APPEAL FROM: District Court of the Thirteenth Judicial District, In and For the County of Yellowstone, Cause No. DV 11-1355 Honorable Russell C. Fagg, Presiding Judge
The opinion of the court was delivered by: Brian Morris
Submitted on Briefs: November 21, 2012
Justice Brian Morris delivered the Opinion of the Court.
¶1 Tiffany Kelker (Kelker) submitted an online application for a payday loan with Geneva-Roth Ventures, Inc. (Geneva-Roth). Geneva-Roth charged Kelker an interest rate of 780% APR. The Loan Agreement, which Kelker signed electronically, contained an arbitration clause. Kelker brought a putative class action against Geneva-Roth for charging an interest rate higher than the 36% APR permitted by the Montana Consumer Loan Act for payday loans, § 32-5-301, MCA. Geneva-Roth filed a motion to compel arbitration pursuant to the arbitration clause in the Loan Agreement. The District Court deemed the arbitration clause unenforceable and denied Geneva-Roth's motion. Geneva-Roth appeals.
¶2 Geneva-Roth raises the following issue on appeal:
¶3 Whether the District Court should have compelled arbitration pursuant to the arbitration clause in the loan agreement.
PROCEDURAL AND FACTUAL BACKGROUND
¶4 Kelker, a Montana resident, submitted an online application at Geneva-Roth's website, www.loanpointusa.com, for a $600 "payday loan" on January 14, 2011. Geneva-Roth, a non-resident of Montana, charged Kelker an interest rate of 780% APR. Geneva-Roth ultimately withdrew electronically over $1,800 in interest charges from Kelker's bank account.
¶5 To complete her loan application, Kelker clicked on a box that stated that she had read, understood, and agreed to be bound by the terms of the Loan Agreement, and that she understood that by typing in her name in a separate box, she was electronically signing her loan application. The full text of the eight-page Loan Agreement was not visible on Kelker's computer screen unless she scrolled down. The Loan Agreement included a clause to compel arbitration for "any claim, dispute, or controversy" that arose out of the agreement. Geneva-Roth used bold font and all capital letters to draw attention to certain provisions of the Loan Agreement. Geneva-Roth did not highlight the arbitration clause in this manner.
¶6 The disputes purportedly governed by the arbitration clause include "the validity of this agreement to arbitrate disputes." Geneva-Roth agreed to waive the "[c]ustomer's arbitration fees" in the event that the customer could not afford to pay them. The arbitration clause provides no guidance, however, as to the standard to employ to make this determination or who would be empowered to make this determination. The clause further provides that any arbitration hearing would "take place at a location near Customer's residence." The clause provides no guidance as to what constitutes "near."
¶7 Kelker brought a putative class action in which she alleges that the 780% interest rate charged by Geneva-Roth violated the Montana Consumer Loan Act, § 32-5-301, MCA. Kelker also claimed that the loan itself was unconscionable, that Geneva-Roth had engaged in unfair, deceptive, or fraudulent practices in making and collecting on the loan, that Geneva-Roth had failed to provide the disclosures required under the Montana Consumer Loan Act, and that Geneva-Roth had engaged in business in Montana without a valid license.
¶8 Geneva-Roth sought to compel arbitration pursuant to the arbitration clause in the Loan Agreement. The District Court deemed the arbitration clause unenforceable and denied Geneva-Roth's motion to compel arbitration. Geneva-Roth appeals. We affirm.
¶9 We review de novo a district court's order to compel arbitration. Mardsen v. Blue Cross & Blue Shield of Mont., Inc., 2012 MT 306, ¶ 8, 368 Mont. 34, 291 P.3d 1229; Solle v. Western States Ins. Agency, 2000 MT 96, ¶ 8, 299 Mont. 237, 999 P.2d 328.
¶10 Whether the District Court should have compelled arbitration pursuant to the arbitration clause in the Loan Agreement.
¶11 Agreements to arbitrate generally represent valid and enforceable contracts under Montana law. Kortum-Managhan v. Herbergers NBGL, 2009 MT 79, ¶ 15, 349 Mont. 475, 204 P.3d 694; § 27-5-114, MCA. Federal policy similarly places arbitration agreements on equal footing with other contracts. 9 U.S.C. § 2; AT&T Mobility LLC v. Concepcion, ___ U.S. ___, 131 S. Ct. 1740, 1745 (2012). The Federal Arbitration Act (FAA) governs contracts that involve interstate commerce. 9 U.S.C. § 2; Perry v. Thomas, 482 U.S. 483, 489, 107 S. Ct. 2520, 2525 (1987).
¶12 The U.S. Supreme Court has clarified that, under the FAA, when a party challenges the validity of a contract as a whole, an arbitrator should resolve that dispute in the first instance. Nitro-Lift Techs., L.L.C. v. Howard, ___ U.S. ___, 133 S. Ct. 500, 503 (2012). When a party challenges the validity of the arbitration clause in a contract, however, a court may resolve that dispute in the first instance. Nitro-Lift, ___ U.S. ___, 133 S. Ct. at 503. In reviewing the validity of the arbitration clause, however, a state court must apply state law that arose to govern the validity, revocability, and enforceability of contracts generally. Kortum-Managhan, ¶ 17; Concepcion, ___ U.S. at ___, 131 S. Ct. at 1746.
¶13 Kelker challenges both the validity of the arbitration clause of the Loan Agreement and the validity of the entire Loan Agreement. We consider only Kelker's challenge to the arbitration clause of the Loan Agreement. A party cannot be forced to arbitrate a dispute that she has not agreed to submit to arbitration. State ex rel. Bullock v. Philip Morris, Inc., 2009 MT 261, ¶ 15, 352 Mont. 30, 217 P.3d 475. A court should first determine whether the parties agreed to arbitrate a matter. Bullock, ¶ 15; Solle, ¶ 22.
¶14 Kelker contends that generally applicable Montana contract law renders the arbitration clause unenforceable. Kelker relies on Kortum-Managhan in urging this Court to find the arbitration clause unenforceable. Geneva-Roth concedes that this Court can determine the validity of the arbitration clause itself. Geneva-Roth argues, however, that the arbitration agreement cannot be deemed invalid under generally applicable Montana contract law. Geneva-Roth further argues that Concepcion changed the way that the U.S. Supreme Court interpreted the FAA, and, therefore, pre-empted our analysis of the FAA set forth in Kortum-Managhan.
¶15 Concepcion struck down the California "Discover Bank" rule that deemed unconscionable all arbitration clauses that prevented class actions. Concepcion, ___ U.S. at ___, 131 S. Ct. at 1746. The Court determined that the FAA preempted state law rules, such as the "Discover Bank" rule, that prohibit outright the arbitration of a particular type of claim. Concepcion, ___ U.S. at ___, 131 S. Ct. at 1747. The Court specifically reiterated, however, that the FAA preserves "generally applicable contract defenses, such as fraud, duress, or unconscionability." Concepcion, ___ U.S. at ___, 131 S. Ct. at 1746, citing Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687, 116 S. Ct. 1652, 1656 (1996). The Court also cited Doctor's Associates for the proposition that these generally applicable contract formation defenses cannot be available solely to challenge an arbitration clause, or derive their meaning from the fact that an agreement to arbitrate is at issue. Concepcion, ___ U.S. at ___, 131 S. Ct. at 1746.
¶16 We recognized in Kortum-Managhan that the FAA permits this Court to apply only law that arose "to govern issues concerning the validity, revocability, and enforceability of contracts generally" to determine the validity of an arbitration clause. Kortum-Managhan, ¶ 17. The Court also cited Doctor's Associates in Kortum-Managhan for this same proposition. Kortum-Managhan, ¶ 17. Concepcion restated the law on which this Court relied in Kortum-Managhan: that generally applicable contract law governs the validity of an arbitration clause. Concepcion, ___ U.S. at ___, 131 S. Ct. at 1746. ...