Case Watch: For Arbitrators
11th Circuit: Ga. Contract Law Compels Arbitration
The U.S. District Court for the Southern District of Florida has taken another appellate beating in a case where it held that an arbitration agreement is unconscionable under Georgia law and thus refused to compel arbitration. On a second appeal to the 11th Circuit by a defendant in a bank overdraft case, the Court of Appeals once again overruled the district court and granted a defense Motion to Compel Arbitration. In Re: Checking Account Overdraft Litigation MDL NO. 2036, Jeffrey Buffington et al v. SunTrust Banks Inc. No. 11-14316 (March 1, 2012).
The plaintiffs in the case filed against SunTrust in a Georgia court claiming breach of contract, conversion of funds and unjust enrichment when SunTrust assessed overdraft fees improperly on their checking accounts. The claim stated that the overdraft fees violated Georgia law and included allegations that SunTrust employed a process that would maximize overdraft fees when in fact the checking account contained sufficient funds.
SunTrust removed the matter to federal court and filed a motion to compel arbitration under the arbitration provision contained in the account deposit agreement. The plaintiffs opposed the motion, arguing that the arbitration provision was unconscionable, that there was no meaningful choice of arbitration and that the customer would receive only limited recovery through arbitration. SunTrust responded that the arbitration clause was prominent and conspicuous and that it provided for recovery of attorney fees and costs to the prevailing party.
The district court initially denied the Motion to Compel Arbitration, holding that the arbitration clause was substantively unconscionable because it contained a class action waiver. On the first appeal, the 11th Circuit remanded to the district court to reconsider in light of the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 563 U.S. _____, 131 S. Ct. 1740 (2011). On remand, the district court again denied the Motion to Compel, this time based on its determination that the arbitration clause was substantively unconscionable under Georgia law because of provisions that allowed SunTrust to allocate the risks of loss and expenses of the arbitration disproportionately to the plaintiffs. Plaintiffs argued inter alia that the fee-shifting provisions precluded customers from bringing a claim for improper overdraft fees.
On the second appeal, the 11th Circuit again reversed the district court, holding that under Georgia law, the reimbursement provisions were conscionable. It directed that the Motion to Compel Arbitration be granted:
The district court concluded that these provisions were unconscionable, but under Georgia law “[a] contract allowing a bank a set-off of its indebtedness to a depositor against the depositor’s indebtedness to it is not unconscionable.”
The appeals court also wrote:
The district court also ruled that the arbitration clause was procedurally unconscionable, but to be procedurally unconscionable, under Georgia law, a contract must be “so one-sided” that “‘no sane man not acting under a delusion would make and that no honest man would’” participate in the transaction. ... The arbitration clause in the Buffingtons’ agreement fall well short of this standard.
The Court of Appeals noted that contracts of adhesion are not per se unconscionable in Georgia.
“[M]ere inequality in bargaining power … is not a sufficient reason to hold that arbitration agreements are never enforceable….” the court wrote, citing Gilmer v. Interstate/Johnson Lane Corp. 500 U.S. 20, 33, 111 S. Ct. 1647, 1655 (1991)
The Court of Appeals also rejected the district court’s determination that the arbitration clause was not “conspicuous,” finding that the clause was “capitalized in the …table of contents,” and an introductory paragraph to the clause urged account holder to “READ THIS PROVISION CAREFULLY AS IT WILL HAVE A SUBSTANTIAL IMPACT ON HOW LEGAL CLAIMS YOU AND WE HAVE AGAINST EACH OTHER.”
Neither the district court, nor the Buffingtons on appeal, cited any case law requiring that notice of the provisions relating to arbitration be “conspicuous,” and even if conspicuity was the standard, the language in the Buffingtons’ agreement regarding arbitration was conspicuous. The arbitration agreement therefore was not procedurally unconscionable.
The Court of Appeals then referred to the Supreme Court’s prohibition against state laws that single out arbitration provisions for suspect status. Such laws run afoul of the Federal Arbitration Act requirement that arbitration provisions be placed on the same footing as other contracts, the court reiterated. The court reversed the order denying the Motion to Compel Arbitration and remanded back to the district court with instructions to compel arbitration.
NOTE TO GEORGIA ARBITRATORS: In this case, the 11th Circuit provides a bright line on Georgia law dealing with enforcement of arbitration agreements and unconscionability challenges.