The Missouri Supreme Court Meets Concepcion: Brewer v. Missouri Title Loans

Missouri Contract Cases

In two opinions filed on March 6, 2012, the Missouri Supreme Court applied recent U.S. Supreme Court arbitration precedent to cases involving binding arbitration agreements. In tomorrow’s post, I’ll discuss the court’s application of Stolt-Nielsen, S.A. v. AnimalFeeds International Corp. and AT&T Mobility LLC v. Concepcion to reverse a lower court’s judgment that refused to enforce an arbitration agreement due to unconscionability. But in today’s post, I’ll discuss Brewer v. Missouri Title Loans, in which the Missouri Supreme Court held that a binding arbitration agreement was unenforceable due to unconscionability.

Background of Brewer v. Missouri Title Loans

Petitioner Beverly Brewer borrowed $2,215 from Missouri Title Loans via a loan that had an annual percentage rate of 300% and that was secured by her automobile. The loan agreement contained a binding arbitration provision that required her to arbitrate claims and prohibited class arbitration, while the lender specifically retained its right to utilize the courts in order to repossess the vehicle. The agreement also provided that the parties would each be responsible for their own expenses, including fees for attorneys, experts, and witnesses.

The Missouri Supreme Court noted that “[t]he cumulative real-world effect of the arbitration provisions in this case is that a consumer’s minimum and maximum recovery from the title company are identical — $0.00 — for no consumer ever has filed an individual claim for arbitration against the title company.”

Brewer made two payments on the loan of more than $1,000, but the principal was only reduced by $0.06. She filed a class action against Missouri Title Loans alleging violations of the Missouri Merchandising Practices Act, as well as other statutes. The lender filed a motion to dismiss or stay the claims and to compel individual arbitration.

The trial court found that the class arbitration waiver was unconscionable and unenforceable. In addition,

The trial court also considered a number of the other aspects of the clause, finding that it would be difficult for a consumer to understand, that there was a disparity of bargaining power, that the provision was one-sided because only customers gave up their rights while the title company could pursue self-help or relief in the courts, and that the title company had admitted that the provision that each party be responsible for its own costs and attorney’s fees in arbitration placed a high burden on consumers.

The court found that these aspects of the arbitration clause rendered it unconscionable when considered as an individual action and ordered the claim to proceed to arbitration to determine whether class arbitration was appropriate.

Missouri Title Loans appealed on the grounds that the Federal Arbitration Act pre-empted the trial court’s decision, that the class arbitration waiver wasn’t unconscionable, and that the clause was a permissible exculpatory clause under Missouri law. The Missouri Supreme Court held that the class arbitration waiver was unconscionable and struck the arbitration agreement in its entirety (“Brewer I“).

On appeal, the U.S. Supreme Court vacated Brewer I and remanded the case to the Missouri Supreme Court in light of Concepcion.


The U.S. Supreme Court’s decision in Concepcion is less than straightforward in that, in addition to the Court’s opinion, which was authored by Justice Scalia and joined by Chief Justice Roberts and Justices Kennedy, Alito, and Thomas, Justice Thomas filed a separate concurring opinion, and Justices Ginsburg, Sotomayor, and Kagan joined in Justice Breyer’s dissenting opinion. Thus, not only was the case decided by a 5-4 vote, one of the justices in the majority filed his own opinion. The Missouri Supreme Court introduces its discussion of Concepcion:

Concepcion is best understood by considering Justice Scalia’s majority opinion as further informed by Justice Thomas’ concurrence. Both opinions, for slightly different reasons, stand for the proposition that the act generally does not permit a state to bar class action waivers by finding an arbitration agreement unconscionable on the basis of a class action waiver alone. The Scalia opinion does not state, however, that the federal act otherwise preempts traditional state law defenses to contract formation such as unconscionability, duress or fraud, and Justice Thomas is clear that he would apply those defenses. But Concepcion teaches these defenses cannot be used in a way that would hold otherwise valid arbitration agreements unenforceable for the sole reason that they bar class relief. That was what had happened in Concepcion.

For a short summary of Concepcion, see my April 2011 post, AT&T Mobility v. Concepcion: Is Class Arbitration Dead?

Missouri Title Loans argued that Concepcion stands for the proposition that all state unconscionability defenses are pre-empted by the FAA in all cases, but the Missouri Supreme Court held that Concepcion is more narrow.

According to the Missouri Supreme Court, the Federal Arbitration Act generally pre-empts state law that would invalidate arbitration agreements; however, the FAA’s “saving clause” allows an arbitration agreement to be declared unenforceable “upon such grounds as exist at law or equity for the revocation of any contract” (9 U.S.C. § 2). Thus, the saving clause “permits agreements to arbitrate to be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability,’ but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue” (Concepcion, 131 S.Ct. at 1746).

Thus, the Missouri Supreme Court reasoned,

Holding that the § 2 saving clause preempts all state law unconscionability defenses would be inconsistent with both the saving clause and the majority’s express recognition of unconscionability as one of the generally applicable contract defenses that retains vitality under the § 2 saving clause.

Finally, the majority opinion discusses in detail the many ways in which the arbitration provisions at issue in Concepcion are fair and reasonable and do not lead to an unconscionable result. Id. at 1753. This discussion would be superfluous if the majority intended to establish a rule completely preempting all state law unconscionability defenses. Therefore, the Concepcion majority recognizes that a case-by-case approach provides the appropriate analytical framework for assessing the applicability of state law contract defenses pursuant to the § 2 saving clause.

For these reasons, title company is incorrect in its assertion that the majority opinion compels the conclusion that the federal act requires state courts to replace the essentially categorical Discover Bank rule requiring class arbitration with another categorical rule requiring individual arbitration in every case, irrespective of the application of generally applicable contract defenses specifically retained by the § 2 saving clause. Instead, analysis of whether a particular state contract defense is preempted because it “stand[s] as an obstacle to the accomplishment of the act’s objectives” depends on the factual posture of individual cases.

The judgment of unconscionability is affirmed

Concluding that “Concepcion permits state courts to apply state law defenses to the formation of the particular contract at issue on a case-by-case basis,” and focusing on Justice Thomas’s emphasis on defenses to the formation of a contract, the Missouri Supreme Court analyzed the issues to determine whether Brewer established a defense to the formation of the loan agreement’s arbitration clause.

Citing the aspects of the arbitration agreement mentioned above and distinguishing Missouri Title Loans’ arbitration agreement from the rather consumer-friendly one in Concepcion, the court held that the arbitration agreement was unconscionable and was therefore unenforceable.

Whether the arbitration agreement was in fact unconscionable under Missouri law, and whether Missouri still requires both procedural and substantive unconscionability for a finding of unconscsionability — as has traditionally been the case — was vigorously contested in Judge Price’s dissent in this case, as well as his dissent in Robinson.


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