U.S.C. § 2 (2000) (emphasis added). This language has been
    
    interpreted to mean “[t]he FAA allows state law to invalidate an arbitration
    
    agreement, provided the law at issue governs contracts generally and not
    
    arbitration agreements specifically.” Bess v. Check Express, 
    294 F.3d 1298
    , 1306
    
    
           5
             The Arbitration Agreements expressly stipulated the lending transactions between
    Jenkins and Defendants involved interstate commerce and were governed by the FAA.
           6
              We also reject Jenkins’ argument that the FAA does not apply because the Georgia
    legislature recently made a general pronouncement that payday lending does not involve
    interstate commerce. See Ga. Code Ann. § 16-17-1(d) (2003 & Supp. 2004) (effective May
    2004). Courts determine whether or not interstate commerce exists under the FAA on a case-by-
    case analysis by examining whether the transaction in question turns out, in fact, to have
    involved interstate commerce. See Allied-Bruce Terminix Cos., Inc. v. Dobson, 
    513 U.S. 265
    ,
    277–81, 
    115 S. Ct. 834
    , 841–43 (1995).
    
                                                  12
    (11th Cir. 2002) (citing Doctor’s Assocs., Inc. v. Casarotto, 
    517 U.S. 681
    , 686,
    
    
    116 S. Ct. 1652
    , 1656 (1996)). The Supreme Court has recognized that “generally
    
    applicable contract defenses, such as fraud, duress, or unconscionability, may be
    
    applied to invalidate arbitration agreements.” Doctors Assocs., 517 U.S. at 687,
    
    116 S. Ct. at 1656. In this case, Appellant argues, and the district court found, the
    
    Arbitration Agreements signed by Jenkins are unconscionable.
    
           In deciding claims of unconscionability, Georgia courts generally consider a
    
    variety of factors, which have been divided into procedural and substantive
    
    elements.7 NEC Techs., Inc. v. Nelson, 
    478 S.E.2d 769
    , 771–72 (Ga. 1996).
    
    “Procedural unconscionability addresses the process of making the contract, while
    
    substantive unconscionability looks to the contractual terms themselves.” Id. at
    
    771. Factors relevant to the procedural unconscionability inquiry include the
    
    bargaining power of the parties, “the conspicuousness and comprehensibility of
    
    the contract language, the oppressiveness of the terms, and the presence or
    
    
    
           7
             In determining whether the Arbitration Agreements were unconscionable, the district
    court applied Georgia unconscionability law. The choice-of-law provisions in the Arbitration
    Agreements stipulated that the FAA governs those Agreements, and that if a court found the
    FAA did not apply to a particular transaction, then South Dakota arbitration law would govern.
    Moreover, the choice-of-law provisions within the Promissory Notes provided that those Notes
    would be controlled by the laws of South Dakota. As South Dakota’s unconscionability laws
    mirror Georgia’s laws, the outcome of the unconscionability issue would be the same regardless
    of which state law applied. See Johnson v. John Deere Co., 
    306 N.W.2d 231
    , 237–38 (S.D.
    1981) (applying the same two-part analysis of procedural and substantive unconscionability).
    
                                                  13
    absence of a meaningful choice.” Id. (citations omitted). As for substantive
    
    unconscionability, courts consider “the commercial reasonableness of the contract
    
    terms, the purpose and effect of the terms, the allocation of the risks between the
    
    parties, and similar public policy concerns.” Id. at 772 (citations omitted).
    
          On the procedural side of this analysis, the district court found that
    
    Defendants had superior bargaining power and that the Arbitration Agreements
    
    constituted adhesion contracts. On the substantive side of the analysis, the court
    
    provided two reasons for finding the terms of the Agreements to be
    
    unconscionable: (1) precluding class action relief was unfair because a class action
    
    is the most effective method for borrowers with small claims to obtain relief; and
    
    (2) the Arbitration Agreements lacked mutuality of obligation because the
    
    provision providing access to a small claims tribunal would only benefit the
    
    lender, FNB.
    
          The district court explained that considered individually, these factors might
    
    not be enough to support a finding of unconscionability, but that considered
    
    together, they rendered the Arbitration Agreements unconscionable. We disagree.
    
          1.     Bargaining Power/Adhesion
    
          The district court found the Arbitration Agreements were “procedurally
    
    oppressive” because the “type of consumer loans that Defendants offer
    
                                             14
    unquestionably places the consumer at a severe bargaining disadvantage.”
    
    Jenkins, 313 F. Supp. 2d at 1374. The court stated “[c]onsumers who are willing
    
    to borrow money at such [high] interest rates would foreseeably sign anything.”
    
    Id. The court further explained consumers were unable to negotiate the terms of
    
    the preprinted contracts. After a customer, like Jenkins, filled out a loan
    
    application at First American’s offices, the application would be electronically
    
    transmitted to FNB. FNB would then send a completed Consumer Loan
    
    Agreement, including an Arbitration Agreement, back to First American for the
    
    borrower to sign. The court found the contracts to be adhesive because the
    
    borrower was unable to discuss or negotiate “the amount and conditions of the
    
    preprinted agreement.” Id.
    
          Before considering the merits of the adhesion argument, we must first
    
    decide whether this issue is one for an arbitrator or a court to resolve. The FAA
    
    “provides a remedy to a party seeking to compel compliance with an arbitration
    
    agreement.” Prima Paint Corp. v. Flood & Conklin Mfg. Co., 
    388 U.S. 395
    , 403,
    
    
    87 S. Ct. 1801
    , 1806 (1967). Such a party can move the district court for an order
    
    compelling arbitration. 9 U.S.C. § 4 (2000). Section four of the FAA instructs the
    
    federal court to grant the motion and order arbitration once it is satisfied “that the
    
    making of the agreement for arbitration . . . is not in issue.” Id. If, however, the
    
                                              15
    making of the arbitration agreement is in question, then the federal court may first
    
    adjudicate that issue. Id.
    
          In interpreting this section of the FAA, the Supreme Court has distinguished
    
    between claims that challenge the contract generally and claims that challenge the
    
    arbitration provision itself. See Prima Paint Corp., 388 U.S. at 403–04, 87 S. Ct.
    
    at 1806. In Prima Paint, the plaintiff sought to rescind a contract on the grounds
    
    that the contract was fraudulently induced. Id. at 398, 87 S. Ct. at 1803. The
    
    defendant, on the other hand, sought to invoke the contract’s arbitration clause and
    
    moved to stay the action pending arbitration. Id. at 398–99, 87 S. Ct. at 1803.
    
    The Supreme Court explained:
    
          [I]f the claim is fraud in the inducement of the arbitration clause
          itself—an issue which goes to the “making” of the agreement to
          arbitrate—the federal court may proceed to adjudicate it. But the
          statutory language [of the FAA] does not permit the federal court to
          consider claims of fraud in the inducement of the contract generally.
    
    Id. at 403–04, 87 S. Ct. at 1806. The Court concluded that because the fraudulent
    
    inducement claim related to the underlying contract generally, and not to the
    
    arbitration clause specifically, it was a matter to be resolved by the arbitrator, not
    
    the federal court. Id. at 406, 87 S. Ct. at 1807.
    
          This Court has applied the Prima Paint rule to claims of adhesion and
    
    unconscionability. We have held that “[i]f . . . [the party’s] claims of adhesion,
    
                                              16
    unconscionability, . . . and lack of mutuality of obligation pertain to the contract as
    
    a whole, and not to the arbitration provision alone, then these issues should be
    
    resolved in arbitration.” Benoay v. Prudential-Bache Secs., Inc., 
    805 F.2d 1437
    ,
    
    1441 (11th Cir. 1986) (citations omitted).
    
          Here, the adhesion arguments relied on by the district court pertain to the
    
    underlying Consumer Loan Agreements as a whole, and not to the Arbitration
    
    Agreements specifically. As explained above, the adhesion arguments were
    
    (1) that the consumers lacked bargaining power because these “type[s] of
    
    consumer loans . . . would only appeal to extremely desperate consumers,” and
    
    (2) that the consumers were allegedly unable to negotiate the terms and conditions
    
    of the preprinted agreements. Jenkins, 313 F. Supp. 2d at 1374. These claims do
    
    not relate to the Arbitration Agreements themselves; rather, they allege the
    
    Consumer Loan Agreements, in general, were adhesive. Under the Supreme
    
    Court’s decision in Prima Paint and our decision in Benoay, the FAA does not
    
    permit a federal court to consider claims alleging the contract as a whole was
    
    adhesive. We conclude, therefore, Jenkins’ adhesion claims are for an arbitrator,
    
    not a federal court, to decide.
    
    
    
    
                                              17
          2.     Class Action Waiver
    
          The district court found the Arbitration Agreements were substantively
    
    unconscionable because they preclude “borrower[s] from either instigating or
    
    participating in a class action suit.” Jenkins, 313 F. Supp. 2d at 1375. The court
    
    explained “[a] class action is the only way that borrowers with claims as small as
    
    the individual loan transactions [at issue in this case] can obtain relief.” Id. The
    
    district court considered the cost of attorney’s fees to be a significant factor in
    
    determining whether the Arbitration Agreements are unconscionable. Id. The
    
    court speculated that a borrower who attempts to pursue her claim individually
    
    based on one loan transaction would “probably” be unable to obtain a lawyer on a
    
    contingent fee basis. Id. The district court found requiring arbitration and
    
    prohibiting class action “would have the practical effect of providing Defendants
    
    immunity.” Id.
    
          As an initial matter, we note this issue may be decided by a federal court.
    
    The class action waiver was a provision included in each of the Arbitration
    
    Agreements. Unlike the adhesion argument, which applies to the loan contracts
    
    generally, this claim alleges the Arbitration Agreements specifically are
    
    unconscionable because they preclude class action relief. Under section four of
    
    the FAA, a federal court may adjudicate this claim because it applies to the
    
                                               18
    Arbitration Agreements themselves, and thus, it places the making of the
    
    Arbitration Agreements in issue. See 9 U.S.C. § 4 (2000).
    
          We have held, however, that arbitration agreements precluding class action
    
    relief are valid and enforceable. See Randolph v. Green Tree Fin. Corp.-Alabama,
    
    
    244 F.3d 814
    , 819 (11th Cir. 2001) (holding “a contractual provision to arbitrate
    
    TILA claims is enforceable even if it precludes a plaintiff from utilizing class
    
    action procedures in vindicating statutory rights under TILA”). Other federal
    
    circuit courts have similarly enforced arbitration agreements despite the fact that
    
    classwide relief was unavailable. See, e.g., Snowden v. Checkpoint Check
    
    Cashing, 
    290 F.3d 631
    , 638 (4th Cir. 2002) (rejecting the borrower’s argument
    
    “that the Arbitration Agreement is unenforceable as unconscionable because
    
    without the class action vehicle, she will be unable to maintain her legal
    
    representation given the small amount of her individual damages”); Johnson v.
    
    West Suburban Bank, 
    225 F.3d 366
    , 369 (3d Cir. 2000) (holding arbitration
    
    “clauses are effective even though they may render class actions to pursue
    
    statutory claims under the TILA or the EFTA unavailable”); cf. Livingston v.
    
    Assocs. Fin., Inc., 
    339 F.3d 553
    , 559 (7th Cir. 2003) (“The Arbitration Agreement
    
    at issue here explicitly precludes the [borrowers] from bringing class claims or
    
    pursuing ‘class action arbitration,’ so we are therefore ‘obliged to enforce the type
    
                                             19
    of arbitration to which these parties agreed, which does not include arbitration on
    
    a class basis.’”) (citations omitted).
    
           In addition, the district court’s contention that consumers would likely be
    
    unable to obtain legal representation without the class action vehicle is unfounded.
    
    The Arbitration Agreements expressly permit Jenkins and other consumers to
    
    recover attorneys’ fees and expenses “[i]f allowed by statute or applicable law.”
    
    Under the Georgia RICO statute, a prevailing plaintiff may be awarded attorney’s
    
    fees. Ga. Code Ann. § 16-14-6(c). Jenkins, therefore, can presumably recover
    
    attorneys’ fees and costs if she prevails in arbitration on her Georgia RICO claim.8
    
    See Snowden, 290 F.3d at 638 (in rejecting an unconscionability argument, the
    
    court concluded the plaintiff could recover attorney fees in arbitration if she
    
    prevailed on her TILA and civil RICO claims).
    
           Georgia courts have explained that by authorizing the recovery of attorneys’
    
    fees, the Georgia RICO statute provides plaintiffs “with effective access to the
    
    judicial process.” Dee v. Sweet, 
    489 S.E.2d 823
    , 825 (Ga. 1997). Moreover,
    
    federal circuit courts have recognized that arbitration agreements prohibiting class
    
    action relief do not “necessarily choke off the supply of lawyers willing to pursue
    
    
           8
           Also, Jenkins’ arbitration costs would not be expensive. Under the Arbitration
    Agreements, Defendants have offered to advance Jenkins’ arbitration expenses, such as filing
    and administrative fees, if she submits a written request.
    
                                                  20
    claims on behalf of debtors.” Johnson, 225 F.3d at 374; see also Snowden, 290
    
    F.3d at 638. These courts explained that when the opportunity to recover
    
    attorneys’ fees is available, lawyers will be willing to represent such debtors in
    
    arbitration. See Snowden, 290 F.3d at 638; Johnson, 225 F.3d at 374.
    
          Thus, precluding class action relief will not have the practical effect of
    
    immunizing First American and FNB. The Arbitration Agreements permit Jenkins
    
    and other consumers to vindicate all of their substantive rights in arbitration. We
    
    conclude, therefore, the inclusion of a class action waiver in the Arbitration
    
    Agreements did not render those Agreements substantively unconscionable.
    
          3.      Access to Small Claims Tribunals
    
          The district court’s finding of substantive unconscionability was also based
    
    on the provision in the Arbitration Agreements permitting either party to seek
    
    adjudication in a small claims tribunal. The court found the Arbitration
    
    Agreements lacked mutuality of obligation because this provision only benefits
    
    Defendants.
    
          On its face, this provision does not favor one party over the other; rather, it
    
    provides that “[a]ll parties . . . shall retain the right to seek adjudication in a small
    
    claims tribunal for disputes within the scope of such tribunal’s jurisdiction.” The
    
    district court, however, found a borrower’s ability to pursue an action in a small
    
                                                21
    claims tribunal to be illusory. The court speculated that it is “hard to conceive of a
    
    claim by the payday lender that cannot be sought in a small claims tribunal,” but it
    
    is “easy to envision a plethora of claims a consumer might seek which are
    
    inaccessible in [such a tribunal] due to its limited jurisdiction.” Jenkins, 313 F.
    
    Supp. 2d at 1375. Additionally, the district court explained this provision favored
    
    Defendants because the judgments of small claims tribunals were appealable to an
    
    arbitrator.9
    
           Under Georgia law, if at the time the agreement is to be enforced, “the
    
    contract contains mutual obligations equally binding on both parties to the
    
    contract, then the contract is not unilateral and unenforceable.” Jones v. Quigley,
    
    
    315 S.E.2d 59
    , 60 (Ga. Ct. App. 1984). In this case, both Jenkins and Defendants
    
    had equal access to small claims tribunals. The only restriction, which applied
    
    equally to both parties, was that the claims sought in such a tribunal must fall
    
    within the tribunal’s limited jurisdiction.
    
           In stating it could “envision a plethora of claims” that consumers would not
    
    be able to raise in small claims courts, the district court apparently overlooked the
    
    many claims that consumers could bring in such tribunals. For example, if FNB
    
    
           9
             We note this claim alleged the Arbitration Agreements themselves were unconscionable
    due to a lack of mutuality of obligation; therefore, the district court had the authority, under the
    FAA, to adjudicate the issue. See 9 U.S.C. § 4 (2000).
    
                                                     22
    charged a consumer an interest rate higher than that agreed upon in the contract,
    
    the consumer could, in most instances, pursue an action for the difference in a
    
    small claims court. Additionally, if FNB mistakenly imposed late charges on a
    
    consumer, he could presumably seek recovery in a small claims tribunal. Thus, we
    
    disagree with the district court’s unsupported speculation that the consumers’
    
    ability to pursue an action in a small claims tribunal is illusory.
    
          We note, moreover, that the provision providing access to small claims
    
    tribunals was intended to benefit, not injure, consumers. The American
    
    Arbitration Association (AAA) has developed a set of principles, known as the
    
    Consumer Due Process Protocol, to protect consumers and ensure they are treated
    
    equitably in arbitration. See generally American Arbitration Association,
    
    Consumer Due Process Protocol, (Apr. 17, 1998), http://www.adr.org/protocols.
    
    Principle 5 of this Protocol expressly states that consumer arbitration agreements,
    
    like those at issue here, should offer all parties the option of seeking adjudication
    
    in a small claims tribunal. Id. The Comment to Principle 5 explains “access to
    
    small claims tribunals is an important right of Consumers” because it provides “a
    
    convenient, less formal, and relatively expeditious judicial forum for handling . . .
    
    disputes” involving small amounts of money. Id. By including a provision that
    
    offers access to such tribunals, the Arbitration Agreements at issue here merely
    
                                               23
    complied with the AAA’s Consumer Due Process Protocol. Such compliance
    
    further undermines the district court’s finding that the small-claims provision in
    
    the Arbitration Agreements only benefitted the payday lender. Cf. Green Tree
    
    Fin. Corp.-Alabama v. Randolph, 
    531 U.S. 79
    , 94–95, 
    121 S. Ct. 513
    , 524 (2000)
    
    (Ginsburg, J., concurring) (explaining the drafter of the contract could have relied
    
    on the AAA’s Consumer Arbitration Rules to ensure the claims are arbitrated
    
    under a “consumer-protective fee arrangement”).
    
          We further note the district court did not provide support for its assertion
    
    that the small-claims provision favors Defendants because the judgments from
    
    small claims courts are appealable to an arbitrator. This aspect of the small-claims
    
    provision is equally binding on Jenkins and Defendants, as both parties are
    
    obligated to appeal such judgments to an arbitrator. Moreover, the arbitral forum
    
    does not unfairly favor Defendants. Jenkins, who has raised claims under Georgia
    
    usury laws and the Georgia RICO statute, is capable of vindicating all of her
    
    substantive rights in arbitration. In Bess v. Check Express, 
    294 F.3d 1298
     (11th
    
    Cir. 2002), we held the terms of the arbitration agreement at issue in that case did
    
    not “grossly favor” the payday lender because, among other reasons, “nothing in
    
    the agreement prevent[ed] the arbitrator from awarding ‘the full panoply of relief’
    
    available under [the applicable] law.” Id. at 1308; see also Green Tree Fin. Corp.,
    
                                             24
    531 U.S. at 90, 121 S. Ct. at 521 (holding “even claims arising under a statute
    
    designed to further important social policies may be arbitrated because so long as
    
    the prospective litigant effectively may vindicate [his or her] statutory cause of
    
    action in the arbitral forum, the statute serves its functions”) (alteration in original)
    
    (citation and internal quotation marks omitted). The same is true in this case, as
    
    the Arbitration Agreements do not limit Jenkins’ right to relief.10
    
           We conclude the small-claims provision is mutual and bilateral—it applies
    
    equally to both parties. Jenkins has not demonstrated that access to small claims
    
    tribunals unfairly benefits Defendants. The Arbitration Agreements, therefore, do
    
    not lack mutuality of obligation.
    
           In summary, we disagree with the district court’s reasons for finding the
    
    Arbitration Agreements unconscionable. The district court did not have the
    
    authority to decide the adhesion claim because that issue related to the loan
    
    agreements generally and, therefore, should have been submitted to an arbitrator.
    
    Although the district court did have the authority to adjudicate the arguments
    
    relating to the class action waiver and the small-claims provision, those
    
    
    
    
           10
               We note the Arbitration Agreements also permit Jenkins to either (1) choose the
    arbitrator from a list of national arbitration organizations, or (2) come to an agreement with
    Defendants in selecting a local arbitrator.
    
                                                     25
    contractual conditions, for the reasons explained above, did not render the
    
    Arbitration Agreements unconscionable.
    
    C.    Legality of the Underlying Transactions
    
          Jenkins raises an alternative argument for affirming the denial of
    
    Defendants’ motion to compel arbitration. Jenkins argues Defendants’ motion
    
    should not be granted because the underlying payday loan contracts are illegal and
    
    void ab initio under Georgia law. See Ga. Code Ann. § 16-17-1 (2003 & Supp.
    
    2004) (effective May 2004). Because the loan contracts are allegedly void,
    
    Jenkins contends “there is nothing to arbitrate.”
    
          We have, however, previously considered and rejected such an argument.
    
    Bess, 294 F.3d at 1304–06. In Bess, a class action lawsuit arose out of “check
    
    advances” or “deferred payment transactions” between the plaintiffs and
    
    defendants. Id. at 1300. A deferred payment transaction is essentially the same as
    
    a payday lending transaction. See id. at 1300–01. One of the named plaintiffs in
    
    Bess, Luna Clifton Colburn, signed an arbitration agreement in connection with
    
    the deferred payment transactions. The defendants sought to enforce this
    
    agreement and compel arbitration. Like Jenkins’ argument in this case, Colburn
    
    argued the arbitration agreements were unenforceable because the underlying
    
    deferred payment transactions were void as illegal under Alabama law. Colburn
    
                                             26
    alleged the loans charged usurious rates of interest, and the collection of the loans
    
    violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §
    
    1961–1968 (2000).
    
           In rejecting Colburn’s argument, we applied the Prima Paint rule. Bess,
    
    294 F.3d at 1304–05. We explained the “allegations of illegality go to the
    
    deferred payment transactions generally, and not to the arbitration agreements
    
    specifically.” Id. at 1305. Therefore, an arbitrator, and not a federal court, should
    
    determine whether the underlying transactions are illegal and void. Id. at 1306.
    
           In Bess, we also distinguished our holding from our earlier decision in
    
    Chastain v. Robinson-Humphrey Co., Inc., 
    957 F.2d 851
     (11th Cir. 1992).11 In
    
    Chastain, we considered an “unusual” set of facts, in which the plaintiff never
    
    personally signed the customer agreements at issue. Id. at 852–53. Without such
    
    a signature, the plaintiff argued she never assented to the arbitration clauses found
    
    within the customer agreements. Id. at 853. We explained:
    
           Under normal circumstances, an arbitration provision within a
           contract admittedly signed by the contractual parties is sufficient to
           require the district court to send any controversies to arbitration.
           Under such circumstances, the parties have at least presumptively
    
    
    
           11
             Jenkins’ argument relies on a Georgia case, Stewart v. Favors, 
    590 S.E.2d 186
     (Ga. Ct.
    App. 2003), and a Florida case, Cardegna v. Buckeye Check Cashing, Inc., — So. 2d — (Fla.
    2005), both of which cite this Court’s decision in Chastain.
    
                                                  27
          agreed to arbitrate any disputes, including those disputes about the
          validity of the contract in general.
    
    Id. at 854 (citations omitted). “Where the party seeking to avoid arbitration
    
    admittedly did not sign any contract requiring arbitration, however, ‘there is no
    
    presumptively valid general contract which would trigger the district court’s duty
    
    to compel arbitration pursuant to the [FAA].’” Bess, 294 F.3d at 1305 (quoting
    
    Chastain, 957 F.2d at 854) (alteration in original).
    
          In Chastain, the plaintiff alleged “that a contract never existed at all”
    
    because she never signed and assented to the contracts in question. 957 F.2d at
    
    855. She challenged “the very existence of any agreement, including the existence
    
    of an agreement to arbitrate.” Id. at 854. In that situation, we held the plaintiff
    
    placed the making of the arbitration agreement in question, thereby permitting the
    
    district court to adjudicate the issue. Id. at 855. We concluded that before
    
    determining whether arbitration should be compelled under the FAA, the district
    
    court can decide whether the parties assented to the contracts containing the
    
    arbitration clauses. Id. at 855–56; see also Bess, 294 F.3d at 1305.
    
          The plaintiff in Bess, Colburn, attempted to compare his void ab initio
    
    allegation to the contentions in Chastain that a contract never existed. 294 F.3d at
    
    1305. We rejected this argument, explaining Colburn’s reliance on Chastain was
    
    
    
                                             28
    misplaced because Chastain focused primarily “on the question of assent.” Id.
    
    We explained:
    
           Colburn urges that the transactions in this case are void, not because
           he failed to assent to the essential terms of the contracts, but because
           those terms allegedly render the contracts illegal under Alabama law.
           At bottom, Colburn challenges the content of the contracts, not their
           existence. Indeed, unlike the contracts in Chastain, both the
           arbitration agreement and the deferred payment contracts were signed
           by Colburn, and there is no question about Colburn’s assent to those
           contracts. Thus, this case falls within the “normal circumstances”
           described in Chastain, where the parties have signed a presumptively
           valid agreement to arbitrate any disputes, including those about the
           validity of the underlying transaction.
    
    Id. at 1305–06. Because assent to the contracts was not in question, we applied
    
    Prima Paint and held that whether or not the deferred payment transactions were
    
    usurious and void was an issue to be decided by an arbitrator, not a federal court.
    
    Id. at 1306; see also John B. Goodman Ltd. P’ship v. THF Constr., 
    321 F.3d 1094
    
    (11th Cir. 2003) (holding whether or not the underlying construction contracts
    
    were unenforceable under Florida law was a question for the arbitrator to
    
    decide).12
    
           12
               Other federal circuit courts have similarly held that allegations claiming high interest
    loan agreements are void as illegal will not preclude the enforcement of arbitration provisions
    included in the allegedly illegal contracts. See, e.g., Snowden v. Checkpoint Check Cashing, 
    290 F.3d 631
    , 637 (4th Cir. 2002) (“[Plaintiff’s] allegations of usurious rates of interest . . . do not
    relate specifically to the Arbitration Agreement. Neither do they underlie a claim that [Plaintiff]
    failed to assent to the terms of the . . . Agreement.”); Burden v. Check Into Cash of Kentucky,
    LLC, 
    267 F.3d 483
    , 489–91 (6th Cir. 2001) (holding plaintiffs’ allegations that the high interest
    loan agreements were void as illegal was an issue to be decided by an arbitrator).
    
                                                     29
           Jenkins’ void ab initio argument is no different from the argument we
    
    dismissed in Bess. Jenkins assented to the payday loan contracts and the
    
    Arbitration Agreements associated with those contracts. It is undisputed that she
    
    signed and dated both a Promissory Note and an Arbitration Agreement each time
    
    she obtained a loan from FNB. Jenkins argues the payday loan contracts are void,
    
    not because she failed to assent to the terms of the contracts, but because those
    
    terms render the contracts usurious and void under Georgia law. Thus, Jenkins
    
    does not challenge the existence of either the payday loan contracts or the
    
    accompanying Arbitration Agreements; rather she challenges the content of the
    
    contracts—i.e., the rates of interest charged in the loan agreements. As we held in
    
    Bess, we conclude Jenkins and Defendants entered into “presumptively valid
    
    agreement[s] to arbitrate any disputes, including those about the validity of the
    
    underlying transaction.” Bess, 294 F.3d at 1306; see also John B. Goodman Ltd.
    
    P’ship, 321 F.3d at 1096. We conclude, therefore, that Jenkins’ void ab initio
    
    argument, which challenges the legality of the payday lending transactions, is an
    
    issue for the arbitrator, not the court, to decide.13
    
    
    
           13
               We note this issue raised a question of federal law—namely, deciding whether the
    district court has the authority under the FAA to adjudicate Jenkins’ claim that the payday
    lending transactions were illegal. See Bess, 294 F.3d at 1306 n.3. In deciding this federal
    question, we do not pass judgment on any issues of Georgia contract law. See id.
    
                                                   30
                                   IV. CONCLUSION
    
          For the reasons stated above, we conclude the district court erred in finding
    
    the Arbitration Agreements at issue in this case unconscionable and
    
    unenforceable. Moreover, Jenkins’ alternative argument for affirming the district
    
    court—alleging the underlying payday lending transactions are void ab initio
    
    under Georgia law—is an issue for an arbitrator, not the court, to decide.
    
    Accordingly, we reverse the district court’s decision and remand with instructions
    
    to grant Defendants’ motion to compel arbitration.
    
          REVERSED and REMANDED.
    
    
    
    
                                             31
    

Document Info

DocketNumber: 03-16329

Filed Date: 2/18/2005

Precedential Status: Precedential

Modified Date: 12/21/2014

Authorities (23)

Elizabeth Bess v. Check Express , 294 F.3d 1298 ( 2002 )

Russell Musnick v. King Motor Company of Fort Lauderdale, d.... , 325 F.3d 1255 ( 2003 )

Prima Paint Corp. v. Flood & Conklin Mfg. Co. , 388 U.S. 395 ( 1967 )

Moses H. Cone Memorial Hospital v. Mercury Constr. Corp. , 460 U.S. 1 ( 1983 )

Rodriguez De Quijas v. Shearson/American Express, Inc. , 490 U.S. 477 ( 1989 )

Gilmer v. Interstate/Johnson Lane Corp. , 500 U.S. 20 ( 1991 )

Allied-Bruce Terminix Cos. v. Dobson , 513 U.S. 265 ( 1995 )

Doctor's Associates, Inc. v. Casarotto , 517 U.S. 681 ( 1996 )

Green Tree Financial Corp.-Ala. v. Randolph , 531 U.S. 79 ( 2000 )

Beneficial Nat. Bank v. Anderson , 539 U.S. 1 ( 2003 )

Citizens Bank v. Alafabco, Inc. , 539 U.S. 52 ( 2003 )

fed-sec-l-rep-p-93048-mary-benoay-cross-appellant-v-prudential-bache , 805 F.2d 1437 ( 1986 )

Fed. Sec. L. Rep. P 96,600 Brenda Susan Chastain v. The ... , 957 F.2d 851 ( 1992 )

Terry Johnson v. West Suburban Bank Tele-Cash Inc. County ... , 225 F.3d 366 ( 2000 )

Larketta Randolph, on Behalf of Herself and All Others ... , 244 F.3d 814 ( 2001 )

Beverly Burden v. Check Into Cash of Kentucky, LLC , 267 F.3d 483 ( 2001 )

patricia-snowden-and-karen-dowhite-sheila-diane-dowhite-lilistyne-dowhite , 290 F.3d 631 ( 2002 )

john-b-goodman-limited-partnership-regal-palms-limited-partnership , 321 F.3d 1094 ( 2003 )

Marc Livingston v. Associates Finance, Inc. , 339 F.3d 553 ( 2003 )

NEC Technologies, Inc. v. Nelson , 267 Ga. 390 ( 1996 )

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