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DISTRICT OF COLUMBIA COURT OF APPEALS
No. 09-CV-893
COLIN ANDREW, APPELLANT,
V.
AMERICAN IMPORT CENTER, APPELLEE,
AND
DISTRICT OF COLUMBIA, INTERVENOR.
Appeal from the Superior Court of the
District of Columbia
(CAB-8450-08)
(Hon. Anita M. Josey-Herring, Trial Judge)
(Argued June 5, 2014 Decided February 26, 2015)
Thomas C. Willcox for appellant.
James C. McKay, Jr., with whom Irvin B. Nathan, then-Attorney General for
the District of Columbia, Todd S. Kim, Solicitor General, and Loren L. Alikhan,
Deputy Solicitor General, were on the brief, for intervenor.
V. David Zvenyach, with whom John Hoellen was on the brief, for amicus
curiae District of Columbia Council.
David R. Mahdavi filed a Statement in Lieu of Brief for appellee.
Before WASHINGTON, Chief Judge, THOMPSON, Associate Judge, and
NEBEKER, Senior Judge.
2
WASHINGTON, Chief Judge: Appellant Colin Andrew brought suit in the
Superior Court against American Import Center (“AIC”) and others, alleging
breach of contract, fraud, and violations of the Consumer Protection Procedures
Act arising out of his purchase of a car from AIC. The Superior Court stayed
appellant’s case and ordered the parties to proceed to arbitration pursuant to an
arbitration agreement that was signed as part of the purchase transaction. Andrew
appealed. The question before this court is whether we have jurisdiction to hear
an appeal from an order compelling a consumer to arbitrate with a commercial
entity based on an arbitration clause in an adhesion contract. For the following
reasons, we hold that such an order is interlocutorily appealable pursuant to D.C.
Code § 11-721 (a)(2)(A) (2012 Repl.). Further, we find that appellant raised a
triable issue of fact as to the unconscionability of the arbitration agreement and we
therefore remand the case to the trial court to hold an evidentiary hearing and make
factual findings concerning unconscionability.
I. Facts
Appellant Colin Andrew brought suit against AIC, Tehran Ghasri
(“Ghasri”), and Wells Fargo Auto Finance (“Wells Fargo”), alleging fraud, breach
of contract, and violations of the District of Columbia Consumer Protection
3
Procedures Act, D.C. Code § 28-3901 et seq. (2012 Repl.). Appellant claimed
that in December of 2006, Ghasri, an AIC salesman, requested that he help a
friend, Baback Fadavi (“Fadavi”) purchase a vehicle. Fadavi was 90% blind, such
that he could not obtain a driver’s license or purchase a car, but he needed one so
that his mother could drive him around. Appellant alleged that Ghasri asked him
to guarantee the purchase of the vehicle, which Mrs. Fadavi would own. In
reality, the contract that appellant signed listed him as the purchaser rather than the
guarantor of the vehicle. The vehicle was delivered to Mrs. Fadavi, but the title
was in appellant’s name. The vehicle was later repossessed and sold, and
appellant filed his suit after a deficiency of $8,817.50 was assessed against him.
AIC and Wells Fargo moved to dismiss appellant’s complaint and compel
arbitration because there was an arbitration clause in the finance contract he had
signed. Andrew moved for discovery on the issue of whether the arbitration
agreement was unconscionable. The trial court denied AIC’s and Wells Fargo’s
motion to dismiss but granted their motion to compel arbitration, staying the
proceedings in Superior Court pending completion of arbitration.1 The trial court
rejected appellant’s unconscionability argument, concluding that he had not
1
Appellant subsequently stipulated to the dismissal of Wells Fargo from
the case.
4
presented a triable issue of material fact. Appellant timely appealed. This court
issued an order directing both parties to file briefs addressing whether we had
jurisdiction to hear this appeal given first that, in the past, we have held that orders
to compel arbitration are not appealable, and second, that it was not clear that the
D.C. Council had the authority to pass D.C. Code § 16-4427 purporting to make
such orders appealable.
II. Jurisdictional Analysis
In 1970, Congress enacted the District of Columbia Court Reorganization
Act of 1970, Pub. L. No. 91-358, Title I, 84 Stat. 473 (1970), D.C. Code § 11-101
et seq. (2012 Repl.), establishing this court as “[t]he highest court of the District of
Columbia” and providing that:
The District of Columbia Court of Appeals has
jurisdiction of appeals from—
(1) all final orders and judgments of the
Superior Court of the District of Columbia; [and]
(2) interlocutory orders of the Superior Court of
the District of Columbia—
(A) granting, continuing, modifying, refusing,
or dissolving or refusing to dissolve or modify
injunctions; . . .
D.C. Code § 11-721 (a) (2012 Repl.). Congress also passed the Home Rule Act,
5
D.C. Code § 1-201.01 et seq. (2012 Repl.), with the intent of giving the D.C.
Council broad authority to legislate upon “all rightful subjects of legislation within
the District,” § 1-203.02, but limiting the Council’s ability to pass legislation that
affects this court’s jurisdiction:
(a) The Council shall have no authority to pass any act
contrary to the provisions of this chapter except as
specifically provided in this chapter, or to . . .
....
(4) Enact any act, resolution, or rule with respect
to any provision of Title 11 (relating to
organization and jurisdiction of the District of
Columbia courts).
§ 1-206.02 (a)(4).2 Still, this court has repeatedly held that § 206 (a)(4) must be
construed as a narrow exception to the Council’s otherwise broad legislative power
“so as not to thwart the paramount purpose of the [Home Rule Act], namely, to
grant the inhabitants of the District of Columbia powers of local self-government.”
Bergman v. District of Columbia, 986 A.2d 1208, 1226 (D.C. 2010).
Subsequently, in 1977, the D.C. Council enacted the District of Columbia
2
D.C. Code § 1-206.02 (a)(4) is referred to as “§ 206 (a)(4) of the Home
Rule Act” throughout.
6
Uniform Arbitration Act (“UAA”), D.C. Code § 16-4301 et seq. Relevant to the
instant case was a section of the UAA that outlined whether (and which) arbitration
orders could be appealed to this court. Section 16-4317 of the UAA read in
relevant part:
(a) For purposes of writing an appeal, the following
orders shall be deemed final:
(1) An order denying an application to compel
arbitration . . .
D.C. Code 1978 Supp., tit. 16 app., s 18. Then, in American Fed’n of Gov’t Emps.
v. Koczak, 439 A.2d 478, 480 (D.C. 1981), this court examined this section of the
UAA and concluded that as opposed to an order denying a motion to compel
arbitration, an order granting a motion to compel arbitration was not appealable,
for two reasons. First, the language of the UAA included orders denying a motion
to compel arbitration on the list of final, appealable orders but did not similarly
include orders to compel arbitration on that list. Id. Second, the omission of
orders compelling arbitration from that list made sense given that an order to
compel arbitration would not be considered a final order like an order denying a
motion to compel arbitration because the former “does not dispose of the entire
case on the merits. Rather, the parties’ rights and obligations are finally
determined only after arbitration is had. . . .” Id.
7
Finally, in 2007, the Council replaced the UAA with the District of
Columbia Revised Uniform Arbitration Act (“RUAA”), D.C. Code § 16-4401 et
seq. (2012). The RUAA also contains a section that outlines when an appeal may
be taken. § 16-4427. That section reads, in relevant part:
(a) An appeal may be taken from:
(1) An order denying or granting a motion to
compel arbitration; . . .
§ 16-4427 (a)(1). The question currently before the court is whether this section of
the RUAA violates § 206 (a)(4) of the Home Rule Act by impermissibly expanding
this court’s jurisdiction to allow parties to appeal from an order granting a motion
to compel arbitration, a type of an order we have previously determined not to be
appealable.
A. An order staying litigation and compelling the parties to
arbitrate is not a final order under D.C. Code § 11-721
(a)(1).
This court has recognized the Supreme Court’s “well-developed and
long-standing” definition of a final order, which is “a decision that ends the
litigation on the merits and leaves nothing more for the court to do but execute the
judgment.” Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 86 (2000) (internal
8
quotation marks omitted); Crown Oil & Wax Co. v. Safeco Ins. Co., 429 A.2d
1376, 1379 (D.C. 1981) (explaining that as a “general rule . . . an order is final for
purposes of appeal . . . [when] it disposes of the entire case on the merits”). This
court has specifically and repeatedly stated in several cases that an order granting a
motion to compel arbitration and stay proceedings is not a final order.3 Although
3
See Koczak, 439 A.2d at 480 (internal quotation marks, citations, and
footnotes omitted) (explaining that “the Council’s omission of an order to compel
arbitration from the list of orders deemed to be final set forth in [§ 16-4317 of the
UAA] is consistent with the general rule that . . . an order is final for purposes of
appeal . . . [when] it disposes of the entire case on the merits. An order to compel
arbitration does not dispose of the entire case on the merits. Rather, the parties’
rights and obligations are finally determined only after arbitration is had, or, if an
arbitrator’s award is challenged, after a court enters judgment upholding,
modifying, or vacating the arbitrator’s award”); see also Judith v. Graphic
Commc’ns Int’l Union, 727 A.2d 890, 891 (D.C. 1999) (citations omitted) (holding
that where the trial court had referred the parties to arbitration but it was
ambiguous as to whether the court had also dismissed the underlying case,
dismissal and referral to arbitration should really be construed as an order to stay
litigation pending arbitration, which under Koczak and Umana was not a final,
appealable order); Umana v. Swidler & Berlin, Chartered, 669 A.2d 717, 721
(D.C. 1995) (citing Koczak, 439 A.2d at 480) (concluding that this court lacked
jurisdiction to hear an appeal from an order compelling Umana to arbitrate his
claims because that order was not a final order under § 11-721 (a)(1), because it
was not an appealable interlocutory order under Brandon because it did not
frustrate (in contrast with facilitate) arbitration, and because § 16-4317 of the UAA
did not attempt to make orders compelling arbitration final and appealable);
Hercules & Co. v. Shama Rest. Corp., 566 A.2d 31, 35 n.4 (D.C. 1989) (citing
Brandon v. Hines, 439 A.2d 496, 504 (D.C. 1981)) (characterizing the fact that
“Hercules [was not] claim[ing] that the referral to arbitration [wa]s a final
judgment” as a “correct assessment”). But see Parker v. K & L Gates, LLP, 76
A.3d 859 n.3 (D.C. 2013) (citations omitted) (holding that an order compelling
arbitration in an independent proceeding is appealable as a final order because in
that context, the order compelling arbitration resolves the sole issue before the
(continued . . .)
9
these cases arose in the context of the UAA rather than the RUAA, in each case the
court’s opinion made clear that the exclusion of orders compelling arbitration from
the list of final appealable orders in § 16-4317 was consistent with our case law
interpreting § 11-721 (a)(1), and that we did not consider such orders final for
purposes of appeal.
Similarly, in the instant case the order granting the motion to compel
arbitration is not a final order and therefore is not appealable as such. As the
Supreme Court explained in Green Tree Financial, while an order to compel
arbitration entered in conjunction with a dismissal of the case on the merits results
in a final order for purposes of appellate review, 531 U.S. at 87, “[h]ad the District
Court entered a stay instead of a dismissal . . . that order would not be appealable.”
Id. at 87, n.2. This court has followed the Supreme Court’s lead, holding that it is
only “where a trial court dismisse[s] a case with prejudice in addition to
compelling arbitration . . . [that] such an order is unambiguously final [because]
. . . the trial court has effectively prevented a plaintiff from litigating the issue in
the future.” Keeton v. Wells Fargo Corp., 987 A.2d 1118, 1121 (D.C. 2010)
(footnotes omitted). Thus, where, as here, the trial court granted appellees’
(continued . . .)
court).
10
motion to compel arbitration and stayed the case pending resolution of the
arbitration, the order is not a final order and therefore, is not appealable under
§ 11-721 (a)(1).
B. As a general matter, an order staying litigation and
compelling arbitration may not be appealed
interlocutorily.
The District’s main argument in this case is that an order compelling a party
to arbitrate is injunctive in nature, and therefore, can be appealed interlocutorily.
An injunction is “an equitable remedy, consisting of a command by the court,
through an order or writ, that the party to whom it is directed do, or refrain from
doing, some specified act.” McQueen v. Lustine Realty Co., 547 A.2d 172, 176
(D.C. 1988) (en banc). In Carson v. American Brands, Inc., 450 U.S. 79, 84
(1981), the Supreme Court held that an order, though not expressly labeled an
injunction, might still have the effect of an injunction and could thus be treated as
such if it 1) has the “practical effect” of an injunction and 2) the litigants would
suffer a “serious, perhaps irreparable consequence” from the trial court’s order
such that it could only be “effectually challenged” by immediate appeal.4
4
The District’s first argument in its brief on this point is that the court need
not apply the Carson test in order to conclude that an order granting a motion to
stay litigation pending arbitration is an order respecting injunctions that is therefore
(continued . . .)
11
This court adopted the so-called Carson test in Brandon v. Hines, 439 A.2d
496 (D.C. 1981), in which a building contractor brought suit for breach of contract
against the defendant whose property he had agreed to renovate. Id. at 497.
Because the contract contained an arbitration clause, the trial court stayed the case
and ordered the parties to arbitrate. Id. After the arbitrators returned an award in
appellant’s favor, the trial court denied appellant’s motion to confirm the award as
a judgment, vacated the award (because the arbitration panel had decided the case
out of time), and ordered the parties to proceed to trial. Id. The question in the
case (which is only indirectly relevant to the instant case) was whether the trial
court’s order denying the motion to confirm the award, vacating the award, and
directing the parties to trial was an appealable order. Id.
To place its analysis in perspective, the Brandon court looked first to federal
case law concerning the appealability of orders relating to arbitration under 28
(continued . . .)
appealable interlocutorily. The District’s argument is that though it is not labeled
as such, this type of order is expressly injunctive in nature. However, the only
case from this jurisdiction that the District cites to support the proposition that
Carson need not be applied is McQueen, 547 A.2d at 172, a case in which this
court explicitly applied the Carson test to hold that pretrial protective orders in
Landlord-Tenant Court satisfy that test and are therefore immediately appealable
under § 11-721 (a)(2)(A). We are not aware of any case in which this court has
held an order to be injunctive without applying the Carson test (or its predecessor
tests.).
12
U.S.C. § 1292, the federal analogue to D.C. Code § 11-721. Id. at 503. The
court examined federal case law in this area from the late-1970s to the early 1980s,
focusing heavily on the Supreme Court’s then-recent decision in Carson. Id. at
503-06. In applying the Carson test to the context of a stay pending arbitration,
this court made the following observations, albeit in dicta: First, that both an
order denying a stay and an order granting a stay of litigation pending arbitration
have the “practical effect” of an injunction by either refusing to halt court
proceedings or halting court proceedings pending arbitration, respectively. Id. at
506. And, second, that “denials—but not grants—of stays of litigation pending
arbitration are appealable interlocutory orders, since only orders that frustrate (in
contrast with facilitate) arbitration impose a sufficiently serious injury to justify an
immediate appeal.” Id. at 507. Specifically, the court reasoned that an order
granting a motion to stay court proceedings pending arbitration was not appealable
on an interlocutory basis for three reasons: 1) At least in principle, the party
resisting arbitration agreed to arbitration at some previous time; 2) an arbitration
award is not self-executing, such that a successful party must still go to court for
final judgment to be entered at which point the party opposed to arbitration can
challenge the enforcement of the award as a judgment; and 3) allowing a party to
appeal from a stay of litigation pending arbitration would only increase the time
and expense necessary to resolve the dispute, which undermines the entire purpose
13
of arbitration. Id.
Months after Brandon was decided this court decided Koczak, which
contained dicta that conflicted with that of Brandon. See Koczak, 439 A.2d at 480
n.7 (emphasis added) (noting that the UAA prohibited the court from hearing an
appeal of an order granting a motion to compel arbitration, but reasoning “in the
absence of the [UAA], certain orders affecting arbitration could be viewed as
orders respecting injunctions, and thus appealable interlocutorily”). Thus, after
Koczak was decided there was dicta from this court suggesting that an order
granting a motion to compel arbitration was not injunctive in nature (Brandon) and
therefore unappealable, as well as dicta indicating that an order granting a motion
to compel arbitration could potentially be considered an order respecting
injunctions (Koczak) which therefore could be appealed interlocutorily.
Subsequently, in 1988, the Supreme Court overruled much of the federal
case law on which Brandon was based. In Gulfstream Aerospace Corp. v.
Mayacamas Corp., 485 U.S. 271, 287 (1988), Gulfstream sued Mayacamas for
breach of contract in state court for failing to make payments on an aircraft that it
had commissioned Gulfstream to build. Id. at 272-73. Without seeking to
remove the case to federal court, Mayacamas filed its own action for breach of the
14
same contract against Gulfstream in federal court. Id. at 273. Gulfstream moved
for a stay or dismissal of the federal court action pending resolution of its state
case, but the court denied its motion. Id. The question before the Supreme Court
was whether Gulfstream could appeal from the denial of the motion to stay or
dismiss the case pending the outcome of the state case.
The Supreme Court reviewed the applicable law at the time, the so-called
Enelow-Ettelson rule, 5 which held that orders granting or denying stays of
proceedings at law on equitable grounds were automatically appealable as
interlocutory orders. Gulfstream Aerospace Corp., 485 U.S. at 288. The parties
agreed that the breach of contract cause of action at issue in the case was
traditionally brought at law, but disagreed as to “whether the stay of an action
pending the resolution of similar proceedings in a state court is equitable in the
requisite sense.” Id. at 281. Rather than answer that question, however, the
Supreme Court recognized the ever-increasing criticism of the Enelow-Ettelson
rule and decided to overrule it. Id. at 287. Thus, the Court held that an order
denying a motion to stay or dismiss an action when a similar suit is pending in
state court was not automatically immediately appealable as an interlocutory order.
5
This rule came from the cases of Enelow v. New York Life Ins. Co., 293
U.S. 379 (1935), and Ettelson v. Metropolitan Life Ins. Co., 317 U.S. 188 (1942).
15
Id. However, relevant to the instant case, the Court also stated:
This holding will not prevent interlocutory review of
district court orders when such review is truly needed.
Section 1292 (a)(1) will, of course, continue to provide
appellate jurisdiction over orders that have the practical
effect of granting or denying injunctions and have
“serious, perhaps irreparable, consequence.”
Id. at 287-88 (quoting Carson, 450 U.S. at 84) (internal quotation marks omitted).
Subsequently, federal courts have applied Gulfstream to orders staying or refusing
to stay litigation pending arbitration and have concluded that Gulfstream prohibits
an appeal from either type of order.6
Despite Gulfstream and its progeny, in 1989, this court extended and
formally adopted much of the dicta in Brandon in Hercules. 7 The court
recognized that had Brandon been decided post-Gulfstream, the outcome would
6
See Hercules, 566 A.2d at 37 nn.13 & 14 (citing federal cases).
7
Neither the District nor the Council cite to this case in their briefs. The
District does cite to a case involving the same plaintiff, Hercules & Company v.
Beltway Carpet Service, 592 A.2d 1069 (D.C. 1991). In that case, this court held
that a motion to dismiss on the basis that the parties had agreed to arbitration must
be construed as a motion to stay and compel arbitration, and therefore, the denial
of a motion to dismiss on the basis that the parties agreed to arbitration is
immediately appealable as an order denying a motion to compel arbitration under
the UAA. Id. at 1072.
16
likely have been different because had the court followed federal case law and
applied Gulfstream, it would likely have concluded that neither an order granting
nor an order denying a stay pending arbitration was immediately appealable.
Hercules, 566 A.2d at 37. Still, the division recognized that Gulfstream had not
overruled Brandon, and that the court was bound by Brandon. Id. at 38. Thus, in
Hercules, we explained:
Although the appealability of a grant of a stay was not
before the court, there is support in Brandon, albeit in
dictum, for the conclusion that [the trial court’s] order
[granting a stay pending arbitration] is not subject to
review pursuant to § 11-721 (a)(2)(A). . . . [W]e follow
the dictum in Brandon, which is consistent with
Gulfstream, and dismiss this portion of the appeal.
Id. at 38-39.
Thus, Hercules stands for the proposition that in general, a party cannot
appeal from an order compelling arbitration.
17
C. An order staying litigation and compelling a consumer
to arbitrate with a commercial entity based on an
arbitration clause contained in a contract of adhesion
meets the Carson test and thus is injunctive in nature
and can be appealed interlocutorily.
However, this court has never considered whether an order compelling
arbitration is appealable in the specific context at issue here, that is, where a
consumer is compelled to arbitrate with a commercial entity pursuant to an
arbitration clause contained in a (purported) contract of adhesion.8 The narrow
question before us is whether an order staying litigation and compelling a
consumer to arbitrate pursuant to an arbitration clause contained in a form contract
is appealable as an interlocutory order under § 11-721 (a)(2)(A).
Importantly, in passing the RUAA the D.C. Council explicitly conferred a
right to appeal from an order granting a motion to compel arbitration,9 and the
8
“A contract of adhesion is defined generally as one imposed upon a
powerless party, usually a consumer, who has no real choice but to accede to its
terms.” Association of Am. Med. Colleges v. Princeton Review, Inc., 332 F. Supp.
2d 11, 16 (D.D.C. 2004) (internal quotation marks and citation omitted); see also
ADHESION CONTRACT, Black’s Law Dictionary (9th ed. 2009) (“A
standard-form contract prepared by one party, to be signed by another party in a
weaker position, usu. a consumer, who adheres to the contract with little choice
about the terms.”).
9
Compare § 16-4317 (a)(1) [the UAA] (“For purposes of writing an
appeal, the following orders shall be deemed final: [] An order denying an
(continued . . .)
18
legislative history suggests that this step was undertaken in an effort to provide
consumers more protection where arbitration was entered into with a commercial
entity by way of an adhesion contract. See infra at 19. Further, this court has
recognized the potential for widespread use of adhesion contracts containing
arbitration agreements to deprive consumers of any meaningful choice, which
raises serious questions about the fairness of enforcing the terms of those contracts
against consumers. See infra at 19-20. Thus, this panel, which remains bound by
Hercules, but is called upon to rule in the wake of the RUAA, must now consider
for the first time whether compelling a consumer to arbitrate a dispute with a
commercial entity pursuant to an arbitration clause contained in a contract of
adhesion has the practical effect of an injunction under Carson, such that we have
jurisdiction to hear an interlocutory appeal of such an order pursuant to § 11-721
(a)(2)(A).
We are satisfied that applying the Carson test, an order compelling
arbitration in the context of a consumer adhesion contract is injunctive in nature.
First, as the court noted in Brandon, granting a stay pending arbitration does have
(continued . . .)
application to compel arbitration . . . .”) with § 16-4427 (a)(1) [the RUAA] (“An
appeal may be taken from: [] An order denying or granting an order to compel
arbitration; . . . .”).
19
the “practical effect” of enjoining the party opposing arbitration, in that it halts
litigation and orders the parties to undergo arbitration. 439 A.2d at 506. We see
no reason why the changes to our law since Brandon should affect that conclusion.
With respect to the second prong of the Carson test, today both the D.C.
Council and this court recognize that there has been a significant increase in the
use of arbitration clauses in consumer contracts of adhesion since Brandon and
Hercules and that such clauses are being used to the detriment of consumers.
Indeed, the D.C. Council’s concern that consumers were being taken advantage of
by being forced to submit to arbitration based on the terms of an adhesion contract
entered into with a commercial entity was a motivating factor behind the decision
to add several consumer-friendly provisions into the RUAA. See COMM. ON PUB.
SAFETY & THE JUDICIARY, REP. ON BILL 17-50, at 2 (D.C. 2007) (explaining that
“many businesses have found that mandatory arbitration is advantageous in
consumer contracts where the business controls the choice of arbitrators, and can
afford the arbitration process more easily than can the consumer”); id. (including
“several consumer friendly amendments” in the RUAA because “as the use of
arbitration has increased, the view of many is that the arbitration process has been
slanted in the favor of business over consumers”). Thus, though this court could
not discern a particular significant injury suffered by a party opposing arbitration at
20
the time Brandon and Hercules were decided, today the Council has developed a
record that clearly recognizes that the injury suffered by a consumer who is
compelled to arbitrate with a commercial entity pursuant to an arbitration clause in
an adhesion contract is significant.
This court has also recognized that the policy that overwhelmingly favors
arbitration10 has been seriously called into question by the realization that all too
often, arbitration agreements are included in the language of contracts of adhesion,
which consumers must sign in order to make particular purchases. See, e.g.,
Keeton v. Wells Fargo Corp., 987 A.2d 1118, 1122 n.13 (D.C. 2010) (remanding
for the trial court to hold an evidentiary hearing and make factual findings as to the
unconscionability of the arbitration agreement, in particular with respect to
appellant’s argument that she lacked meaningful choice because “[i]f every
dealership in the region also imposes similar arbitration clauses in similar contracts
of adhesion, their existence would not amount to reasonable choice. Indeed,
according to our amicus, such clauses are nearly ubiquitous and it is not clear
10
See, e.g., Friend v. Friend, 609 A.2d 1137, 1139 (D.C. 1992) (citations
omitted) (referencing “the well-established preference for arbitration when the
parties have expressed a willingness to arbitrate. Federal and District of Columbia
statutes “are in agreement on the issue of favoring arbitration when the parties have
entered into a contract containing an arbitration clause”).
21
whether Ms. Keeton had access to another dealer who would not insist on a similar
contract containing a similar arbitration clause”). Contracts of adhesion are not,
of course, negotiable, such that consumers are often forced into agreeing to
arbitrate any claims arising out of the consumer transaction, thus forfeiting the
option to resort to the courts. See, e.g., Moore v. Waller, 930 A.2d 176, 182 (D.C.
2007) (citations omitted) (to prove that a contract is an adhesion contract, the party
challenging the contract must demonstrate that “the parties were greatly disparate
in bargaining power, that there was no opportunity for negotiation and that the
services could not be obtained elsewhere”).
Further, like litigation, arbitration can be costly and time-consuming, and
does not afford the consumer the same process as the courts. See generally
Christopher R. Drahozal, Arbitration Costs and Contingent Fee Contracts, 59
VAND. L. REV. 729 (2006). Finally, judicial review of arbitration
agreements—including the substantive fairness of those agreements—is extremely
limited, both at the trial court level as well as on appellate review. Lopata v.
Coyne, 735 A.2d 931, 940 (D.C. 1999) (citations omitted) (“Judicial review of an
arbitrator’s decision is extremely limited, and a party seeking to set it aside has a
22
heavy burden.”).11 Thus, we are satisfied that the current and frequent inclusion
of arbitration clauses in consumer contracts of adhesion justifies our conclusion
that a consumer compelled to arbitrate with a commercial entity pursuant to such a
clause suffers significant injury within the meaning of Carson, such that an order
compelling arbitration in this context operates as an order granting an injunction
and necessitates our immediate, interlocutory review under § 11-721 (a)(2)(A).
This is clearly a context in which, as the Supreme Court put it, interlocutory review
is “truly needed.” Gulfstream, 485 U.S. at 287.
Finally, though today we choose not to forsake our precedent and follow the
federal courts and the Gulfstream line of cases to hold that orders compelling
arbitration are not appealable, we point out that our decision today is not
incompatible with Gulfstream. Though the Supreme Court took the opportunity in
that case to overrule the “unworkable . . . arbitrary . . . and unnecessary”
Enelow-Ettelson rule that provided for automatic review of any order staying or
denying a stay of “legal” proceedings on an equitable basis, Gulfstream, 485 U.S.
at 287, the Court clearly intended that “[s]ection 1292 (a)(1) [the federal analogue
to D.C. Code § 11-721 (a)(2)(A)] [would] continue to provide appellate
11
The potential grounds for setting aside an arbitration award are outlined
by the statute, § 16-4423, which provides the very limited basis for vacating an
(continued . . .)
23
jurisdiction over orders that grant or deny injunctions and orders that have the
practical effect of granting or denying injunctions and have serious, perhaps
irreparable, consequence.” Id. at 287-88 (internal quotation marks and citations
omitted). For the reasons explained herein, we are satisfied that under
circumstances where a consumer is claiming that the arbitration clause in a
contract of adhesion is unconscionable, the (alleged) injury is serious enough to
meet the second prong of the Carson test and thus, we have jurisdiction to consider
an appeal under § 11-721 (a)(2)(A). We reserve judgment as to whether an appeal
of a ruling compelling arbitration that does not emanate from a challenge to an
arbitration clause in a contract of adhesion might lie in some other circumstance or
whether § 16-4427 as applied in other contexts might violate § 206 (a)(4) of the
Home Rule Act.
III. Merits Analysis
Having concluded that we have jurisdiction to hear an interlocutory appeal
from an order to compel arbitration and stay proceedings where the arbitration
agreement appears in a contract of adhesion entered into by a consumer and a
(continued . . .)
arbitration award.
24
commercial entity, we now consider whether the record in this case is one in which
appellate review is appropriate under the test set out above. Appellant contends
that this court is required to remand the case for further proceedings as we did
under similar facts in Keeton, because the trial court granted appellees’ motion to
compel arbitration without holding an evidentiary hearing or providing the parties
an opportunity to develop the record to determine whether the arbitration
agreement was unconscionable. We agree. Although the Keeton case involved a
different procedural posture, 12 the factual similarities between Keeton and the
present case convince us that this is a contract of adhesion and that appellant raised
a triable issue of fact as to the unconscionability of the arbitration agreement. We
see no appropriate basis for departing from that precedent in this case, and thus, we
remand the case to the trial court to hold an evidentiary hearing and make factual
findings as to the unconscionability of the arbitration agreement. See M.A.P. v.
Ryan, 285 A.2d 310, 312 (D.C. 1971); D.C. Code § 17-306 (2012 Repl.) (“The
District of Columbia Court of Appeals may . . . remand the cause and . . . require
12
The appeal in Keeton arose from the trial court’s dismissal of the
complaint with prejudice while compelling arbitration, a ruling this court
recognized was an “unambiguously final” order. 987 A.2d at 1121. In contrast,
the trial court’s ruling in the present case granted appellees’ motion to compel
arbitration but stayed the case pending resolution of the arbitration,
which—although not a final order—may nonetheless be subject to this court’s
jurisdiction as an interlocutory appeal where the arbitration agreement appears in a
contract of adhesion, as explained in the jurisdictional analysis above.
25
such further proceedings to be had, as is just in the circumstances.”).
In Keeton, the appellant, Ms. Keeton, brought suit against Easterns Auto and
Wells Fargo after she defaulted on a vehicle loan that had required her to make
loan payments totaling more than twice the fair market value of the car. 987 A.2d
at 1120. Appellees filed a motion to dismiss and compel arbitration, which the
trial court granted, dismissing the case with prejudice. Id. at 1121. Not only was
the contract at issue an adhesion contract, id. at 1119, but the appellant had alleged
sufficient facts tending to show that the contract was both procedurally and
substantively unconscionable. For example, Ms. Keeton argued that the
arbitration agreement was procedurally unconscionable because she lacked
meaningful choice in that she could not merely go to another dealership to obtain
financing without signing an arbitration agreement, and substantively
unconscionable because the terms of the arbitration agreement, which “reserv[ed]
some litigation avenues to Easterns while entirely barring Ms. Keeton from
seeking judicial action” were substantively unfair. Id. at 1122-23. Therefore,
noting that it was well-settled in this jurisdiction that a determination on the issue
of unconscionability “calls for a strongly fact-dependent inquiry” and “an
expedited evidentiary hearing,” neither of which the trial court had conducted, we
reversed and remanded the case with instructions that the trial court permit
26
discovery and hold an evidentiary hearing as to unconscionability of the arbitration
agreement. Id. at 1123. Specifically, we ordered that a record be developed with
respect to: “the significance of the imbalance of power in arbitrator selection
given Easterns’s status as a ‘repeat player’ in the arbitration system”; “the fact that
the clause reserv[ed] some litigation avenues to Easterns while entirely barring Ms.
Keeton from seeking judicial action”; and “the costs imposed on Ms. Keeton by
the arbitration procedure and their impact on her ability to seek redress.” Id.
As in Keeton, there are sufficient facts on the record from which it can be
inferred that the contract in the present case was a contract of adhesion. In finding
that the contract in Keeton was an adhesion contract, the court relied on the facts
that “Ms. Keeton signed a Buyer’s Order, a standardized-form contract with terms
prepared in advance by Easterns.” Keeton, 987 A.2d at 1121 n.2. The court noted
“[t]here is no evidence that any of the terms were open to negotiation or were, in
fact, negotiated.” Id. Here, similar allegations are made by the appellant and
those allegations are supported by evidence in the record before us. Appellant
signed AIC’s “Buyers Order” which contained set “terms and conditions” prepared
in advance by AIC on their standardized forms which were automatically accepted
27
by the purchaser upon signing the purchase contract. 13 Additionally, appellant
contends (and appellee does not dispute) that he could not have negotiated any
terms in the contract, as it was Mr. Ghasri, the AIC salesman, who structured the
transaction and brought the completed contract to appellant to simply sign. Thus,
we are satisfied that this contract is a contract of adhesion.
Further, appellant alleges procedural and substantive unconscionability. 14
He particularly disputes the validity of the arbitration clause, raising substantial
questions regarding whether the clause is unconscionable. In Keeton, appellant
alleged procedural unconscionability by asserting that she lacked meaningful
choice in that she could not merely go to another dealership to obtain financing
without signing a contract with an arbitration agreement. Id. at 1121. Appellant
makes the same argument here, and Wells Fargo Bank concedes that “arbitration
13
Although appellant intended to enter the contract as a guarantor of a loan
procured by Mr. Fadavi, the contract identifies appellant as the owner of the
vehicle. Under these facts, appellant has standing to make the claim that the
contract is unconscionable.
14
In light of appellant’s exclusive reliance on Wisconsin Auto Title Loans,
Inc. v. Jones, 714 N.W.2d 155 (Wisc. 2006) to support his argument in the trial
court that the arbitration agreement he signed was unconscionable, we interpret
appellant’s argument to be that the contract he signed, which appellant alleged was
a contract of adhesion, was both procedurally and substantively unconscionable.
28
clauses are an industry standard for automobile sales.” As the court noted in
Keeton:
If every dealership in the region also imposes similar
arbitration clauses in similar contracts of adhesion, their
existence would not amount to reasonable choice.
Indeed, according to our amicus, such clauses are nearly
ubiquitous and it is not clear whether Ms. Keeton had
access to another dealer who would not insist on a similar
contract containing a similar arbitration clause.
Keeton, 987 A.2d at 1122 n.13. Moreover, we have held that “the use of a
standardized form contract . . . is a fact substantially bearing on th[e] question” of
procedural unconscionability, and “where one is employed [] it is important for the
court to consider whether the seller identified and explained the terms of the
contract, particularly those which might be viewed as unusual or unfair.” Bennett
v. Fun & Fitness, Inc., 434 A.2d 476, 481 (D.C. 1981) (citing Williams v.
Walker-Thomas Furniture Co., 350 F.2d 445, 450 (D.C. Cir. 1965).
As Keeton states, “our well-settled unconscionability standard calls for a
strongly fact-dependent inquiry” and requires a court to conduct “an expedited
evidentiary hearing when parties dispute the validity of the arbitration clause.”
Keeton, 987 A.2d at 1119, 1121-22. There is no indication that the trial court here
undertook any such assessment despite appellant’s allegations in the complaint that
29
Mr. Ghasri, simply brought the completed contract to the appellant for him to sign
while he was on his shift at work, rather than in a setting where he could take a
moment to review and discuss the agreement.15
Appellant’s assertion of a triable issue of fact pertaining to the substantive
unconscionability of the arbitration agreement is also supported by the record.
For example, the trial court failed to consider how certain provisions in this
arbitration agreement reserve some litigation avenues to one party while “barring
[another] from seeking judicial action.” Keeton, 987 A.2d at 1122-23. The
arbitration agreement states that the parties “prefer to resolve their disputes through
arbitration, except that the Dealer . . . may proceed with Court action in the event
the Purchaser fails to pay any sums due under the Buyers Order or RISC.” This
exception is carved out for AIC despite the provision subjecting the parties to
“binding arbitration” under “all disputes” arising under “case law, statutory law,
and all other laws.” Additionally, the trial court erroneously found that the
agreement “did not preclude a class action,” when in fact the agreement states that
15
In fact, it appears that appellant either did not read the contract or did not
understand it, as the complaint alleges that he was not aware that the contract
established he was the owner of the vehicle until after Mr. Ghasri delivered the car
to Mr. Fadavi and Mr. Fadavi went to the D.C. Department of Motor Vehicles and
could not obtain a parking permit for his residence because appellant, the owner of
the vehicle, lived in a different zone.
30
“by entering into this Arbitration Agreement the parties are waiving their right to
bring or participate in any class action in court or through arbitration (this is
referred to below as the ‘class action waiver’).” Appellant had even brought to the
court’s attention various cases in which other courts found such clauses barring
class actions substantively unconscionable.
In sum, we find that this is a contract of adhesion and that appellant raised a
triable issue of fact as to the unconscionability of the arbitration agreement given
the similarities between Keeton and this case. The manner in which the trial court
summarily granted appellee’s request to compel arbitration, on the basis of the
limited pleadings, without permitting any discovery or conducting an evidentiary
hearing to develop the record with respect to unconscionability, makes it
impossible for us to decide whether this arbitration agreement can be enforced.
The unconscionability standard demands a more developed record, and just as in
Keeton, “the court’s ruling was premature at best.” Keeton, 987 A.2d at 1122.
Accordingly, the judgment is reversed and the case is remanded.
Reversed and remanded.