Lacy Barras v. Branch Banking and Trust Company

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
men
u.s. count oFAPPEALs
Euzvenm cmcurr
JuL 0‘4'6 2012
FOR THE ELEVENTH CIRCUIT
No.11-14318
JOHNI.EY
CLERK
D.C. Docket Nos. 1:O9-md-O2036-JLK ; 1:10-cV-2:()813-JLK
°In Re: CHECKING ACCOUNT OVERDRAFT LITIGATION
MDL NO. 2036
LACY BARRAS,
on behalf of herself and all
others similarly situated,
Plaintiff -_ Appellee,
versus
BRANCH BANKING AND TRUST COMPANY,
. a federally chartered thrift institution,
Defendant - Appellant.
Appeal from the United States District Court
for the Southem District of F1orida
(July 6, 2012)
Before .CARNES, BARKETT and BLACK, Circuit Judges.
BARKETT, Circuit Judge:
Branch Banking & Trust Company ("BB&T"), a commercial bank, appeals
the denial of its motion to compel arbitration of a putative class action brought by
Lacy Barras, a customer of BB&T. Barras alleged in her complaint on behalf of
herself and the class she seeks to represent that BB&T charged her and charges
others overdraft fees for payments from checking accounts even when the account
contains sufficient funds to cover the payments. She also alleges that BB&T
supplies inaccurate and misleading information about account balances, and fails to
notify customers about changes to BB&T’s policies for processing checking
account transactions, thereby increasing overdraft charges assessed against BB&T
customers.
Barras asserts claims under the North Carolina Unfair Trade Practiccs Act for
unfair and deceptive trade practices, breach of contract, breach of the covenant of
good faith and fair dealing, and unconscionability, and seeks to certify a class of
BB&T account holders who were likewise charged allegedly inflated overdraft fees
on their checking accounts.'
BB&T moved to compel arbitration of all of Barras’s claims under 9 U.S.C.
l This case was transferred from the Middle District of North Carolina to the Southem
District of Florida by the J udicial Panel on Multidistn``ct Litigation.
§§ 32 and 43 pursuant to an arbitration provision contained in BB&T’s Bank
Services Agreement ("BSA"). In an order dated May 10, 2010, the district court
denied BB&T’s motion to compel arbitration, ruling that the arbitration agreement
was unconscionable under South Carolina law and could not be enforced. Before
this court decided BB&T’s appeal from that order,l the Supreme Court decided
AT&T Mobilitv. LLC v. Concepcion, 131 S. Ct. 1740 (2011), wherein the Supreme
Court held that § 2 of the FAA prohibited the invalidation of an arbitration
agreement based on a state law prohibiting contractual waivers of class-based
2 9 U.S.C. § 3 provides, in relevant part,
If any suit or proceeding be brought in any of the courts of the United States upon
any issue referable to arbitration under an agreement in writing for such
arbitration, the court in which such suit is pending, upon being satisfied that the
issue involved in such suit or proceeding is referable to arbitration under such an
agreement, shall on application of one of the parties stay the trial of the action
until such arbitration has been had in accordance with the terms of the agreement,
providing the applicant for the stay is not in default in proceeding with such
arbitration. ‘
9 u.s.c. § 3 (2006).
3 9 U.S.C. § 4 provides, in relevant part,
A party aggrieved by the alleged failure, neglect, or refdsal of another to arbitrate
under a written agreement for arbitration may petition any United States district
court which, save for such agreement, would have jurisdiction under Title 28, in a
civil action or in admiralty of the subject matter of a suit arising out of the
controversy between the parties, for an order directing that such arbitration
proceed in the manner provided for in such agreement.
9 U.s.c. § 4 (2006).
arbitration and litigation. We then remanded the case to the district court for
reconsideration in light of Concepcion.4
On remand, BB&T renewed its motion to compel arbitration. The district
court denied the motion, ruling that BB&T had waived its right to submit the
question of arbitrability to the arbitrator because BB&T had already submitted the
issue of arbitrability to the district court, which had ruled against BB&T on that
question, and BB&T had appealed that ruling to this court. The court also ruled
that the mandatory arbitration provision was unconscionable because under another
provision of the BSA, only BB&T could recover any costs and attorneys’ fees
resulting from arbitration regardless of whether BB&T prevailed or not, and BB&T
could recover these fees by withdrawing them from Barras’s account without
notifying Barras.s BB&T appeals from that ruling, arguing (l) that the question of
whether the arbitration provision is enforceable must be resolved by the arbitrator;
(2) that the cost-and-fee-_shifting provision in the agreement that the district court
held unconscionable does not apply to the arbitration provision; (3) that Concepcion
prohibits application of South Carolina’s unconscionability doctrine to the
arbitration provision; (4) that the cost-and-fee-shifting provision, in any event, is
4 g Barras v. Branch Banking & Trust Co., 425 Fed. Appx. 827 (l lth Cir. 201 l).
5 The district court ruled that the arbitration agreement is governed by South Carolina
law. Neither party contests this ruling on appeal.
4
not unconscionable; and (5) that the cost-and-fee-shifting provision is severable
from the arbitration provision. We evaluate each of BB&T’s arguments in turn. -
I.
The BSA provides both parties a right to submit to arbitration "[a]ny claim or
dispute (‘Claim’) . . . arising from or relating in any way to [Barras’s] account``, this
Agreement, or any transaction conducted with the Bank or any of its affiliates."’
The "Claims" referred to "include Claims regarding the applicability of this
provision or the validity of this or any prior agreement." BB&T first argues that,
pursuant to this "delegation clause," the threshold issue of whether the arbitration '
provision is unenforceable because of the alleged unconscionability of the
cost-and-fee-shifting provision should have been submitted to arbitration.
The district court determined that BB&T has waived its right to arbitrate the
threshold issue of unconscionability. The district court based its conclusion on the
fact that over a year prior, BB&T asked the district court to determine the question
in its original motion to compel arbitration, and failed to move the court to allow an
arbitrator to determine the unconscionability of the provision. Because Barras had
incurred the expense of opposing the original motion as well as on appeal to this
Court, the district court refused to allow BB&T to argue for the first time on
remand that the arbitrator should determine the issue.
Notwithstanding that BB&T had already litigated this issue before the district
court for over a year, BB&T argues that Rent-A-Center, West, Inc. v. Jackson, 130
Si. Ct. 2772 (2010), required the district court to submit the issue of enforceability to
the arbitrator. We find this case inapplicable The question of waiver was not
before the Supreme Court in Rent-A-Center, as the defendant seeking arbitration in
Rent-A-Center, unlike BB&T, argued consistently that this issue was assigned by
agreement to the arbitrator. S_ee 130 S. Ct. at 2775. In contrast, BB&T litigated
its case for over a year without moving the district court to submit the threshold
issue of enforceability to the arbitrator; rather, it asked the district court to hold that
the arbitration agreement was enforceable. Accordingly, we carmot say that the
district court erred in holding that BB&T had waived its right to arbitrate the
threshold issue of unconscionability. See Hough v. Regions Fin. Corp., 672 F.3d
1224, 1228 (l lth Cir. 2012) (holding that party waived its right to submit question
of unconscionability to arbitrator by litigating that issue before the district court).
Because we find that the district court did not err in refusing to submit the
question of unconscionability to the arbitrator, we must now turn to the district
court’s substantive rulings on: (l) whether the cost-and-fee-shifting provision
applies to the arbitration provision; and (2) if so, whether the FAA preempts South
Carolina’s doctrine of unconscionability.
II.
BB&T argues that the cost-and-fee-shifting provision does not apply to
arbitration because the arbitration provision dictates that any arbitration under the
BSA will be conducted according to a body of rules promulgated by the American
Arbitration Association ("AAA"). Because the AAA rules include provisions
pertaining to costs, BB&T argues these rules regarding costs must be deemed as the
only ones applicable to arbitration.
However, the BSA also dictates the costs and fees allowable as a result of
"any dispute" with Barras involving her bank account. The cost-and-fee-shifting
provision provides, in relevant part:
COSTS, DAMAGES, AND ATTORNEYS’ FEES. You agree to be
liable to the Bank for any loss, costs, or expenses, including, without
limitation, reasonable attorneys’ fees, the costs of litigation, and the
costs to prepare or respond to subpoenas, depositions, child support
enforcement matters, or other discovery that the Bank incurs as a result
of any dispute involving your account. You authorize the Bank to
deduct any such loss, costs, or expenses from your account without _
prior notice to you.
Under South Carolina law,° "[i]f [a] contract’s language is clear and
unambiguous, the language alone determines the contract’s force and effect."
Schulmever v. State Farm Fire & Cas. Co, 579 S.E.2d 132, 134 (S.C. 2003). A
6 Arbitration agreements “are . . . interpreted according to ordinary state-law rules of
contract construction." Paladino v. Avnet Computer Techs., Inc., 134 F.3d 1054, 1061 (l lth
7
reviewing court "must consider the contract in its entirety and employ a
construction that gives effect to the whole instrument and to each of its various
parts and provisions." Hardee v. Hardee, 558 S.E.2d 264, 267 (S.C. App. 2001)
(intemal quotation marks omitted).7
According to the plain language of the BSA’s cost-and-fee-shifting
provision, that provision unambiguously requires Barras to bear "any loss, costs, or
expenses . . . that the Bank incurs as a result of any dispute involving [Barras’s]
account." The plain language applies the cost-and-fee-shifting provision to
arbitration, as arbitration is a type of "dispute," and the broad language of the
provision contains no limitation that would otherwise prevent its application to
arbitration. § Schulmeyer, 579 S.E.2d at 134. Moreover, "giv[ing] effect to the
whole instrument and to each of its various parts and provisions" requires us to
interpret the arbitration provision and cost-and-fee-shifting provision as capable of
operating in tandem and allowing BB&T to invoke its contractual
cost-and-fee-shifting rights independently of the arbitration provision. g Hardee,
Cir. 1998).
7 "Absent a decision by the highest state court or persuasive indication that it would
decide the issue differently, federal courts follow decisions of intermediate appellate courts in
applying state law." Galindo v. ARI Mut. lns. Co., 203 F.3d 771, 775 (l lth Cir. 2000).
558 S.E.2d at 267.8 We find no error in the district court’s conclusion that the
cost-and-fee-shifting provision is applicable to costs arising from arbitration.
III.
Notwithstanding that the district court found the arbitration clause
unconscionable, BB&T argues that,. under Concepcion, the FAA preempts
application of South Carolina’s unconscionablity doctrine to the arbitration
provision in the BSA. Barras argues that although the FAA requires that "[a]
written provision in any . . . contract . . . to settle by arbitration a controversy
thereafter arising out of such contract . . . shall be valid, irrevocable, and
enforceable," it permits arbitration agreements to be invalidated "upon such
grounds as exist at law or in equity for the revocation of anv contract." 9 U.S.C. §
2 (2006) (emphasis added). The question, then, is whether a determination that the
relevant written provision here is unenforceable because it is unconscionable is a
8 BB&T also claims that the cost-and-fee-shitiing provision in the BSA is unenforceable
because BB&T claims to have voluntarily waived its right to invoke the cost-and-fee-shifcing
provision in regard to arbitration costs. However, BB&T’s conduct in purportedly waiving the
oost-and-fee-shifcing provision is relevant to the issue of contract interpretation only if the
contract itself is ambiguous. § Jordan v. Sec. Group, lnc., 428 S.E.2d 705, 707 (S.C. 1993)
("Resort to construction by a party is only done when the contract is arnbiguous."). Here, we
find no ambiguity in the explicit language of the contract making Barras liable to bear the full
costs of "any dispute." Moreover, to the extent BB&T argues that its purported waiver of its
contractual right under the cost-and-fee-shifting clause is binding by virtue of the BSA’s explicit
waiver provision, this argument is unavailing because the waiver provision expressly requires
that any waiver "shall be in writing and signed by the parties." BB&T does not argue, nor does
the record reflect, that any written waiver exists that conforms to the requirement of this
provision.
"ground[]" that "exist[s] at law or in equity for the revocation of a_ny contract" in
South Carolina. §
In Concepcion, the Supreme Court held that § 2 of the FAA prohibits the
invalidation of an arbitration agreement according to a state law that made
contractual waivers of class-wide arbitration unenforceable §§ 131 S. Ct. at
l753. The Court reasoned that, by requiring class-wide arbitration in instances
where contracting parties had agreed only to individual arbitration, the state law
increased the procedural complexity of any arbitration proceeding that occurred
between the parties. S_ee § at 17 5 l. The Court held that this feature of
class-wide arbitration was inconsistent with the procedural flexibility and
informality of individual arbitration. _S_@ § In addition, the Court noted that
class-wide arbitrations typically produce larger awards than individual arbitrations
and that the FAA permits only limited review of arbitration awards. § § at
1752. The Court held that this feature of class-wide arbitration conflicted with the
degree of risk assumed by the defendant in entering into an arbitration agreement
providing for only individual arbitration9 as well as with Congress’s intentions in
enacting the FAA. §ge § ("We find it hard to believe that defendants would bet
9 Specifically, the Court reasoned that the combination of larger damages awards with a
more limited scope of judicial review increases the risk that defendants will be held liable for a
large award without having an opportunity to correct any error in the arbitrator’s decision. §e§
Conc§gcion, 131 S. Ct. at 1752.
10
the company with no effective means of review, and even harder to believe that
Congress would have intended to allow state courts to force such a decision.").
Taking these features of class-wide arbitration into account, the Court
concluded that the state law compelling class-wide arbitration necessarily
“interfere[d] with fundamental attributes of arbitration” to the degree that it
"create[d] a scheme inconsistent with the FAA." § at 1748. Accordingly, the
Court held that the state law constituted "‘an obstacle to the accomplishment and
execution of the hill purposes and objectives of Congress"’ and was preempted by
the FAA. I_d. at 1753 (quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)).
Although Concepcion held that the state law at issue was preempted, it made
clear that there are instances wherein a state law may invalidate an arbitration
agreement without being preempted by the FAA. Indeed, the phrase "save upon
such grounds as exist at law or in equity for the revocation of any contract" in § 2
must have meaning. 9 U.S.C. § 2 (2006) (emphasis added). Concepcion affirmed
that, under this "savings clause" of § 2, "generally applicable contract defenses"
provided by state law "such as fraud, duress, or unconscionability" are not
preempted by the FAA. Concepcion, 131 S. Ct. at 1746. Thus, although
arbitration agreements may not be singled out for unfavorable treatrnent, se_e
Doctor’s Assocs.. Inc. v. Casarotto, 517 U.S. 681, 687 (1996), "[l]ike other
ll
contracts . . . they may be invalidated by generally applicable contract defenses,
such as fraud, duress, or unconscionability," Rent-A-Center, 130 S. Ct. at 2776
(internal quotation marks omitted). After Concepcion, we have stated that
"generally applicable contract defenses" that challenge "defects in the making of the
arbitration agreement" and that "do not apply only to arbitration or derive their
meaning from the fact that an agreement to arbitrate is at issue" are "not affected by
[Concepcionl." Cmtv. State Bank v. Strong, 651 F.3d 1241, 1267, 1267 n.28 (11th
Cir. 201 1) (internal quotation marks and ellipsis omitted ).
Accordingly, in light of Concepcion, we must determine whether South
Carolina’s doctrine of unconscionability is a "generally applicable contract
defense[]" permitted by § 2 of the FAA, 131 S. Ct. at 1746, or whether it
necessarily "interferes with fundamental attributes of arbitration" to the degree that
it "creates a scheme inconsistent with the FAA," like the ban on collective-action
waivers in Cifoncepcion, § at 1748.
Unlike the state law in Concepcion that was "applied in a fashion that
disfavors arbitration" due to its provisions requiring class-wide as opposed to
individual arbitration proceedings, § at 1747, South Carolina’s doctrine of
unconscionability applies to arbitration and to other agreements according to the
same basic criteria, and these criteria do not disproportionately impact arbitration
12
agreements.'° Compare, €g;, Carolina Care Plan, Inc. v. United HealthCare Servs.,
606 S.E.2d 752, 757-59 (S.C. 2004) (arbitration agreement), with, e.g., Hardee v.
Hardee, 585 S.E.2d 50l, 505 (S.C. 2003) (pre-nuptial agreement), Jones Leasing,
Inc. v. Gene Phillips & Assocs., 318 S.E.2d 31, 33-34 (S.C. Ct. App. 1984)
(automobile lease agreement), a_r§ S.C. Code Ann. § 36-2-302 (codifying
applicability of unconscionability doctrine to contracts for the sale of goods).
Accordingly, unlike Califomia’s collective-action-waiver rule, South Carolina’s
unconscionability doctrine does not "apply only to arbitration or . . . derive [its]
meaning from the fact that an agreement to arbitrate is at issue." Concepcion, 131
S. Ct. at 1746.
South Carolina’s unconscionability doctrine is also unlike the
collective-action-waiver rule in Concepcion because it does not interfere with the
procedural infonnality that Concepcion recognized as the "principal advantage of
arbitration." § at 1751. South Carolina’s unconscionability doctrine determines
‘° South Carolina also inquires whether an arbitration agreement "is geared towards
achieving an unbiased decision by a neutral decision-maker," Simpson v. MSA of Mvrtle Beach,
Qg, 644 S.E.2d 663, 668 (S.C. 2007); however, we do not find that this aspect of South Carolina
law changes our analysis because it is fully consistent with the goals of arbitration embodied by
the FAA, which also seeks to ensure the impartiality of the arbitration proceeding. §
Concepcion, 131 S. Ct. at 1752 (noting that FAA permits vacatur of an arbitral award where the
arbitrators were impartial); 9 U.S.C. § l0(a)(l)-(4); c_f``. Murray v. UFCW lnt’l, Local 400, 289
F.3d 297, 303 (4th Cir. 2002) ("By agreeing to arbitration in lieu of litigation, the parties . . . do
not forego their right to have their dispute fairly resolved by an impartial third party."). There is
no evidence that the South Carolina courts use this criterion to "singl[e] out arbitration
provisions for suspect status." Doctor’s Assocs., 517 U.S. at 687.
13
enforceability of an agreement not by whether it includes procedures that are
inconsistent with arbitration’s informality, but by examining the one-sidedness of
its provisions and the circumstances in which it was forrned. _Sg Carolina Care,
606 S.E.2d at 757 (deterrnining unconscionability with regard to the "absence of
meaningful choice" on the part of one party to the agreement and "oppressive"
contractual terms). Moreover, because an agreement can be held unconscionable
under South Carolina law only if the process of contract formation is determined to
have been flawed, South Carolina’s unconscionability doctrine is one that is
concemed with defects in the process of contract formation." The Supreme Court
has consistently recognized this type of contract defense as valid under 9 U.S.C. §
2, and has repeatedly identified unconscionability as one of the general principles of
contract law that, if applied impartially, may be applied to arbitration agreements
under § 2. § Concepcion, 131 S. Ct. 1753, 1754_55, 1755 n. (Thomas, J.,
concurring) ("[E]very specific contract defense that the Court has acknowledged is
applicable under § 2 relates to contract fonnation."); Doctor’s Assocs., 517 U.S. at
687 (listing "fraud, duress, and unconscionability," as examples of defenses
" Although the analysis of unconscionability scrutinizes both the circumstances of the
making of the agreement and the substantive terms of the agreement itself``, the agreement cannot
be invalidated unless it is detennined to be procedurally flawed. § Simpson, 644 S.E.2d at
669 ("[W]e determine whether a contract provision is unconscionable due to both an absence of
meaningful choice §§ oppressive, one-sided terrns.") (emphasis added).
14
permitted under § 2); s_eg all §g, 651 F.3d at 1267 n.28 ("The ability of such
[procedural]' contractual defects to invalidate arbitration agreements is not affected
by [Concepcion]."). Also unlike California’s collective-action rule, South
Carolina’s unconscionability doctrine does not "greatly increase[] risks to
defendants" by providing for aggregate settlement of numerous claims in a forum
that does not allow for plenary judicial review, ge Concepion, 131 S. Ct. at 1752;
quite simply, South Carolina’s doctrine neither allows nor prohibits the aggregation
of claims at all.
Moreover, unlike California’s collective-action-waiver rule, which the
Supreme Court noted was used by Califomia courts as a vehicle for "judicial
hostility towards arbitration," § at 1747; s_ee_ § (citing law review articles
discussing application of the waiver rule to arbitration agreements by Califomia
courts), South Carolina’s unconscionability doctrine is not "applied in a fashion that
disfavors arbitration" by courts in South Carolina, §§ § Instead, South Carolina
courts consistently emphasize that the FAA "precludes the States from singling out
arbitration clauses for unfavorable treatment." Lackev v. Green Tree Fin. CorD..
498 S.E.2d 898, 904 (S.C. Ct. App. l998); see also Munoz v. Green Tree Fin.
Lp_., 542 S.E.2d 360, 364 (S.C. 2001) ("[S]tate law that places arbitration clauses
on an unequal footing with contracts generally . . . is preempted if the FAA
``15
app1ies."). Indeed, South Carolina courts have frequently upheld arbitration
clauses against unconscionability challenges, see, e.g., Carolina Care, 606 S.E.2d at
757-58; §§ 542 S.C. at 364; L§kg, 498 S.E.2d at 902_905, and although
they have also invalidated arbitration agreements on grounds of unconscionability,u
unlike in Concepcion, there is no indication that they have done so in regard to
arbitration at a greater rate than other types of agreements, _s_@ 131 S. Ct. at 1747
("[I]t is worth noting that Califomia’s courts have been more likely to hold
contracts to arbitrate unconscionable than other contracts.").
For all of the foregoing reasons, we conclude that South Carolina’s
unconscionability doctrine does not "interfere[] with fundamental attributes of
arbitration" as identified by the Supreme Court, g § at 1748, and is among the
"generally applicable contract defenses" that apply to arbitration agreements under
the savings clause of 9 U.S.C. § 2, ge i_d. at 1746. Therefore, South Carolina’s
unconscionability doctrine is not preempted by the FAA in its application to
arbitration agreements.
Because we reach this conclusion, we next address whether the arbitration
agreement embodied inthe BSA is unconscionable under South Carolina law.
IV.
" s:_e simpson 644 S.E.2d ar 668.
16
BB&T argues that the district court erred in determining that the
cost-and-fee-shifting provision in its agreement with Barras is unconscionable.
For an agreement to be unconscionable under South Carolina law, the agreement
must involve both an "absence of meaningful choice on the part of one party due to
one-sided contract provisions," and "terms that are so oppressive that no reasonable
person would make them and no fair and honest person would accept them."
Simpson, 644 S.E.2d at 668. In considering the first element of this analysis_
whether Barras lacked a "meaningful choice" in agreeing to the BSA--we must
evaluate
the relative disparity in the parties’ bargaining power; the parties’
relative sophistication; the nature of the injuries suffered by the
plaintiff; whether the plaintiff is a substantial business concem;
whether there is an ' element of surprise in the inclusion of the
challenged clause; and the conspicuousness of the clause.
Herron, 693 S.E.2d at 398; accord Simpson, 644 S.E. 2d at 669.
Applying this analysis, we find the last two factors-whether there is an
element of surprise and the conspicuousness of the clause-weigh heavily in favor
of concluding Barras lacked a meaningful choice in agreeing to the provision.'3
_ '3 We note that although the BSA meets the definition of an adhesive contract under
South Carolina law, § Munoz, 542 S.E.2d at 365 (defining adhesion contracts as those offered
on a non-negotiable basis), adhesion contracts are not "per se unconscionable" under South
Carolina law. Simpson, 644 S.E.2d at 669. Instead, a finding that a contract is adhesive "is
merely the beginning point of the analysis" of unconscionability. §
17
§§ Simpson, 644 S.E.2d at 669. The arbitration provision itself is conspicuous, as
it appears prominently on the first page of the BSA, is clearly labeled "arbitration
agreement," and portions of the provision are printed in bold, capital letters, and in
larger font than the surrounding text. § 1, 693 S.E.2d at 398 (holding that
arbitration agreement was conspicuous where it appeared on a separate, one-page
document signed by the consumer and was clearly labeled). However, the specific
clause that Barras objects to-the cost-and-fee-shif``ting provision_appears on page
fourteen of the BSA, in an entirely separate provision. According to the plain
language of the cost-and-fee-shifting provision, s_up_@ at 7, BB&T is entitled to
recover all of its expenses incurred in the course of any dispute with Barras,
regardless of whether BB&T is the prevailing party, or whether BB&T has acted
illegally or improperly. The arbitration provision on page one nowhere references
the fee-recovery provision on page fourteen; instead, the arbitration provision
appears to be a comprehensive statement of all rules governing an arbitration
proceeding. Indeed, the provision is particularly inconspicuous and surprising
when it is considered in light of its consequences: entitling BB&T to unilaterally
claim a right to payment for "any loss, costs, or expenses" incurred in "any dispute"
with Barras, regardless of the outcome of that dispute. §§ Simpson, 644 S.E.2d at
670 (finding placement of challenged clause inconspicuous "in light of its
18
consequences" of waiving the plaintiff’s entitlement to certain remedies).“
Although "a person who can read is bound to read an agreement before signing it,"
l, 542 S.E.2d at 365, here, the placement of the fee-recovery provision is such
that, even on a thorough reading of the BSA, a party might not fully understand or
realize its applicability to arbitration. Accordingly, because the
cost-and-fee-shifting provision appears in an entirely separate portion of the BSA,
nothing in the arbitration clause notifies the reader of its existence, and the
arbitration clause itself suggests that it is comprehensive with regard to fees and
expenses, we conclude that the first element of Barras’s unconscionability claim is
satisfied under an application of South Carolina law.
The second element of unconscionability is established if the challenged
contract includes "terms that are so oppressive that no reasonable person would
make them and no fair and honest person would accept them." Simpson, 644
S.E.2d at 668. Whereas the first element of unconscionability considers the
14 We do not give extensive consideration to the two remaining factors identified by the
South Carolina Supreme Court, "the nature of the injuries suffered by the plaintiff" and "whether
the plaintiff is a substantial business concem," because no case has explained the role of either of
these factors in the analysis of unconscionability. C_f``. Aiken v. World Fin. Corp. of S.C., 644
S.E.2d 705, 709 n. 4 (S.C. 2007) (declining to address whether "any arbitration agreement
purporting to apply to . . . outrageous and unforeseen tortious acts is unconscionable" in light of
holding that the acts at issue were outside the scope of the arbitration agreement),
Notwithstanding this ambiguity, the fact that Barras’s injuries in this case were economic as
opposed to physical or emotional does not independently bar her unconscionability claim here,
§ Simpson, 644 S.E.2d at 670 (holding that plaintiff lacked a meaningful choice whether to
agree to arbitrate claims where plaintiffs claimed injuries were solely economic).
19
circumstances surrounding formation of the contract, this second element
relates to the substantive contract terms themselves and whether those
terms are unreasonably favorable to the more powerful party, such as .
. . provisions that seek to negate the reasonable expectations of the
nondraf``ting party, or unreasonably and unexpectedly harsh terms
having to do with price or other central aspects of the transaction.
8 Richard A. Lord, Williston on Contracts § 18:10 (4th ed. 2001).
According to the plain language of the BSA’s cost-and-fee-shifting provision,
this provision may be invoked to force Barras to pay BB&T’s costs of arbitration
regardless of whether BB&T prevails in the dispute.ls _Sg supra at 7. By making
Barras responsible for BB&T’s costs even if she prevails on her claim, the
cost-and-fee-shifting provision contravenes basic expectations that attomey’s fees
and costs generally are not recoverable by a non-prevailing party. § Ruckelshaus
v. Sierra Club, 463 U.S. 680, 685 (1983) (describing the "established principle that a
successful party need not pay its unsuccessful adversary’s fees" as "rooted . . . in
intuitive notions of fairness"). If, as the Supreme Court observed in Ruckelshaus,
‘fordinary conceptions of just returns reject the idea that a party who wrongly
charges someone with violations of the law should be able to force that defendant to
15 The fee-recovery provision in BB&T’s agreement with Barras is therefore
fundamentally different from the contract terms at issue in Hougl_r v. Reg``ons Financial Corp., 672
F.3d 1224 (l1th Cir. 2012), which permitted the defendant bank, Regions Financial, to recover its
costs and expenses arising f``rom "‘any action or arbitration’” only if "‘Regions is the prevailing
party"’ in that action or arbitration. § at 1227 (quoting from the relevant deposit agreement),
20
pay the costs of the wholly unsuccessful suit against it," §, the notion that a
claimant who prevails can be forced to pay the respondent’s expenses incurred in
attempting to avoid liability for its proven wrongdoing also contravenes basic
expectations derived from "intuitive notions of fairness," § 16 The expectation that
a prevailing party need not pay the other party’s costs is "widely manifested in
numerous different contexts," §, including in the determination of eligibility for
attomeys’ fees under South Caro1inalaw, gap Anderson v. Tolbert, 473 S.E.2d 456,
459 (S.C. Ct. App. 1996) (reversing award of attorneys’ fees in part because award
was not justified by the extent of positive results obtained by the attorney); g
generally Collins v. Collins, 122 S.E.2d 1, 5 (S.C. 1961) (predicating eligibility for
attorneys’ fees in part on the basis of the "beneficial result accomplished"). This
basic assumption is also applicable in the context of arbitration, which contemplates
awarding fees and costs, if at all, either equally among the parties, or only to the
party who prevails. See, e.g., 2 Martin Domke et al., Domke on Commercial
16 To the extent that one-way fee shifting provisions are predictable in dispute resolution,
they generally are adopted in situations where an exception to the normal practice of requiring
parties to pay their own costs is justified by, for example, the interest in financing particular types
of disputes, sg Harold J. Krent, Explaining One-Way Fee Shifting, 79 Va. L. Rev. 2039, 2039-45
(1993) (reviewing and discussing justifications for pro-claimant cost-and-fee-shifting statutes such
as the Equal Access to Justice Act), or the interest in deterring frivolous claims, § Fed. R. Civ.
P. ll. However, the circumstances justifying an exception do not apply here, as unconditionally
shifting fees in favor of the respondent does not assist in financing the claimant’s case, nor is the
one-way award of fees predicated upon a finding that the claimant’s case is meritless_indeed,
' according to the tenns of the BSA, costs would be awarded to BB&T even if Barras proves her
position to be meritorious.
21
Arbitration §.35.7 (3d ed. 2010) ("Under the tenns of the submission, the parties
may authorize the arbitrators to award costs of the arbitration equally among the
parties, or to the prevailing party.")." Thus, the BSA’s unconditional
cost-and-fee-shifting provision contradicts the well-established expectation that
losing parties normally are not entitled to recover costs and fees from winning
parties. §e_e Ruckelshaus, 463 U.S. at 684-85.
The unconditional cost-and-fee-shif``ting provision further negates reasonable
expectations of the non-drafting contractual party because a consumer reasonably
relying on the plain language of the arbitration provision would understand that her
liability for the arbitration costs and expenses would be limited according to the
American Arbitration Association rules referenced therein.18 Accordingly, the
unconditional cost-and-fee shifting provision, which provides entirely different rules
regarding apportionment of arbitration costs, negates Barras’s reasonable
expectations derived from the BSA itself. Moreover, the cost-and-fee shifting
provision distorts the fairness and reliability of the arbitration proceeding by forcing
17 Because arbitration is a matter of private contract, parties are of course free to agree that
one party will bear the other party’s costs and attomeys’ fees, and, as in any contract, the parties
are bound to this agreement so long as it is enforceable-which is the question that we are called
upon to decide here. _S_ge_ Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 257
(1975) (discussing the "general rule that, absent statute or enforceable contract, litigants pay their
own attorneys’ fees") (emphasis added).
13 § American Arbitration Ass0ciation, Consumer-Related Disputes Supplementag;
22
Barras to fund any loss, cost, or expense incurred by BB&T in arbitration, regardless
of the merit of her claim against BB&T, and regardless of whether she prevails in
arbitration. These provisions of the unconditional cost-and-fee-shifting provision
are not "geared towards achieving an unbiased decision by a neutral
decision-maker." Simpson, 644 S.E.2d at 668.
Given these features of the cost-and-fee-shifting provision, we conclude that
the tenns of this provision allowing BB&T, and only BB&T, to recover "any loss,
costs, or expenses" arising from "any dispute" with Barras, regardless of the
outcome of the dispute, are "so oppressive that no reasonable person would make
them and no fair and honest person would accept them." § Barras has therefore
satisfied the second element of South Carolina’s unconscionability doctrine. §
M_w
Procedures 8 (Sept. 15, 2005), available at wvvw.adr.org.
19 Barras also argues, as a separate ground of unconscionability, that the
cost-and-fee-shitiing provision is unconscionable insofar as it permits BB&T to withdraw the
amount of any costs incurred as a result of a dispute with Barras from Barras’s checking account
without giving Barras notice before making the withdrawal.~ However, under South Carolina
law, a bank holds title to funds deposited in a general checking account, and may contract with
the owner of the account to automatically deduct hinds to cover debts owed to the bank by the
account-holder without giving prior notice of the withdrawal. See, e.g;, Lee v. Marion Nat’l
§a§k, 166 S.E. 148, 160 (S.C. 1932) ("If the depositor is indebted to the bank, the bank has the
right to offset the indebtedness by the deposit . . . ."); Richardson’s Rests. Inc. v. The Nat’l Bank
of South Carolina, 403 S.E.2d 669, 672 (S.C. Ct. App. 1991) (upholding bank’s contractual right
to withdraw funds from account to cover bank charges). Here, the fee-recovery provision in the
BSA creates a debt owed by Barras for BB&T’s costs incurred in resolving a dispute concerning
Barras’s account, and the withdrawal provision merely vests the bank with a contractual right to
23
V.
Having determined that the cost-and-fee-shifting provision is unconscionable
and unenforceable as written under South Carolina law, we turn next to the question
of what the remedy should be. BB&T argues that the cost-and-fee-shifting
provision should be severed from the BSA pursuant to the terms of the BSA
providing that "[i]f any portion of this arbitration provision is deemed invalid or
unenforceable, it shall not invalidate the remaining portions of this arbitration
provision or Agreement[.]" Barras responds thatBB&T implicitly waived its right
to enforce the severability clause of the BSA by failing to raise this argument in its
original memorandum and reply in support of its motion to compel arbitration.
We need not decide whether BB&T waived its contractual right to enforce the
arbitration provision’s severability clause because under South Carolina law, "[i]f a
court as a matter of law finds any clause of a contract to have been unconscionable
at the time it was made, the court may refuse to enforce the unconscionable clause,
or so limit its application so as to avoid any unconscionable result." Simpson, 644
S.E.2d at 668; A:_go_rd l, 693 S.E.2d at 397 ; see also Restatement (Second) of
Contracts § 208 cmt. g (198 l) ("Where a term rather than the entire contract is
satisfy that debt by deducting an equivalent amount from Barras’s account. Because South
Carolina law expressly allows BB&T to make this deduction, the BSA’s provision giving BB&T
the right to do so is not unconscionable under South Carolina law.
24
unconscionable, the appropriate remedy is ordinarily to deny effect to the
unconscionable term."). Thus, even if Barras were correct that BB&T had waived
its contractual right in the severability provision, a question we do not decide, South
Carolina law still would permit us to "limit the application" of the
cost-and-fee-shifting provision. See Anders v. Hometown Mortg. Servs., Inc., 346
F.3d 1024, 1032 (11th Cir. 2003) (stating that whether a severability provision in an
arbitration agreement "is to be given effect is a question of state law").
One term of a contract may be voided without also invalidating another
provision when the two provisions are "not necessarily dependent upon each other,
nor is it intended by the parties that they shall be." Columbia Architectural Group,
Inc. v. Barker, 266 S.E.2d 428, 429 (S.C. 1980) (internal quotation marks omitted).
The arbitration provision contained in the BSA is capable of operating
independently of the unconscionable cost-and-fee-shifting provision because the
arbitration provision incorporates rules promulgated by the American Arbitration
Association that govem all aspects of an arbitration proceeding, including the
apportionment of costs. These rules operate wholly independently of the
cost-and-fee-shifting provision and would not be impaired by invalidating the
cost-and-fee-shifting provision. Thus, the cost-and-fee-shifting provision does not
"pervade[] the arbitration agreement" such that enforcing the arbitration provision
25
without the cost-and-fee-shifting provision would be impossible or would render the
arbitration provision ineffectual. _Sp§ Simpson, 644 S.E.2d at 67 3. Further, the
fact that the arbitration provision and the unconditional cost-and-fee-shifting
provision are located in entirely separate portions of the contract and that the
arbitration provision makes no reference to the other provision provides further
evidence that the parties intended them to be capable of operating independently of
each other, Accordingly, we conclude that the unenforceable cost-and-fee-shifting
provision is severable from the arbitration provision, and the invalidity of that
provision does not affect the arbitration provision. §§ § at 668 (perrnitting court
to "limit [the] application" of an unconscionable contract provision "so as to avoid
any unconscionable result").z°
REVERSED and REMANDED with instructions to compel arbitration.
211 We reject Barras’s alternative ground for affinnance, that a purported moratorium on
conducting consumer-related disputes by the AAA renders her arbitration clause unenforceable,
because 9 U.S.C. § 5 establishes a procedure for appointing a replacement arbitrator "if for any . .
. reason there shall be a lapse in the naming of an arbitrator or arbitrators or umpire." 9 U.S.C. §
5 (2006); se_e Brown v. ITT Consumer Fin. Corn.. 211 F.3d 1217, 1222 (l lth Cir. 2000).
Moreover, although the arbitration provision does not allow Barras to obtain reimbursement for
an expert witness, this feature of the arbitration provision does not render it unconscionable
because the arbitration provision itself is conspicuous and not procedurally unconscionable, §
s_u@ at 17-1 8. We also reject Barras’s remaining alternative arguments because they were not
adequately presented in the district court. §e_e Douglas Asphalt Co. v. QORE, Inc., 657 F.3d
1146, 1152 (11th Cir. 20l1).
26