Rearick v. Clearwater 2008 Note Program, LLC
Filing
30
MEMORANDUM (Order to follow as separate docket entry). Signed by Honorable Yvette Kane on 5/31/17. (rw)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
LOIS L. REARICK,
Plaintiff
v.
CLEARWATER 2008 NOTE
PROGRAM, LLC,
Defendant
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No. 4:15-cv-02265
(Judge Kane)
MEMORANDUM
This matter is before the Court on a renewed petition to compel arbitration and motion to
dismiss or, alternatively, motion to stay, filed by Defendant Clearwater 2008 Note Program,
LLC. (Doc. No. 16.) For the reasons provided herein, the Court will grant Defendant’s motion
to compel arbitration and will dismiss this case.
I.
BACKGROUND
Plaintiff Lois L. Rearick commenced the above-captioned breach of contract action on
November 30, 2015, by filing a complaint against Defendant Clearwater 2008 Note Program,
LLC, an Idaho limited liability company, for the non-payment of the principal and interest on a
$200,000.00 promissory note that Plaintiff and her late husband (collectively referred to herein
as the “Rearicks”), purchased from Defendant. (Doc. No. 1 ¶¶ 7, 13.)
In her complaint, Plaintiff alleges that Robert Nalisnick, an investment officer employed
by Defendant, solicited the Rearicks to finance Defendant’s various acquisition and development
projects in the Pacific Northwest through the sizeable investment in the promissory note
program. (Doc. No. 1 ¶¶ 5-8.) Enticed by Mr. Nalisnick’s representations of a low-risk
investment that would generate a high return, the Rearicks agreed to participate in Defendant’s
promissory note program, purchasing a $200,000.00 interest bearing note yielding a nine percent
1
(9%) annual return on investment with a maturity date of December 31, 2015. On or about
October 9, 2008, the Rearicks executed an agreement memorializing their subscription for the
purchase of the note, and mailed the signed Subscription Agreement to Defendant along with a
check in the amount of $200,000.00. Consonant with its acceptance of the Subscription
Agreement, Defendant issued the Rearicks a certificate of ownership evidencing the purchase of
the note.
Plaintiff avers that the note initially generated monthly interest payments of $1,500.00.
However, beginning in November of 2011, the Rearicks observed a noticeable reduction in the
monthly interest payments. By February of 2012, the Rearicks were no longer receiving monthly
interest payments from Defendant. By the complaint’s allegations, Plaintiff has suffered
investment losses totaling $273,900.00, representing the outstanding principal balance on the
note plus interest.
On March 4, 2016, Defendant filed a motion to compel arbitration pursuant to the
Federal Arbitration Act, 9 U.S.C. §§ 2, 4, and to dismiss under Federal Rule of Civil Procedure
12(b)(6), or alternatively, to stay the action pursuant to 9 U.S.C. § 3, based on the executed
Subscription Agreement’s mandatory arbitration clause requiring Plaintiff to submit to binding
arbitration in Boise, Idaho in accordance with applicable Idaho law and the procedures set forth
by the American Arbitration Association. (Doc. No. 7 at 2.) Specifically, the arbitration clause,
contained in numbered paragraph 11 of the Subscription Agreement, states as follows:
11.
I hereby covenant and agree that any dispute, controversy or other claim arising
under, out of or relating to this Agreement or any of the transactions contemplated
hereby, or any amendment thereof, or the breach or interpretation hereof or thereof, shall
be determined and settled in binding arbitration in Boise, Idaho, in accordance with
applicable Idaho law, and with the rules and procedures of The American Arbitration
Association. The prevailing party shall be entitled to an award of its reasonable costs and
expenses, including, but not limited to, attorneys' fees, in addition to any other available
remedies. Any award rendered therein shall be final and binding on each and all of the
2
parties thereto and their personal representatives, and judgment may be entered thereon in
any court of competent jurisdiction. BY EXECUTING THIS AGREEMENT, YOU ARE
AGREEING TO HAVE ALL DISPUTES DECIDED BY NEUTRAL ARBITRATION,
YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE SUCH
DISPUTES LITIGATED IN A COURT OR JURY TRIAL, AND YOU ARE GIVING
UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL. IF YOU REFUSE
TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU
MAY BE COMPELLED TO ARBITRATE. BY EXECUTING THIS AGREEMENT,
YOU HEREBY CONFIRM THAT YOUR AGREEMENTS TO THIS ARBITRATION
PROVISION IS VOLUNTARY.
(Doc. No. 1-4 at 4).
According to Defendant, Plaintiff’s precipitous filing of the lawsuit contravened the
mandatory arbitration provision, warranting an order from this Court compelling arbitration
pursuant to the Subscription Agreement, and dismissing the above-captioned case. (Id. at 3.) In
opposition to Defendant’s initial motion to compel arbitration, Plaintiff raised a number of
challenges attacking the validity and enforceability of the Subscription Agreement, including
that: (1) the Subscription Agreement was not executed by Defendant but rather, by an entity
known as Clearwater REI, LLC; (2) Defendant’s antecedent breach of the Subscription
Agreement excuses her performance thereunder; (3) she lacked sufficient sophistication to
understand the Subscription Agreement; (4) participation in arbitration in Idaho would be
inconvenient; and (5) the Subscription Agreement is unenforceable and unconscionable under
Idaho law. (Doc. Nos. 8 at 1-2; 12.) Plaintiff requested in her oppositional brief that the Court
order limited discovery relative to the question of arbitrability. On March 28, 2016, following a
telephonic case management conference with the parties, this Court denied Defendant’s motion
to compel arbitration without prejudice to its filing of a renewed motion to compel arbitration
upon the expiration of a court-imposed, ninety-day discovery period in order to permit the parties
to conduct limited discovery as to the issue of arbitrability. (Doc. No. 13.)
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On August 1, 2016, the Court received and docketed a letter from Plaintiff’s counsel,
advising the Court that the parties had completed limited discovery on the question of
arbitrability, and urging the Court to schedule a joint case management conference. (Doc. No.
15). That same day, however, Defendant filed a renewed motion to compel arbitration. (Doc.
No. 16).1 Having been fully briefed, this matter is now ripe for disposition.
II.
LEGAL STANDARD
The Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., governs the validity,
irrevocability, and enforcement of agreements to arbitrate. See Moses H. Cone Mem'l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983) (“[The FAA] creates a body of federal
substantive law establishing and regulating the duty to honor an agreement to arbitrate . . . .”).
Enacted to reverse longstanding “judicial hostility to arbitration agreements,” the FAA embodies
a “strong federal policy in favor of resolving disputes through arbitration” by placing “arbitration
agreements on equal footing with other contracts . . . .” Rent-A-Ctr., W., Inc. v. Jackson, 561
U.S. 63, 67 (2010) (citations omitted). Questions concerning the interpretation and construction
of arbitration agreements are determined by reference to the FAA, which provides, in relevant
part, that “[a] written provision in any . . . contract evidencing a transaction involving commerce
to settle by arbitration a controversy . . . arising out of such contract . . . shall be valid,
irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the
revocation of any contract.” 9 U.S.C. § 2.
1
On January 30, 2017, Plaintiff’s counsel entered a suggestion of death on the record, indicating
that Plaintiff had passed away during the pendency of the proceedings. (Doc. No. 25.)
Plaintiff’s counsel moved to substitute the co-executors of Plaintiff’s estate, Amy J. Bowersox
and James R. Rearick (hereinafter “Plaintiffs”), for Plaintiff, pursuant to Federal Rule of Civil
Procedure 25(a)(1). (Doc. Nos. 27, 28.) On April 13, 2017, the Court granted the motion to
substitute. (Doc. No. 29.)
4
The FAA reflects the fundamental principle that “‘[a]rbitration is strictly a matter of
contract between the parties.’” Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764,
771 (3d Cir. 2013) (quoting Par–Knit Mills, Inc. v. Stockbridge Fabrics Co., Ltd., 636 F.2d 51,
54 (3d Cir. 1980)). Indeed, the FAA requires federal courts to enforce agreements to arbitrate
according to their terms, and “confers only the right to obtain an order directing that “arbitration
proceed in the manner provided for in [the parties’] agreement.” Par–Knit Mills, Inc., 636 F.2d
at 54 (emphasis omitted). Consequently, the exercise of the district court’s discretion in this
context is limited to ascertaining whether the parties entered into a valid agreement to arbitrate.
Certain Underwriters at Lloyd's London v. Westchester Fire Insurance Co., 489 F.3d 580, 585
(3d Cir. 2007) (holding that the question of arbitrability—i.e., whether the parties agreed to
submit a particular dispute to arbitration—is an issue for judicial determination). Once an
arbitration clause is deemed by a federal court to be a valid and enforceable agreement, the
merits of the controversy are referred for disposition by an arbitrator. Great W. Mortgage Corp.
v. Peacock, 110 F.3d 222, 228 (3d Cir.1997). In the event, however, “that the making of the
arbitration agreement is in issue, then ‘the court shall proceed summarily to the trial’ of that
issue.” Guidotti, 716 F.3d at 771 (quoting Par–Knit Mills, Inc., 636 F.2d at 54).
Accordingly, when presented with a motion to compel arbitration, a district court is
tasked with conducting a two-step inquiry into “(1) whether there is a valid agreement to
arbitrate between the parties and, if so, (2) whether the . . . dispute in question falls within the
scope of that valid agreement.” Flintkote Co. v. Aviva PLC, 769 F.3d 215, 220 (3d Cir. 2014)
(quoting Century Indem., 584 F.3d at 527). “The FAA instructs courts to refer to principles of
applicable state law when determining the existence and scope of an agreement to arbitrate.”
Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir. 2005). By its terms, the FAA
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does not confine the court’s inquiry to defects in contract formation, but also permits the court to
consider those generally applicable defenses that “exist at law or in equity for the revocation of
any contract,” such as fraud, duress, and unconscionability. 9 U.S.C. § 2.
The United States Court of Appeals for the Third Circuit has clarified the appropriate
standard to be employed by district courts evaluating the enforceability of an agreement to
arbitrate under the two-step analysis. Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716
F.3d 764 (3d Cir. 2013). Specifically:
[W]hen it is apparent, based on ‘the face of a complaint, and documents relied
upon in the complaint,’ that certain of a party’s claims ‘are subject to an
enforceable arbitration clause, a motion to compel arbitration should be
considered under a Rule 12(b)(6) standard without discovery’s delay.’ But if the
complaint and its supporting documents are unclear regarding the agreement to
arbitrate, or if the plaintiff has responded to a motion to compel arbitration with
additional facts sufficient to place the agreement to arbitrate in issue, then ‘the
parties should be entitled to discovery on the question of arbitrability before a
court entertains further briefing on [the] question.’ After limited discovery, the
court may entertain a renewed motion to compel arbitration, this time judging the
motion under a summary judgment standard.
Guidotti, 716 F.3d at 776 (internal citations omitted).
Given the procedural posture of this case, the Court applies the summary judgment
standard to Defendant’s renewed motion to compel arbitration, as it previously allowed for
limited discovery on the question of arbitrability. Rule 56(a) of the Federal Rules of Civil
Procedure provides that summary judgment is warranted “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a). A factual dispute is material if it might affect the outcome of the
suit under the applicable law, and it is genuine only if there is a sufficient evidentiary basis that
would allow a reasonable fact finder to return a verdict for the non-moving party. Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). At summary judgment, the inquiry is whether
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the evidence presents a sufficient disagreement to require submission to the jury or whether it is
so one-sided that one party must prevail as a matter of law. Id. at 251-52. In making this
determination, the Court must “consider all evidence in the light most favorable to the party
opposing the motion.” A.W. v. Jersey City Pub. Schs., 486 F.3d 791, 794 (3d Cir. 2007). In
deciding a motion for summary judgment, the court need not accept allegations that are merely
conclusory in nature, whether they are made in the complaint or a sworn statement. Lujan v.
Nat’l Wildlife Fed’n, 497 U.S. 871, 888 (1990). Moreover, the court’s function is not to make
credibility determinations, weigh evidence, or draw inferences from the facts. Anderson, 477
U.S. at 249. Rather, the court must simply “determine whether there is a genuine issue for trial.”
Id.
The moving party has the initial burden of identifying evidence that it believes shows an
absence of a genuine issue of material fact. Conoshenti v. Pub. Serv. Elec. & Gas Co., 364 F.3d
135, 145-46 (3d Cir. 2004). Once the moving party has shown that there is an absence of
evidence to support the non-moving party’s claims, “the non-moving party must rebut the motion
with facts in the record and cannot rest solely on assertions made in the pleadings, legal
memoranda, or oral argument.” Berckeley Inv. Grp. Ltd. v. Colkitt, 455 F.3d 195, 201 (3d Cir.
2006); accord Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). If the non-moving party “fails
to make a showing sufficient to establish the existence of an element essential to that party’s
case, and on which that party will bear the burden at trial,” summary judgment is warranted.
Celotex, 477 U.S. at 322. With respect to the sufficiency of the evidence that the non-moving
party must provide, a court should grant a motion for summary judgment when the non-movant’s
evidence is merely colorable, conclusory, or speculative. Anderson, 477 U.S. at 249-50. There
must be more than a scintilla of evidence supporting the non-moving party and more than some
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metaphysical doubt as to the material facts. Id. at 252; see also Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 586 (1986). Further, a party may not defeat a motion for
summary judgment with evidence that would not be admissible at trial. Pamintuan v. Nanticoke
Mem’l Hosp., 192 F.3d 378, 387 (3d Cir. 1999).
III.
DISCUSSION
As noted above, in its assessment of whether a party may be compelled to arbitrate, the
Court must determine (1) whether there is a valid agreement to arbitrate between the parties, and
if so, (2) whether the dispute between the parties falls within the scope of the valid agreement.
Flintkote, 769 F.3d at 220 (quotation omitted).2 The Court considers each of these factors in
turn.
A.
VALID AGREEMENT TO ARBITRATE
In its renewed motion to compel arbitration, Defendant argues that the Subscription
Agreement contains a valid arbitration provision that obligates Plaintiff to submit to binding
arbitration in Boise, Idaho. (Doc. No. 26.) Defendant further maintains that Plaintiff’s
challenges to the validity of the arbitration provision under the substantive law selected by the
parties to govern the Subscription Agreement, that is, Idaho law, are unfounded. (Id.) Plaintiff
opposes the renewed motion to compel on the grounds that: (1) Plaintiff has yet to depose Mr.
Nalisnick regarding whether the choice of law, choice of forum, and arbitration clauses were
discussed with the Rearicks, as that issue may potentially support a theory of unconscionability;
(2) the arbitration clause is unenforceable due to the possibility that Plaintiff may incur
prohibitively excessive costs in the arbitration process; and (3) the arbitration clause is
substantively unconscionable because it expressly waives Plaintiff’s limited appellate rights
guaranteed by the FAA. (Doc. No. 21.)
2
The parties agree that Idaho law governs the agreement. (Doc. Nos. 21 at 3-5; 22 at 4-11).
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1.
Deposition of Mr. Nalisnick
In opposition to Defendant’s renewed motion to compel arbitration, Plaintiff submits that
she “intends to depose the local agent Nalisnick as to his interaction with the Rearicks,” as she
“avers and believes that the choice of law, choice of forum and arbitration clauses were never
discussed.” (Doc. No. 21 at 2.)
The Court finds Plaintiff’s argument regarding her entitlement to additional discovery to
be wholly unavailing. As this Court noted supra, at the outset of this litigation, Plaintiff
requested,3 and was afforded, a reasonable opportunity to conduct arbitrability-related discovery
to support her opposition to any renewed motion to compel arbitration, in accordance with
prevailing Third Circuit jurisprudence. Rather than move for an extension of the discovery
deadline prior to the close of discovery, Plaintiff’s counsel, at the Court’s prompting, instead
represented to the Court via letter dated July 31, 2016, that “[d]iscovery with respect to the
jurisdictional issue has been completed,” which precipitated Defendant’s filing of its renewed
motion to compel arbitration. (Doc. No. 15.)
Curiously, against this procedural backdrop, Plaintiff neither reconciles for the Court the
apparent discrepancy with regard to her propounded need for discovery, nor offers an
explanation as to why she was unable to secure the deposition of Mr. Nalisnick within the
ninety-day discovery period. To stay disposition of Defendant’s renewed motion to compel
arbitration at this juncture in the proceedings based solely upon Plaintiff’s untimely request4 to
3
Notably, the arguments Plaintiff raises in opposition to Defendant’s renewed motion to compel
arbitration, including her statement of intent to depose Mr. Nalisnick, are largely borrowed
wholesale from her brief in opposition to Defendant’s initial motion to compel.
4
While Plaintiff does not explicitly request the Court to stay the renewed motion to compel and
reopen discovery, the Court construes the argument as such given that the deadline for discovery
has expired.
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reopen the discovery period would be inappropriate, as Plaintiff has failed to establish good
cause for her failure to comply with the discovery deadline. Indeed, Plaintiff has not satisfied
her burden of demonstrating good cause justifying modification of a scheduling order by
showing that she exercised due diligence in pursuing discovery but was precluded from deposing
Mr. Nalisnick due to circumstances beyond her control. See Fed. R. Civ. P. 16(b); Race Tires
Am., Inc. v. Hoosier Racing Tire Corp., 614 F.3d 57, 84 (3d Cir. 2010); Perez v. Great Wolf
Lodge of the Poconos LLC, No. 3:12-CV-01322, 2017 WL 559704, at *3 (M.D. Pa. Feb. 10,
2017) (“[C]ourts have defined good cause to include circumstances beyond the control of a
party.”) (citing Courtney v. Ivanov, No. CV 3:13-227, 2016 WL 1367755, at *2 (W.D. Pa. Apr.
6, 2016)). Accordingly, the Court declines any invitation to defer its consideration of
Defendant’s pending motion to compel arbitration in order to permit Plaintiff to depose Mr.
Nalisnick.
2.
Prohibitive costs associated with arbitration
Plaintiff also argues that the arbitration clause is unenforceable due to the risk that she
may be forced to assume excessive arbitration costs by pursuing her breach of contract claim in
an arbitral forum in Boise, Idaho.
A party seeking “to invalidate an arbitration agreement on the ground that arbitration
would be prohibitively expensive, . . . bears the burden of showing the likelihood of incurring
such costs.” Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 92 (2000). Specifically, the party
opposing arbitration must proffer credible and individualized evidence of (1) the anticipated
expenses relating to the specific arbitration at issue, and (2) the party’s inability to pay those
projected costs of arbitration. Hall v. Treasure Bay V.I. Corp., 371 F. App’x 311, 313 (3d Cir.
2010) (“Thus, a party seeking to declare a provision awarding arbitration costs unenforceable
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must proffer some credible and substantiated evidence of that party's financial situation as well
as the specific costs of arbitration.”). The arbitration clause will only be deemed unenforceable
if it inhibits Plaintiff from effectively vindicating her rights in the arbitral forum. See Murphy v.
Mid-West Nat’l Life Ins. Co. of Tenn., 78 P.3d 766, 768 (Idaho 2003) (holding that if “the
salutary purposes usually associated with arbitration[,] which is supposed to be an inexpensive
and rapid alternative to prolonged litigation[,]” would not be advanced by the arbitration
agreement, then an arbitration agreement may be revoked).
In support of her position that the Court should declare invalid the arbitration provision
due to the possibility that she might incur prohibitive costs in connection with being subject to
arbitration in Boise, Idaho, Plaintiff produces the affidavit of guardian Amy Bowersox, dated
September 12, 2016, attesting to the estimated expenses the Rearicks would likely incur if
required to submit to arbitration in Boise. (Doc. No. 21-1 at 15.) Together with the affidavit is a
print-off of the search results from www.expedia.com comparing available airline fares out of
the University Park regional Airport in Centre County, Pennsylvania to Boise for the period
between September 2013 through February 2014, and an e-mail response from a law firm in
Boise, confirming with Plaintiff’s counsel the $5,000.00 retainer required to secure
representation for the Rearicks. (Doc. No. 21-1 at 13.) Relying on this evidence, Plaintiff argues
that she would be “burdened with” assuming the costs associated with securing counsel in Idaho,
subpoenaing Mr. Nalisnick, travelling to Boise, and arbitrating through the American
Arbitration Association. (Doc. No. 21 at 3.)
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Even assuming that Plaintiff has proffered appropriate evidence indicative of her
estimated expenses,5 the lack of any individualized evidence in the record supporting Plaintiff’s
claimed financial inability to assume the costs of the arbitration process compels a finding that
Plaintiff has failed to establish the cost-prohibitive nature of submitting her claims to a
compulsory arbitration process. Spinetti v. Serv. Corp. Int'l, 324 F.3d 212, 218 (3d Cir. 2003);
Blair v. Scott Specialty Gases, 283 F.3d 595, 608 (3d Cir.2002); Gillespie v. Colonial Life &
Acc. Ins. Co., No. CIV A 08-689, 2009 WL 1885935, at *5 (W.D. Pa. June 30, 2009) (“Other
than the 1099 MISC forms showing her 2008 income, and compensation/commission statements
showing 2009 income to date, [p]laintiff has failed to provide any factual statements, let alone
any documentation in support thereof, to show that from May 2006 to May 2008, her net income
after her expenses/debts was such that she was unable to afford the costs of arbitration.”).
5
While the Supreme Court of the United States has not articulated a standard “for how detailed
the showing of prohibitive expenses must be to support the conclusion that the provision, at
minimum, is unenforceable,” courts addressing the issue have focused, in addition to the
claimant's ability to pay the arbitration fees and costs, on the expected cost differential between
arbitration and litigation in court, and whether that cost differential is so substantial as would
deter the litigant from bringing her claims. Spinetti v. Serv. Corp. Int'l, 324 F.3d 212, 217 (3d
Cir. 2003) (citing Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 673 n. 15 (6th Cir. 2003));
Bradford v. Rockwell Semiconductor Systems Inc., 238 F.3d 549 (4th Cir. 2001). Adhering to
this case-by-case inquiry, and noting the Subscription Agreement’s silence on the matter of
arbitration costs, the Court questions whether Plaintiff has produced sufficient documentation of
her anticipated arbitration costs that would satisfy her initial evidentiary burden. Indeed,
notwithstanding Plaintiff’s estimation of the cost of having to travel to the arbitration, retain
local counsel, and produce Mr. Nalisnick as a witness, the record is devoid of evidence as to the
filing fees, the arbitrator fees, the hearing fees, the hearing room rental, and other arbitrationrelated necessities—price points relevant to conducting a cost-differential analysis. See Blair v.
Scott Specialty Gases, 283 F.3d 595, 610 (3d Cir. 2002) (remanding the matter in light of
plaintiff’s affidavit of her limited financial capacity, the evidence that the AAA would preside
over the arbitration, and the AAA rules requiring the parties to bear equally the costs of the
arbitrator’s fees, to conduct limited discovery into the rates charged by the AAA and the
approximate length of similar arbitration proceedings). To that end, the Court is hard pressed to
determine how the cost of arbitration, totaling $8,600.00 by Plaintiff’s calculation, would
preclude her from vindicating her rights, given that she has valued her breach of contract claim at
over $273,000.00. Even if the $8,600.00 in costs were doubled, the cost of arbitrating would still
be less than 6% of the amount Plaintiff could potentially recover.
12
Accordingly, the Court finds that Plaintiff has failed to adduce substantiated evidence of
prohibitive arbitration costs sufficient to invalidate the arbitration clause.
3.
Waiver of Appellate Rights
Finally, Plaintiff contends that the arbitration clause is substantively unconscionable
because it divests the federal court of jurisdiction to review arbitration awards, including review
under 9 U.S.C. § 10 of the FAA.6 (Doc. No. 21 at 5). Specifically, Plaintiff construes the
following language contained in the arbitration provision as expressly precluding judicial review
under the FAA:
Any award rendered therein shall be final and binding on each and all of the
parties thereto and their personal representatives, and judgment may be entered
thereon in any court of competent jurisdiction. BY EXECUTING THIS
AGREEMENT, YOU ARE AGREEING TO HAVE ALL DISPUTES DECIDED
BY NEUTRAL ARBITRATION, YOU ARE GIVING UP ANY RIGHTS YOU
MIGHT POSSESS TO HAVE SUCH DISPUTES LITIGATED IN A COURT
OR JURY TRIAL, AND YOU ARE GIVING UP YOUR JUDICIAL RIGHTS
TO DISCOVERY AND APPEAL. IF YOU REFUSE TO SUBMIT TO
ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE
COMPELLED TO ARBITRATE, BY EXECUTING THIS AGREEMENT, YOU
HEREBY CONFIRM THAT YOUR AGREEMENTS TO THIS ARBITRATION
PROVISION IS VOLUNTARY.
(Doc. No. 1-4 at 4.) Defendant, in response to Plaintiff’s opposition, disputes that the arbitration
provision is unconscionable as it pertains to Plaintiff’s appellate rights. Defendant emphasizes
that the arbitration clause’s waiver of Plaintiff’s “judicial rights to discovery and appeal,” does
not, by its plain language, eliminate judicial review of arbitration awards pursuant to the grounds
enumerated in the FAA. Rather, Defendant interprets the provision as extinguishing “the rights
6
9 U.S.C. § 10 limits judicial review of an arbitration award to certain enumerated grounds.
Specifically, a court is authorized to vacate, modify, or correct an arbitration award upon the
application of a party to the arbitration where: (1) “the award was procured by corruption, fraud,
or undue means; (2) [ ] there was evident partiality or corruption in the arbitrators, or either of
them; (3) the arbitrators were guilty of misconduct . . . or (4) [ ] the arbitrators exceeded their
powers . . . .” 9 U.S.C. § 10.
13
of the parties as they would exist if their case was tried by the judicial system. In other words,
under the agreement[,] Plaintiff cannot appeal a decision from the arbiter for the many reasons a
civil court litigant would be able to appeal a decision of a trial court.” (Doc. No. 22 at 10.)
Even assuming that the arbitration clause at issue here could be read as containing nonappealability language foreclosing any judicial review of the arbitration that could support a
finding of substantive unconscionability,7 Plaintiff has made no showing of procedural
unconscionability sufficient to render the arbitration provision unenforceable. Indeed, for a
contract or contractual provision to be voided as unconscionable under Idaho law, “it must be
both procedurally and substantively unconscionable. Procedural unconscionability relates to the
bargaining process leading to the agreement while substantive unconscionability focuses upon
the terms of the agreement itself.” Lovey v. Regence BlueShield of Idaho, 72 P.3d 877, 882
(Idaho 2003) (emphasis added). Here, Plaintiff has not suggested, let alone demonstrated, that
she was “prevented by market factors, timing, or other pressures from being able to contract with
another party on more favorable terms or to refrain from contracting at all,” as required to prove
procedural unconscionability. Id. Thus, the Court finds that Plaintiff has failed to produce
7
The Court is informed by the United States Court of Appeals for the Ninth Circuit’s holding in
In re Wal-Mart Wage & Hour Employment Practices Litigation, 737 F.3d 1262, 1268 (9th Cir.
2013), that the grounds for judicial review under the FAA are not waivable, or subject to
elimination by contract, as permitting parties to contractually eliminate judicial review of
arbitration awards would “not only run counter to the text of the FAA, but would also frustrate
Congress’s attempt to ensure a minimum level of due process for parties to an arbitration.” Id.
While the Court recognizes that parties cannot contract to preclude judicial review of an
arbitration award as set forth in the FAA, the Court cannot conclude that the contractual
provision here is reasonably subject to the interpretation advanced by Plaintiff and thus, is
substantively unconscionable. Indeed, the Court agrees with Defendant that the plain language
of the arbitration provision provides that Plaintiff agrees to forgo litigating her claim in federal
court. The arbitration clause does not eliminate the FAA’s prescribed standards governing
review of arbitration awards.
14
evidence from which the Court can conclude that the arbitration clause is procedurally and
substantively unconscionable.
Accordingly, the Court finds that Plaintiff has failed to adduce sufficient evidence to
create a genuine issue of material fact as to the validity of the arbitration provision contained in
the Subscription Agreement.
B.
SCOPE OF THE AGREEMENT
As a final matter, the Court must resolve whether the dispute between the parties falls
within the scope of that valid agreement. Flintkote, 769 F.3d at 220 (quotation omitted). As to
the scope of the arbitration clause, Plaintiff proposes that, because Defendant has conceded in its
correspondence with Plaintiff that it cannot meet its obligations under the Subscription
Agreement, no controversy, dispute, or claim remains to be arbitrated. (Doc. No. 21 at 4.)
Defendant objects to Plaintiff’s characterization of her claim, and contends that Plaintiff’s breach
of contract claim “unquestionably” arises under, or relates to, the arbitration clause. (Doc. No.
22 at 9). Here, the arbitration provision governs “any dispute, controversy or other claim arising
under, out of or relating to this [Subscription] Agreement, or any of the transactions
contemplated hereby, or any amendment thereof, or the breach or interpretation hereof or thereof
. . . .” (Doc. No. 1-4 at 4). The Court agrees with Defendant that Plaintiff’s breach of contract
claim undoubtedly arises under, and relates to, the Subscription Agreement. Accordingly, the
Court finds that the specific dispute falls within the substantive scope of the Subscription
Agreement.
IV.
CONCLUSION
In conclusion, Plaintiff has failed to sustain her burden of presenting evidence of a
generally applicable contractual defense under state contract law sufficient to invalidate the
arbitration clause, and has failed to substantiate her claim that the dispute at issue is not
15
contemplated by the Subscription Agreement. Accordingly, the Court will grant Defendant’s
motion to compel arbitration (Doc. No. 16), as it finds that the valid and enforceable
Subscription Agreement governs the present controversy. An appropriate Order follows.
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