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
2
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
3
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).
4
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’
5
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.
6
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.
7
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
8
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.
9