CNU of Alabama, LLC v. Cox; UHG I LLC v. Cox, [Ms. SC-2024-0060, SC-2024-0061, Nov. 8, 2024] __ So. 3d __ (Ala. 2024). The Court (Mitchell, J.; Parker, C.J., and Shaw, Wise, Bryan, and Sellers, JJ., concur; Mendheim, J., concurs in the result; Stewart, J., concurs in the result; Cook, J., recuses), addresses the enforceability of an arbitration provision in a consumer loan agreement. In 2017, CNU of Alabama extended a line of credit to Shakeena Cox, allowing her to take three advances totaling $1,250. After Cox defaulted, CNU sold the account to UHG I LLC, which pursued collection in the Mobile District Court. The district court ruled the loan agreement void under the Alabama Small Loan Act because CNU lacked the required licensing.
UHG appealed to the Mobile Circuit Court, where Cox filed a counterclaim on behalf of herself and a proposed class, alleging violations of the Small Loan Act and seeking injunctive relief and damages. CNU and UHG moved to compel arbitration based on the loan agreement’s arbitration provision. The circuit court denied the motions, holding that the agreement, including the arbitration provision, was void, the arbitration provision was unconscionable, and that UHG had waived its right to arbitration by pursuing the initial collection claim in court.
The Court reverses the circuit court’s decision regarding arbitration of Cox’s counterclaim, relying on federal precedent under the Federal Arbitration Act (“FAA”). The Court cites Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 (2006), which holds that challenges to the validity of an entire contract, as opposed to challenges specifically to the arbitration clause, must be decided by an arbitrator rather than a court. Ms. *8. The Court emphasizes that arbitration provisions are severable from the rest of a contract and concludes that Cox’s challenges, including claims of illegality under the Small Loan Act, apply to the contract as a whole and not specifically to the arbitration clause. Similarly, the Court distinguishes Macon County Greyhound Park, Inc. v. Hoffman, 226 So. 3d 152 (Ala. 2016), where an arbitration clause itself was found void because it was founded on an illegal gambling consideration, reasoning that no such issue was present here. Ms. *12.
On the issue of unconscionability, the Court reiterated the standard from Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68 (2010), which permits courts to invalidate arbitration clauses only when challenges are specific to the arbitration clause itself. Ms. *13. The Court deems Cox’s claims of substantive unconscionability insufficient because they apply to the entire loan agreement rather than the arbitration provision alone and were not supported by allegations of illegal consideration.
However, in Case Number SC-2024-0061, (Mitchell, J.; Parker, C.J., and Shaw, Wise, and Bryan, JJ., concur; Sellers, J., concurs in part and concurs in the result; Mendheim, J., concurs in the result; Stewart, J., concurs in the result; Cook, J., recuses), the Court affirms the circuit court’s ruling that UHG waived its right to arbitrate its initial collection claim by substantially invoking the litigation process. Citing Companion Life Ins. Co. v. Whitesell Mfg., Inc., 670 So. 2d 897, 899 (Ala. 1995), the Court notes that UHG’s filing of the collection action in the district court and subsequent appeal demonstrates substantial invocation of the litigation process bythe party’s actions as a whole, precluding arbitration of that claim by waiver of UHG’s right to seek arbitration. Ms. *20. Furthermore, the Court adjusts its waiver standard in light of Morgan v. Sundance, Inc., 596 U.S. 411 (2022), eliminating the requirement to show prejudice in cases involving arbitration waivers under the FAA. Ms. *16.
The Court concludes that Cox’s counterclaim was subject to arbitration because the provision explicitly covered “counterclaims” and applies on a claim-by-claim basis, allowing UHG to compel arbitration despite waiving its right to arbitrate the original collection claim. Ms. *21. Additionally, the Court enforces the agreement’s class-action waiver, preventing Cox from pursuing class claims in arbitration. Ms. **21-22.