Revisiting the Contracts Scholarship of Stewart Macaulay, Post IV: Deborah Post

This is the fourth in a series of posts in our online symposium on the Contracts Scholarship of Stewart Macaulay.  More about the online symposium can be found here.  More information about this week’s guest bloggers can be found here. 

Deborah Post is Associate Dean for Academic Affairs and Faculty Development and Professor of Law at Touro College Jacob D. Fuchsberg Law Center. 

One ContractsProfessor’s Preference for State Court Decisions

In the essay that I contributed to Revisiting the Scholarship of StewartMacaulay: On the Empirical and the Lyrical, I gave vent to the frustration Iexperienced over the years reading decisions written by the 7^thCircuit Judges Richard Posner and Frank Easterbrook. Stewart wrote to merecently and in two sentences, appropriately lyrical, summed up the source ofmy frustration:  “In theory, of course,the court applies state law in a diversity situation.  About the one thing that you can expect isthat Judges Posner and Easterbrook will be off on a frolic of their own.”

I have a healthy respect these days,and a strong preference for, the decisions of state courts. I try to use thebest of these to teach contract law to my students.  I admire the tenacity of state courts thatinsist, for example, that the commentary to the UCC matters in interpreting thatstatute.  See e.g. Simcala Inc. v. American Coal Trade, Inc. 821 So.2d 197 (Ala. 2001) (theword “center” in comment 3 to UCC section 2-306 means something when used todescribe the way a stated estimate limits the “intended elasticity” of anoutput or requirements contract). 

I am particularly gratified by the persistenceof courts that have used the unconscionability doctrine to invalidateboilerplate arbitration clauses.  Implicitin these cases is a duality. Oppression exists on two levels.  The terms of the transactions are oppressiveand unconscionable, and the terms of the arbitration agreement are oppressive.Two cases I discussed previously at the 8^th Annual InternationalContracts Conference at Texas A & M University Law School.

In Brewer v. Missouri Title Loans, 364 S.W.3d 486 (Mo. 2012), theMissouri Supreme Court describes the terms of a loan agreement. Ms. Brewerborrowed $2,215 and paid back $2000, at which point she had reduced theprincipal balance on the loan by $.06. The interest rate on that loan was 300%. Ms. Brewer brought suit under the Missouri consumer protection statute,the Missouri Merchandising Practices Statute.

In Tillman v. Commercial Credit Loans Inc., 655 S.E.2d 362 (N.C.2008), Ms. Tillman and Ms. Richardson, the named plaintiffs in aclass action, purchased single premium credit insurance from a lender.  Within a year the North Carolina legislaturemade this species of loan illegal, but the statute was not retroactive.  Ms. Tillman and Ms. Richardson sued under theNorth Carolina Unfair and Deceptive Trade Practices Act.  The North Carolina Supreme Court found thearbitration clause in the contract, which barred class actions, unconscionablein a 3-2-2 decision.

When the United States SupremeCourt vacated the decision in the Brewercase and remanded it to the Missouri court for reconsideration in light of A.T.& T. Mobility LLC v. Concepcion,131 S. Ct. 1740 (2011), Chief Justice Richard Teitelman, responded thatthe unconscionability doctrine in Missouri law was not an “obstacle to theaccomplishment of the act’s objectives.” The arbitration agreement was unconscionable because there was experttestimony that no consumer would pursue a claim against the Title Company.  The cost was too high.  The Tillmancourt made much the same point.  Of the68,000 loans that Citifinancial made in North Carolina, no borrower everpursued arbitration of a claim. Citifinancial on the other hand, had reserved its right to go to courtand had exercised that privilege over 3,000 times in civil suits andforeclosure actions.  The Tillman court also provided informationabout the actual cost of arbitration, a factual discussion that is missing in alot of these cases.  It turns out thatarbitration is cost prohibitive for most low income consumers. 

Exploitive or predatory contracts saturatethe market for credit, housing, furniture for the least well off in our society.  The Montana Supreme Court recently held a paydayloan and its arbitration provision unconscionable.  Kelkerv. Geneva-Roth Ventures, Inc., 303 P.3d 777 ( Mont. 2013)(780%APR was violation of Montana Consumer Loan Act). If the U.S. SupremeCourt grants certiorari in Kelker, thedecision in that payday loan case will probably meet the fate of its progenitors,Casarotto v. Lombardi, 886 P.2d 931(Mont. 1994)(Casarotto I) and Casarottov. Lombardi, 901 P.2d 596 (Mont. 1995)(Casarotto II). Justice Trieweiler maintainedin Casarotto I that the FederalArbitration Act had not pre-empted state laws addressing arbitration becausethe federal statute had not addressed every aspect or possibility with respectto arbitration agreements. In CasarottoII he argued that the U.S. Supreme Court’s decision to strike down anAlabama statute that made pre-dispute arbitration agreements unenforceable was irrelevantto the decision in Casarotto I.  He was reversed in an opinion written by noneother than Justice Ginsberg. 

Justice Terry N. Trieweiler, the twicerebuked but unrepentant Montana Supreme Court jurist, actually wrote three Casarotto opinions.  He penned a special concurring opinion in Casarotto I to address “those federaljudges who consider forced arbitration as the panacea for their “heavycaseloads”and to single out for criticism Judge Bruce M. Selya, First Circuit Court ofAppeals, who called the prevalence in state courts of “traditional notions offairness” an “anachronism.”  886 P.2d at940. Justice Trieweiler’s  rejoinder wasthat some federal judges are arrogant. I think of it as hubris.

The number of cases challengingarbitration agreements has not diminished over time.  I can think of at least two reasons for this phenomenon.One is ever expanding disparity in wealth and power in the United States inthis post-industrial society.  There arevery few ways individuals can challenge those who have power over them orexpose what they feel to be an injustice that has been done to them.  We are conditioned to believe that there is “equaljustice under the law” and to believe that a citizen may seek redress incourt.  The second reason is the failureof federal courts to recognize that the FAA is indefensible when it is appliedin consumer cases. That was the subject of the last series of blog posts discussingMargaret Radin’s book, Boilerplate.   TheFAA is a statute frozen in time, applied to transactions almost ninety years afterCongress held those hearings on the resistance of state courts to arbitrationand used to enforce arbitration “agreements” in contracts that were not even dreamedof when the FAA was passed — online, clickwrap contracts such as the contractin Kelker.  Contract defenses that police agreementswhere there is no real consent and no real bargaining are renderedimpotent by the FAA.  It does not matterif Certiorari is denied in Kelker, because the9^th Circuit has already used a pre-emption argument to defeat theMontana court’s use of “reasonable expectations” and unconscionabilitydoctrines to invalidate arbitration provisions. Mortensen v. Bresnen Communications, LLC,  2013 U.S. App. Lexis 14211.

This past weekend I had thepleasure of meeting the judge who wrote the plurality opinion in the Tillman case, Justice Patricia Timmons-Goodson (pictured),who retired from the North Carolina Supreme Court in December 2012.   I did not plan this meeting.  It was completely serendipitous.  I was looking for the meeting room where theTask Force on the Future of Legal Education was discussing the end of lawschool as we know it.  I asked her for directions,and then I glanced at her name tag. It took me a moment to realize who shewas.  I was told by Judge James Wynn, whois now on the 4^th Circuit U.S. Court of Appeals, but who once servedwith Judge Timmons-Goodson on the North Carolina Court of Appeals and theSupreme Court, that she was a recent recipient of the Legend in the Law award at Charlotte School of Law.

I knew that JusticeTimmons-Goodson was a black woman. I looked for background information when Idecided to write about the case. I knew, courtesy of North Carolina’s LawyersWeekly, that two lawyers from Raleigh, John Alan Jones and G. Christopher Olson,obtained a judgment in Tillman andtwo companion cases in the amount of $81.25 million.  Of the borrowers represented in the Tillman case, 759 received approximately$31,291 each.  Another 9,670 received $544each.

Taking the admonition of Stewart Macaulayseriously, striving to do something that looks like empirical research, I askedJustice Timmons-Goodson if she would consent to an interview. She hasn’t agreedyet, but I hope she will. I would like to know more about the process that sheused to reach a decision in the Tillmancase; how she persuaded enough of her colleagues to agree that the contract andthe arbitration clause were unconscionable, even if two of them relied on a“totality of the circumstances” analysis that they thought sufficientlydifferent from her opinion to merit a separate concurring opinion. Two justicessigned her opinion relying on substantive unconscionability; two joined infinding the arbitration clause unconscionable but stressed the importance ofdeference to the fact-finding of the trial judge under a “totality of thecircumstances” approach, and two justices dissented.

The Justice writing the dissentingopinion, appears to believe that the unconscionabiity doctrine is somehowillegitimate.   He noted that it hadnever been used in North Carolina to invalidate a contract or a term in acontract. If I do interview Justice Timmons-Goodman, I will ask her about herreaction to the most recent U. S. Supreme Court decisions. She has herselfwritten about the importance of state court judges at every level, particularlyin the trial courts. 

I am not sure that she would callher own acts as a justice on the Supreme Court “resistance.”  She might simply say that logic and adherenceto an ethic of principled decision-making impelled her to write the decision inTillman as she did. I cannot be surethat she believes, as I do, that the drafters of the FAA never intended to completelypre-empt state law, especially those contract doctrines that are designed tocontrol avarice and unscrupulous behavior. I do think, however, she will enjoy discussing the decisions of Justice Trieweiler.  

[Posted, on Deborah Post’s behalf, by JT]