737 F.3d 636
9th Cir.2013Background
- JEM appeals district court denial of its motion to compel arbitration of Smith's class action against JEM, Marshall Banks, and Legal Helpers.
- Plaintiff Smith signed a 21-page contract with Kazlow and Tucker; the agreement included a four-page attorney retainer agreement containing an arbitration clause, with no explanation.
- Defendants moved to compel arbitration; JEM and Marshall Banks argued they were third-party beneficiaries of the ARA.
- Washington law limits initial payments and percentages for debt-settlement fees, with an exception for attorney-incidental debt-adjustment services and a requirement of full disclosure.
- The district court held the arbitration clause procedurally unconscionable under Washington law and that the district court—not an arbitrator—should determine unconscionability.
- On appeal, the Ninth Circuit addressed arbitrability, Washington unconscionability standards, and FAA preemption under Concepcion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who decides unconscionability of the arbitration clause? | JEM argues arbitrator should decide. | Smith argues district court should decide. | District court correctly decides unconscionability. |
| Is Washington procedural unconscionability preempted by the FAA? | JEM asserts FAA preemption under Concepcion. | Smith asserts Washington rule not preempted. | Washington rule not preempted; FAA does not preempt. |
| Is the arbitration clause procedurally unconscionable under Washington law? | Smith argues unconscionable due to disclosure failures. | JEM contends clause valid with proper disclosure. | Arbitration clause procedurally unconscionable; unenforceable. |
Key Cases Cited
- Bridge Fund Capital Corp. v. Fastbucks Franchise Corp., 622 F.3d 996 (9th Cir. 2010) (arbitrability determination can be with court when challenge to clause is distinct from contract)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (S. Ct. 2006) (crux of complaint determines arbitrability; contract vs. arbitration clause)
- Nagrampa v. MailCoups, Inc., 469 F.3d 1257 (9th Cir. 2006) (arbitrability when challenge to arbitration clause is specific but not sole claim)
- AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (S. Ct. 2011) (FAA preemption limits on state law rules that hamper arbitration; class waiver rule example)
- In re Checking Account Overdraft Litig., 685 F.3d 1269 (11th Cir. 2012) (unconscionability doctrine may apply to arbitration agreements under § 2)
- Valley/50th Ave., L.L.C. v. Stewart, 153 P.3d 186 (Wash. 2007) (attorney fee disclosures and enforceability under Washington Rules of Professional Conduct)
- In re Disciplinary Proceeding Against DeRuiz, 99 P.3d 881 (Wash. 2004) (advisory opinions on professional conduct are persuasive, not binding)