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Oyler v. Financial Independence and Resource Education

January 30, 2008

NED J. OYLER, PLAINTIFF
v.
FINANCIAL INDEPENDENCE AND RESOURCE EDUCATION, DEFENDANT



The opinion of the court was delivered by: Christopher C. Conner United States District Judge

(Judge Conner)

MEMORANDUM

Presently before the court is the motion to compel arbitration (Doc. 6), filed by defendant Financial Independence and Resource Education ("FIRE"), based on an arbitration clause included in a contract for services between FIRE and plaintiff Ned J. Oyler ("Oyler"). Oyler contends that the arbitration clause is unconscionable and does not encompass the instant litigation, which is premised upon a violation of the Lanham Act's false advertising provision. (See Doc. 10 at 2); see also 15 U.S.C. § 1125(a)(1)(B) (setting forth the elements of a false advertising claim pursuant to the Lanham Act). For the reasons that follow, the motion will be granted.

I. Factual Background*fn1

On January 25, 2006, Oyler and FIRE entered into a contract pursuant to which FIRE agreed to negotiate settlements from Oyler's creditors in exchange for a fee. (See Doc. 1 at 8-11.) The contract provides, in pertinent part, as follows:

14. BINDING ARBITRATION: Client agrees that any claim or dispute by either Client or F.I.R.E. against the other, . . . arising from or relating in any way to this agreement, shall be resolved by binding arbitration. All parties agree that the American Arbitration Association ("AAA") under the Code of Procedure shall conduct the arbitration in effect at the time the claim is filed. If the AAA is unable, or unwilling to act as an arbitrator, another independent arbitration organization shall be substituted. Client understands that the result[] of this arbitration clause is that claims cannot be litigated in court, including some claims that could have been tried before a jury as class actions or as private attorney general civil actions. Any arbitration proceeding brought by Client shall take place in Palm Beach County, Florida. In the event of any arbitration proceeding arising out of, or relating to this Contract For Services, the prevailing party shall be entitled to recover its costs and expenses, including its attorney's fees. (Id. at 11.) Oyler separately initialed each numbered paragraph in the contract with FIRE, including the paragraph setting forth the aforementioned arbitration clause. (Id. at 8-11.)

On May 29, 2007, Oyler filed the instant complaint, claiming that FIRE used false advertising practices that violated the Lanham Act. (See id. at 4-7.) On July 10, 2007, FIRE filed the instant motion to compel arbitration. (Doc. 6.) The motion has been fully briefed and is ripe for disposition. II. Standard of Review

Granting a motion to compel arbitration effects a "summary disposition of the [factual] issue" of the existence of an agreement to arbitrate, and, for this reason, courts should consider the facts in the light most favorable to the non-moving party, giving that party "the benefit of all reasonable doubts and inferences that may arise." Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 & n.9 (3d Cir. 1980), quoted with approval in Sandvik AB v. Advent Int'l Corp., 220 F.3d 99, 106 (3d Cir. 2000). In the context of such a motion, the court may consider the pleadings, documents of uncontested validity, and affidavits or depositions submitted by either party. See id. (citing FED. R. CIV. P. 56(c)).

III. Discussion

The Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16, provides a framework for the implementation of private arbitration agreements and establishes a strong presumption in favor of arbitration. Sandvik, 220 F.3d at 104. When adjudicating a motion to compel arbitration, the court must address two issues: (1) whether the parties have entered into a valid, written agreement to arbitrate, and (2) whether the dispute in question falls within the scope of that agreement. Gay v. CreditInform, __ F.3d __, 2007 WL 4410362, at *12-*13 (Dec. 19, 2007); Nationwide Mut. Ins. Co. v. Cosenza, 258 F.3d 197, 202 (3d Cir. 2001); see also U.S. Small Bus. Admin. v. Chimicles, 447 F.3d 207, 209 (3d Cir. 2006) (requiring a written agreement before a court can compel arbitration); 9 U.S.C. § 2 (addressing the validity, irrevocability, and enforcement of written agreements to arbitrate). The court turns first to the question of whether a valid, written arbitration agreement exists between Oyler and FIRE.

A. Does a Valid Arbitration Agreement Exist?

In the instant action, the contract between the parties contains a written agreement to arbitrate. However, Oyler contends that the arbitration agreement is not valid because it is unconscionable. (See Doc. 16 at 2.) "[G]enerally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements." Bragg v. Linden Research, Inc., 487 F. Supp. 2d 593, 605 (3d Cir. 2007) (quoting Doctor's Assocs. v. Casarotto, 517 U.S. 681, 687 (1996)). When determining the applicability of such a defense, a court "should apply ordinary state-law principles that govern the formation of contracts." Bragg, 487 F. Supp. 2d at 605 (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)); see also Homa v. Am. Express Co., 496 F. Supp. 2d 440, 447 (D.N.J. 2007) (stating that a court "must determine whether any state law contract defenses invalidate [an arbitration] agreement"). The contract in the instant case contains a choice of law clause stating that Florida law governs the agreement between the parties.*fn2 (Doc. 1 at 10.) Accordingly, Oyler's unconscionability defense will be evaluated using principles of Florida law.

Florida law requires a showing of both substantive and procedural unconscionability before an arbitration provision will be deemed unenforceable. Alterra Healthcare Corp. v. Estate of Linton ex rel. Graham, 953 So. 2d 574, 579 (Fla. Dist. Ct. App. 2007); Murphy v. Courtesy Ford, LLC, 944 So. 2d 1131, 1134 (Fla. Dist. Ct. App. 2006). The party seeking to avoid an arbitration provision has the burden to establish its unconscionability. Murphy, 944 So. 2d at 1134. Substantive unconscionability "concerns the actual terms of the contract, and the court must determine whether they are so outrageously unfair as to shock the judicial conscience." Prieto v. Healthcare & Ret. Corp. of Am., 919 So. 2d 531, 533 (Fla. Dist. Ct. App. 2005). Procedural unconscionability "relates to the manner in which a contract is made." Lopez v. Ernie Haire Ford, Inc., ___ So. 2d ___, No. 2D06-1665, 2007 WL 486616, at *1 (Fla. Dist. Ct. App. Feb. 16, 2007). Factors to be considered in a court's evaluation of procedural unconscionability include: (1) the relative bargaining power of the parties, and (2) the parties' abilities to know and understand the disputed contract terms. Id. at *1.

The court turns first to the issue of procedural unconscionability. The first procedural unconscionability factor, namely, the relative bargaining power of the parties, weighs in Oyler's favor but is not dispositive of the issue. The instant contract was one of adhesion -- it was presented on a "take-it-or leave-it basis" and Oyler had no meaningful opportunity to bargain regarding its terms.*fn3 Murphy, 944 So. 2d at 1134. The existence of an adhesion contract is a "strong indicator" of procedural unconscionability because it "suggests an absence of meaningful choice." VoiceStream Wireless Corp. v. U.S. Commc'ns, Inc., 912 So. 2d 34, 40 (Fla. Dist. Ct. App. 2005) (internal citations and quotations omitted). Nevertheless, "the presence of an adhesion contract alone does not require a finding of procedural unconscionability." Id. Provided that the purchaser of a service is free to obtain those services elsewhere, he or she is not required to sign a contract of adhesion, and a finding of procedural unconscionability does not result. Id.; see also Fonte v. AT&T Wireless Servs., Inc., 903 So. 2d 1019, 1025 n.2 (Fla. Dist. Ct. App. 2005) (concluding that an adhesion contract was not unconscionable because plaintiff did ...


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