Global Client Solutions, LLC v. Ossello

Global Client Solutions, LLC v. Ossello, 2016 MT 50 (March 2, 2016) (McGrath C.J.; Wheat, J., concurring; McKinnon, J., dissenting) (5-2, aff’d)

Issue: (1) Whether the district court erred in reserving to itself the determination of arbitrability; and (2) whether the district court erred in determining that the arbitration provision was unconscionable and therefore not enforceable.

Short Answer: (1) No; and (2) no.

Denial of motion to dismiss and to compel arbitration affirmed

Facts: Ossello had more than $40,000 in unsecured debt in 2012 when she received an unsolicited mailing from World Law, advertising that it could provide debt relief services. Ossello called and spoke to a sale agent. Ossello and the agent reviewed several form agreements, which Ossello electronically signed, including a Client Services Agreement with World Law and a Dedicated Account Agreement (DAA) with Global Client Solutions.

The DAA established a non-interest-bearing account in an undisclosed bank, funded by an automatic monthly withdrawal of $589.29 from Ossello’s bank account, In reliance on the advice of the sales agent Ossello stopped making payments on her credit card debt. A year later, Discover Bank brought a collection action against her in district court. Ossello contacted World Law or Global, which sent her a form answer denying Discover’s allegations and directing her to file it pro se. Ossello filed the answer in November 2013, which denied that she had a Discover credit card and denied that she ever received monthly statements from Discover.

In June 2014, Ossello hired an attorney and filed an amended answer to Discover’s complaint and a third-party complaint against World Law and Global Solutions, alleging several claims. World Law defaulted in August 2014, but Global appeared and moved to compel arbitration and dismiss the complaint for lack of jurisdiction.

The DAA had a lengthy arbitration clause, and a clause awarding costs and fees to a party who has to compel arbitration. Thus, Global would be entitled to all of its attorney fees for this case if it were to prevail. However, Global reserved to itself in a separate paragraph the right to bring “collection actions” against Ossello and require her to pay all costs and attorney fees related to those actions.

The district court found that Ossello had directly challenged the arbitration clause in her complaint by alleging the DAA was unconscionable, and concluded it had jurisdiction to determine the validity of the arbitration clause. 

Procedural Posture & Holding: The district court held that the arbitration clause was unconscionable and therefore unenforceable. It determined that the DAA was a contract of adhesion because it was drafted by the stronger party, and Ossello’s only choices were to accept or reject, not to negotiate. It denied Global’s motion to dismiss and motion to compel arbitration. Global appeals and the Supreme Court affirms.

Reasoning: (1) Ossello specifically challenged the arbitration clause in response to Global’s motion to compel arbitration. The validity of a challenged arbitration clause is a question for the court, not the arbitrator, unless the parties delegate that issue to the arbitrator in their agreement. The Court finds no “clear and unmistakable” agreement to arbitrate questions of arbitrability in the contracts governing this case. Contract language is interpreted most strongly against the party who drafted the language. The word “termination” is not the same as “determination,” and the Court finds it is “unable to plainly construe its meaning.” ¶ 29. Additionally, the provision that the arbitration be “administered” by the American Arbitration Association is insufficient to delegate power to determine arbitrability.

(2) When a contractual arbitration clause requires one party to arbitrate all disputes but allows the other party the option of suing in court, the arbitration clause is one-sided. The U.S. Supreme Court has denied cert in three state court cases holding an arbitration clause unenforceable for mutuality of consideration shows that “Concepcion has not wholly preempted an unconscionability defense premised upon lack of mutuality of obligation in actions in which an arbitration clause is challenged.” ¶ 39. Here, Global reserved to itself the right to litigate its primary claim while requiring Ossello to arbitrate any claims she might have against Global.

Justice Wheat’s Concurrence (joined by Chief Justice McGrath and Justice Shea): “Surely Congress, in enacting the FAA, did not intend to enable con men and charlatans to place themselves and their fraudulent schemes out of the reach of our courts simply by inserting arbitration language or a ‘delegation’ clause into an otherwise fraudulent contract.” ¶ 50.

Justice McKinnon’s Dissent (joined by Justice Rice): Justice McKinnon believes this case is controlled by Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010), and its requirement that a delegation provision in an arbitration clause be specifically challenged as unenforceable. Justice McKinnon would also conclude that the evidence that arbitrability is to be decided by an arbitrator is “clear and unmistakable.” Finally, she would conclude that the non-mutuality of remedies in the DAA did not render the arbitration agreement unenforceable.