Cathy Bowles v. OneMain Financial Group, LLC ( 2019 )

Case: 18-60749 Document: 00515002949 Page: 1 Date Filed: 06/19/2019
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 18-60749
Fifth Circuit
FILED
Summary Calendar June 19, 2019
Lyle W. Cayce
CATHY J. BOWLES, Clerk
Plaintiff - Appellant
v.
ONEMAIN FINANCIAL GROUP, L.L.C.,
Defendant - Appellee
Appeal from the United States District Court
for the Southern District of Mississippi
Before JOLLY, COSTA, and HO, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
Cathy Bowles appeals the district court’s order compelling the
arbitration of her federal age discrimination suit against OneMain Financial.
Bowles objected to arbitration on the grounds that a valid arbitration
agreement was never formed between her and OneMain for two reasons: first,
there was no meeting of the minds and, second, the circumstances surrounding
the arbitration agreement’s formation render it procedurally unconscionable.
Although the district court correctly rejected Bowles’s meeting of the minds
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No. 18-60749
argument, it erroneously referred her procedural unconscionability 1 challenge
to the arbitrator. Because procedural unconscionability goes to contract
formation under Mississippi law, the district court should have ruled on this
objection. Accordingly, we REVERSE and VACATE the district court’s order
and REMAND to the district court to decide the merits of Bowles’s procedural
unconscionability claim.
I.
Bowles had worked for OneMain Financial Group and its predecessors
since 1998. Over that period she had agreed several times through
employment contracts and acknowledgments of employee handbooks to refer
all employment disputes to arbitration. In 2016, Bowles was again required to
review and acknowledge OneMain’s Employee Dispute Resolution
Program/Agreement (“Arbitration Agreement”). This Arbitration Agreement
provides that any employment-related dispute will be referred to arbitration
in accordance with the rules and procedures of the American Arbitration
Association. In addition, the Arbitration Agreement contained a delegation
1 We recently set out the difference between procedural and substantive
unconscionability under Mississippi law:
Under substantive unconscionability, we look within the four corners of an
agreement in order to discover any abuses relating to the specific terms which
violate the expectations of, or cause gross disparity between, the contracting
parties. Procedural unconscionability may be proved by showing a lack of
knowledge, lack of voluntariness, inconspicuous print, the use of complex
legalistic language, disparity in sophistication or bargaining power of the
parties and/or a lack of opportunity to study the contract and inquire about the
contract terms.
Begole v. N. Miss. Med. Ctr., Inc., 761 F. App’x 248, 251 (5th Cir. 2019) (internal citations and
quotation marks omitted). Neither party disputes that Bowles’s objection is to procedural
rather than substantive unconscionability. Furthermore, by using the term “procedural
unconscionability” and grounding her objection in disparate bargaining power, her lack of a
meaningful opportunity to bargain, and fraud in procuring her assent, we are convinced that
Bowles’s objection is indeed to procedural unconscionability.
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clause, which delegated to the arbitrator as follows: “any legal dispute . . .
arising out of, relating to, or concerning the validity, enforceability or breach
of this Agreement, shall be resolved by final and binding arbitration.” On
November 15, 2016, Bowles viewed the Arbitration Agreement 2 and
electronically signed a certificate that reads: “I hereby certify that I have
carefully read the Employment Dispute Resolution Program/Agreement within
and that I understand and agree to its terms.”
In October 2017, OneMain terminated Bowles for allegedly
inappropriate interactions with employees under her supervision. Bowles filed
an unsuccessful administrative complaint with the EEOC. She next filed suit
in federal court alleging that her termination violated the Age Discrimination
in Employment Act and Title VII of the Civil Rights Act of 1964. In response,
OneMain moved the district court, under the Federal Arbitration Act, 3 to
compel Bowles to arbitrate her claims pursuant to the 2016 Arbitration
Agreement.
Bowles objected to OneMain’s motion to compel by challenging the
formation of the Arbitration Agreement itself on two grounds. First, she
argued that there was no “meeting of the minds” because she did not
understand that she was agreeing to a binding arbitration agreement and
2 Before signing, the software required Bowles to open the Arbitration Agreement.
3 The Federal Arbitration Act provides that:
A written provision in any maritime transaction or a contract
evidencing a transaction involving commerce to settle by arbitration a
controversy thereafter arising out of such contract or transaction, or the
refusal to perform the whole or any part thereof, or an agreement in
writing to submit to arbitration an existing controversy arising out of
such a contract, transaction, or refusal, 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.
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therefore there was not the mutual assent necessary for contract formation
under Mississippi law. Second, she argued that the Agreement was
procedurally unconscionable because her assent was obtained through
misrepresentation, she never had a meaningful opportunity to bargain, and
there was a gross disparity in the parties’ bargaining power.
The district court granted OneMain’s motion to compel and dismissed
the case with prejudice. It first found that there was the meeting of the minds
necessary for contract formation in Mississippi. Next, instead of considering
Bowles’s procedural unconscionability claim on the merits, the district court
found that “[c]laims of unconscionability do not affect whether an arbitration
agreement has been entered but, instead, such claims permit a court to
invalidate an otherwise existing agreement.” Thus, reasoning that Bowles’s
procedural unconscionability objection went to the enforceability of the
Arbitration Agreement and not its formation, the court held that this argument
must be decided by the arbitrator under the Arbitration Agreement’s
delegation clause. Accordingly, the district court granted OneMain’s motion to
compel arbitration and dismissed the case with prejudice.
Bowles has now appealed arguing that the district court incorrectly
upheld the validity of the Arbitration Agreement on the erroneous ground that
there was a meeting of the minds, and further erred by referring her procedural
unconscionability claim to the arbitrator when, under Mississippi law, such
objections are for the court to decide.
II.
“This court reviews the grant or denial of a motion to compel arbitration
de novo.” Carey v. 24 Hour Fitness, USA, Inc., 669 F.3d 202, 205 (5th Cir. 2012)
(citing Morrison v. Amway Corp., 517 F.3d 248 (5th Cir. 2008)). To determine
whether the parties entered a valid arbitration agreement, “courts generally
. . . should apply ordinary state-law principles that govern the formation of
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contracts.” First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995). In
Mississippi, “[t]he elements of a contract are (1) two or more contracting
parties, (2) consideration, (3) an agreement that is sufficiently definite, (4)
parties with legal capacity to make a contract, (5) mutual assent, and (6) no
legal prohibition precluding contract formation.” GGNSC Batesville, LLC v.
Johnson, 109 So. 3d 562, 565 (Miss. 2013) (quoting Adams Cmty. Care Ctr.,
LLC v. Reed, 37 So. 3d 1155, 1158 (Miss. 2010)). Under Mississippi law, both
of Bowles’s challenges—meeting of the minds and procedural
unconscionability—go to contract formation. See West v. West, 891 So. 2d 203,
213 (Miss. 2004) (“Procedural unconscionability goes to the formation of the
contract.” (citing East Ford, Inc. v. Taylor, 826 So. 2d 709, 714 (Miss. 2002)));
GGNSC Batesville, 109 So. 3d at 565 (mutual assent necessary element of
contract formation).
Furthermore, courts must follow a two-step analysis to determine
whether a claim must be arbitrated. “At step one, ‘the court must determine
whether the parties entered into any arbitration agreement at all.’” Lloyd’s
Syndicate 457 v. FloaTEC, L.L.C., 921 F.3d 508, 514 (5th Cir. 2019) (quoting
IQ Prod. Co. v. WD-40 Co., 871 F.3d 344, 348 (5th Cir. 2017)). At step two, “we
engage in a ‘limited’ inquiry: ‘[W]hether the [parties’] agreement contains a
valid delegation clause.’” Id. (alteration in original) (quoting IQ Prod., 871 F.3d
at 348). If the agreement contains such a delegation clause, “a motion to
compel arbitration should be granted in almost all cases.” Id. (quoting IQ
Prod., 871 F.3d at 348).
Our concern in this appeal relates only to step one. Courts may not refer
the step one inquiry—whether an arbitration agreement was formed in the
first place—to the arbitrator. See Lloyd’s Syndicate 457, 921 F.3d at 514 (“The
first step is a question of contract formation only—did the parties form a valid
agreement to arbitrate some set of claims. This inquiry is for the court.”
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(internal quotation marks and citation omitted)); Will-Drill Res., Inc. v.
Samson Res. Co., 352 F.3d 211, 218 (5th Cir. 2003) (“Where the very existence
of any [arbitration] agreement is disputed, it is for the courts to decide at the
outset whether an agreement was reached.”); see also Begole, 761 F. App’x at
251 (“[W]here a party challenges the validity of the agreement to arbitrate in
particular, the district court must weigh in on whether the specific decision to
agree to arbitrate was unconscionable.”).
III.
Bowles argues that no valid arbitration agreement was ever formed for
two reasons. First, there was no meeting of the minds and therefore no mutual
assent necessary to contract formation. The district court, finding that this
challenge goes to the formation of the Arbitration Agreement, considered and
dismissed the claim based on Mississippi law. Bowles challenges the district
court’s application of Mississippi law to the merits of her meeting of the minds
objection, arguing, as she did below, that she never had the intent to sign an
arbitration agreement and was unaware of the nature of the document she
signed.
Second, Bowles argues that the Arbitration Agreement was not validly
formed because the circumstances surrounding its formation rendered it
procedurally unconscionable. The district court found that Bowles’s procedural
unconscionability challenge went to the enforceability rather than the
formation of the Arbitration Agreement and therefore referred it to the
arbitrator for decision, in accordance with the Arbitration Agreement’s
delegation clause. Bowles challenges that decision on the grounds that
procedural unconscionability goes to contract formation and must be decided
by the district court, not the arbitrator. We address each of Bowles’s
arguments as follows.
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IV.
A.
Bowles first argues that there was no meeting of the minds because she
did not intend to agree to arbitrate employment-related disputes. The district
court correctly found that this objection is a challenge to contract formation
under Mississippi law and examined the merits of Bowles’s meeting of the
minds argument. We can find no error in the district court’s ruling on the
merits of Bowles’s meeting of the minds objection. The court correctly found
that the electronic communications transmitting the Arbitration Agreement
clearly identified an arbitration agreement as the subject of the
communications. Furthermore, Bowles was given the opportunity to read the
Agreement and certified that she had “carefully read the Employment Dispute
Resolution Program/Agreement within and that I understand and agree to its
terms.” Bowles cannot deny that she thus agreed to the Arbitration
Agreement. Instead, she argues that she thought she was “simply
acknowledging receipt of another policy or directive” and did not understand
she was agreeing to arbitrate her employment disputes. The district court
correctly held that such a unilateral lack of diligence does not preclude contract
formation under Mississippi law. See Hicks v. Bridges, 580 So. 2d 743, 746
(Miss. 1991) (“A person cannot avoid a signed, written contract on the grounds
that he did not read it . . . . ‘To permit a party when sued on a written contract
to admit that he signed it but to deny that it expresses the agreement or to
allow him to admit that he signed it but did not read it or know its stipulations
would absolutely destroy the value of all contracts.’” (quoting Busching v.
Griffin, 542 So. 2d 860, 865 (Miss. 1989))). The district court thus made no
error in concluding that there was the meeting of the minds between Bowles
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and OneMain necessary for contract formation, and this portion of the district
court’s ruling is affirmed. 4
B.
We turn now to the district court’s holding that Bowles’s procedural
unconscionability objection must be decided by the arbitrator. Although the
district court considered Bowles’s meeting of the minds objection on the merits,
it held that her procedural unconscionability argument was for the arbitrator
to resolve. Accordingly, the dispositive question here is whether, under
Mississippi law, Bowles’s procedural unconscionability objection is a challenge
to contract enforcement, as the district court reasoned, or contract formation.
We think the district court plainly erred. In Mississippi, it is pellucid
that “[p]rocedural unconscionability goes to the formation of the contract.”
West, 891 So. 2d at 213 (citing East Ford, Inc., 826 So. 2d at 714). Because
Bowles’s procedural unconscionability objection challenges the formation of the
Arbitration Agreement itself, the district court had the duty to resolve this
challenge. 5 See Lloyd’s Syndicate 457, 921 F.3d at 514; Banc One Acceptance
Corp. v. Hill, 367 F.3d 426, 431 (5th Cir. 2004) (district court applying
Mississippi law had the “authority and the responsibility to adjudicate whether
the arbitration agreement . . . was procedurally unconscionable”). The district
court thus erred in dismissing the case without adjudicating Bowles’s
procedural unconscionability challenge to the Arbitration Agreement’s
Furthermore, we hold that the district court had sufficient evidence to dismiss this
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argument without an evidentiary hearing.
5Although “generally, allegations of unconscionability[] related to the formation of the
contract as a whole, are for the arbitrator . . . where a party challenges the validity of the
agreement to arbitrate in particular, the district court must weigh in on whether the specific
decision to agree to arbitrate was unconscionable.” Begole, 761 F. App’x at 251 (citing Prima
Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403–04 (1967)). Here, Bowles’s
procedural unconscionability “line of attack, aim[s] at the arbitration [agreement] alone.”
Banc One Acceptance Corp., 367 F.3d at 431.
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formation. We therefore remand for the district court to decide the merits of
Bowles’s procedural unconscionability objection. We have nothing to say about
the merits of that question.
V.
Accordingly, the district court’s order compelling arbitration and
dismissing the complaint is REVERSED and VACATED and the case is
REMANDED for the district court to decide the merits of Bowles’s procedural
unconscionability objection and in that light to reconsider and rule on
OneMain’s motion to compel arbitration.
REVERSED, VACATED, and REMANDED.
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