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WV Supreme Court hears two arbitration agreement cases

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Arbitration agreements were once again in the West Virginia Supreme Court spotlight as two consolidated Raleigh County cases sought to decide whether agreements were unconscionable if one of the avenues for arbitration outlined in the original agreement no longer existed.  

Robert J. Front and his wife Bilye S. Front filed their lawsuit in May 2011 in Raleigh County Circuit Court against Credit Acceptance Corporation.

In their civil actions, the Fronts asserted violation of the West Virginia Consumer Credit and Protection Act, negligence, intentional infliction of emotional distress and invasion of privacy. The Fronts said the corporation engaged in unfair, oppressive and unconscionable methods to collect debt.

Ocie Shrewsbury also filed a civil action against Credit Acceptance in Raleigh County Circuit Court May 2011, with similar allegations.   

The Fronts executed two separate retail installment contract and security agreements from two different places for the purchase of two cars.

The two auto sales businesses assigned all rights, title and interest to Credit Acceptance Corporation, which financed the purchase. 

Both contracts included arbitration agreements.

This also was the case for Shrewsbury. Shrewsbury also had executed a retail installment contract and security agreement with an auto sales business to buy a vehicle. This business also assigned rights and interest in the contract to Credit Acceptance.

Credit Acceptance Corporation later filed a motion to compel arbitration in both of these cases. Both cases argued the arbitration agreement is unconscionable and in violation of the West Virginia Consumer Credit and Protection Act because the terms in the contract changed and were thus unenforceable.

The corporation argued the arbitration agreement contained an opt-out provision.

Raleigh County Circuit Judge H.L. Kirkpatrick declared the arbitration agreement void because one or two arbitration forums contained in the agreement no longer existed. Therefore, the order continued, that constituted a material change in the agreement.

Meanwhile, Raleigh County Circuit Judge John A. Hutchison also declared the Shrewsbury's contract void because of a material change in the contract.

Citing the West Virginia's Genesis Healthcare opinion, the court in both cases said a sliding scale exists where the more substantively oppressive the contract term, the less evidence of procedural unconscionability is needed.

 The court said the original contract is not procedurally unconscionable because it provided a measure to opt out; however since one of the forums was eliminated, it changed the terms of the contract.

The corporation appealed to the state Supreme Court, seeking to dismiss the Front's lawsuits and compel arbitration. Parties presented their oral arguments April 10.

On appeal, the corporation moved to consolidate the Fronts and the Shrewsbury case.

In its brief to the court, the corporation, once again citing the Brown opinion, said the Federal Arbitration act preempts statutory provisions such as the West Virginia Consumer Credit and Protection Act.

"While a sliding scale weighing the purported substantive and procedural defects may be employed, a circuit court must find both procedural and substantive unconsciaonbaility, no matter how slight to render a contractual provision unenforceable," the corporation additionally argued.

Addressing the two forums of arbitration, the corporation said the lower court's order was unclear on the avenue. The corporation argued if it meant the American Arbitration Association, "then it is mistaken" because the corporation says the forum still accepts these types of claims.

Addressing the other forum, the National Arbitration Forum, the corporation said this would be correct. However, it continued that even if both forums were unavailable the Federal Arbitration Act provides a way to appoint an arbitrator.

In their brief to the court, the Fronts argued the original arbitration clause gave them the right to arbitrate in two forums— one that no longer exists and the other, they argue, considers copyrighted rules "so unfair to consumers that it will not handle consumer debt collection unless the consumer at the time of the dispute agrees to arbitrate."

Shrewsbury argued the agreement did not disclose that the "NAF would not arbitrate the claims or that the AAA allows creditors to avoid arbitrating their debt collection claims against consumers," and asked if this was procedurally unconscionable.

"When the contract was formed, it specified a forum that did not arbitrate consumer claims and another that had rules too one-sided to enforce," Shrewsbury's brief states. "And Credit Assurance's proposed cure is for the court to improperly rewrite the contract without Shrewsbury's assent."

The Fronts additionally argue the corporation wrongly suggested the U.S. Supreme Court held arbitration must proceed even if the NAF is unavailable. They say the court dealt with whether a federal statute precluded arbitration under the Federal Arbitration Act— it didn't address the NAF's unavailability.

"Lastly the Fronts have not agreed—either expressly or impliedly—to arbitrate despite the NAF's unavailability," the brief continued.

The Fronts and Shrewsbury additionally said the American Arbitration Association rendered the arbitration clause too "one-sided to be valid."

"Under the moratorium, Credit Assurance may freely take into court its debt collection claims against its customers," the Fronts brief states. "The AAA no longer handles debt collection claims brought by creditors unless the consumer—at the time of the dispute—agrees to arbitrate. So, we have one forum and set or rules that do not exist at all and another forum whose rules allow Credit Assurance to bypass it completely."