U.S. Eleventh Circuit - The FindLaw 11th Circuit Court of Appeals Opinion Summaries Blog

Unavailable Forum Invalidated Payday Lender's Arbitration Clause

The Federal Arbitration Act comes into play once again, this time in a case from the Eleventh Circuit Court of Appeals. Last month, you'll recall, the Arkansas Supreme Court struck an arbitration agreement that wasn't mutual -- the phone company, Alltel, could enforce the arbitration clause against customers, but not the other way around.

The Eleventh Circuit in Inetianbor v. CashCall, Inc. affirmed the district court's refusal to compel arbitration due to a forum selection clause and a forum that was unavailable.

The Loan

Last week, we discussed Indian payday lenders in the Second Circuit, but they're everywhere, including in Florida. CashCall is a payday lender associated with Western Sky Financial and the Cheyenne River Sioux Tribal Nation. Abraham Inetianbor borrowed $2,600 from CashCall, then paid back $3,252.65 over 12 months. He thought he'd paid the loan back. CashCall disagreed: First they told him to pay, then they sent him to collections when he refused.

The agreement between Inetianbor and CashCall contained an arbitration provision, stating that the Cheyenne River Sioux Nation would resolve the dispute. But the tribe told Inetianbor they didn't authorize arbitration. Oh well, said Inetianbor: He tried to comply with the agreement, the forum wasn't available, and so he went to federal court, instead.

No Arbitration; the Forum Was Essential to the Agreement

At issue was whether the forum selection clause was integral to the arbitration agreement. A federal court can compel arbitration only in accordance with the terms of the arbitration agreement. But a federal court can also substitute an arbitrator when there is none. So what should a federal court do?

Not enforce the agreement, per circuit precedent. When "the choice of forum is an integral part of the agreement to arbitrate, rather than an ancillary logistical concern," that means arbitration can't happen and the arbitration component of the agreement fails.

In this case, the agreement's relationship to the Sioux tribe is so important that it's mentioned several times, and the agreement contains language naming the tribe the exclusive arbitrator. What all the parties bargained for was not only a loan, but also for dispute resolution to be handled by the tribe itself.

Concurrence: It Was Unconscionable, Too

Judge Jane Restani concurred and would have addressed Inetianbor's claim of unconscionability. The forum selection provision was procedurally unconscionable because of the parties' unequal bargaining power and because the tribe had no formal arbitration procedures -- basically, Inetianbor didn't know what he was getting into in terms of the arbitration, only that there would be arbitration.

The agreement was also substantively unconscionable because "there simply was no prospect of a meaningful and fairly conducted arbitration," because there were no formal procedures, and because the tribe itself didn't select the arbitrators. Restani called out CashCall for its attempt to "make up non-existent forums and rules in an effort to create the façade of a legitimate, reasonable dispute resolution system."

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