Gay v. Creditinform - 3rd Circuit - December 19, 2007
http://www.ca3.uscourts.gov/opinarch/064036p.pdf
Enforcing the contractual arbitration clause pursuant to the Federal Arbitration Act, 9 USC sec. 2, the Third Circuit affirmed the district court in granting the defendant's motion to compel arbitration, on an individual basis, of the plaintiff's proposed class action under the Credit Repair Organizations Act (CROA), 15 USC 1679 et seq. and the Pennsylvania Credit Services Act (CSA), 73 P.S 2181 et seq.
The court held that plaintiff did not satisfy her "burden of establishing that Congress intended to preclude arbitration" of a claim under the CROA or that arbitration "irreconcilably conflicts" with the purposes of the CROA, citing its similar decision under the TILA in Johnson v. West Suburban Bank, 225 F3d 366, 371, 373 (3d Cir. 2000). The court said that the plaintiff, in the arbitration proceeding, would retain her "full range of rights created by the statutes" and that the right to bring a class action was created by the federal rules of civil procedure rather than the CROA. The court also stressed the possibility of administrative enforcement of the CROA by the FTC and state attorneys general, which it said "supply procedures for obtaining remedies reasonably substituting for those available in a class action."
Concerning the anti-waiver provision of the CROA, the court said that it "only prohibits waiver of the substantive obligations" imposed by the CROA and not the enforcement procedures, such as seeking relief in a judicial forum or seeking class relief.
Concerning plaintiff's claim that the arbitration clause and the contract as a whole were unconscionable, the court recognized that federal courts may apply "generally applicable contract defenses" available under state law "such as fraud, duress, or unconscionability" without running afoul of the FAA and the supremacy clause. However, the court held that "mere inequality" of bargaining power did not render a contract unconscionable, unless it approached "fraud or overwhelming economic power that would provide grounds for the revocation of any contract." The court found that the plaintiff -- who paid defendant about $5/month under the credit repair contract -- "could have walked away" from the contract and could have chosen another company to provide the services that defendant did. Her position was "different, for example, from that of a homeowner facing a mortgage foreclosure who accepts onerous refinancing terms in a desperate attempt to save her home."
The court rejected the Pennsylvania Superior Court decisions in Lytle v. CitiFinancial Services, Inc., 810 A.2d 643 (Pa. Super. 2002) and Thibodeau v. ComCast Corp., 912 A.2d 874 (Pa. Super. 2006), which struck down waivers of the right to bring a class action as unconscionable. Citing Perry v. Thomas, 482 U.S. 483 (1987), the court held that Lytle and Thibodeau established state law principles that were unique to arbitration agreements, rather than applicable to contracts generally. "'A state-law principle that takes its meaning precisely from the fact that a contract to arbitrate is at issue does not comport with" the generality requirement of sec. 2 of the Federal Arbitration Act. The court also noted the statement in Salley v. Option One Mortgage Corp., 925 A.2d 115, 129 (Pa. 2006), that the Lytle opinion "was well intentioned" but "swept too broadly."
The court ended by stating that it expressed "no view on whether [narrowing of the application of the FAA] might be a desirable result as it is not our function to do so. Rather, our obligation is to honor the intent of Congress and that is what we are doing. If the reach of the FAA is to be confined then Congress and not the courts should be the body to do so."
