Barras v. Bb&t: Charting a Clear Path to Apply Concepcion Through a Quagmire of Divergent Approaches
| Citation | Vol. 64 No. 2 |
| Publication year | 2013 |
Barras v. BB&T: Charting a Clear Path to Apply Concepcion Through a Quagmire of Divergent Approaches
Jacob Johnson
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A recent series of Supreme Court opinions, climaxing in the landmark case AT&T Mobility LLC v. Conception,1 has undermined the validity of applying unconscionability to arbitration agreements and generated divergent opinions in lower courts.2 The saving clause of the Federal Arbitration Act of 1927, 9 U.S.C. § 23 (FAA saving clause), states that "an agreement in writing to submit to arbitration . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist . . . for the revocation of any contract."4 Until Conception, unconscionability5 was
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an established ground for revoking arbitration agreements6 under the FAA saving clause.7 In Barras v. BB&T,8 the United States Court of Appeals for the Eleventh Circuit limited Conception for the first time in the Eleventh Circuit.9 This Note will explain the facts of Barras, Supreme Court precedent, the approach other circuits have taken in dealing with cases like Barras, and the important differences between these approaches and the Eleventh Circuit's approach. Because Barras's implications appear when its reasoning is contrasted with other circuits, this Note will conclude by using the differences and similarities in the courts' reasoning to build a framework to interpret Conception more consistently.
In Barras, the Eleventh Circuit severed a cost-and-fee-shifting provision from an arbitration agreement, holding that the state standard rendering it unconscionable was not preempted by AT&T Mobility LLC v. Conception's10 interpretation of the FAA.11 The plaintiff, Lacy Barras, alleged that BB&T (1) charged her overdraft fees even when she had sufficient funds; (2) supplied her inaccurate and misleading information; and (3) failed to provide her proper notice before making substantive changes to her account—all to wrongfully increase its revenue. Barras litigated under state contract and fair dealing theories, in particular, unconscionability. She litigated these claims in the United States District Court for the Southern District of Florida as a representative of a putative class of similarly situated plaintiffs. BB&T moved to compel arbitration according to her customer agreement, binding under the FAA. The district court denied the motion, holding the arbitration
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agreement unconscionable and unenforceable under the FAA saving clause, and BB&T appealed.12 While the appeal was pending, the Supreme Court decided Concepcion.13 In light of Concepcion, the Eleventh Circuit remanded Barras to the district court.14 The district court reaffirmed its earlier ruling, holding that South Carolina's unconscionability standard was unpreempted by the FAA. BB&T again appealed.15
On appeal, the Eleventh Circuit affirmed that the FAA did not preempt South Carolina's unconscionability standard because shifting all costs and fees arising from any dispute to one party (the customer) would interfere with the neutrality of bilateral arbitration.16 While the cost-and-fee-shifting provision was not in the arbitration agreement, the court of appeals held the provision applied to any costs or attorney fees incurred in arbitration.17 The court reversed the lower court's severance decision and held that the cost-and-fee-shifting provision alone, rather than the entire arbitration agreement, should be severed.18 This left the arbitration agreement—including the class arbitration waiver—intact.19 While this result gutted the value of Barras's victory, whose apparent goal was to litigate as a class representative,20 the holding remains important to understanding the riddle left by Concepcion.
A. The Legal Canvas: Supreme Court Precedent
"The 'principal purpose' of the FAA is to 'ensur[e] that private arbitration agreements are enforced according to their terms.'"21 Before
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the passage of the FAA, state courts were notoriously anti-arbitration,22 because it seemingly acted as an exculpatory provision that stripped plaintiffs of any meaningful remedy for their substantive rights.23 In response to this judicial hostility, Congress passed the FAA.24 Because the FAA made arbitration agreements binding, it injected a tension between state judiciaries and the federal legislature, leaving the federal judiciary stuck in the middle.25 This tension resulted in three trilogies of Supreme Court opinions punctuated at twenty-five year intervals.26 The first trilogy established a federal policy that favored arbitration over competing federal policies implied in federal statutes.27 The second trilogy established that the FAA's federal policy favoring arbitration would override competing policies established by the state courts or legislatures.28 The third trilogy, decided in the last three years,
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brought the underlying tension between unconscionability and arbitration to a climax.
The third trilogy consists of Stolt-Nielsen S.A. v. AnimalFeeds International Corp.;29 Rent-A-Center, West, Inc. v. Jackson;30 and AT&T Mobility LLC v. Conception31 In Stolt-Neilson, the Court held that the FAA preempted the use of public policy when constructing parties' intent from a contract that is silent on the issue of class arbitration.32 This indirectly "laid the siege lines" on "the breastworks of unconscionability" by displacing public policy considerations in contract interpretation with a FAA policy of strictly enforcing arbitration agreements.33
The Court's opinion in Rent-a-Center was more direct. In Rent-a-Center, the Court ruled that when contractual parties agree to arbitrate all disputes, the court must limit the scope of an unconscionability analysis to only the provisions in the agreement to arbitrate (gateway provisions).34 Thus, when a gateway provision provides all disputes are subject to arbitration, the court may not determine unconscionability by looking at any other unfairness in the contract.35 Limiting the courts' consideration to gateway provisions left very little room to examine the fairness of the corpus of the deal—in other words—substantive unconscionability.36
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The Court's decision in Concepcion "dramatically diminished" the use of unconscionability as a meaningful method of avoiding arbitration.37 In Concepcion, the plaintiffs attempted to file a class-action lawsuit against AT&T alleging that AT&T engaged in false and deceptive advertising that cost the plaintiffs (and others similarly situated) about $30. The district court refused AT&T's motion to enforce arbitration because it found that the arbitration agreement was unconscionable under California's "Discover Bank" rule. The Discover Bank rule held class arbitration waivers unconscionable if (1) the contract was one of adhesion, (2) damages from disputes would normally be small, and (3) the more powerful party intended to cheat individual customers through many small wrongs.38 The rule rested on the premise that enforcing a class arbitration waiver in such a contract would practically exculpate the wrongdoer from obtaining legal redress.39 The United States Court of Appeals for the Ninth Circuit affirmed.40 The Supreme Court reversed, ruling that the FAA preempted the Discover Bank unconscionability rule.41
Justice Scalia delivered the opinion for the Court.42 The Court held that California's Discover Bank rule did not provide grounds for revocation of the arbitration agreement according to the FAA saving clause.43 Justice Scalia supported this ruling by stating that the effect, if not purpose, of the Discover Bank rule is the impedance of bilateral arbitration.44 He further reasoned that the FAA's purpose is to give contracting parties freedom to decide disputes in an efficient and streamlined manner.45 Therefore, if the parties decide that the most efficient method to decide their disputes is bilateral arbitration, the Court should enforce this method even if it requires the preemption of all state policies.46
The factual basis of Concepcion's holding involved AT&T's uniquely consumer-friendly arbitration agreement.47 The agreement provided that for small claims, denned as $10,000 or less: AT&T could not recover attorney fees; and should the customer be awarded with an
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amount greater than AT&T's last settlement offer, AT&T must pay a minimum of $7,500 and twice the amount of the plaintiff's attorney fees.48 These facts made it easier to dismiss the plaintiff's policy argument that class arbitration waivers would exculpate guilty parties by removing any feasible method of the customer to vindicate their substantive rights.49 However, foreseeing this factual distinction, Justice Scalia emphasized that the purpose of the FAA is to enforce arbitration agreements as written—despite all state public policy.50
Justice Thomas concurred, employing a plain language argument of FAA interpretation. Justice Thomas pointed out that the FAA states arbitration provisions shall be "valid, irrevocable, and enforceable" unless there are grounds for "revocation."51 Justice Thomas interpreted this to mean that state rules holding a contract invalid or unenforceable are different from state rules holding the contract revocable.52 Justice Thomas applied this theory by distinguishing between traditional formation defenses, such as duress, fraud, and failure of consideration, which prevent the existence of mutual assent or otherwise strike at the existence of a contract53 —and unconscionability, which does not deny the existence of a contract but rather refuses to enforce it as a matter of policy.54
Justice Breyer, joined by Justice Ginsburg, Justice Sotomayor, and Justice Kagan, dissented.55 Justice Breyer focused on the fact that California's unconscionability rule would...
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