        IN THE MISSOURI COURT OF APPEALS
                WESTERN DISTRICT

MANUEL H. LOPEZ, ON BEHALF OF                )
HIMSELF AND ALL OTHERS                       )
SIMILARLY SITUATED,                          )
                                             )
               Respondent,                   )        WD76724
                                             )
vs.                                          )        Opinion filed: May 6, 2014
                                             )
H & R BLOCK, INC., ET AL.,                   )
                                             )
               Appellants.                   )


      APPEAL FROM THE CIRCUIT COURT OF JACKSON COUNTY, MISSOURI
                   THE HONORABLE ANN MESLE, JUDGE

                   Before Division Two: Victor C. Howard, Presiding Judge,
                          Alok Ahuja, Judge and Gary D. Witt, Judge


       H&R Block, Inc., HRB Tax Group, Inc., and HRB Technology LLC (collectively “H&R

Block”) appeals from an order of the trial court denying its motion to compel arbitration. The

court found that an arbitration agreement contained in its Client Service Agreement is

unconscionable and unenforceable. H&R Block contends that the order is contrary to controlling

precedent from the Missouri Supreme Court and the United States Supreme Court. The order is

reversed, and the case is remanded with directions.
                              Factual and Procedural Background

        The trial court found that the class action waiver in the parties‟ agreement “constitutes a

substantial obstacle to arbitration” foreclosing any reasonable remedy for a consumer plaintiff.

We must decide whether this basis was sufficient to deny H&R Block‟s motion to compel

arbitration.

        On April 14, 2011, Manuel Lopez visited an H&R Block office in Kansas City to have

his tax returns prepared. Before receiving tax preparation services, Mr. Lopez was required to

sign a standard form Client Service Agreement (CSA). The CSA contained an arbitration

provision requiring individual arbitration. Specifically, the arbitration provision provided, in

pertinent part:

        If a dispute arises between you and H&R Block, the dispute shall be settled
        through binding individual arbitration unless you opt-out of this arbitration
        provision using the process explained in bold type below. This alternative to
        traditional lawsuits may cost you only $5 to have your dispute with H&R Block
        decided by a third party. This third party, known as the Arbitrator, is empowered
        to settle the matter with the same set of remedies available in court including
        compensatory, statutory, and punitive damages, injunctive and other equitable
        relief, and attorneys‟ fees and costs. However, you agree to waive any right to
        participate in any “class action” lawsuit regarding any issue that could otherwise
        be settled by arbitration. In addition, you specifically agree to waive any right to
        “class action” arbitration….If any portion of this Arbitration Provision is deemed
        invalid or unenforceable, it will not invalidate the remaining portions of the
        Arbitration Provision; except that in the event that the waiver of class action
        rights is deemed invalid or unenforceable, any claim seeking relief on behalf of a
        class must be brought in a court of proper jurisdiction and not in arbitration.

The opt-out process was explained as follows in bold type:

        Right to Opt-Out of This Arbitration Provision: H&R Block does not
        require you to accept arbitration even though you sign this Client Service
        Agreement (CSA) to receive service from us today. You may opt-out (reject)
        arbitration within the first 30 days after you sign this CSA by visiting our
        website at www.hrblock.com/goto/optout (if you provide an email address,
        you will receive an immediate confirmation) or by sending a signed letter to
        H&R Block Arbitration Opt-Out, P.O. Box 32818, Kansas City, MO 64171.
        The letter you send us should include your printed name, Social Security

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       Number of yourself and joint filer, if any, and the most recent date you were
       served by H&R Block, whether or not you want a written confirmation and
       the words “Reject Arbitration.” Your electronic or written opt-out letter will
       override your signature below regarding arbitration but no other provision
       of this document.

       The agreement further provided that arbitration would be administered by the American

Arbitration Association and included the following provision on arbitration costs:

       You will be asked to pay a $5 fee, and H&R Block will pay all other filing,
       administrative, hearing and miscellaneous arbitration expenses up to $1,500.
       H&R Block may consider paying arbitration costs that exceed $1,500 but only if
       you win the arbitration.

       The following year on April 4, 2012, Mr. Lopez returned to an H&R Block location to

have his tax return prepared. He again signed a CSA, which included the same arbitration

agreement and opt-out provision as in the 2011 CSA. On April 13, 2012, three days before filing

this suit, Mr. Lopez opted out of the 2012 Arbitration Agreement via the website disclosed in the

agreement.

       On April 16, 2012, Mr. Lopez filed a class action lawsuit against H&R Block alleging on

behalf of himself and a class of similarly situated H&R Block customers in Missouri that H&R

Block engaged in a scheme to charge a deceptive “compliance fee,” $2 in 2011 and $4 in 2012,

in connection with its sale of tax return preparation services in violation of the Missouri

Merchandising Practices Act and state common law. He claimed that H&R Block represented

that the fee was charged to comply with IRS requirements but that the fee was not mandatory

and not charged by the IRS.

       H&R Block originally sought to compel arbitration of Mr. Lopez‟s claims relating to the

2011 and 2012 compliance fee. Three months later, however, H&R Block notified the trial court

that it had made an error in determining that Mr. Lopez had not opted out of the arbitration

agreement in the 2012 CSA and that it had discovered that he had in fact opted out of the 2012

                                                3
arbitration agreement. It requested leave to file a revised motion to compel arbitration, which the

trial court granted. In its revised motion, H&R Block sought to compel arbitration of Mr.

Lopez‟s claims relating to the 2011 compliance fee only.

        Mr. Lopez opposed H&R Block‟s motion to compel arguing that the arbitration provision

in the 2011 CSA was unconscionable and, therefore, unenforceable under general principles of

Missouri contract law. Specifically, Mr. Lopez presented evidence that he claimed showed (1)

the CSA was non-negotiable and had never been renegotiated by a consumer, (2) the CSA,

including the arbitration and opt-out provisions, was difficult to understand and was objectively

confusing, (3) the CSA was the product of H&R Block‟s superior bargaining position, and (4)

the terms of the arbitration provision were extremely one-sided and disproportionately favored

H&R Block in a variety of aspects.

        The trial court entered an order denying H&R Block‟s revised motion to compel. It

focused its attention on the provision that limits arbitration to the individual dispute of the

consumer. It noted that to arbitrate the $2 charge in this case, Mr. Lopez would be required to

pay an initial fee of $5 and that while H&R Block would cover the next $1,500, there is no

agreement by H&R Block to pay expenses in excess of that amount. The court found, “This

exposure to additional fees and expenses in excess of $1,500 in a case where the arbitration is

focused on a $2 charge, constitutes a substantial obstacle to arbitration and almost necessarily

forecloses any challenge to the type of consumer claim asserted by [Mr. Lopez] in this

litigation.”   The trial court also questioned whether the arbitration agreement was equally

binding on both parties but expressly stated that it was not making such determination. Finally,

the trial court noted that Mr. Lopez presented some evidence that H&R Block did not keep

dependable records identifying consumers who had opted out of arbitration, which was sufficient



                                                4
to overcome H&R Block‟s argument that a viable opt-out procedure existed and cured any

unconscionable defect. The trial court found that the arbitration agreement in the CSA was

unconscionable because “the fees [Mr. Lopez] might have to pay creates a substantial obstacle to

litigating this $2 charge, and because [Mr. Lopez] has presented substantial evidence that the

opt-out procedure was not effective.” This appeal by H&R Block followed.

                                        Standard of Review

       The judgment of the trial court will be affirmed unless there is no substantial evidence to

support it, it is against the weight of the evidence, or it erroneously declares or applies the law.

Robinson v. Title Lenders, Inc., 364 S.W.3d 505, 510 (Mo. banc 2012). “Missouri contract law

applies to determine whether the parties have entered a valid agreement to arbitrate.”           Id.

(internal quotes and citation omitted). Whether the trial court should have granted the motion to

compel arbitration is a question of law that the appellate court reviews de novo. Id.

                                         Points on Appeal

       H&R Block raises three points on appeal challenging the trial court‟s denial of its revised

motion to compel arbitration. It contends that the trial court erred in denying the motion on the

ground that the cost of arbitration might exceed the value of Mr. Lopez‟s claim because the

Federal Arbitration Act (FAA) preempts such theory. It also argues that even if the FAA

allowed the trial court to treat the agreement as unenforceable, the trial court should have severed

the cost provision under the severance provision of the agreement. Finally, H&R Block contends

that the trial court erred in denying the motion on the ground that the agreement lacked a viable

opt-out provision because its recordkeeping errors are legally irrelevant. Because the first point

is dispositive, the other points are not addressed.




                                                  5
       In its first point on appeal, H&R Block contends that the trial court erred in denying its

motion to compel arbitration on the ground that the cost of arbitration might exceed the value of

Mr. Lopez‟s claim. It argues that the FAA preempts such theory because it stands as an obstacle

to enforcing arbitration agreements according to their terms. To support its argument, H&R

Block relies on two recent Missouri Supreme Court cases, Robinson v. Title Lenders, Inc., 364

S.W.3d 505 (Mo. banc 2012), and Brewer v. Missouri Title Loans, 364 S.W.3d 486 (Mo. banc

2012), which analyzed the United States Supreme Court case, AT&T Mobility LLC v.

Concepcion, 131 S.Ct. 1740 (2011).

       Concepcion held that the FAA preempted a California judicial rule that deemed

unconscionable most collective arbitration waivers in consumer contracts “because the rule was

„an obstacle to the accomplishment and execution of the full purposes and objectives of

Congress‟ in enacting the FAA.” Robinson, 364 S.W.3d at 512 (quoting Concepcion, 131 S.Ct.

at 1753). See also Brewer, 364 S.W.3d at 489-90. Concepcion reasoned that the rule “violated

the spirit of the FAA by undermining the FAA‟s intent to place arbitration agreements on equal

footing with other contracts and to enforce arbitration agreements by their terms.” Robinson,

364 S.W.3d at 512 (citing Concepcion, 131 S.Ct. at 1745-46).

       While Concepcion instructs clearly that a court cannot invalidate an arbitration agreement

on the sole basis that it contains a class waiver, it does not require that a court must simply

declare an arbitration agreement containing a class waiver enforceable.       Id. at 514-15.   It

acknowledged that the FAA‟s “saving clause” allows an arbitration agreement to be declared

unenforceable on any ground that exists at law or in equity for revocation of a contract. Id. at

513 (citing 9 U.S.C. § 2). See also Brewer, 364 S.W.3d at 490. “[A]s such, the FAA‟s „saving

clause‟ permits arbitration agreements „to be invalidated by generally applicable contract



                                               6
defenses, such as fraud, duress, or unconscionability.” Robinson, 364 S.W.3d at 513 (quoting

Concepcion, 131 S.Ct. 1746). See also Brewer, 364 S.W.3d at 490.

       However, Concepcion instructs that an arbitration agreement may not be invalidated by

any defense that singles out or disfavors arbitration. Robinson, 364 S.W.3d at 515 (citing

Concepcion, 131 S.Ct. at 1746, 1748). In other words, “no state-law rule that is „an obstacle to

the accomplishment of the FAA‟s objectives‟ should be applied to invalidate an arbitration

agreement.” Id. (quoting Concepcion, 131 S.Ct. at 1748). “As such, post-Concepcion, a court

should not invalidate an arbitration agreement in a consumer contract simply because it is

contained in a contract of adhesion or because the parties had unequal bargaining power, as these

are hallmarks of modern consumer contracts.” Id. (citing Concepcion, 131 S.Ct. at 1750).

“Moreover, post-Concepcion, courts may not apply state public policy concerns to invalidate an

arbitration agreement even if the public policy at issue aims to prevent undesirable results to

consumers.” Id. at 515-16 (citing Concepcion, 131 S.Ct. at 1753, which rejected consumers‟

public policy concerns about small-dollar claims slipping through the legal system). See also

Am. Express Co. v. Italian Colors Rest., 133 S.Ct. 2304, 2312 n.5 (2013)(emphasizing that,

following Concepcion, “the FAA‟s command to enforce arbitration agreements trumps any

interest in ensuring the prosecution of low-value claims.”). The question of whether a state law

defense, including an unconscionability defense, stands as an obstacle to the accomplishment of

the FAA‟s objectives requires analysis of the particular facts of the case. Brewer, 364 S.W.3d at

491, 492.

       In Robinson, the Missouri Supreme Court applied Concepcion to reverse the trial court‟s

judgment finding that a consumer arbitration agreement was unconscionable and unenforceable

because its class action waiver deprives borrowers of a meaningful remedy. Robinson, 364



                                               7
S.W.3d at 506-07, 517. The Court explained that under the FAA‟s saving clause, the trial court

instead should have assessed whether the arbitration agreement was enforceable in light of the

plaintiff‟s unconscionability claims based on Missouri contract law. Robinson, 364 S.W.3d at

506, 517. It noted that the plaintiff presented evidence regarding her lack of sophistication and

her lack of understanding of the agreement; the agreement‟s print size, location, and clarity; and

the high rate of interest available under the loan contract. Id. at 508. The Court found that

because the trial court‟s judgment adjudicated only the plaintiff‟s claim of unconscionability

based on the class waiver, factual issues remained that were relevant to determining whether the

arbitration agreement was properly declared unconscionable under ordinary state law principles

that govern contracts. Id. Thus, the Court remanded the case for such determination. Id.

       In Brewer, the trial court found the class arbitration waiver in a loan agreement

unconscionable and unenforceable but also found that a number of other aspects of the clause

rendered the agreement unconscionable when considered as an individual action. 364 S.W.3d at

488. The Missouri Supreme Court held that under Concepcion, the presence and enforcement of

a class arbitration waiver did not make the arbitration clause unconscionable. Id. at 487. It

explained that because, unlike in Robinson, the trial court did reach other factual issues in

determining that the arbitration clause was unconscionable, the record was sufficient for it to

determine the conscionability of the arbitration clause.       Id. at 492.   It, therefore, applied

traditional Missouri contract law in looking at the agreement as a whole to determine the

conscionability of the arbitration provision.       Id.   It explained that “[t]he purpose of the

unconscionability doctrine is to guard against one-sided contracts, oppression and unfair

surprise.” Id. at 492-93. It continued:

       Oppression and unfair surprise can occur during the bargaining process or may
       become evident later, when a dispute or other circumstances invoke the

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         objectively unreasonable terms. In either case, the unconscionability is linked
         inextricably with the process of contract formation because it is at formation that
         a party is required to agree to the objectively unreasonable terms.

Id. at 493. The Court found that the evidence in the case supported a determination that the

agreement‟s arbitration clause was unconscionable.                    Id. at 493.      Specifically, it identified

evidence that (1) the entire loan agreement including the arbitration clause was non-negotiable

and was difficult for the average consumer to understand, (2) no consumer had ever successfully

renegotiated the terms of the title company‟s arbitration agreement, (3) the title company was in

a superior bargaining position, (4) the terms of the agreement were extremely one-sided in that

the title company never pays the costs of arbitration or attorney‟s fees for the customer, even if

the customer wins, and could seek to recover attorney‟s fees in defending the claim from the

customer, (5) there was a lack of available counsel to pursue individual claims,1 and (6) the

agreement did not bilaterally provide that any and all disputes between the parties must be

decided by binding, individual arbitration but instead bound the consumer to individual

arbitration for all claims against the company while reserving the company‟s right to obtain its

primary remedies through the court system.                  Id. at 493-95.       Because the entire arbitration

agreement was unconscionable and unenforceable, the Court affirmed the judgment of the trial

court. Id. at 496.

         In this case, Mr. Lopez raised multiple arguments challenging the enforceability of the

arbitration agreement in the CSA based on Missouri contract law prohibiting unconscionable

agreements. As noted above, he presented evidence that he claimed showed (1) the CSA was

non-negotiable and had never been renegotiated by a consumer, (2) the CSA, including the


1
  Brewer recognized that Concepcion makes it clear that unavailability of counsel is not alone sufficient to invalidate
the requirement of individual arbitration but stated that it remains one of the relevant considerations in assessing the
overall conscionability of an arbitration clause because in some cases, it is related to whether the FAA‟s interest in
dispute resolution will be satisfied. Id. at 494.

                                                           9
arbitration and opt-out provisions, was difficult to understand and was objectively confusing, (3)

the CSA was the product of H&R Block‟s superior bargaining position, and (4) the terms of the

arbitration provision were extremely one-sided and disproportionately favored H&R Block in a

variety of aspects. On the other hand, H&R Block argued that a viable opt-out procedure existed

and cured any unconscionable defect, and evidence was presented regarding the opt-out

provision. The trial court, however, invalidated the arbitration agreement based on the public

policy concern that consumers with small-value claims would be deprived of a meaningful

remedy. Specifically, the trial court found, “This exposure to additional fees and expenses in

excess of $1,500 in a case where the arbitration is focused on a $2 charge, constitutes a

substantial obstacle to arbitration and almost necessarily forecloses any challenge to the type of

consumer claim asserted by [Mr. Lopez] in this litigation.” Robinson specifically rejected such

public policy reasoning post-Concepcion even if the policy aims to prevent undesirable results to

consumers. 364 S.W.3d at 515-16. See also Brewer, 364 S.W.3d at 487, 488 (the FAA does not

permit finding an arbitration agreement unconscionable on the basis of a class action waiver

alone).   Robinson explained, “Applying state-law policy considerations as the basis for

invalidating an arbitration agreement is preempted by the FAA because it creates an

impermissible „obstacle to the FAA‟s objective of enforcing arbitration agreements according to

their terms.‟” Id. at 516 (quoting Cruz v. Cingular Wireless, LLC, 648 F.3d 1205, 1212-13 (11th

Cir. 2011)).   The trial court clearly erred in finding the arbitration provision in the CSA

unenforceable based on public policy concerns regarding class waivers. While the trial court

questioned whether the arbitration agreement was equally binding on both parties, it expressly

stated that it was not making such determination at the time. And while it did note that Mr.

Lopez presented evidence that would call the sufficiency of the opt-out procedure into question,



                                               10
the court did not make a definitive finding as to the sufficiency of that procedure nor did it make

any other findings on the other evidence or adjudicate Mr. Lopez‟s other claims of

unconscionability under ordinary state law principles. Consequently, as in Robinson, there

remain factual issues relevant to Mr. Lopez‟s other claims. Thus, the case is remanded to the

trial court to assess the evidence and determine if the arbitration agreement contained in the CSA

is enforceable in light of Robinson and Brewer.

       For the foregoing reasons, the judgment is reversed, and the case is remanded for further

proceedings consistent with this opinion.




                                             __________________________________________
                                             VICTOR C. HOWARD, JUDGE

All concur.




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