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Keeton v. Wells Fargo Corp.

January 21, 2010


Appeal from the Superior Court of the District of Columbia. (CAB 2622-08) (Hon. Jennifer M. Anderson, Trial Judge).

The opinion of the court was delivered by: Kramer, Associate Judge

Argued November 5, 2009

Before GLICKMAN and KRAMER, Associate Judges,and NEBEKER, Senior Judge.

This dispute concerns the alleged unconscionability of an arbitration clause in a standardized-form consumer contract of adhesion. Because of the procedural posture of the case - it is before us after the trial court granted appellee's motion to dismiss - we summarize the relevant facts as appellant has alleged them.

Ms. Keeton is a school bus driver with four dependent children who appears in forma pauperis. Easterns is a used car dealership chain with seventeen locations throughout the region. On July 28, 2005, Ms. Keeton purchased a used Sports Utility Vehicle (a 2001 Mazda Tribute XL) ("SUV") from Easterns for $19,955. Acting as the agent for Wells Fargo, a national banking concern, Easterns provided financing for the purchase. At the conclusion of the transaction, Ms. Keeton agreed to pay Easterns (and through Easterns, Wells Fargo) $389.92 per month for the next six years, for a total sum of $28,074. The fair market value of the SUV, if it had been in excellent condition, was $11,400. Within the first year, the SUV broke down twice, while Ms. Keeton continued to make payments. Her subsequent attempts to refinance failed because the value of the SUV was far below the loan amount, and she defaulted just over one year after she had made the purchase. Soon thereafter, Wells Fargo repossessed and resold the SUV for $6,100. Wells Fargo then demanded that Ms. Keeton pay the difference between the amount she still owed and the resale value of the SUV, or $13,368.95. In response, Ms. Keeton sued both Easterns and Wells Fargo in the Superior Court, alleging that Easterns violated the D.C. Consumer Protection Procedures Act ("CPPA")*fn1 by knowingly failing to disclose the SUV's fair market value. In addition to the CPPA claim, Ms. Keeton alleged that Easterns and Wells Fargo had engaged in fraud and fraudulent misrepresentation, and that the sale contract*fn2 was unconscionable. Appellees filed a Motion to Dismiss and to Compel Arbitration,*fn3 which the trial court granted, dismissing the case with prejudice. This appeal followed. Our review is de novo.*fn4

At the outset, we need to satisfy ourselves that we have jurisdiction.*fn5 Although appellees have conceded the issue, "[p]arties cannot waive subject matter jurisdiction by their conduct or confer it . . . by consent, and the absence of such jurisdiction can be raised at any time."*fn6 We have previously held that orders to compel arbitration are not appealable, and we have even construed an ambiguous order to dismiss as a stay,*fn7 but we have never considered the situation where a trial court dismissed a case with prejudice in addition to compelling arbitration. Because such an order is unambiguously final,*fn8 we hold that appellate jurisdiction exists where the trial court has effectively prevented a plaintiff from litigating the issue in the future.*fn9

Turning to the merits, we detect several problems with the dismissal order. First, our well-settled unconscionability standard calls for a strongly fact-dependent inquiry.*fn10 This standard, coupled with the requirement that a court conduct "an expedited evidentiary hearing"*fn11 when parties dispute the validity of the arbitration clause, makes the order below impossible to affirm.*fn12 For example, appellant argued that she lacked meaningful choice as part of her unconscionability allegation, which Easterns countered by pointing out that she could have purchased a used car from another dealer. It was error for the court to adopt Easterns's contention without conducting any fact-finding to determine the impact of the existence of other dealerships on appellant's options.*fn13 The court also impermissibly determined that "the parties reasonably entered into the agreement." Given the factual nature of a reasonableness determination, especially in light of the unconscionability standard which demands a more developed record, the court's ruling was premature at best. On remand, the trial court should allow discovery, followed by an evidentiary hearing to determine the unconscionability of the arbitration clause.*fn14

In addition, the trial court, relying on the Supreme Court's opinion in First Options v. Kaplan,*fn15 concluded that the arbitrator should determine the validity of the arbitration clause, as required by the language of Easterns's arbitration clause.*fn16 The court erred by conflating two distinct legal concepts. First Options involved an arbitrability dispute. An arbitrability dispute is over what the parties have agreed to submit to the arbitrator's authority, that is, the scope, but not the validity, of an arbitration clause.*fn17 A challenge that the clause is unconscionable disputes its validity, not its scope, and it is up to the courts, not arbitrators, to adjudicate the validity of an arbitration clause.*fn18

Regardless of what authority Easterns's form contract purported to confer on the arbitrator, the validity of the arbitration clause itself was for the court to decide.*fn19

After consideration of the record on appeal, the briefs of the parties, and the oral argument at which appellee conceded that the dismissal of the complaint with prejudice was error, we remand this case. On remand, the trial court should ensure that the parties have an opportunity to develop the record with respect to all the disputed factual issues central to a proper determination of unconscionability. Some of these issues are: the significance of the imbalance of power in arbitrator selection given Easterns's status as a "repeat player" in the arbitration system, the fact that the clause reserves some litigation avenues to Easterns while entirely barring Ms. Keeton from seeking judicial action, as well as the costs imposed on Ms. Keeton by the arbitration procedure and their impact on her ability to seek redress.*fn20 Should the court still find the arbitration clause valid after considering a fully developed record, it should, instead of dismissing the case, stay the proceedings pending the outcome of the arbitration.*fn21

Reversed and ...

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