Class Action Defense Cases–Woods v. QC Financial: Missouri State Appellate Court Affirms Trial Court Order Striking Class Action Waiver From Arbitration Clause And Then Compelling Arbitration Of Dispute
Class Action Waiver in Payday Loan Agreement Containing Mandatory Arbitration Clause was Unconscionable and Trial Court did not Err in Severing Class Action Waiver, Compelling Arbitration, and Allowing Arbitrator to Determine Whether Matter should Proceed as Class Action Missouri State Appellate Court Holds
Plaintiff filed a class action against QC Financial, a payday lender, from whom plaintiff had borrowed money several times; the class action complaint alleged that defendant violated various Missouri state laws governing payday lenders. Woods v. QC Financial Services, Inc. d/b/a Quik Cash., ___ S.W.2d ___ (Mo.App. December 23, 2008) [Slip Opn., at 1]. Defense attorneys moved to dismiss the class action and to compel plaintiff to arbitrate the dispute individually; the motion was premised on an arbitration clause with a class action waiver that was contained in the payday loan documents. Id., at 1-2. Each loan agreement contained a mandatory arbitration clause that provided in pertinent part that the borrower is (1) waiving their right to a jury trial, (2) waiving their right to any court proceeding (other than small claims), and (3) waving the 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 AND/OR RELATED THIRD PARTIES.” Id., at 2. The arbitration clause further provided that “all disputes including any Representative Claims against us…shall be resolved by binding arbitration only on an individual basis with you” and precluded the arbitrator from allowing any dispute to proceed as a class action, id. Plaintiff moved for declaratory judgment, seeking to hold the class action waiver unconscionable; the trial court granted plaintiff’s motion and severed the provisions of the arbitration clause prohibiting class actions. Id. At the same time, the trial court denied the defense motion to compel plaintiff “to participate in individual arbitration,” but granted the defense motion to dismiss in part, in that the matter was ordered to arbitration for the arbitrator to decide whether the litigation could proceed as a class action. Id. Defendant appealed, and the Missouri Court of Appeal affirmed.
Defense attorneys raised several issues on appeal: (1) that plaintiff failed to prove procedural unconscionability; (2) that the arbitration clause was not procedurally unconscionable “because the font size used complies with statute and [plaintiff] signed the contract without any misrepresentations, hurry, or duress from [defendant]”; (3) that the arbitration clause was not substantively unconscionable, in part because the Federal Arbitration Act (FAA) “preempts the trial court's holding as Missouri law does not bar class action waivers in all consumer contracts”; (4) that the class action waiver was an “essential “ part of the loan agreement, which does not contain a severance clause, so the trial court erred in severing the class action waiver from the arbitration clause; and (5) that the trial court erred in granting plaintiff’s request for declaratory judgment because it was not properly presented. Woods, at 3-4. The appellate court began by addressing the fifth point, quickly rejecting the defense characterization of the trial court’s action as one of “granting summary judgment,” and holding that the court granted declaratory judgment only to the extent that the mandatory arbitration clause precluded class action relief and only after hearing argument and testimony. Id., at 4-5. The Court of Appeal concluded that there was nothing improper in this aspect of the court’s ruling, id., at 5.