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In Tillman v. Commercial Credit Loans, Inc., No. COA05-924, 2006 WL 1526826 (N.C. App. Jun 06, 2006), Tillman and several other consumers attempted to file a class action lawsuit against Commercial Credit, alleging several consumer protection violations. When Commercial Credit filed a motion to compel arbitration based on its agreement with the consumers, the consumers argued that the arbitration clause was unconscionable because (1) the costs of arbitration were prohibitively high; (2) the arbitration clause contained a class action prohibition; and (3) the agreement lacked mutuality.
The trial court found the arbitration clause to be unconscionable, but that decision was reversed by the Court of Appeals, which soundly rejected each of Tillman’s arguments.
Tillman argued that a prohibition of class actions was unconscionable because without the class action vehicle, consumers would be deterred from bringing claims for small dollar amounts. But the Court immediately exposed the flaw in this argument: that the consumer protection statute underlying Tillman’s claims provided for recovery of costs and attorney’s fees.
The Court continued, explaining that Tillman’s argument, and the trial court’s decision, “is contrary to the great majority of federal and state courts that have examined and ruled upon the issue.” In support, the Court cited several cases upholding the use of class action waivers in arbitration agreements, including Snowden v. CheckPoint Check Cashing, 290 F.3d 631 (4th Cir. 2002), cert. denied, 537 U.S. 1087 (2002); Jenkins v. First American Cash Advance of Georgia, 400 F.3d 868 (11th Cir. 2005), cert. denied, 164 L. Ed. 2d 132 (2006); Livingston v. Associates Finance, Inc., 339 F.3d 553 (7th Cir. 2003); Iberia Credit Bureau, Inc. v. Cingular Wireless, 379 F.3d 159 (5th Cir. 2004); Johnson v. West Suburban Bank, 225 F.3d 366 (3rd Cir. 2000); and several state court decisions.
The Court concluded that class action waivers do not “necessarily choke off the supply of lawyers willing to pursue claims on behalf of debtors.” Johnson, 225 F.3d at 374.
The Court also considered Tillman’s other arguments, and found fatal flaw in his claim that the costs of arbitration rendered the agreement unconscionable. (See North Carolina Court Rejects Consumer’s “Apples to Oranges” Argument About the Costs of Arbitration Compared to Litigation.)
Finally, the Court rejected the notion that the agreement lacked mutuality. The Court noted that neither party could force the other to arbitrate an excluded claim, and both were bound to arbitrate included claims. Hence, Tillman’s mutuality argument failed.
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