Overstreet v. Contigroup Companies, Inc.

United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
August 23, 2006
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 05-60953

GERTRUDE OVERSTREET,

Plaintiff-Appellee,

VERSUS

CONTIGROUP COMPANIES, INC.,
formerly known as Continental Grain Company;

WAYNE FARMS, LLC,

Defendants-Appellants.

Appeal from the United States District Court
for the Southern District of Mississippi

Before DAVIS, BARKSDALE, and DeMOSS, Circuit Judges.

DeMOSS, Circuit Judge:

INTRODUCTION

Defendants-Appellants Contigroup Companies, Inc. and

Wayne Farms, LLC (collectively, “Appellants”) appeal the

district court’s denial of their motion for stay and to

compel arbitration. The court denied the motion after

concluding that the arbitration clause in the parties’

governing contract was unconscionable as it applied to
Plaintiff-Appellee Gertrude Overstreet (“Appellee”). For

two separate reasons, we REVERSE and REMAND the case to

the district court with instructions.

FACTUAL BACKGROUND

For twenty-seven years, Appellee was a chicken farmer

in Mississippi; and from 1976 to 2001, she raised

chickens for Appellants. The parties’ relationship was

governed by a series of written contracts, the last of

which is the subject of this lawsuit.

The contract, entered into in Mississippi on February

14, 2001, provided that (1) Appellants would supply

Appellee with baby chickens, feed, and medication, (2)

Appellee would raise and care for the chickens, and (3)

Appellants would pay Appellee monthly for her services.

The contract also included detailed guidelines for

raising the chickens in a manner acceptable to

Appellants.

In addition, the contract had an arbitration clause,

which stated that any controversy between the parties,

whether or not it related to the contract, was to be

settled by arbitration. Arbitration was to take place

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before a panel of three arbitrators and was to be paid

for by the parties in equal shares. The arbitration

clause also contained an express waiver by both parties

of exemplary, punitive, and consequential damages.

Finally, the contract contained a choice of law

provision. The clause, applicable to the entire contract,

stated that the contract “shall be governed by, and

interpreted and construed in accordance with, the laws of

the State of Georgia . . . .”

On April 13, 2001, approximately two months after

signing the contract, Appellee sold her chicken farm and

sent Appellants a letter informing them that she would no

longer raise chickens.

PROCEDURAL HISTORY

On April 12, 2004, Appellee filed suit against

Appellants in Mississippi state court. In her complaint,

Appellee alleged that (1) Appellants fraudulently or

negligently induced her into growing chickens for them,

(2) Appellants’ guidelines for raising the chickens

required her to use chemicals that damaged her former

farm, and (3) Appellants wrongfully terminated the

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contract.

In June 2004, Appellants removed the case to the

United States District Court for the Southern District of

Mississippi. Two weeks later, Appellants, pointing to the

contract’s arbitration clause, filed a motion for stay

and to compel arbitration.

Appellee opposed the motion, arguing that the

arbitration clause and the contract in its entirety were

unconscionable. The district court did not address the

validity of the contract as a whole.1 But after

calculating the expected cost of arbitration pursuant to

the arbitration clause, and after considering that cost

in light of Appellee’s financial situation at the time of

litigation, the district court found the arbitration

clause unconscionable. Therefore, the court denied

Appellants’ motion for stay and to compel arbitration.

This timely appeal followed.

1
We too decline to address whether the contract in its entirety was
unconscionable. Validity of a contract as a whole is to be determined by the arbitrators,
and federal courts are limited to reviewing the arbitration clause itself. See Buckeye
Check Cashing, Inc. v. Cardegna, __ U.S. __, 126 S.Ct. 1204, 1209 (2006); see also
Banc One Acceptance Corp. v. Hill, 367 F.3d 426, 430 (5th Cir. 2004).
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 DISCUSSION

We review de novo a district court’s denial of a

motion to compel arbitration. Banc One Acceptance Corp.

v. Hill, 367 F.3d 426, 428 (5th Cir. 2004).

As an initial matter, the parties disagree on

whether, in deciding the unconscionability issue,

Mississippi or Georgia law applies. The district court

decided that Mississippi and Georgia law are “essentially

the same” and used both in its analysis. To the extent

that the court relied on Mississippi law in addressing

the unconscionability issue, it erred.

As we discussed above, the only issue properly before

us is the validity of the arbitration clause itself, not

the validity of the contract in its entirety. See Buckeye

Check Cashing, Inc. v. Cardegna, __ U.S. __, 126 S. Ct.

1204, 1209 (2006); see also Banc One Acceptance Corp.,

367 F.3d at 430 (5th Cir. 2004). As a result, at least

for the purposes of our analysis, the validity of the

Georgia choice of law provision applicable to the

parties’ contract has not been called into question.

Therefore, we see no reason to disregard the parties’

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agreement to apply Georgia law to their contract. We turn

now to the question of whether the arbitration clause

itself was unconscionable under Georgia law.

The district court held that the arbitration clause

was unconscionable because arbitration pursuant to that

clause would cost Appellee between $27,500 and $29,000.2

The court reasoned that the cost made the clause

unconscionable because Appellee is now extremely poor. As

evidence of Appellee’s current financial status, the

court considered the following facts in the record:

Appellee and her husband (1) receive less than $1,000 per

month in social security benefits, (2) own no land, (3)

have no cash savings, (4) receive food stamps, and (5)

2
The court also stated that the cost was especially troubling considering that the
contract waived both parties’ right to recover exemplary, punitive, and consequential
damages. Appellee on appeal continues to argue that the waiver rendered the arbitration
clause unconscionable. However, under Georgia law, parties are free to contractually
limit their available remedies, and such limitations are valid and binding. See, e.g.,
Imaging Sys. Int’l, Inc. v. Magnetic Resonance Plus, Inc., 490 S.E.2d 124, 127 (Ga.
App. 1997); Mark Singleton Buick, Inc. v. Taylor, 391 S.E.2d 435, 437 (Ga. App.
1990). Even if the issue were undecided under Georgia law, because we resolve all
doubts in favor of arbitration, Inv. Partners, L.P. v. Glamour Shots Licensing, Inc., 298
F.3d 314, 316 (5th Cir. 2002), we would be forced to conclude that the waiver did not
render the arbitration clause unconscionable under Georgia law. Thus, the district court
erred in its unconscionability analysis by attributing significance to the arbitration
clause’s waiver of certain damages.
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rely on Medicaid to pay for their required medical

prescriptions.

The district court erred by relying entirely on facts

relating to Appellee’s current financial status. It is

well-established under Georgia law that unconscionability

is analyzed by looking to “the circumstances existing at

the time the contract was made, rather than those

existing . . . later.” Results Oriented, Inc. v.

Crawford, 538 S.E.2d 73, 79 (Ga. App. 2000), aff’d, 548

S.E.2d 342 (Ga. 2001); William J. Cooney, P.C. v.

Rowland, 524 S.E.2d 730, 733 (Ga. App. 1999) (emphasis

added).

Unfortunately for Appellee, the record is devoid of

facts pertaining to her financial situation when the

contract was executed in February 2001. For example,

Appellee’s food stamp receipt is dated July 12, 2005; her

and her husband’s social security claim forms are from

2005; and the medication list indicates what medication

her husband was required to take in 2005. None of these

documents shed light on Appellee’s financial situation in

February 2001.

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 Appellee also relies heavily on the fact that she now

owns no real property and has no cash savings. But the

record does not show, nor does Appellee even state, that

she had no cash savings when the contract was executed.

Furthermore, the record shows that even though she now

owns no real property, at the time she signed the

contract she did in fact own her farm (which she later

sold).

We have made clear in the past that the party

resisting arbitration shoulders the burden of proving

that the dispute is not arbitrable. Am. Heritage Life

Ins. Co. v. Lang, 321 F.3d 533, 539 (5th Cir. 2003).

Appellee signed a contract containing an arbitration

clause; and she is now resisting arbitration. However,

Appellee has not carried her burden of showing that the

dispute is not arbitrable, because she failed completely

to address the circumstances existing at the time the

contract was made.

Additionally, Georgia courts have viewed with great

skepticism claims of unconscionability based on

arbitration costs and economic disadvantage. The Georgia

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Supreme Court has affirmed that “undisclosed arbitration

fees [cannot] be the basis for unconscionability,”

Crawford, 548 S.E.2d at 343; and a Georgia appellate

court has stated that “economic disadvantage of one

attacking arbitration will not amount to

unconscionability.” Results Oriented, Inc., 538 S.E.2d at

81. Therefore, for this additional reason, the district

court erred in finding the arbitration clause

unconscionable.

CONCLUSION

For the foregoing reasons, we REVERSE the district

court’s order denying Appellants’ motion for stay and to

compel arbitration. And we REMAND the case with

instructions that the district court stay the proceedings

and order the parties to arbitrate their dispute.

REVERSED and REMANDED with instructions.

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