Cottonwood Financial, LTD v. Darcie Estes
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COURT OF APPEALS
DECISION
DATED AND FILED
January 31, 2012
A. John Voelker
Acting Clerk of Court of Appeals
Appeal No.
NOTICE
This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
A party may file with the Supreme Court a
petition to review an adverse decision by the
Court of Appeals. See WIS. STAT. § 808.10
and RULE 809.62.
2009AP760
STATE OF WISCONSIN
Cir. Ct. No. 2007CV377
IN COURT OF APPEALS
DISTRICT III
COTTONWOOD FINANCIAL, LTD, D/B/A THE CASH STORE, A FOREIGN
CORPORATION,
PLAINTIFF-RESPONDENT,
V.
DARCIE ESTES,
DEFENDANT-APPELLANT.
APPEAL from a judgment and orders of the circuit court for Pierce
County: ROBERT W. WING, Judge. Affirmed.
Before Hoover, P.J., Peterson J., and Thomas Cane, Reserve Judge.
¶1
PETERSON, J. Darcie Estes appeals a judgment and an order
confirming an arbitration award and an order compelling arbitration. Estes argues
that the arbitration agreement was unconscionable and, therefore, unenforceable.
In an opinion dated May 25, 2010, we concluded that the arbitration agreement
No. 2009AP760
was substantively unconscionable because it required Estes to waive her ability to
proceed as part of a class. We therefore reversed and remanded for evidentiary
findings on whether the agreement was also procedurally unconscionable.
¶2
In October 2011, the supreme court granted review, vacated our
decision, and remanded for reconsideration in light of the United States Supreme
Court’s decision in AT&T Mobility LLC v. Concepcion, 563 U.S. __, 131 S. Ct.
1740 (2011). In Concepcion, 131 S. Ct. at 1746, 1753, the Supreme Court held
that a state law that “classif[ied] most collective-arbitration waivers in consumer
contracts as unconscionable[,]” and thus unenforceable, was preempted by the
Federal Arbitration Act (FAA). In light of Concepcion, the classwide arbitration
waiver in Estes’s arbitration agreement is enforceable and is not substantively
unconscionable. We also reject Estes’s arguments that the arbitration agreement is
substantively unconscionable in several other ways. Accordingly, we affirm the
circuit court’s judgment and order confirming the arbitration award and order
compelling arbitration.
BACKGROUND
¶3
Estes took out a number of loans from Cottonwood Financial, LTD’s
The Cash Store, a payday lender. Each loan agreement contained an arbitration
provision which stated that, with the exception of small claims matters, all
disputes between the parties would be resolved by binding arbitration. Estes
ultimately defaulted on the loans, and Cottonwood filed a small claims action to
recover the outstanding balance. Estes counterclaimed, alleging violations of the
Wisconsin Consumer Act, and as a result the case was converted to a large claims
action.
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No. 2009AP760
¶4
Cottonwood then moved for an order staying the circuit court
proceedings and compelling arbitration. The circuit court granted Cottonwood’s
motion, rejecting Estes’s argument that the arbitration provision was
unconscionable. The court later entered a judgment and order confirming an
arbitration award against Estes, and Estes appealed.
DISCUSSION
¶5
“Unconscionability is an amorphous concept that evades precise
definition.” Wisconsin Auto Title Loans, Inc. v. Jones, 2006 WI 53, ¶31, 290
Wis. 2d 514, 714 N.W.2d 155. It is a determination to be made in light of a
variety of factors not easily unifiable into a formula. Id. The underlying principle
is one of prevention of oppression or unfair surprise and not of disturbance of
allocation of risks because of superior bargaining power.
Id., ¶32.
“Unconscionability has often been described as the absence of meaningful choice
on the part of one of the parties, together with contract terms that are unreasonably
favorable to the other party.” Id.
¶6
The unconscionability analysis is as follows:
A determination of unconscionability requires a mixture of
both procedural and substantive unconscionability that is
analyzed on a case-by-case basis. The more substantive
unconscionability
present,
the
less
procedural
unconscionability is required, and vice versa. A court will
weigh all the elements of unconscionability and may
conclude unconscionability exists because of the combined
quantum
of
procedural
and
substantive
unconscionability ....
Determining whether procedural unconscionability exists
requires examining factors that bear upon the formation of
the contract .... The factors to be considered include, but
are not limited to, age, education, intelligence, business
acumen and experience, relative bargaining power, who
drafted the contract, whether the terms were explained to
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No. 2009AP760
the weaker party, whether alterations in the printed terms
would have been permitted by the drafting party, and
whether there were alternative providers of the subject
matter of the contract.
Substantive unconscionability addresses the fairness and
reasonableness of the contract provision subject to
challenge ....
No
single,
precise
definition
of
substantive
unconscionability can be articulated.
Substantive
unconscionability refers to whether the terms of a contract
are unreasonably favorable to the more powerful party.
The analysis of substantive unconscionability requires
looking at the contract terms and determining whether the
terms are “commercially reasonable,” that is, whether the
terms lie outside the limits of what is reasonable or
acceptable.
Id., ¶¶33-36 (footnotes omitted).
¶7
Whether, under a given set of facts, a contract provision is
unconscionable is a question of law that a reviewing court determines
independently of the circuit court.
Id., ¶25. Here, because the circuit court
concluded the arbitration provision was not substantively unconscionable, it did
not address procedural unconscionability. See Aul v. Golden Rule Ins. Co., 2007
WI App 165, ¶26, 304 Wis. 2d 227, 737 N.W.2d 24 (both components of
unconscionability required to render a contract provision unenforceable).
Likewise, if we agree there was no substantive unconscionability we may affirm
without addressing procedural unconscionability.
¶8
Estes argues the loan agreements’ arbitration provision is
substantively unconscionable because it precludes her from proceeding as a
member of a class. The arbitration provision states:
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 .... [A]ll disputes
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No. 2009AP760
including any representative claims against us ... shall be
resolved by binding arbitration only on an individual basis
with you. Therefore, 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.
(Capitalization and bolding omitted; formatting altered).
Estes contends this
provision is substantively unconscionable because it violates the Wisconsin
Consumer Act. See WIS. STAT. § 421.106(1) (stating that “a customer may not
waive or agree to forego rights or benefits under” the Consumer Act); WIS. STAT.
§ 426.110(1) (recognizing a consumer’s right to “bring a civil action on behalf of
himself or herself and all persons similarly situated”).1
¶9
The United States Supreme Court addressed a similar issue in
Concepcion, 131 S. Ct. 1740. There, the Court considered “whether the FAA
prohibits States from conditioning the enforceability of certain arbitration
agreements on the availability of classwide arbitration procedures.” Id. at 1744.
The Concepcions had entered into a cell phone service contract with AT&T,
which required arbitration of all disputes between the parties but prohibited
classwide arbitration. Id. The Concepcions sought classwide relief after AT&T
charged them sales tax on the retail value of phones that were provided free of
charge under the service contract. Id.
¶10
The federal district court denied AT&T’s motion to compel
arbitration, holding that the arbitration provision in the service contract was
unconscionable because it prohibited classwide proceedings. Id. at 1745. The
1
All references to the Wisconsin Statutes are to the 2009-10 version unless otherwise
noted.
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No. 2009AP760
court relied on Discover Bank v. Superior Court, 113 P. 3d 1100, 1110 (Cal.
2005), in which the California Supreme Court held that class arbitration waivers in
consumer arbitration agreements are unconscionable if the agreement is an
adhesion contract, if disputes between the parties are likely to involve small
amounts of damages, and if the party with inferior bargaining power alleges a
deliberate scheme to defraud.
The Ninth Circuit affirmed, agreeing that the
unavailability of classwide arbitration made the Concepcions’ arbitration
agreement unconscionable under California law. Concepcion, 131 S. Ct. at 1745.
¶11
The United States Supreme Court reversed, concluding that the FAA
prohibits states from conditioning the enforcement of arbitration agreements on
the availability of classwide proceedings. The Court reasoned that § 2 of the FAA,
which requires enforcement of an arbitration agreement “save upon such grounds
as exist at law or in equity for the revocation of any contract[,]” does not “preserve
state-law rules that stand as an obstacle to the accomplishment of the FAA’s
objectives.” Id. at 1745, 1748; see also 9 U.S.C. § 2 (2011). The Court then
determined that requiring the availability of classwide arbitration conflicts with the
“overarching purpose” of the FAA—“to ensure the enforcement of arbitration
agreements according to their terms so as to facilitate streamlined proceedings.”
Concepcion, 131 S. Ct. at 1748. Accordingly, the Court held that a state law
requiring the availability of classwide arbitration was “an obstacle to the
accomplishment and execution of the full purposes and objectives of Congress ...
[and was] preempted by the FAA.” Id. at 1753 (internal quotation marks omitted).
¶12
Concepcion’s holding is clear: the FAA preempts any state law that
classifies an arbitration agreement as unconscionable, and therefore unenforceable,
simply because the agreement prohibits an individual from proceeding as a
member of a class. Accordingly, under Concepcion, the waiver of classwide
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No. 2009AP760
proceedings in Estes’s arbitration agreement with Cottonwood does not render the
agreement substantively unconscionable.
¶13
Estes also argues the arbitration provision is substantively
unconscionable because it effectively waives her right to present any claims for
injunctive or declaratory relief and restricts her right to appeal. Inexplicably, Estes
neither recites the actual contract language purporting to deny her these rights, nor
cites to the contract provisions in the record. She merely asserts her rights were
impinged and, in some instances, misrepresents the contract language by omission.
Indeed, there are no provisions denying Estes her rights to bring claims for
injunctive or declaratory relief or to appeal. It appears her argument regarding
injunctive and declaratory relief is based solely on an ambiguous statement in
Wisconsin Auto Title, mentioning the unavailability of class-wide injunctive
relief. See Wisconsin Auto Title, 290 Wis. 2d 514, ¶73.
¶14
Estes next argues the arbitration provision is substantively
unconscionable because it reserves Cottonwood’s, but not Estes’s, right to proceed
in small claims court. However, the record belies Estes’s claim that she was
precluded from initiating small claims proceedings. The arbitration provision
specifically reserves both parties’ right to proceed in small claims court.
¶15
Estes also takes issue with the loan agreements’ governing law
clause, which states: “This Loan Agreement will be governed by the laws of the
State of Wisconsin, except that the arbitration provision is governed by the Federal
Arbitration Act (‘FAA’).”
The arbitration provision further provides:
“The
arbitrator shall apply applicable substantive law consistent with the FAA,
applicable statutes of limitation, and shall honor claims of privilege recognized at
law.” Because the arbitration provision explicitly provides that Wisconsin law
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No. 2009AP760
shall apply, and because Estes has not identified any provisions of the FAA—
much less any that would conflict with Wisconsin law—we are unable to conclude
the governing law clause contributes to any substantive unconscionability.
¶16
Estes also argues the arbitration provision is substantively
unconscionable because it waives her right to a trial, contrary to WIS. STAT.
§ 425.301(2) of the Wisconsin Consumer Act, which states:
“Any right or
obligation declared by chs. 421 to 427 is enforceable by action unless the
provision declaring it specifies a different and limited effect.” The Act does not,
however, specify any right to trial. Further, the arbitration agreement does not
require consumers to forego their right to proceed under the Act. Rather, it merely
shifts the proceedings to a less formal, less expensive, and more expedient form.
Thus, so long as no other rights under the Act are impinged, arbitration may, in
fact, be beneficial to consumers. See Allied-Bruce Terminix Cos. v. Dobson, 513
U.S. 265, 280 (1995). Further, arbitration agreements are presumed valid under
both federal and state law. Perry v. Thomas, 482 U.S. 483, 489 (1987); Kemp v.
Fisher, 89 Wis. 2d 94, 100, 227 N.W.2d 859 (1979). Therefore, Estes’s general
attack on agreements to arbitrate, rather than litigate, fails.
¶17
Estes further assails the arbitration provision because it limits her
rights to discovery and presentation of evidence. She does not bother, however, to
identify the pertinent contract language or develop any argument. We may reject
such undeveloped arguments. See State v. Flynn, 190 Wis. 2d 31, 39 n.2, 527
N.W.2d 343 (Ct. App. 1994).
In any event, Cottonwood responds that the
arbitration provision merely explains in its introduction that discovery may be
limited and that the parties have an opportunity to “present some evidence.” Any
limits will apply equally to both parties.
Further, the arbitration provision
prohibits the application of any rules of evidence, which simplifies and expands
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No. 2009AP760
the presentation of evidence, acting as a counterweight to any limits on discovery.
See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 31 (1991).
¶18
Next, Estes asserts the arbitration provision is substantively
unconscionable because it waives her ability to join her claims with other
consumers. Except to the extent this assertion is subsumed within her separate
argument pertaining to class action proceedings, Estes develops no argument
pertaining to joinder. We therefore ignore this assertion. See Flynn, 190 Wis. 2d
at 39 n.2.
¶19
Estes further claims the arbitration provision is substantively
unconscionable because it permits the arbitrator to shift the cost of the arbitration
to the consumer. Again, Estes does not cite to any specific language in the
contract supporting her claim. The arbitration provision states that, regardless of
who demands arbitration, Cottonwood is required to advance all expenses,
including the filing, administrative, hearing, and arbitrator’s fees.
agreement, if Estes prevails, she pays no costs.
Under the
However, if Estes does not
prevail, she is required to reimburse Cottonwood for the fees it advanced on her
behalf. But, any reimbursement amount may not exceed the amount that would
have been assessed as court costs if the dispute had been resolved in state court.
Thus, Estes’s costs could never be any more in arbitration than they would be in
circuit court. Furthermore, the provision actually favors Estes because if she
prevails, not only will she not have had to advance any fees, but Cottonwood will
be responsible for all costs—not limited by any amount that would have been
assessed in circuit court.
¶20
Estes also asserts the arbitration provision grants the arbitrator
discretion to deny the prevailing consumer his or her attorney fees. If true, Estes
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No. 2009AP760
is correct this would be a significant infringement of her rights under the
Consumer Act.
The arbitration provision states:
“If allowed by statute or
applicable law, the arbitrator may award statutory damages and/or reasonable
attorneys’ fees and expenses.”
Contrary to Estes’s assertion, this permissive
language does not conflict with the Act’s mandate that costs and attorney fees
shall be awarded to prevailing consumers. See WIS. STAT. § 425.308(1). Rather,
the arbitration provision specifically refers here to “statute or applicable law” and,
in another section, provides that Wisconsin law shall apply.
Reading the
arbitration provision as a whole, an arbitrator will be required to award prevailing
consumers their costs and attorney fees pursuant to WIS. STAT. § 425.308.
¶21
Next, we address Estes’s contention that the arbitration agreement’s
venue provision conflicts with the Consumer Act.
Estes claims the venue
provision authorizes arbitration outside her home county, contrary to WIS. STAT.
§ 421.401, which she asserts limits venue to a customer’s home county. However,
Estes misstates that statute’s limitations. Paragraphs 421.401(1)(a)-(1)(c) permit
venue not only in any county where (1) the customer resides, but also in any
county where (2) the customer is personally served, (3) collateral securing a
transaction is located, (4) the customer sought the money borrowed, (5) the
customer obtained the money borrowed, or (6) the customer signed the loan
agreement.
¶22
The venue provision states that the arbitration hearing “will be
conducted in the county of [the consumer’s] residence, or within 30 miles from
such county, or in the county in which the transaction under this Loan Agreement
occurred, or in such other place as shall be ordered by the arbitrator.” While
consistent in part with the Consumer Act, Estes is correct that this provision
permits arbitration in venues beyond those allowed by Consumer Act.
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No. 2009AP760
¶23
However, Estes has not replied to Cottonwood’s argument that the
scope of the venue statute is not as limited as Estes claimed in her initial brief.
Estes has also failed to reply to Cottonwood’s argument that the venue provision
did not violate the Consumer Act because Cottonwood agreed to arbitrate in
Estes’s home county and a Consumer Act violation only occurs if a hearing
actually takes place in an improper venue. Further, neither party has addressed a
provision of the Act that renders invalid any provision “[t]hat fixes venue” in a
consumer contract. See WIS. STAT. § 421.201(10)(c).
¶24
Additionally, although Estes argues the venue provision is “contrary
to” and “violate[s]” the Consumer Act, she has not developed an argument that
this violation makes the arbitration agreement substantively unconscionable. The
burden of proving unconscionability is on the party alleging unconscionability.
See Aul, 304 Wis. 2d 227, ¶33.
Estes’s inadequately developed argument
regarding the venue provision does not satisfy her burden.
¶25
Finally, Estes argues Cottonwood forfeited its right to arbitration by
first initiating a small claims lawsuit against her. However, the language of the
arbitration provision refutes Estes’s argument. The arbitration provision states:
“All parties … shall retain the right to seek adjudication in a small claims tribunal
for disputes within the scope of such tribunal’s jurisdiction. Any dispute, which
cannot be adjudicated within the jurisdiction of a small claims tribunal, shall be
resolved by binding arbitration.” Here, Cottonwood sued Estes in small claims
court, as permitted by the arbitration provision. When Estes filed her counterclaim
against Cottonwood, the case was converted to a large claims action. At that
point, Cottonwood moved for an order staying the circuit court proceedings and
compelling arbitration. Cottonwood’s actions were consistent with the arbitration
provision’s terms, and Cottonwood did not forfeit its right to arbitration.
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No. 2009AP760
By the Court.—Judgment and orders affirmed.
Recommended for publication in the official reports.
12
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