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In granting a lender’s motion to compel arbitration, a federal court in Pennsylvania rejected a borrower’s claims of procedural and substantive unconscionability, holding that challenges to a contract’s allegedly unfair terms, as a whole, go to the merits of a claim and should be heard by an arbitrator.
In Martin v. Delaware Title Loans, Inc., No. 08-3322, 2008 WL 4443021 (E.D. Pa. Oct. 1, 2008), Martin needed to purchase insurance for two cars that he owned, and due to bad credit, he sought to borrow money to buy the insurance. Martin entered into a loan contract with Delaware Title to borrow money, and the contract provided for an interest rate of 299.99%. The contract also contained an arbitration agreement.
After making payments on the loan for one year and paying twice the amount borrowed without any reduction in the balance of the loan, Martin sued Delaware Title. Martin alleged that the interest rate violated Pennsylvania’s usury statute, and that the loan contract as a whole was unconscionable and therefore unenforceable.
Delaware Title moved to compel arbitration pursuant to the arbitration agreement in the contract. Martin opposed, arguing that the arbitration agreement was unconscionable.
The Court granted Delaware Title’s motion to compel, holding that Martin failed to prove the arbitration agreement was either procedurally or substantively unconscionable. Martin argued that the loan contract was procedurally unconscionable because he was not given the opportunity to negotiate its terms, such as the interest rate, arbitration agreement, and choice of law. The Court rejected Martin’s argument, finding that such allegations related to the merits of Martin’s claims.
Furthermore, the Court noted that the arbitration agreement provided Martin with an unconditional right to reject the arbitration agreement without affecting any other provision of the loan contract, as long as Martin did so within fifteen days after the date the contract was signed. Martin did not reject the arbitration agreement. Thus, the Court found that there was no indication from the formation of the contract or Martin’s review of its contents before signing that Martin did not truly assent to the contract’s terms.
Martin also challenged the contract as a whole, arguing that it was unconscionable because it was a preprinted form contract presented on a “take-it-or-leave-it” basis. The Court held that such an argument was a matter for the arbitrator, not a court, to hear. Citing Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), the Court observed that where a challenge is to the validity of a contract as a whole rather than its arbitration agreement, the dispute must be resolved by an arbitrator, not the court. Thus, the Court granted Delaware Title’s motion to compel arbitration.
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