Court enforces Online Agreements, Including Terms Accessibale Via
Hubbert v. Dell
August 12, 2005
Appelate Court of Illinois,
JUSTICE HOPKINS delivered the
opinion of the court:
The defendant, Dell Corp.,
appeals the trial court's order denying its motion to compel arbitration and
the court's related orders denying its motion to strike certain exhibits and
an affidavit submitted by the plaintiffs, Dewayne Hubbert, Elden Craft,
Chris Grout, and Rhonda Byington, in opposition to the defendant's motion to
compel arbitration. Because a ruling on a motion to compel arbitration is
in the nature of injunctive relief, the trial court's orders are reviewable
under Supreme Court Rule 307(a)(1) (188 Ill. 2d R. 307(a)(1)). LAS, Inc.
v. Mini-Tankers, USA, Inc., 342 Ill. App. 3d 997, 1000 (2003). On
appeal, the defendant argues that the trial court erred in finding that its
arbitration clause was not a part of the contract between the defendant and
the plaintiffs and that the court erred in finding that if the arbitration
clause was a part of the contract between the parties, then the arbitration
clause was unenforceable because it was procedurally and substantively
In 2000 and 2001, the
plaintiffs purchased computers online through the defendant's Web site.
Before purchasing their computers, each of the plaintiffs configured the
model and type of computer he or she wished to purchase from the defendant's
Web pages. To make their purchases, each of the plaintiffs completed online
forms on five of the defendant's Web pages. On each of the five Web pages,
the defendant's "Terms and Conditions of Sale" were accessible by clicking
on a blue hyperlink. The terms and conditions were also printed on the back
of the plaintiffs' invoices, which were sent, along with separate documents
containing the "Terms and Conditions of Sale," in the shipping boxes with
the plaintiffs' computers, and the terms and conditions could be obtained by
calling the defendant's toll-free number and requesting a copy. On the last
three forms the plaintiffs completed online, the following statement
appeared: "All sales are subject to Dell's Term[s] and Conditions of Sale."
The defendant included in the boxes in which the computers were shipped its
"total satisfaction" return policy, which provided that purchasers would
receive a full refund or credit if the computers were returned within 30
days. None of the plaintiffs returned his or her computers within 30 days.
On June 3, 2002, the plaintiffs
filed their complaint, both as individuals and on behalf of others similarly
situated, i.e., a putative class action lawsuit, against the
defendant. In their complaint, the plaintiffs–three Illinois residents and
one Missouri resident–alleged that they had purchased computers online from
the defendant, whose principal place of business was in Texas; that the
computers contained Pentium 4 microprocessors, which the defendant had
asserted were the fastest, most powerful Intel Pentium processor available;
that the Pentium 4 microprocessor was slower and less powerful and provided
less performance than either a Pentium III or an AMD Athlon, but at a
greater cost; and that the defendant's marketing of its Pentium 4 computers
was false, misleading, and deceptive. The plaintiffs' complaint includes
three counts alleging that the defendant violated the Texas Deceptive Trade
Practices–Consumer Protection Act (Tex. Bus. & Com. Code Ann. §17.41 et
seq. (Vernon 1994)) and one count alleging that the defendant violated
the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS
505/1 et seq. (West 2002)). The plaintiffs allege that their damages
are less than $75,000 per person.
After the plaintiffs filed
their complaint, the defendant made a demand for arbitration, but the
plaintiffs did not respond. On September 13, 2002, the defendant filed a
motion to dismiss the plaintiffs' complaint pursuant to section 2-619 of the
Code of Civil Procedure (735 ILCS 5/2-619 (West 2002)) or, alternatively, to
stay the proceedings and to compel arbitration. In the defendant's motion,
it alleged that as a part of the online contract, the plaintiffs agreed to a
binding arbitration clause, which was contained in the defendant's "Terms
and Conditions of Sale."
The beginning of the "Terms and
Conditions of Sale" stated:
"PLEASE READ THIS DOCUMENT
CAREFULLY! IT CONTAINS VERY IMPORTANT INFORMATION ABOUT YOUR RIGHTS AND
OBLIGATIONS, AS WELL AS LIMITATIONS AND EXCLUSIONS THAT MAY APPLY TO YOU.
THIS DOCUMENT CONTAINS A DISPUTE RESOLUTION CLAUSE.
This Agreement contains the
terms and conditions that apply to purchases by Home, Home Office, and Small
Business customers from the Dell entity named on the invoice ('Dell')
that will be provided to you ('Customer') on orders for computer
systems and/or related products sold in the United States. You agree to be
bound by and accept this agreement as applicable to your purchase of
product(s) or service(s) from Dell. By accepting delivery of the computer
systems and/or other products described on that invoice, Customer agrees to
be bound by and accepts these terms and conditions." (Emphasis in
The "Terms and Conditions of
Sale" also contained a choice-of-law provision, which stated that Texas law
governed the sale of the computers and the agreement.
The arbitration clause
contained in the defendant's "Terms and Conditions of Sale" stated:
"12. Binding Arbitration.
ANY CLAIM, DISPUTE, OR CONTROVERSY (WHETHER IN CONTRACT, TORT, OR OTHERWISE,
WHETHER PREEXISTING, PRESENT[,] OR FUTURE, AND INCLUDING STATUTORY, COMMON
LAW, INTENTIONAL TORT[,] AND EQUITABLE CLAIMS) AGAINST DELL, its agents,
employees, successors, assigns[,] or affiliates (collectively for purposes
of this paragraph, 'Dell'[),] arising from or relating to this
Agreement, its interpretation, or the breach, termination[,] or validity
thereof, the relationships which result from this Agreement (including, to
the full extent permitted by applicable law, relationships with third
parties who are not signatories to this Agreement), Dell's advertising, or
any related purchase SHALL BE RESOLVED EXCLUSIVELY AND FINALLY BY BINDING
ARBITRATION ADMINISTERED BY THE NATIONAL ARBITRATION FORUM (NAF) under its
Code of Procedure then in effect (available via the Internet at
http://www.arb-forum.com , or via telephone
at 1-800-474-2371). The arbitration will be conducted before a single
arbitrator and will be limited solely to the dispute or controversy between
Customer and Dell. The arbitration shall be held in a mutually agreed upon
location in person, by telephone, or online. Any award of the arbitrator(s)
shall be final and binding on each of the parties and may be entered as a
judgment in any court of competent jurisdiction. Information may be
obtained and claims may be filed at any office of the NAF or at P.O. Box
50191, Minneapolis, MN 55405." (Emphasis in original.)
At a hearing, the plaintiffs
agreed that a contract had been formed by their online purchase of the
defendant's computers, but they denied that the binding arbitration clause
in the "Terms and Conditions of Sale" was a part of the contract. The
defendant moved to strike certain exhibits and an affidavit filed by the
plaintiffs in opposition to the defendant's motion to compel arbitration.
The court denied the defendant's motion to dismiss or, alternatively, to
compel arbitration and the defendant's motions to strike. The defendant
filed this interlocutory appeal.
Standard of Review
The standard of review for a
decision on a motion to compel arbitration is whether there was a showing
sufficient to sustain the trial court's order. Travis v. American
Manufacturers Mutual Insurance Co., 335 Ill. App. 3d 1171, 1174 (2002).
If a trial court renders its decision without an evidentiary hearing and
without findings on any factual issue, de novo review is
appropriate. Travis, 335 Ill. App. 3d at 1174. Additionally, where
a court rules on a motion to strike an affidavit or exhibits, evidentiary
matters usually within a court's discretion, in conjunction with a ruling
that is subject to de novo review on appeal, a court's ruling on the
motion to strike is also subject to de novo review. Jackson v.
Graham, 323 Ill. App. 3d 766, 773 (2001). In this case, the trial court
did not hold an evidentiary hearing but decided the matter on the basis of
the pleadings before it and the parties' arguments, so we review this case
Applicable Case Law
Before proceeding, we consider
what law applies. The parties agree that Texas law applies, but for
different reasons: The plaintiffs argue that Texas law is applicable under a
conflicts-of-law analysis, while the defendant argues that the choice-of-law
provision in the "Terms and Conditions of Sale" controls.
The court addressed a similar
issue in Falbe v. Dell, Inc., No. 04-C-1425 (N.D. Ill. 2004)
(memorandum opinion). In Falbe, the defendant, whose principal place
of business was in Texas, argued that the choice-of-law provision of the
"Terms and Conditions of Sale" controlled, while the plaintiff, an Illinois
resident who had purchased a computer from the defendant via telephone,
argued that Illinois law controlled. Falbe, slip op. at 6. In
Falbe, the court stated that under Illinois's choice-of-law rules, an
express choice-of-law provision will be given effect if the provision does
not contravene Illinois public policy and the state chosen bears a
reasonable relationship to the parties or the transaction. Falbe,
slip op. at 7. The Falbe court discerned no public policy obstacle
to enforcing the choice-of-law provision and determined that the choice of
state law bore a reasonable relationship to the parties and the transaction,
i.e., the defendant's principal place of business was in Texas.
Falbe, slip op. at 7. The Falbe court held that Texas law
applied to determine whether a valid arbitration agreement existed.
Falbe, slip op. at 7.
In the instant case, there is
no discernable public policy obstacle to enforcing the choice-of-law
provision, the parties agree that Texas law applies, Texas bears a
reasonable relationship to the parties and the transaction because the
defendant's principal place of business is in Texas, and the issues in this
case involve basic contract law so there will be no substantial difference
in the outcome of this case if Texas law is applied. Therefore, we apply
Texas law to the substantive issues. See Potomac Leasing Co. v. Chuck's
Pub, Inc., 156 Ill. App. 3d 755, 758-59 (1987) (a choice-of-law
provision will be upheld if public policy is not violated and there is some
relationship between the chosen forum and the parties or the transaction).
Validity of Arbitration
The defendant argues that the
trial court erred in finding that its arbitration clause, contained in the
"Terms and Conditions of Sale," was not a part of the parties' contract.
The defendant argues that by making the "Terms and Conditions of Sale"
available on its Web pages pursuant to a blue hyperlink, by stating on
several of the Web pages completed by the plaintiffs that all sales are
subject to the defendant's "Terms and Conditions of Sale," and by sending a
copy of the "Terms and Conditions of Sale" in the boxes in which the
computers were shipped, it sufficiently created a binding arbitration
agreement with the plaintiffs. The plaintiffs argue that simply making the
"Terms and Conditions of Sale" available online was insufficient and that a
clear manifestation of assent to the "Terms and Conditions of Sale" was
needed to create a binding arbitration agreement. The plaintiffs argue that
the defendant should have displayed on its order-confirmation Web page an "I
accept" box, on which the plaintiffs must click to manifest assent to the
agreement before the purchase proceeded. The plaintiffs also argue that the
"Terms and Conditions of Sale" contained in the shipping boxes were
"additional terms" and were governed by section 2.207 of the Texas Uniform
Commercial Code (Tex. Bus. & Com. Code Ann. §2.207 (Vernon 1994)), which
requires clear assent to make the additional terms binding on the
plaintiffs. The plaintiffs do not allege that they did not see or that they
did not read the "Terms and Conditions of Sale."
Federal and state law strongly
favors arbitration, and a presumption exists in favor of arbitration
agreements. 9 U.S.C. §2 (2000); AutoNation USA Corp. v. Leroy, 105
S.W.3d 190, 195 (Tex. App. 2003). Courts are to resolve any doubts
concerning an arbitration agreement in favor of arbitration. AutoNation
USA Corp., 105 S.W.3d at 195. A party cannot be required to arbitrate
unless the party has agreed to do so, and the parties' arbitration agreement
must be clear. Mohamed v. Auto Nation USA Corp., 89 S.W.3d 830, 835
(Tex. App. 2002). If a valid arbitration agreement exists and the claims
raised are within the scope of the agreement, a trial court has no
discretion but to compel arbitration. AutoNation USA Corp., 105
S.W.3d at 195.
The party seeking to compel
arbitration has the burden of proving that an arbitration agreement exists
and that the claims raised are within the agreement's scope. Cantella &
Co. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996). If an arbitration
agreement is valid, the party opposing the agreement has the burden of
defeating it. Cantella & Co., 924 S.W.2d at 944.
In the present case, the court
found that the defendant's online terms and conditions had not been
"adequately communicated" to the plaintiffs because the defendant did not
provide a display text on the Web site that manifested a clear assent to the
terms and conditions before the order could proceed, because the terms and
conditions were not displayed on a Web page that the plaintiffs had
completed in placing their orders, and because there was no language on the
Web pages placing the plaintiffs on notice that they were performing an
affirmative act that would bind them to submit their claims to arbitration.
The court held that the defendant's "Terms and Conditions of Sale," and,
therefore, the arbitration clause, were not a part of the online sales
We find that the online
contract included the "Terms and Conditions of Sale." The blue hyperlink
entitled "Terms and Conditions of Sale" appeared on numerous Web pages the
plaintiffs completed in the ordering process. The blue hyperlinks for the
"Terms and Conditions of Sale" also appeared on the defendant's marketing
Web pages, copies of which the plaintiffs attached to their complaint. The
blue hyperlinks on the defendant's Web pages, constituting the five-step
process for ordering the computers, should be treated the same as a
multipage written paper contract. The blue hyperlink simply takes a person
to another page of the contract, similar to turning the page of a written
paper contract. Although there is no conspicuousness requirement, the
hyperlink's contrasting blue type makes it conspicuous. Common sense
dictates that because the plaintiffs were purchasing computers online, they
were not novices when using computers. A person using a computer quickly
learns that more information is available by clicking on a blue hyperlink.
Additionally, on three of the
defendant's Web pages that the plaintiffs completed to make their purchases,
the following statement appeared: "All sales are subject to Dell's Term[s]
and Conditions of Sale." This statement would place a reasonable person on
notice that there were terms and conditions attached to the purchase and
that it would be wise to find out what the terms and conditions were before
making a purchase. The statement that the sales were subject to the
defendant's "Terms and Conditions of Sale," combined with making the "Terms
and Conditions of Sale" accessible online by blue hyperlinks, was sufficient
notice to the plaintiffs that purchasing the computers online would make the
"Terms and Conditions of Sale" binding on them. Because the "Terms and
Conditions of Sale" were a part of the online contract and because the
plaintiffs did not argue that their claims were not within the scope of the
arbitration agreement, they were bound by the "Terms and Conditions of
Sale," including the arbitration clause.
Because we conclude that the
"Terms and Conditions of Sale" were a part of the online contract formed at
the time of the plaintiffs' purchase of the computers, we need not consider
what effect the copies of the "Terms and Conditions of Sale" enclosed in the
shipping boxes have on the contract.
Motions to Strike
It appears that in finding that
the arbitration clause was unconscionable, the trial court considered
documents that were the subject of the defendant's motion to strike.
Therefore, before considering whether the arbitration clause was
unconscionable, we consider whether the court properly denied the
defendant's motion to strike.
In its motion to strike, the
defendant objected to seven of the plaintiffs' exhibits: a newspaper article
from a March 2000 edition of the Washington Post; a transcript of a
deposition of Edward C. Anderson, an employee of the National Arbitration
Forum (NAF), taken in the case of Toppings v. Meritech Mortgage Services,
Inc., 212 W. Va. 73, 569 S.E.2d 149 (2002) (per curiam); and five
documents, purported to be drafted by persons at NAF, that may or may not
have been disseminated to unknown persons.
The Washington Post article
stated that in cases arbitrated by NAF between First USA, a credit card
company, and its credit card holders, the results favored First USA 99.6% of
the time. The article stated that First USA's cardholder agreement required
mandatory arbitration and that NAF was the chosen arbitration firm. The
article suggested, based upon class action lawsuits filed, that NAF is
biased in favor of First USA and similar credit card firms and retailers.
The Washington Post article was hearsay and was not admissible. See
McCall v. Devine, 334 Ill. App. 3d 192, 203 (2002) (the contents of
newspaper articles are hearsay and therefore inadmissible). Therefore, the
trial court erred in refusing to strike this exhibit.
The next exhibit to which the
defendant objected was a transcript of the deposition of Anderson, an NAF
employee. There is no per se rule that a transcript of a deposition
taken in one case cannot be used in another. Fremont Compensation
Insurance Co. v. Ace-Chicago Great Dane Corp., 304 Ill. App. 3d 734, 741
(1999). However, whether a deposition transcript can be admitted depends on
whether the party against whose interest the deposition testimony is being
used had notice of the deposition and an opportunity to cross-examine the
deponent. Fremont Compensation Insurance Co., 304 Ill. App. 3d at
741. Here, because there was no evidence that the defendant was a party to
the Toppings case or that the defendant's attorneys had notice or an
opportunity to cross-examine Anderson in this deposition, the court erred in
refusing to strike the transcript of Anderson's deposition.
The last five documents to
which the defendant objected were three letters that NAF employees allegedly
sent to persons who are not parties to this case and two of NAF's marketing
documents. One of the NAF marketing documents compared the features of NAF
and the American Arbitration Association. The second document highlighted
features of NAF's code of procedure. These documents were hearsay, no
foundation was laid for the documents, and no exception to the hearsay rule
was presented to allow for their admission. See Evans & Associates, Inc.
v. Dyer, 246 Ill. App. 3d 231, 237-38 (1993) (letters were improperly
admitted because they were hearsay, no foundation had been laid, and no
exception to the hearsay rule was shown). Accordingly, the trial court
erred in refusing to strike these five documents.
In summary, the trial court
erred in refusing to grant the defendant's motion to strike, and the trial
court should not have considered any of these exhibits in making its
The defendant also argues that
the trial court erred in finding that if the arbitration agreement was
binding, it was unenforceable because it was procedurally and substantively
unconscionable. This finding assumed that the arbitration agreement was
The doctrine of
unconscionability applies to arbitration agreements just as it applies to
other contracts. AutoNation USA Corp., 105 S.W.3d at 198. If an
arbitration agreement is unconscionable, it is unenforceable. In re
Turner Brothers Trucking Co., 8 S.W.3d 370, 376 (Tex. App. 1999). The
test of unconscionability is whether, "given the parties' general commercial
background and the commercial needs of the particular trade or case, the
clause involved is so one-sided that it is unconscionable under the
circumstances existing when the parties made the contract." AutoNation
USA Corp., 105 S.W.3d at 198. The purpose of the doctrine of
unconscionability is to prevent oppression and unfair surprise.
AutoNation USA Corp., 105 S.W.3d at 198. Unconscionability is a
question of law (Pony Express Courier Corp. v. Morris, 921 S.W.2d
817, 820 (Tex. App. 1996)) and is determined on a case-by-case basis (In
re H.E. Butt Grocery Co., 17 S.W.3d 360, 371 (Tex. App. 2000)).
There are two aspects to
unconscionability. Procedural unconscionability refers to the circumstances
surrounding the adoption of the arbitration provision. AutoNation USA
Corp., 105 S.W.3d at 198. Substantive unconscionability refers to the
fairness of the arbitration provision itself. AutoNation USA Corp.,
105 S.W.3d at 198. The party asserting unconscionability has the burden of
proving both procedural and substantive unconscionability. In re Turner
Brothers Trucking Co., 8 S.W.3d at 376-77.
Here, the trial court found
that the arbitration agreement was procedurally unconscionable for the
"The manner in which the
existence of the arbitration provision was minimized as to not to [sic]
attract the attention of the customer, as well as the other aspects of the
sale relating to the lack of disclosure of the terms and conditions as
previously discussed, make [sic] it fundamentally unfair. This is
particularly apparent when one considers the adhesive nature of sales
between Dell and the consumer and the significance of the right of a party
to present his claims in court[.]"
When it ruled that the
arbitration clause was procedurally unconscionable, the trial court held
that the arbitration agreement should have been conspicuous. "Texas law
invalidates only certain types of clauses if they are inconspicuous" (AutoNation
USA Corp., 105 S.W.3d at 199), and an arbitration agreement is not one
of those. Further, the Uniform Commercial Code, as adopted in Texas,
provides that a term or clause is conspicuous when it is written so that a
reasonable person against whom it is to operate ought to have noticed it.
Tex. Bus. & Com. Code Ann. §1.201(10) (Vernon 1994); Arthur's Garage,
Inc. v. Racal-Chubb Security Systems, Inc., 997 S.W.2d 803, 814 (Tex.
App. 1999). A term or clause is conspicuous if it is written in capital
letters or if it is written in larger or other contrasting type or color
print. Tex. Bus. & Com. Code Ann. §1.201(10) (Vernon 1994); Arthur's
Garage, Inc., 997 S.W.2d at 814.
In the instant case, the
hyperlinks for the "Terms and Conditions of Sale" were in a contrasting blue
color. On the linked Web page for the "Terms and Conditions of Sale," the
arbitration clause was partially in capital letters, thereby drawing
attention to the clause. Also, the beginning of the "Terms and Conditions
of Sale" stated in bold, capital letters that the terms and conditions
contained a dispute-resolution clause. Thus, although we do not hold that
an arbitration clause must be conspicuous, in this case the "Terms and
Conditions of Sale" and the arbitration clause were conspicuous.
The court also determined that
the arbitration clause was procedurally unconscionable because it was a
contract of adhesion. A contract of adhesion exists where one party has
absolutely no bargaining power or ability to change the contract terms.
In re H.E. Butt Grocery Co., 17 S.W.3d at 370-71. However, a contract
of adhesion is not automatically unconscionable. In re H.E. Butt Grocery
Co., 17 S.W.3d at 371. Because the court engaged in no other analysis
and simply found that the defendant's arbitration clause was unconscionable
because it was a contract of adhesion, the court erred in finding that the
arbitration agreement was procedurally unconscionable.
The court also determined that
the arbitration agreement was substantively unconscionable because the
agreement provided that "the exclusive arbitrator of any dispute is one
which compensates its arbitrators in a way that has been found to 'impinge
on neutrality and fundamental fairness.' Toppings v. Meritech Mortgage
Services, Inc., 569 S.E.2d 149 (W. Va. 2002)." The court also found
that the plaintiffs' action could only proceed as a class action, that the
arbitration clause prohibited arbitration on a class-wide basis, and that
enforcement of the arbitration clause would substantively deny the
plaintiffs and the class members any chance of recovery. The trial court
"While parties are free to
agree to submit their disputes to arbitration, Dell is seeking to impose its
unilateral choice of the use of arbitration as well as its selection of the
actual arbitrator on its customers. The record suggests that the result of
this arrangement is an arbitration process which, among other things,
results in favorable results for defendants on an inordinate basis, limits
remedies available to the customer, requires the customer to potentially
incur greater costs than the amount he can recover, and exposes the customer
to the possibility of paying the fees and costs of Dell. The Court finds
the arbitration provision is both procedurally and substantively
The plaintiffs argue that the
defendant's arbitration agreement is substantively unconscionable because
the arbitration agreement deprives them of their statutory rights and
remedies. Specifically, the plaintiffs argue that NAF's rules have a "loser
pays" rule, which contravenes the mandates of the Texas and Illinois
consumer protection statutes, and that NAF's rules deprive the plaintiffs of
punitive damages, again in contravention of their statutory rights under the
consumer laws of Texas and Illinois. The plaintiffs also argue that the
defendant's arbitration agreement prevents arbitration on a class-wide
With regard to the plaintiffs'
argument that the arbitration agreement deprives them of their statutory
rights by imposing a "loser pays" rule, we note that NAF's code of procedure
states in Rule 37C: "An Award may include fees and costs awarded by an
Arbitrator in favor of any Party only as permitted by law or in favor
of the Forum for fees due." (Emphasis added.) Nat'l Arbitration Forum Code
of Procedure R. 37C, eff. July 1, 2000. The complete rule belies the
plaintiffs' argument. If the statute does not provide for awarding fees and
costs (or attorney fees), NAF's arbitrator will not do so. Additionally,
the rule states that the arbitrator "may" impose fees and costs, which
implies that the imposition of fees and costs is discretionary and not
mandatory. The plaintiffs' arguments in the trial court and on appeal are
couched in generalities. Because the plaintiffs failed to prove their
argument in the trial court and have not shown on appeal that the
arbitrators would impose such fees and costs on them, their argument fails.
See In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756-57 (Tex. 2001)
(the arbitration clause was not substantively unconscionable where no
specific evidence was presented that excessive fees and costs would actually
be charged to effectively deny the plaintiffs access to arbitration).
The plaintiffs argue that the
arbitration clause prevents punitive damages because the amount of filing
fees in the arbitral forum rests upon the amount of damages asserted in a
claim. Therefore, in order for the plaintiffs to assert a claim for
punitive damages, they would have to pay an excessive filing fee, making a
request for punitive damages prohibitive. Again, the plaintiffs have not
shown that NAF would impose such fees upon them. NAF's code of procedure
states in Rule 44F, "Issues regarding filing fees, including the value of
relief sought, may be raised by any Party and shall be resolved by the
Director or by an Arbitrator." Nat'l Arbitration Forum Code of Procedure R.
44F, eff. July 1, 2000. The plaintiffs did not show in the trial court and
have not shown on appeal how NAF's code of procedure, when considered as a
whole, prevents them from recovering punitive damages. It is the
plaintiffs' burden to prove that the arbitration agreement is unconscionable
(see In re Turner Brothers Trucking Co., 8 S.W.3d at 376-77), and the
plaintiffs have not shown that it could not collect punitive damages because
of the size of NAF's filing fees.
The plaintiffs argue and the
trial court held that the defendant's arbitration agreement was
unconscionable because it prevented the plaintiffs from proceeding with a
class action lawsuit. We find the language of the court in AutoNation
USA Corp., 105 S.W.3d at 200, to be instructive. The court stated:
"This assumes that the right to
proceed on a class-wide basis supercedes a contracting party's right to
arbitrate under the FAA [(Federal Arbitration Act)]. However, the primary
purpose of the FAA is to overcome courts' refusals to enforce agreements to
arbitrate and to ensure that private agreements to arbitrate are enforced
according to their terms. [Citation.] The Texas Supreme Court has made it
clear that the FAA is part of [the] substantive law of Texas [citation] and
has stressed that '[p]rocedural devises,' such as Rule 42[']s provision for
class actions, 'may "not be construed to enlarge or diminish any substantive
rights or obligations of any parties to any civil action." ' [Citation.]
Accordingly, there is no entitlement to proceed as a class action.
[Citations.]" AutoNation USA Corp., 105 S.W.3d at 200.
In AutoNation USA Corp.,
the plaintiff alleged that the arbitration provision in his agreement was
substantively unconscionable because it prohibited class actions for
small-damage consumer claims. The court in AutoNation USA Corp.
found that even though the plaintiff argued that "without the class action
device, consumers will be disinclined to pursue individual remedies for
small damages," the plaintiff had failed to demonstrate that the arbitration
provision was substantively unconscionable. AutoNation USA Corp.,
105 S.W.3d at 200.
Here, too, the plaintiffs'
generalized arguments that they would be deprived of a remedy if they were
forced to arbitrate are insufficient to sustain the burden of proving that
the arbitration provision is unconscionable.
Finally, the court found that
the defendant's arbitration agreement results in favorable decisions for
the defendant "on an inordinate basis." The defendant provided evidence to
the trial court that in a three-year period, 5 disputes out of 20 went to
arbitration. Of the five disputes that were arbitrated, the defendant won
two and lost three of the disputes. These do not appear to be results
favorable to the defendant on an inordinate basis. The trial court's
finding that the defendant's arbitration agreement was unconscionable was
In conclusion, the trial court
erred in determining that the defendant's arbitration agreement was not a
part of the parties' online contract, in denying the defendant's motion to
strike, and in holding that the arbitration agreement was both procedurally
and substantively unconscionable. Therefore, we reverse the trial court's
order denying the defendant's motion to compel arbitration and remand this
case to the trial court with directions for the court to either stay or
dismiss the proceedings and order the parties to arbitrate their disputes.
For the foregoing reasons, the
judgment of the circuit court of Madison County is reversed, and the cause
is remanded with directions.