Monday, July 16, 2012
Lucy Barras, on behalf of herself and other similarly situated plaintiffs, alleged that Branch Banking and Trust Company (BBT) engaged in unfair and deceptive trade practices, breaches of contract and of the covenant of unfair dealing and unconscionability. BBT moved to compel arbitration, relying on a provision in its Banking Services Agreement (the Agreement). Pre-Concepcion, the District Court found the Agreement unconscionable and denied the motion to compel arbitration. Post Concepcion, the Eleventh Circuit remanded the case back to the District Court. On re-hearing, the District Court again denied the motion to compel, finding that BBT had waived its right to raise the issue of unconscionability before the arbitrator by raising it in federal court and again finding that the Agreement was unconscionable because of its fee-shifting structure.
In Barras v. Branch Banking and Trust Company, the Eleventh Circuit, per Judge Rosemary Barkett (pictured), reversed and remanded with instructions to compel arbitration. The Eleventh Circuit first held that the District Court had correctly found that BBT had in fact waived its right to claim that the issue of unconscionability must be decided by the arbitrator. In so doing the Court distinguished this case from Rent-A-Center West v. Jackson, because Rent-A-Center had consistently argued that the issue of unconscionability was for the arbitrator and so did not address the facts of the current case. The Court likewise found no error in the District Court's conclusion that the Agreement's fee-shifting provision, which requires Barras to bear any costs arising out of any dispute regardless of the outcome of that dispute, is applicable to costs arising out of arbitration.
Post-Concepcion, generally-applicable contracts defenses can be a bar to the enforceability of an arbitration agreement, so long as they do not create a scheme inconsistent with the Federal Arbitration Act (FAA). The Court found that under the applicable law of the State of South Carolina, unconscionability is such a generally-applicable contracts defense that is not preempted by the FAA. Applying South Carolina law, which requires a showing of both procedural and substantive unconscionability, the Court found the Agreement's cost-shifting provision to be inconspicuous, one-sided, surprising and unfair. The Court concluded that the cost-shifting provision is unconscionable.
However, rather than invalidating the Agreement's arbitration provision, the Court found the unenforceable cost-shifting provision to be severable from its arbitration provision. The parties may now proceed to arbitration without BBT enjoying the benefit of knowing that, win or lose, its costs would be paid by Barras.