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A federal court in Nebraska held that an arbitration agreement in a debt-elimination agreement was unconscionable because it required unsophisticated, indebted consumers in Nebraska to agree to arbitrate all disputes in Texas, therefore essentially shielding the corporation from liability for its actions.
In Hollins v. Debt Relief of America, No. 8:06CV508, 2007 WL 911883 (D. Neb. Mar. 21, 2007), Debt Relief of America (DRA), a Texas corporation offering programs to allow consumers to eliminate debt, advertised its services in Nebraska. Hollins, a Nebraska resident, entered into an agreement with DRA to eliminate his debt.
The parties' agreement contained an arbitration clause, which required that any disputes be arbitrated in Texas in accordance with National Arbitration Forum's Code of Procedure. Hollins brought claims against DRA, alleging that he paid DRA over $4,000 and that DRA did not manage his debts.
When DRA brought a motion to compel arbitration, Hollins claimed that the arbitration agreement was unconscionable. The Court agreed with Hollins and refused to compel arbitration.
According to the Court, the arbitration agreement was buried in boilerplate of the parties' agreement and offered on a take-it-or-leave-it basis. Additionally, the Court focused on the fact that DRA, by requiring unsophisticated, indebted consumers in Nebraska to arbitrate any claims against it in Texas, made "arguably a calculated decision . . . to insulate itself from its malfeasance."
It is important to note that the National Arbitration Forum Code of Procedure requires that an arbitration filed against a consumer party be conducted in a reasonably convenient location within the federal judicial district where the consumer resides. Therefore, had the dispute proceeded to arbitration, the Texas forum provision would not have been enforced.
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