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In a suit against a payday lender, a Florida trial court ruled that a bar on class-wide proceedings was unconscionable and therefore unenforceable. However, instead of invalidating the arbitration agreement, the Court severed the offending provision and ordered arbitration.
In Reuter v. Davis, No. 502001CA001164XXXXMB, 2006 WL 3743016 (Fla. Cir. Ct. Dec. 12, 2006), Reuter sued payday lender Check 'N Go for allegedly violating Florida's usury laws and two consumer protection statutes.
Check 'N Go filed a motion to compel arbitration based on an arbitration clause in the loan agreement. Reuter argued that the arbitration agreement's bar on class-wide proceedings rendered the arbitration agreement unconscionable.
The Court approached the unconscionability issue using a "sliding scale," whereby procedural and substantive unconscionability are treated "as a single quantum." The Court found "slight evidence of procedural unconscionability" based on the scarcity of borrowing opportunities that did not require arbitration and on Reuter's inability to understand "college level" language in the arbitration clause.
Turning to the other end of the sliding scale, the Court found "overwhelming" evidence of substantive unconscionability. Specifically, the Court found that the bar on class-wide proceedings rendered the arbitration agreement substantively unconscionable because it would have been "virtually impossible" for Reuter to obtain competent counsel in light of the sophisticated legal issues, the small amount at issue, and the supposed difficulty of collecting judgments from a business such as Check 'N Go.
Despite its finding of unconscionability, the Court did not invalidate the arbitration agreement. Instead, the Court severed the bar on class-wide proceedings and ordered arbitration.
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