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The Georgia Supreme Court is considering two very different appeals that challenge the scope of mandatory arbitration in the state. In one case, a mobile home buyer claims that oppressive fees associated with mandatory arbitration in a sales contract are unconscionable and thus make the contract unenforceable. In another case, a lawyer is hoping to end the State Bar’s rule that effectively requires attorneys to arbitrate fee disputes. Both cases, which were argued before the court this week, raise fundamental concerns about the fairness of barring citizens from court and forcing them to resolve their disputes in an alternative forum. Advocates of arbitration cite its efficiency and cost-effectiveness. But arbitration clauses are really designed to prevent consumers from obtaining relief, says Carrollton, Ga., sole practitioner T. Michael Flinn, who represents the consumer in the first case. “If arbitration clauses were designed for efficiency and cost-effectiveness, [the contract drafters] would have eliminated consumer expense,” Flinn says. In August of 1997, Flinn’s client, auto mechanic Ray M. Crawford, agreed to pay approximately $76,000 for a mobile home. A manager at the mobile home seller, Results Oriented Inc., in Villa Rica, Ga., presented Crawford with a one-inch-thick stack of documents to sign on the day of the purchase, and assured him they were standard papers for the sale of a mobile home. Crawford, of Carroll County, Ga., signed a document that provided that all disputes arising out of the purchase be resolved by binding arbitration. Green Tree Financial Servicing Corp., a subprime financing company, financed the sale conditioned on Crawford’s acceptance of the arbitration agreement. Crawford claims he later learned that the contract requires him to bear substantial costs associated with any arbitration, effectively discouraging him from taking his claim to arbitration. According to Crawford’s suit, he would have to pay more than $1,000 just to enter the forum, as well as other administrative costs. Crawford alleges that the mobile home he purchased had numerous defects. After a year of trying to get Results or the home’s manufacturer, Cavalier Homes of Alabama Inc., to fix the problems, Crawford decided to take the dispute to arbitration. Only then did he learn of the costs he would have to pay if he wanted to arbitrate. In October of 1998, Crawford sued Cavalier Homes, Results Oriented and Green Tree in the State Court of Carroll County. The defendants all moved to dismiss the case and to compel arbitration. The trial court denied their motions, ruling that the arbitration provision was unconscionable. But on July 31, 2000, the Court of Appeals reversed that ruling. “[T]he trial court committed legal error by not following substantial precedent holding that arbitration clauses in consumer contracts are enforceable under the Federal Arbitration Act,” a Court of Appeals panel led by Presiding Judge Gary B. Andrews concluded. Judge John H. Ruffin Jr. and John J. Ellington concurred. A HOT BENCH But on Tuesday Victoria S. Nugent, one of the lawyers representing Crawford during his appeal, urged the especially inquisitive Georgia Supreme Court justices to reverse the Court of Appeals. Nugent, of Washington, D.C.’s Cohen, Milstein, Hausfeld & Toll, portrayed Crawford as an unsophisticated consumer being duped by a large company through its use of prohibitively expensive, undisclosed arbitration fees. The seller, Nugent intimated, meant to bar access to any forum in which claims against it could be resolved. Nugent agreed to present the appeal for the Trial Lawyers for Public Justice, a Washington group that agreed to handle the appeal after Flinn contacted them to request they submit an amicus brief. “Is there any evidence in the record as to what the arbitration fee would be?” Presiding Justice Norman S. Fletcher asked. Nugent replied that Crawford would at least be responsible for an initial filing fee of $1,250 and a daily administrative fee of $150. He also might be responsible for some or all of the arbitrator’s compensation, which averages $700 per day, Nugent said. But Crawford did have the opportunity to read the contract? Fletcher asked. “Yes. But the fees weren’t disclosed,” Nugent said. Crawford can bring a suit in state court for just $65, regardless of his ability to pay the judge or rent courtroom space, she said. Do you want the court to require that specific fees be disclosed in an arbitration agreement? Justice P. Harris Hines asked. Nugent replied that the consumer should certainly be alerted to the initial filing fees. “The second piece is that these fees need to be affordable as well,” she said. “What economic effect would it have to declare the contracts unconscionable?” Chief Justice Robert Benham asked. “What will it mean for the industry of this state?” Consumers will be able to litigate in court; merchants shouldn’t be able to insulate themselves through arbitration clauses, Nugent answered. QUESTIONS FOR DEFENSE Lawyers for the appellees also faced tough questions from the court. Thomas S. Kenny of Kenny & Solomon in Duluth, Ga., argued on behalf of Green Tree. A recently decided U.S. Supreme Court case is “almost completely on point,” Kenny told the justices. That case, Green Tree Financial v. Randolph, 531 (Dec. 11, 2000), also involved the buyer of a mobile home who claimed an arbitration agreement wasn’t enforceable because of arbitration’s costs. In Randolph, the U.S. Supreme Court reversed in part an 11th U.S. Circuit Court of Appeals decision, finding that the risk of the purchaser being saddled with prohibitive costs in arbitrating was too speculative to invalidate the clause. “Are we bound by the federal law?” Chief Justice Benham asked. “You’re saying that we are precluded by the federal rule from deciding state issues?” Justice Carley chimed in. “No,” Kenny replied. “But the state court may only determine whether the making of the arbitration clause violated some general contract principal. The burden has always been on the petitioner to show why [a contract] is not enforceable. . … A bedrock principal in Georgia law, like other states, is that you have a duty to read [the contract].” Beth S. Reeves, of Atlanta’s Mabry & McClelland, argued for Cavalier Homes. Crawford presented no evidence that the costs of arbitration would be prohibitive to him, she argued. “How do you prove that without going through the arbitration process?” Hunstein asked. “Without a record on those issues, the court cannot simply speculate that the costs might be prohibitive,” Reeves replied. “Arbitration could have gone forward and Crawford [through the granting of a waiver by the arbitrators] could never have paid a dime,” she continued. “Does the existence of an arbitration clause allow you to have a smaller price for your product?” Benham asked. Reeves said she didn’t know, but that arbitration is generally “quicker, cheaper and more expeditious for everyone.” AMICI WEIGH IN The Atlanta Legal Aid Society, a nonprofit organization, and the Georgia Legal Services Program, a not-for-profit law firm, filed a joint amicus brief on behalf of Crawford. Both groups provide legal services in civil matters to poor persons who are unable to obtain representation with private lawyers. Using mandatory arbitration clauses in ways sanctioned by the Court of Appeals decision can put a variety of wrongs beyond any remedy with potentially devastating results, the amici argued in their brief. “The decision below effectively determines that a mandatory arbitration provision is not unconscionable, even if it forecloses on all remedies to a consumer too poor to afford arbitration below,” the amici explained. Also weighing in as amici were representatives of the banking industry, who frequently include arbitration agreements in their contracts. “Arbitration is heavily favored by federal law and is beneficial to consumers,” John T. Marshall of Atlanta’s Powell, Goldstein, Frazer & Murphy wrote for the Georgia Financial Services Association and other banking groups. There is a heavy burden on the person seeking to invalidate an agreement, and all presumption must favor arbitration, the groups maintained. According to Victor L. Modovan of Phears & Moldovan in Norcross, Ga., who represents Results Oriented, the importance of this case depends on how the Georgia Supreme Court rules. If the court finds for Crawford, businesses using arbitration clauses are going to have to take a hard look at how those clauses are written, Moldovan says. Crawford v. Results Oriented, No. S00G1817 (Sup. Ct. Ga. Feb. 13, 2001). LAWYER BUCKS BAR In another case argued this week before the state supreme court, lawyer Marvin P. Nodvin urged the justices to declare unconstitutional the State Bar of Georgia’s rule that in effect requires attorneys to arbitrate fee disputes when the client requests it. Under the rule, a lawyer may elect not to arbitrate but, in that case, the process may continue without his participation at the hearing. If the client prevails in the hearing, the award becomes prima facie evidence in any future litigation over the fee, and the Bar may provide the client with free counsel in future litigation. Nodvin, who has been admitted to practice in Georgia for 50 years, explained that he wasn’t attacking the Bar but trying to right a wrong. “We are all people who understand how the world goes,” Nodvin said. “The practice of law has become a business. The rule is not meant to regulate practice but to have good public relations with the client.” The case came to the court after Nodvin’s former client filed a petition with the Bar’s Committee on Arbitration and Fee Disputes. Nodvin sued, challenging the constitutionality of the arbitration mandate and the jurisdiction of the Bar. After Fulton County Superior Court Judge Melvin K. Westmoreland rejected Nodvin’s challenge, Nodvin appealed to the Georgia Supreme Court. Nodvin told the justices that under the rule lawyers lose the opportunity to come into court. It makes lawyers look like criminals, he explained. By overturning the arbitration rule, “You will be saying to the world that we are proud to be lawyers,” Nodvin said. “Whether you rule against me or not makes no difference,” Nodvin argued. “Money doesn’t bring you anything, but having done something for the public means something,” he said. But Robert L. Goldstucker, arguing for the State Bar, told the court that the state has a compelling interest in regulating its lawyers, and that fee arbitration is just one such regulation. “The price one pays [for being a member of the state Bar] is that you give up some of your rights,” Goldstucker said. Following arguments Goldstucker said this is the first time a lawyer has brought such a claim in Georgia. He says that identical claims asserted in Maine, Alaska and New Jersey have been rejected by the respective state supreme courts. “Mr. Nodvin is a great orator in the old sense like lawyers used to be … but this is much ado about nothing,” Goldstucker says. Nodvin could not be reached for comment. Nodvin v. State Bar of Georgia, No. S00A2035 (Sup. Ct. Ga. Feb. 12, 2001).

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