Feb. 13, 2013 – The Wisconsin Supreme Court may decide whether several consumers who borrowed money against their car titles are bound by arbitration clauses that a trial court has found to be unconscionable.
Last week, the Wisconsin Court of Appeals issued a certification in Jones v. Wisconsin Auto Title Loans Inc., a case that began in 2002 when a consumer, Kenneth Jones, complained that Wisconsin Auto Title Loans Inc. (Auto Title) was peddling high interest loans and hidden costs encompassed within arbitration clauses in title loan documents.
Specifically, Jones alleged that Auto Title engaged in unconscionable and misleading sales practices in violation of state law. He filed a lawsuit in circuit court in 2002. A trial court denied Auto Title’s motion to compel arbitration under the agreement Jones signed.
In 2005, an appeals court upheld that ruling. In 2006, the Wisconsin Supreme Court affirmed in Jones II, concluding that the arbitration clause was unconscionable.
The supreme court’s Jones II decision allowed Jones and other consumers to pursue their claims in circuit court. Now, the case may return to the supreme court.
In 2011, after consolidation of the consumer cases, Auto Title filed another motion to compel arbitration, citing the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), and a state appeals court decision in Cottonwood Financial, Ltd. v. Estes, 339 Wis. 2d 472, 810 N.W.2d 852 (Cottonwood II).
In Concepcion, the nation’s high court ruled (5-4) that the Federal Arbitration Act (FAA), section 2, preempts state laws and court rulings that invalidate class action waivers in arbitration agreements based on principles of unconscionability.
In Cottonwood II, the appeals court followed Concepcion to uphold a class action waiver within an arbitration agreement despite the claim that it was unconscionable.
However, the trial court in the current dispute ruled that Concepcion does not overrule the unconscionability arguments asserted by the consumers in this case. It denied the motion to compel arbitration, finding both procedural and substantive unconscionability.
Now, the appeals court is asking the supreme court to determine if the trial court’s order denying the motion to compel arbitration is immediately appealable, and if so, if the order is permitted under Concepcion and Cottonwood II.
The appeals court certification states: “The parties’ arguments essentially boil down to one question – did Concepcion overrule Jones II?”
Auto Title argues that Concepcion does not allow the court to deny its motion to compel arbitration on grounds of unconscionability. The consumers say Concepcion and Cottonwood II apply only to class action waivers, among other arguments.
“According to the consumers, these cases merely held that the waiver of classwide proceedings in an arbitration clause could not, by itself, render an agreement substantively unconscionable,” the appeals court wrote in the certification.
The consumers also argue that the arbitration agreements are unenforceable under the federal McCarran-Ferguson Act, which requires insurance products to be submitted to the state’s insurance commissioner. Allegedly, the Auto Title Loans’ arbitration agreements induced membership to the “Continental Car Club,” an insurance product.
The appeals court certified the case, noting that only the supreme court can overrule or modify previous supreme court decisions, and the court’s ruling in Jones II is at issue. Cases on certification will be accepted if a majority of justices agree to accept it.