David L. Grubb, Esq.
John W. Barrett, Esq.
Grubb Law Group
Brian A. Glasser, Esq
Bailey & Glasser
Charleston, West Virginia
Attorneys for Petitioner
Michael Pleska, Esq.
Fazal A. Share, Esq.
Ronda L. Harvey, Esq.
Bowles, Rice, McDavid, Graff & Love
Charleston, West Virginia
Attorneys for Respondent, Friedman's, Inc.
Gregory R. Hanthorn, Esq
Jones, Day, Reavis & Pogue
Pro Hac Vice for Respondent,
L. Woody, Esq.
Spilman, Thomas & Battle
Charleston, West Virginia
Attorney for American Banks Ins.
Co. and American Bankers Life
Hill, Peterson, Carper, Bee & Deitzler
Charleston, West Virginia
Michael J. Quirk, Esq.
Khalid Elhassan, Esq.
Trial Lawyers for Public Justice
Attorneys for Amicus Curiae, Trial
Lawyers for Public Justice
Jorden, Burt LLP
Pro Hac Vice for Respondent, American
Banks Ins. Co. and American Bankers
Life Assurance Co.
3. The Federal Arbitration Act, 9 U.S.C. Sec. 2  does not bar a state court that is examining exculpatory provisions in a contract of adhesion that if applied would prohibit or substantially limit a person from enforcing and vindicating rights and protections or from seeking and obtaining statutory or common-law relief and remedies that are afforded by or arise under state law that exists for the benefit and protection of the public from considering whether the provisions are unconscionable -- merely because the prohibiting or limiting provisions are part of or tied to provisions in the contract relating to arbitration.
4. Provisions in a contract of adhesion that if applied would impose unreasonably burdensome costs upon or would have a substantial deterrent effect upon a person seeking to enforce and vindicate rights and protections or to obtain statutory or common-law relief and remedies that are afforded by or arise under state law that exists for the benefit and protection of the public, are unconscionable; unless the court determines that exceptional circumstances exist that make the provisions conscionable. In any challenge to such a provision, the responsibility of showing the costs likely to be imposed by the application of such a provision is upon the party challenging the provision; the issue of whether the costs would impose an unconscionably impermissible burden or deterrent is for the court.
In the instant case, Mr. James Dunlap, (See footnote 1) who is a plaintiff below and the petitioner before this Court, claims in a civil lawsuit filed in May of 2000 in the Circuit Court of Kanawha County that Friedman's, Inc., a jewelry store chain doing business in West Virginia (Friedman's); Friedman's insurance company partners, American Bankers Insurance Company of Florida and American Bankers Life Assurance Company of Florida (together, American Bankers); and certain named individuals who are or were managerial employees of Friedman's -- all of whom are the defendants below and the respondents in the instant case before this Court (we shall refer to these respondents together as Friedman's et al.) -- have been carrying out a systematic, deceptive, and illegal loan packing scheme, with the purpose and effect of surreptitiously adding unrequested insurance charges to the cost of consumers' purchases from Friedman's. In Mr. Dunlap's case, allegedly illegal charges in the amounts of $1.48 for credit life insurance and $6.96 for property insurance were added when Mr. Dunlap bought a ring from Friedman's in 1999; we discuss the details of that purchase infra.
The circuit court concluded
that Mr. Dunlap could not go forward with his lawsuit against Friedman's et
al. in the circuit court because of certain language in Friedman's purchase
and financing agreement document, a form contract that Mr. Dunlap signed when
he bought the ring. The circuit court stayed the prosecution of Mr. Dunlap's
civil lawsuit against Friedman's et al., and directed Mr. Dunlap (over
his objection) to proceed to arbitration proceedings with Friedman's et al.,
pursuant to language in the purchase and financing agreement document. Challenging
the circuit court's order, Mr. Dunlap has petitioned this Court for a writ of
prohibition; we conclude that the circuit court's order was erroneous.
Mr. Dunlap specifically alleges that Friedman's systematically and deliberately directed its employees to conceal and lie about these added charges -- going so far as to discharge or threaten to discharge employees who would not go along with the added charges/concealment scheme. Mr. Dunlap has supported his allegations of a comprehensive scheme to defraud consumers with affidavits (filed with his complaint) from former Friedman's employees and customers.
In one of these affidavits, a former Friedman's manager attested:
I was advised by [a Friedman's trainer] to sell property, life and disability insurance to customers who financed their purchases. I was specifically told to just add the insurance onto the sale. . . . I felt very uncomfortable following these orders. I believed that Friedman's practice of charging consumers a premium for insurance without disclosing it to the consumers was fraudulent, deceitful and wrong. . . . On many occasions, my employees, per Friedman's orders, sold disability, life and property insurance to customers who financed jewelry, and did not disclose to the customer that the insurance was added to the sale.
Another former Friedman's manager attested:
The computers at our stores were programmed to automatically add on charges for credit life, credit disability and property insurance onto the customer's retail installment contract. In order to remove these charges, the employee would have to manually delete them. I felt very uncomfortable following these orders. I believed that Friedman's practice of charging consumers a premium for insurance without disclosing it to the consumers was fraudulent, deceitful and wrong.
Another former Friedman's employee attested:
. . . I was informed by . . . the district manager, that we, as employees of Friedman's Jewelers, Inc. were to add life, disability and property insurance to customer credit applications without disclosing this information to the customer. If we did not do what was requested, we would be fired. He informed me that two people had been dismissed in Roanoke for refusing to do what they asked. . . . I was again informed by . . . the store manager, during a staff meeting that we were to add life, disability and property insurance to customer credit applications without disclosing this information to the customer. . . . When I questioned what should we do if a customer questions the insurance, I was told that we should tell the customer that it was a computer error.
One Friedman's employee quit working for Friedman's after she was instructed to deceive customers, according to an administrative law judge who ruled that the employee was entitled to receive unemployment compensation benefits. The judge's decision further stated:
In this case, the employer instructed its employees to use deceptive practices with regards to the sale of property, disability and life insurance to customers. When a customer opened an account to charge jewelry at the store, the employees were told to automatically add a premium based upon the amount of the charge for life, disability and property insurance. They were told not to give the customer a choice, that they were to automatically add it to the cost of the merchandise. They were further advised that if they did not add the insurance, that they would lose their jobs.
Another former Friedman's employee attested:
Around May 1999, I was
informed by . . . the district manager, that we, as employees of Friedman's
Jewelers, Inc. were to add life, disability and property insurance to customer
credit applications without disclosing this information to the customer. If
we did not do what was requested, we would be fired.
In his circuit court lawsuit, Mr. Dunlap seeks to enforce and vindicate his and other consumers' right not to be victimized by such illegal schemes. Specifically, Mr. Dunlap seeks the following relief and remedies from the circuit court: (1) a declaratory judgment declaring that Friedman's, et al.'s conduct violated the West Virginia Consumer Credit & Protection Act, W.Va. Code, 46A-1-101 et seq. (the Consumer Protection Act), West Virginia insurance laws, and the Uniform Commercial Code; (2) an injunction ordering Friedman's et al. to cease their illegal conduct, to establish an employee training program on consumer protection in West Virginia, and to revise its sales procedures for insurance; (3) certification of a class of persons whose rights have been violated by Friedman's et al. in the fashion that Mr. Dunlap's were; (4) court-ordered cancellation of the plaintiffs' and class members' indebtedness to Friedman's et al.; (5) judgment to each plaintiff and class member for statutory damages under the Consumer Protection Act for each violation of the Act; (6) judgment for actual, consequential and incidental damages suffered by each plaintiff and member of the class, including damages for emotional distress, annoyance and inconvenience; (6) judgment for punitive damages to each plaintiff and class member; (7) an award of attorneys' fees; (8) pre- and post-judgment interest; and (9) such other relief as the court determines. Mr. Dunlap's causes of action allege violations of the Consumer Protection Act and W.Va. Code, 33-12-1(a)  (selling insurance without a license); common law fraud; unconscionability; breach of duty of good faith under W.Va. Code, 46-1- 203  (UCC); negligent and wilful, wanton and intentional misconduct; and civil conspiracy. Mr. Dunlap requested a jury trial.
On June 23, 2000, Friedman's et al. moved the Circuit Court of Kanawha County to prohibit Mr. Dunlap from going forward in circuit court with his claims against Friedman's et al. and to require Mr. Dunlap to bring any disputes that he has with Friedman's et al. to arbitration. The basis of this motion was language contained in the two-page purchase and financing agreement document that Mr. Dunlap signed in connection with his purchase from Friedman's. We shall review this specific language, after generally describing Friedman's purchase and financing agreement document.
The front page of the purchase and financing agreement document is a pre- printed form, containing a number of boxed spaces with printed titles and explanatory language. For each sale or other similar transaction, transaction-specific words and numbers are supposed to be printed in the form's blank spaces (presumably by a computer-driven printer attached to a cash register and ordinarily at the time of the transaction), showing the date of the transaction, the item(s) purchased or returned, any applicable credits or adjustments, and the financing terms, insurance charges, purchase price, interest rate, credits, payment schedule, and other pertinent information about the transaction.
In Mr. Dunlap's case, it appears
(See footnote 2)
from the transaction-specific information printed on the front of the Friedman's
form that Mr. Dunlap signed, that on or about September 20, 1999, Mr. Dunlap
purchased a ring for about $150.00, and that Friedman's added to
the ring purchase price a $1.48 charge for credit life insurance and $6.96 for
property insurance. Mr. Dunlap's signature appears on a pre-printed line on
the front of the form, stating that he is applying for insurance,
and also on a line where he generally agrees to all terms and conditions on
both sides of the document. At the bottom of the front of the form is a pre-printed
notice that paragraph 14 of the other side of the form includes an alternate
dispute resolution procedure, including a requirement for arbitration or mediation.
A printed statement says not to sign the form without reading it, or if it contains
any blank spaces.
Mr. Dunlap specifically alleges in his complaint that he did not ask for the insurance for which he was charged, that it was not explained to him that there were insurance charges; that the sales clerk simply showed him where to sign his name on the front of the form; and that the form was then placed in an Friedman's envelope, where the information that was actually important to Mr. Dunlap -- his monthly payment amount and the number of payments -- was written in a space provided on the outside of the envelope. Additionally, Mr. Friedman states in an affidavit that none of the language in the actual purchase and financing agreement document was explained to him, including the language that purports to limit his remedies against Friedman's. Mr. Dunlap's allegations in his complaint regarding how insurance charges were automatically printed on the Friedman's form and added to his purchase price without his request are consistent with the previously discussed affidavits regarding the mechanism of Friedman's alleged loan packing scheme.
The reverse side of the purchase and financing agreement document form is titled Additional Terms of Purchase, and contains 14 pre-printed numbered paragraphs, followed by additional unnumbered language. Most of the numbered paragraphs in the document contain standard boilerplate language relating to financing, security in the goods purchased, etc., that is not germane to the issues in the instant case. The following language in the document, however, is germane.
Paragraph 3 of the document, titled DEFAULT, states in pertinent part that if the Buyer (Mr. Dunlap) dies, becomes insolvent or goes into bankruptcy, or does not make a timely payment, the Seller (Friedman's) may at its option and without notice, declare the entire unpaid balance immediately due and payable and to the extent permitted by Applicable Law repossess the merchandise that Mr. Dunlap purchased. Additionally, Paragraph 3 says that Mr. Dunlap agrees to pay all costs incurred in collecting the indebtedness under this Agreement, including, without limitation, reasonable attorney's fees and court costs in an amount not to exceed 15% of the unpaid debt.
Paragraph 14, titled ALTERNATE DISPUTE RESOLUTION, states in pertinent part:
All disputes, controversies or claims of any kind or nature between Buyer and Seller, arising out of or in connection with the sale of goods financed or refinanced pursuant to the terms of this Agreement . . . or with respect to negotiation of, inducement to enter into, construction of, performance of, enforcement of, or breach of, effort to collect the debt evidenced by, the applicability of the arbitration clause in, or the validity of this Agreement or any earlier agreement (except as specifically set forth in this paragraph 14 below), shall be resolved by arbitration in the state in which this Agreement is entered into, at a location reasonably near the place where you signed this Agreement, in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator may be entered in any court having jurisdiction thereof. . . . All arbitrators' or mediators' fees shall be equally divided between the parties. Exception to arbitration and mediation: The Seller may exercise its right upon default by Buyer as set forth in the paragraph entitled default above, without resort to arbitration or mediation. Nothing in this paragraph shall be construed to prevent either party's use of bankruptcy or repossession, replevin, judicial foreclosure, non judicial foreclosure or any other prejudgment or provisional remedy relating to any collateral, security or property interests, for contractual debts now or hereafter and by either party to the other under this Agreement. No arbitrator may make an award of punitive damages.
Mr. Dunlap argued before
the circuit court that any and all provisions in the above-quoted language from
the purchase and financing agreement document that purport to limit or prohibit
his claims for relief and remedies against Friedman's et al., in
a fashion different from that which is provided in West Virginia constitutional,
statutory, and common law, are illegal and unconscionable. Mr. Dunlap also argued
that any prohibitions or limitations in these provisions do not apply to his
claims against American Bankers, because American Bankers is not mentioned in
the purchase and financing agreement document.
On April 19, 2001, the circuit court entered an order that stayed all court proceedings on Mr. Dunlap's claims in circuit court, and required Mr. Dunlap to pursue arbitration with respect to his claims against all of the respondents, pursuant to language in Paragraph 14 of Friedman's purchase and financing agreement document. Mr. Dunlap thereafter sought a writ from this Court to prohibit the enforcement of the circuit court's order, leading to the instant case.
Prohibition will lie to hear claims relating to a court's jurisdiction or to address non-jurisdictional issues where a court's challenged ruling or action is clearly contrary to law and an appeal would not be as adequate as review in prohibition. See Syllabus Point 1, Hinkle v. Black, 164 W.Va. 112, 262 S.E.2d 744 (1979); Syllabus Points 1, 2, and 3, State ex rel. Davidson v. Hoke, 532 S.E.2d 50, 207 W.Va. 332, (2000) (per curiam).
The central issue in the instant
case is whether the circuit court should exercise the civil jurisdiction that
it would ordinarily have to consider de novo the merits of Mr. Dunlap's
claims against Friedman's et al. and to award all appropriate and legally
available relief -- or whether the circuit court must forego the exercise of
its ordinary civil jurisdiction, and play only the relatively deferential and
limited role that courts have when reviewing the results of arbitration, cf.
Syllabus Points 1 and 2, Boomer Coal and Coke Co. v. Osenton,
101 W.Va. 683, 133 S.E. 381 (1926).
In State ex rel. United, Inc. v. Sanders, 204 W.Va. 23, 25-26, 511 S.E.2d 134, 136-37 (1998), we recently granted a a writ of prohibition to prevent enforcement of the lower court's directive which required United Asphalt to resolve its claims through arbitration. Our use of the writ of prohibition to review the circuit court's action in the instant case is appropriate; state court rules of appellate jurisdiction and procedure are not preempted by the Federal Arbitration Act, 9 U.S.C. Sec. 2 ; see, e.g., Simmons Co. v. Deutsche Financial Services Corp., 243 Ga.App. 85, 532 S.E.2d 436 (2000); Bush v. Paragon Property, Inc., 165 Oregon App. 700, 997 P.2d 882 (2000) (en banc).
In Syllabus Point 3, Troy Min. Corp. v. Itmann Coal Co., 176 W.Va. 599, 346 S.E.2d 749 (1986), we stated: Unconscionability is an equitable principle, and the determination of whether a contract or a provision therein is unconscionable should be made by the court. Additionally, in addressing a motion to compel arbitration in the context of a civil action, it is for the court where the action is pending to decide in the first instance as a matter of law whether a valid and enforceable arbitration agreement exists between the parties. See Syllabus Points 1 and 2, Art's Flower Shop, Inc. v. C & P Telephone Co., 186 W.Va. 613, 413 S.E.2d 670 (1991). Thus we review the circuit court's legal determinations de novo.
issue in this case is whether Mr. Dunlap is correct in asserting the unconscionability
of certain provisions in Friedman's purchase and financing agreement document.
In Arnold v. United Companies Lending Corp., 204 W.Va. 229, 511
S.E.2d 854 (1998), this Court discussed the concept of unconscionability in
a consumer transaction. We stated:
Unconscionability is a general contract law principle, based in equity, which is deeply ingrained in both the statutory and decisional law of West Virginia. Of particular importance to this case are the provisions contained in the West Virginia Consumer Credit and Protection Act, W. Va. Code § 46A-1-101 et seq. (hereinafter CCPA), which were specifically designed to eradicate unconscionability in consumer transactions. W.Va. Code § 46A-2-121 (1996) of the CCPA provides, in relevant part:
(1) With respect to a transaction which is or gives rise to a consumer credit sale, consumer lease or consumer loan, if the court as a matter of law finds:
(a) The agreement or transaction to have been unconscionable at the time it was made, or to have been induced by unconscionable conduct, the court may refuse to enforce the agreement, or
(b) Any term or part of the agreement or transaction to have been unconscionable at the time it was made, the court may refuse to enforce the agreement, or may enforce the remainder of the agreement without the unconscionable term or part, or may so limit the application of any unconscionable term or part as to avoid any unconscionable result.
Guided by the foregoing principles, we shall proceed to examine Mr. Dunlap's claim that the provisions of Friedman's purchase and financing agreement document that the circuit court relied on are unconscionable. (See footnote 3)
In American Food Management,
Inc. v. Henson, 105 Ill.App.3d 141, 145, 434 N.E.2d 59, 62-63, 61 Ill.Dec.
122, 126 (1982), the court quoted Professor Corbin regarding contracts of adhesion:
Adhesion contracts include all form contracts submitted by one party on the basis of this or nothing [***] Since the bulk of contracts signed in this country, if not every major Western nation, are adhesion contracts, a rule automatically invalidating adhesion contracts would be completely unworkable. Instead courts engage in a process of judicial review. . . . Finding that there is an adhesion contract is the beginning point for analysis, not the end of it; what courts aim at doing is distinguishing good adhesion contracts which should be enforced from bad adhesion contracts which should not. (See footnote 4)
The author of this opinion recently discussed contracts of adhesion in a separate concurring opinion in Mitchell v. Broadnax, 208 W.Va. 36, 52, 537 S.E.2d 882, 898 (2000) (Starcher, J., concurring):
The drafters of the Restatement of Contracts Second, in their discussions regarding contracts of adhesion like an insurance policy, recognized that:
A party who makes regular use of a standardized form of agreement does not ordinarily expect his customers to understand or even to read the standard terms. One of the purposes of standardization is to eliminate bargaining over details of individual transactions, and that purpose would not be served if a substantial number of customers retained counsel and reviewed the standard terms. Employees regularly using a form often have only a limited understanding of its terms and limited authority to vary them. Customers do not in fact ordinarily understand or even read the standard terms. They trust to the good faith of the party using the form and to the tacit representation that like terms are being accepted regularly by others similarly situated. But they understand that they are assenting to the terms not read or not understood, subject to such limitations as the law may impose [citation omitted, emphasis in original].
In a number of cases, this Court has considered exculpatory provisions in such contracts of adhesion that would if applied effectively limit a party's legal exposure, accountability, or liability in a fashion that would otherwise not exist under general law. A review of these cases shows that such exculpatory provisions in contracts of adhesion are given close scrutiny, with respect to both their construction and their potential for unconscionability, particularly where rights, remedies and protections that exist for the public benefit are involved.
For example, we held in Murphy v. North American River Runners, 186 W.Va. 310, 316, 412 S.E.2d 504, 510 (1991), reviewing a form waiver of liability, that a general clause in an exculpatory agreement or anticipatory release exempting the defendant from all liability for any future negligence will not be construed to include intentional or reckless misconduct or gross negligence, unless such intention clearly appears from the circumstances.
The courts of this State shall
be open, and every person, for an injury done to him, in his person, property
or reputation, shall have remedy by due course of law; and justice shall be
administered without sale, denial or delay.
And the West Virginia Constitution, Article III, § 13 states:
In suits at common law, where the value in controversy exceeds twenty dollars exclusive of interest and costs, the right of trial by jury, if required by either party, shall be preserved; and in such suit in a court of limited jurisdiction a jury shall consist of six persons. No fact tried by a jury shall be otherwise reexamined in any case than according to rule of court or law.
These constitutional rights -- of open access to the courts to seek justice, and to trial by jury -- are fundamental in the State of West Virginia. Our constitutional founders wanted the determinations of what is legally correct and just in our society, and the enforcement of our criminal and civil laws -- to occur in a system of open, accountable, affordable, publicly supported, and impartial tribunals -- tribunals that involve, in the case of the jury, members of the general citizenry. These fundamental rights do not exist just for the benefit of individuals who have disputes, but for the benefit of all of us. The constitutional rights to open courts and jury trial serve to sustain the existence of a core social institution and mechanism upon which, it may be said without undue grandiosity, our way of life itself depends.
We have recognized, of course, that the constitutionally-enshrined and fundamental rights to assert one's claims for justice before a jury in the public court system may be the subject of a legally enforceable waiver. See, e.g., Stephenson v. Ashburn, 137 W.Va. 141, 70 S.E.2d 585 (1952). In Moon v. Michael Koslow Const., Inc., 193 W.Va. 673, 676, 458 S.E.2d 610, 613 (1995), we said:
Koslow did not waive its right to a trial by jury. In its answer to the Moons' complaint, a jury trial was demanded. Furthermore, at the pretrial conference, Koslow made a timely objection to the circuit court's decision to refer the case to a special commissioner. Rule 38(a) of the Rules of Civil Procedure provides that [t]he right of trial by jury as declared by the Constitution or statutes of the State shall be preserved to the parties inviolate.
And of course, our cases involving arbitration recognize the waiver of the right to go to court in the first instance that is inherent in consent to an arbitral process, see Bd. of Ed. v. W. Harley Miller Inc., supra.
However, as we stated in Syllabus Point 2 of State ex rel. May v. Boles, 149 W.Va. 155, 139
S.E.2d 177 (1964): Courts indulge every reasonable presumption against waiver of a fundamental constitutional right and will not presume acquiescence in the loss of such fundamental right. See also Woodruff v. Bd. of Tru. of Cabell Huntington, 173 W.Va. 604, 611, 319 S.E.2d 372, 379 (1984), holding that the West Virginia Constitution, Article III, § 1 is more stringent in its limitation on waiver [of fundamental constitutional rights] than is the federal constitution.
In the instant case, Friedman's et al. argue that the Federal Arbitration Act (FAA), 9 U.S.C. Sec. 2 (1947), categorically precludes Mr. Dunlap from invoking or relying to any degree upon his West Virginia state constitutional rights to seek justice in a public court and to have a jury trial on all issues so triable.
Interpreting the FAA, the Supreme
Court has held that states may not single out arbitration for disfavor or special
scrutiny simply because arbitration is a different forum than the
traditional public court system. See generally Doctor's Associates, Inc.
v. Casarotto, 517 U.S. 681, 116 S.Ct.1652, 134 L.Ed.2d 902 (1996) (holding
that the FAA invalidated a state statute that required contractual terms regarding
arbitration to be prominently displayed in the contract, but not requiring such
display for other language).
Because complex issues of federalism are implicated, we do not believe that in deciding the instant case we should unnecessarily reach the issue of to what extent, under the FAA, West Virginia's constitutional policy giving her citizens the waiveable entitlement to seek justice in the public court system may permissibly factor into judicial scrutiny of the conscionability of a provision in a contract of adhesion purporting to waive that entitlement. (See footnote 7)
Rather, because other issues
are present in the instant case that permit us to rule without addressing this
issue, we will for purposes of our decision give no weight to Mr. Dunlap's state
constitutional rights to a jury trial in the public court system.
It is axiomatic that when consumers,
employees, etc. are the victims of illegal, wilfully and wantonly wrongful,
and/or fraudulent misconduct, the social remedy of punitive and penalty damages
may be a powerful tool -- for the benefit of the plaintiff and for the benefit
of society in general -- to punish the wrongdoer and to deter the commission
of similar offenses in the future[,] Burgess v. Porterfield, 196
W.Va. 178, 182, 469 S.E.2d 114-118 (1996).
In the instant case, the intended effect of the no punitive damages provision that is included in Paragraph 14 of Friedman's purchase and financing agreement document is that every Friedman's customer is deprived of their right to invoke and employ an important remedy provided by law to punish and deter illegal, willful, and grossly negligent misconduct -- and that Friedman's would be categorically shielded from any liability for such sanctions, regardless of Friedman's level of wrongdoing. (See footnote 9)
Mr. Dunlap also argues that his ability to fully pursue his legal rights and remedies is unconscionably limited by the terms of Friedman's purchase and financing agreement document, because Mr. Dunlap could not prosecute his claims for class action relief in arbitration.
Class action relief -- including
the remedies of damages, rescission, restitution, penalties, and injunction
-- is often at the core of the effective prosecution of consumer, employment,
housing, environmental, and similar cases. In McFoy v. Amerigas, Inc.,
170 W.Va. 526, 533, 295 S.E.2d 16, 24 (1982), this Court stated that: [i]n
general, class actions are a flexible vehicle for correcting wrongs committed
by large-scale enterprise upon individual consumers[;]. This apt and succinct
description of a principal value of class action litigation is directly applicable
to Mr. Dunlap's claims in the instant case.
In Mr. Dunlap's case, the total of $8.46 in insurance charges that Friedman's added to his purchase price by Friedman's is precisely the sort of small-dollar/high volume (alleged) illegality that class action claims and remedies are effective at addressing. In many cases, the availability of class action relief is a sine qua non to permit the adequate vindication of consumer rights.
As the United States Supreme Court stated in Amchem Products, Inc. v. Windsor, 521 U.S. 591, 617, 117 S.Ct. 2231, 2246, 138 L.Ed.2d 689, 709 (1997), [t]he policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights. A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone's (usually an attorney's) labor (citations omitted). See also Riverside v. Rivera, 477 U.S. 561, 575, 106 S.Ct. 2686, 2694, 91 L.Ed.2d 466, 480 (1986): 'If the citizen does not have the resources, his day in court is denied him; the . . . policy which he seeks to assert and vindicate goes unvindicated; and the entire Nation, not just the individual citizen, suffers.' 122 Cong.Rec. 33313 (1976) (remarks of Sen. Tunney).
Thus, in the contracts of adhesion that are so commonly involved in consumer and employment transactions, permitting the proponent of such a contract to include a provision that prevents an aggrieved party from pursuing class action relief would go a long way toward allowing those who commit illegal activity to go unpunished, undeterred, and unaccountable.
Friedman's et al. do not dispute Mr. Dunlap's assertion that he would not be able to obtain punitive or penalty damages, or assert class action claims and obtain class relief, in an arbitration proceeding. Friedman's et al. claim, however, that the FAA's policy prohibiting states from disfavoring the arbitral forum prohibits Mr. Dunlap from asserting a claim that the arbitral forum is inadequate because of a lack of punitive damages or class action relief in that forum.
Friedman's points to the case of Gilmer v. Interstate Johnson Lane Corp., 500 U.S. 20, 111 S.CT. 1647, 114 L.Ed.2d 26 (1991) supra, where the Supreme Court upheld the enforced arbitration of a claim brought under the Federal Age Discrimination in Employment Act (ADEA). In Gilmer, the plaintiff had agreed when he registered as a securities dealer to use a specialized New York Stock Exchange (NYSE) arbitration forum for all disputes arising out of his employment. Before the Supreme Court, the plaintiff in Gilmer asserted as one of several generalized criticisms of the adequacy of arbitration in his case that class action relief was not available in arbitration. The Court's opinion in Gilmer principally focused on whether the FAA could cover statutory ADEA claims at all; the opinion also held in a brief discussion that a possible lack of class action relief in the NYSE arbitral forum would not itself necessarily render that forum inadequate to vindicate the particular ADEA claim made by the plaintiff in Gilmer. (The Court also referred to the NYSE forum as conciliation. Gilmer v. Interstate Johnson Lane Corp., 500 U.S. at 32,111 S.Ct. at ____, 114 L.Ed.2d at ___ (1991)).
We do not think that Gilmer is controlling in support of Friedman's et al.'s argument. The plaintiff in Gilmer raised an alleged lack of class action remedies in arbitration as part of a facial and generalized challenge to the applicability of the FAA to any and all claims arising under the ADEA. The Court in Gilmer did not rule out the possibility that collective [class action] relief could be available in the specialized NYSE arbitration proceedings. Gilmer, 500 U.S. at 32, 111 S.Ct. at 16__, 114 L.Ed.2d at ___ (1991). Additionally, the Court in Gilmer was interpreting a federal statute that the Court held would continue to serve both its remedial and deterrent function in the possible absence of class action relief. 500 U.S. at 28, 111 S.Ct. at 1653, L.Ed.2d at 38 (1991). It does not appear that the plaintiff in Gilmer was, like Mr. Dunlap, an ordinary consumer or employee who had simply signed a boilerplate form; rather, the plaintiff in Gilmer was enrolling in a distinctive profession and actually agreed to use a specialized tribunal established to govern the conduct of that profession. The Court in Gilmer did not address the issue of whether preclusion of class action relief would have the effect of broadly shielding wrongdoers from full and effective accountability for their misconduct _ which is the situation in the instant case. Moreover, a host of federal cases decided both prior to and following Gilmer, see note 3 supra, have recognized that if an arbitral forum substantially denies a party the rights and remedies that are provided by laws designed to protect and benefit the public, the FAA does not operate to require that those rights be surrendered. This rule must particularly apply to purported waivers of such rights and protections that are contained in a form contract of adhesion.
In the instant case, in contrast to Gilmer, a consumer is seeking to use well- settled principles of state law to challenge and remedy an allegedly widespread and illegal practice of defrauding thousands of consumers. The consumer signed a contract of adhesion containing provisions that would bar him from utilizing two remedies -- punitive damages and class action relief -- that are essential to the enforcement and effective vindication of the public purposes and protections of underlying the law. (See footnote 10) For these reasons, we do not accept the argument that the Gilmer case prohibits Mr. Dunlap in the instant case from asserting a lack of class action relief as an unconscionable limitation of his remedies against Friedman's et al. (See footnote 11)
Based on all of the foregoing, we hold that the Federal Arbitration Act, 9 U.S.C. Sec. 2  does not bar a state court that is examining exculpatory provisions in a contract of adhesion that if applied would prohibit or substantially limit a person from enforcing and vindicating rights and protections or from seeking and obtaining statutory or common-law relief and remedies that are afforded by or arise under state law that exists for the benefit and protection of the public from considering whether the provisions are unconscionable -- merely because the prohibiting or limiting provisions are part of or tied to provisions in the contract relating to arbitration.
In the instant case, we conclude that the prohibitions on punitive damages and class action relief that would be the result of the application of the provisions of Friedman's purchase and finance agreement are clearly unconscionable. (See footnote 12)
Security Services, 105 F.3d 1465, 1484 (D.C. Cir. 1997). Following
Cole, the Eleventh Circuit found an arbitration clause unenforceable
based on cost provisions similar to the ones in this case, requiring statutory
claimants to pay AAA a $2,000 filing, plus a share of the arbitrator's fees.
[C]osts of this magnitude [are] a legitimate basis for a conclusion
that the clause does not comport with statutory policy [enabling claimants
to vindicate their statutory rights]. Paladino v. Avnet Computer
Technologies, Inc., 134 F.3d 1054, 1062 (11th Cir. 1998) (Cox, J., concurring
for majority of court).
(See footnote 13) Additionally, the burden
of showing the costs that would be imposed by
an arbitral forum falls upon the party challenging the forum.
Based on the principles enunciated in the foregoing cases, we hold that provisions in a contract of adhesion that if applied would impose unreasonably burdensome costs upon or would have a substantial deterrent effect upon a person seeking to enforce and vindicate rights and protections or to obtain statutory or common-law relief and remedies that are afforded by or arise under state law that exists for the benefit and protection of the public are unconscionable; unless the court determines that exceptional circumstances exist that make the provisions conscionable. In any challenge to such a provision, the responsibility of showing the costs likely to be imposed by the application of such a provision is upon the party challenging the provision; the issue of whether the costs would impose an unconscionably impermissible burden or deterrent is for the court. (See footnote 14)
the foregoing to the instant case, Friedman's et al. are correct that
Mr. Dunlap's contentions as to the cost of arbitration to Mr. Dunlap are at
best speculative and not well-supported in the record. Certainly the circuit
court made no determination about the likely costs of arbitration. Consequently
Mr. Dunlap's excessive costs argument for reversal of the circuit
court's order regarding arbitration is not persuasive.
(See footnote 15)
Based on all of the foregoing, we have concluded that as a matter of law that the provisions in Friedman's purchase and financing agreement document that severely limited Mr. Dunlap's rights and remedies were unconscionable.
Friedman's et al. argue that if this Court finds that any provisions of Friedman's purchase and financing agreement unconscionably limit Mr. Dunlap's rights and remedies, this Court should remand the case to the circuit court with instructions to compel Mr. Dunlap to go to arbitration on his claims against Friedman's et al. under altered terms and conditions in which Mr. Dunlap could fully and effectively vindicate his rights in the arbitral forum. Presumably this would mean that the circuit court would order arbitration where Mr. Dunlap could obtain class action relief, and where the full range of statutory and common-law damages, penalties, and other legal and equitable remedies could be imposed on Friedman's et al. (See footnote 16)
A recent court opinion rejected a defendant's offer to trim the unconscionable provisions of an arbitration clause:
In an effort to compel arbitration and dismiss the instant action against Drs. Porth and Kelly, United has expressed a willingness to waive the arbitration clauses' limitations that prevent an arbitrator from awarding extra contractual damages and punitive or exemplary damages. Principles of justice and fair play, however, lead to the conclusion that one party unilaterally cannot alter post litem motam terms of an agreement so that a case is dismissed . . . . The Court rejects United's attempted waiver.
In re Managed Care Litigation, 132 F.Supp.2d 989, 1001 (S.D. Fla. 2000) (footnote and citations omitted). Another recent decision rejected a drafting party's attempt to rewrite an unconscionable arbitration clause, stating:
Flyer Printing points out that it offered to pay all the costs of arbitration notwithstanding the language of the agreement. Hill rejected this unilateral offer to amend the agreement, however, and we are not authorized to remake the parties' contract.
Flyer Printing Co. Inc. v. Hill, 805 So.2d 829, 833 (Fla.App. 2001).
In Armendariz, supra, 6 P.3d at 697, the California Supreme Court stated:
Moreover, whether an employer is willing, now that the employment relationship has ended, to allow the arbitration provision to be mutually applicable, or to encompass the full range of remedies, does not change the fact that the arbitration agreement as written is unconscionable and contrary to public policy. Such a willingness can be seen, at most, as an offer to modify the contract; an offer that was never accepted. No existing rule of contract law permits a party to resuscitate a legally defective contract merely by offering to change it. [citations omitted].
In evaluating Friedman's et al.'s argument that we should order the circuit court to compel arbitration, but under conscionable standards, we must again recognize the nature of the contract that is at issue -- and the substance of the use to which Friedman's et al. have sought to put arbitration in the context of that contract.
Friedman's et al. are not asking this court to re-write a business contract that was knowingly entered into by two sophisticated parties -- where a court doing equity might seek to put the parties where they really intended to be, by correcting a provision in the contract that has become unconscionable because of a mistake or changed circumstances.
Rather, Friedman's et al., by tying substantively unconscionable exculpatory and limitation of liability provisions to an arbitration provision in a form contract of adhesion, has sought to unilaterally use (one could say misuse) the honorable mechanism of arbitration -- that has found a respected place in the commercial life of our nation -- as a scheme or mechanism to shield itself from legal accountability for misconduct.
Under such circumstances, we think a court doing equity should not undertake to sanitize any aspect of the unconscionable contractual attempt.
Consequently, we conclude that the circuit court erred in refusing to exercise its ordinary jurisdiction over the claims made by Mr. Dunlap, and in instead requiring Mr. Dunlap to bring any disputes he has with Friedman's et al. to arbitration.
This lawsuit is not about arbitration
(See footnote 17)
. . . [Under the guise of requiring arbitration, the company] was actually
rewriting substantially the legal landscape on which its customers must contend
. . . [the company] sought to shield itself from liability . . . by imposing
Legal Remedies Provisions that eliminate class actions, sharply curtail damages
in cases of misrepresentation, fraud, and other intentional torts, cloak the
arbitration process with secrecy and place significant financial hurdles in
the path of a potential litigant. It is not just that [the company] wants to
litigate in the forum of its choice -- arbitration; it is that [the company]
wants to make it very difficult for anyone to effectively vindicate her rights,
even in that forum. That is illegal and unconscionable[.]
The requested writ of prohibition is granted and this case is remanded for further proceedings consistent with this opinion. (See footnote 18)