     Case: 19-60595      Document: 00515491866         Page: 1    Date Filed: 07/16/2020




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                          United States Court of Appeals
                                                   Fifth Circuit

                                                                           FILED
                                                                        July 16, 2020
                                    No. 19-60595                        Lyle W. Cayce
                                  Summary Calendar                           Clerk


DENNIS WILLIAMS; MARY ANN WILLIAMS; CARRIA WILLIAMS
WALTER,

               Plaintiffs–Appellants,

v.

COMMUNITY BANK, ELLISVILLE; COMMUNITY BANCSHARES OF
MISSISSIPPI, INCORPORATED; COMMUNITY OPERATIONS,
INCORPORATED; SETH MILES; DOES 1 THROUGH 10,

               Defendants–Appellees.




                   Appeal from the United States District Court
                     for the Southern District of Mississippi
                              USDC No. 2:19-CV-78


Before OWEN, Chief Judge, and SOUTHWICK and WILLETT, Circuit Judges.
PER CURIAM:*
       This case concerns the enforceability of an arbitration agreement.
Dennis Williams, Mary Ann Williams, and Carria Williams Walter (the




       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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Williamses) obtained a loan from Community Bank1 and subsequently sued
Community Bank in Mississippi state court, requesting declaratory,
injunctive, and other relief in relation to that loan. After removing the case to
federal court, Community Bank filed a motion to compel arbitration and stay
proceedings pending arbitration. The district court granted the motion, and
the Williamses appealed. We affirm.
                                           I
      In late 2015, Dennis Williams, Mary Ann Williams and their daughter,
Carria Williams Walter, decided to purchase 23 acres of vacant land in
Sumrall, Mississippi. According to the Williamses, they planned to build a
smaller personal residence on the 23 acres of vacant land, downsizing from
their larger family home located directly across the street. The Williamses did
not have the funds to purchase the land outright, so they approached
Community Bank for a loan.
      The Williamses allege that they intended to obtain a consumer loan from
Community Bank but that a Community Bank representative convinced them
to form a Limited Liability Company (LLC) and purchase the land with a
business loan. The Bank’s representative allegedly told the Williamses that
the interest rate for the commercial loan would be lower than the interest rate
for a consumer loan, and that the LLC would protect them from personal
liability. The Williamses eventually formed an LLC, which obtained a business
loan to purchase the land.
      The Williamses signed an arbitration agreement as part of this
transaction.     According to the arbitration agreement, “any dispute or
controversy” arising from the transaction between the Williamses, Community


      1  Community Bank, Ellisville is now known as Community Bank of Mississippi.
Community Bancshares of Mississippi, Inc. is the parent corporation of Community Bank of
Mississippi and Community Operations, Inc.
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                                     No. 19-60595
Bank, and the newly formed LLC would be resolved via binding arbitration.
Each of the Williamses signed the arbitration agreement in an individual
capacity. Carria Williams and Dennis Williams each signed the agreement a
second time on behalf of CAAAW, LLC.
      In 2019, the Williamses filed a complaint for declaratory, injunctive, and
other relief in the Circuit Court of Lamar County, Mississippi.                  In their
complaint, the Williamses disclaimed any liability on the loan, arguing that
Community Bank had violated numerous state and federal consumer
protection laws throughout the loan process. Community Bank removed the
case to the Southern District of Mississippi based on federal question
jurisdiction. Community Bank then filed a motion to compel arbitration and
stay proceedings pending arbitration with the district court. The district court
granted Community Bank’s motion and dismissed the case with prejudice.
This appeal followed.
                                           II
      The Williamses do not contest that the dispute falls within the scope of
the purported arbitration agreement. Rather, they contend that there was not
a valid agreement to arbitrate.
      “There are two types of validity challenges under § 2 [of the Federal
Arbitration Act].”2 The first type of challenge focuses specifically on “the
validity of the agreement to arbitrate.”3 The second type of challenge focuses
on the validity of the “contract as a whole, either on the ground that directly
affects the entire agreement (e.g., the agreement was fraudulently induced), or
on the ground that the illegality of one of the contract’s provisions renders the
whole contract invalid.”4 “[O]nly the first type of challenge is relevant to a


      2 Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 70 (2010).
      3 Id. (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 (2006)).
      4 Id. (quoting Cardegna, 546 U.S. at 444).

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court’s determination whether the arbitration agreement at issue is
enforceable.”5 “That is because § 2 states that a written provision to settle a
controversy by arbitration is valid, irrevocable, and enforceable without
mention of the validity of the contract in which it is contained.”6 This does not
mean, however, that agreements to arbitrate are entirely immune from attack.
Indeed, the Federal Arbitration Act specifically allows for “agreements to
arbitrate to be invalidated by ‘generally applicable contract defenses, such as
fraud, duress, or unconscionability.’”7            Nonetheless, “because of the national
policy favoring arbitration, the party opposing arbitration bears the burden to
prove the contract defense applies in a particular case.”8
       In this case, the Williamses argue that they did not have a valid
agreement to arbitrate with Community Bank because the purported
arbitration agreement they signed was both procedurally and substantively
unconscionable. After de novo review,9 we conclude that the Williamses had a
valid agreement to arbitrate with Community Bank; the agreement was
neither procedurally nor substantively unconscionable.
                                               A
       We begin with the Williamses argument concerning procedural
unconscionability.
       According to the Mississippi Supreme Court,



       5  Id.
       6  Id. (internal quotation marks omitted) (emphasis in original).
        7 Lefoldt ex rel. Natchez Reg’l Med. Ctr. Liquidation Tr. v. Horne, L.L.P., 853 F.3d 804,

818 (5th Cir. 2017), as revised (April 12, 2017) (quoting AT&T Mobility LLC v. Concepcion,
563 U.S. 333, 339 (2011)).
        8 Smith v. Express Check Advance of Miss., LLC, 153 So. 3d 601, 606 (Miss. 2014)

(citing Norwest Fin. Miss., Inc. v. McDonald, 905 So. 2d 1187, 1193 (Miss. 2005)).
        9 See Crawford Prof’l Drugs, Inc. v. CVS Caremark Corp., 748 F.3d 249, 256 (5th Cir.

2014) (“This court reviews an order compelling arbitration de novo.” (quoting Paper, Allied-
Indus. Chem. & Energy Workers Int’l Union, Local 4-12 v. Exxon Mobil Corp., 657 F.3d 272,
276 (5th Cir. 2011)).
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        The indicators of procedural unconscionability generally fall into
        two categories: (1) lack of knowledge, and (2) lack of voluntariness.
        A lack of knowledge is demonstrated by a lack of understanding of
        the contract terms arising from inconspicuous print or the use of
        complex, legalistic language, disparity in sophistication of parties,
        and lack of opportunity to study the contract and inquire about
        contract terms. A lack of voluntariness is demonstrated in
        contracts of adhesion when there is great imbalance in the parties
        relative bargaining power, the stronger party’s terms are
        unnegotiable, and the weaker party is prevented by market
        factors, timing or other pressures from being able to contract with
        another party on more favorable terms or to refrain from
        contracting at all.10

        Here, the Williamses argue that “they did not receive truthful
information, were unfamiliar with the pre-printed, complexly-worded
agreement, lacked bargaining power, and experienced a significant gap in
financial sophistication by comparison to the other transacting party.” They
contend       that   the   loan    agreement       was     “essentially     a   contract     of
adhesion . . . unilaterally drafted, induced, and facilitated” by Community
Bank.        But these arguments do not meet the threshold for procedural
unconscionability.
        First, the Williamses have not shown that they lacked knowledge or an
understanding of the terms in the arbitration agreement.                        Despite the
Williamses allegations to the contrary, the arbitration agreement cannot be
considered inconspicuous or complexly worded. The arbitration agreement
uses all capital letters to emphasize in plain terms that the parties are waiving



        10East Ford, Inc. v. Taylor, 826 So. 2d 709, 716 (Miss. 2002) (quoting Entergy Miss,
Inc. v. Burdette Gin Co., 726 So. 2d 1202, 1207 (Miss. 1998)); see also id. (“[T]he fact that an
arbitration agreement is included in a contract of adhesion renders the agreement
procedurally unconscionable only where the stronger party’s terms are unnegotiable and ‘the
weaker party is prevented by market factors, timing or other pressures from being able
to contract with another party on more favorable terms or to refrain from contracting at
all.” (quoting Burdette Gin Co., 726 So. 2d at 1207)).
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their right to litigate their disputes in court and submitting to binding
arbitration. No other portion of the agreement is given such emphasis. The
Williamses claim that they experienced a “significant gap in financial
sophistication” compared to Community Bank. But the Williamses do not
allege that they “lacked an opportunity to review and inquire about the terms”
in the arbitration agreement, or that they signed the arbitration agreement
without reading or understanding its terms.11
      Second, the Williamses have not shown that they signed the agreement
to arbitrate involuntarily. The Williamses allege that Community Bank falsely
represented that they would have a lower interest rate and protection from
personal liability with a business loan as opposed to a consumer loan. They
claim that they agreed to a business loan instead of a consumer loan because
Community Bank supplied them with this false information. Importantly,
however, the Williamses do not allege that Community Bank ever provided
false information concerning the arbitration agreement, or that they were
fraudulently induced into signing the agreement to arbitrate. As the Supreme
Court has stated, parties challenging an arbitration agreement must direct
their arguments at the arbitration agreement, not the validity of the contract
as a whole.12 Here, the Williamses’ allegations of fraud are all directed at the
contract as a whole.
      The Williamses also argue that they lacked bargaining power as
compared to Community Bank and that their loan agreement was “essentially
a contract of adhesion.”          But the Williamses arguments do not meet the
standard for procedural unconscionability under Mississippi law. Although
they are strong evidence of procedural unconscionability, contracts of adhesion



      11   See Smith v. Express Check Advance of Miss., LLC, 153 So. 3d 601, 610 (Miss. 2014).
      12   See Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 70 (2010).
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are not automatically involuntary and unconscionable.13 Here, the Williamses
have failed to provide any evidence, or even allege, that they were “prevented
by market factors, timing or other pressures” from contracting with another
bank on more favorable terms or refraining from contracting at all.14 In fact,
the Williamses admit that they “simply went along with [the agent at
Community Bank] and trusted his integrity.” We cannot conclude that the
arbitration agreement was procedurally unconscionable due to a lack of
voluntariness.
                                             B
       We next address the Williamses’ argument concerning substantive
unconscionability.
       Under Mississippi law, substantive unconscionability is determined by
“look[ing] within the four corners of an agreement in order to discover any
abuses relating to the specific terms which violate the expectations of, or cause
a gross disparity between, the contracting parties.”15                      “Substantive
unconscionability is proven by oppressive contract terms such that there is a
one-sided agreement whereby one party is deprived of all the benefits of the
agreement or left without a remedy for another party’s nonperformance or
breach . . . .”16 Nonetheless, the Supreme Court has made clear that the mere
“‘risk’ that [a litigant] will be saddled with prohibitive costs is too speculative
to justify the invalidation of an arbitration agreement.”17 “To invalidate [an




       13 East Ford, 826 So. 2d at 716 (quoting Hughes Training, Inc. v. Cook, 254 F.3d 588,
593 (5th Cir. 2001)).
       14 Id. (quoting Burdette Gin Co., 726 So. 2d at 1207).
       15 Smith, 153 So. 3d at 607 (quoting Covenant Health & Rehab. of Picayune, LP v.

Estate of Moulds, 14 So. 3d 695, 699 (Miss. 2009)).
       16 Id. (internal quotation marks omitted) (quoting Moulds, 14 So. 3d at 699).
       17 Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91 (2000).

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arbitration] agreement on that basis would undermine ‘the liberal federal
policy favoring arbitration agreements.’”18
      In this case, the Williamses argue that the arbitration agreement is
substantively unconscionable because it unfairly shifts the burden of excessive
fees onto the Williamses. The Williamses specifically take issue with a fee
shifting clause in the arbitration agreement, which requires the claimant to
pay the administrative and arbitrator fees for any claim exceeding $75,000 in
damages. Given the initial mortgage far exceeded $75,000, the Williamses
argue that they will inevitably be saddled with thousands of dollars in fees
under the American Arbitration Association fee schedule. The Williamses also
take issue with the provision in the arbitration agreement entitling the victor
in arbitration to collect fee reimbursements from the losing party. According
to the Williamses, plaintiffs should “no more pay the fees of an arbitrator than
they should compensate the judges before whom they appear.”
      The terms of the arbitration agreement in this case, however, cannot be
considered one-sided or oppressive. They do not deprive the Williamses of all
the benefits of the agreement, nor do they leave the Williamses without a
remedy in the event of a breach by Community Bank. Under the terms of the
arbitration agreement, the Williamses would have to pay the administrative
and arbitrator fees only if they brought a claim for greater than $75,000; the
agreement does not require the Williamses to pay the administrator and
arbitrator fees if Community Bank brought the claim.19 In fact, the arbitration



      18   Id. (quoting Moses H. Cone. Mem’l Hosp., 460 U.S. 1, 24 (1983)).
      19   The arbitration agreement states:

      If Customers asserts a Claim covered by the Supplementary Procedures for
      actual damages greater than $75,000 or that is non-monetary, or if Customer
      asserts a Claim of any type that is not covered by the Supplementary
      Procedures, Customer shall be responsible for paying all administrative fees
      and arbitrator(s) fees as provided in the AAA’s Commercial Fee Schedule.
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agreement specifically states that “[Community] Bank shall be responsible for
paying all administrative fees and arbitrator(s) fees beyond those that are the
responsibility of [the Williamses] under this Agreement.”
      But even assuming the clause requires the Williamses to pay
administrative and arbitrator fees for any claim exceeding $75,000, the
agreement allows the Williamses to recover the fees from Community Bank if
they prevail in arbitration.          It also provides multiple safeguards against
excessive fees in the event the Williamses were to lose in arbitration.
Specifically, the agreement allows the Williamses to “request a deferral or
reduction of the administrative fees of arbitration if paying them would cause
extreme hardship.” It also vests the arbitrator with discretion to “apportion
the administrative fees and expenses and arbitrator fees between [the
Williamses] and [Community Bank] as part of the [final] award.”                        These
provisions are not unconscionable.
      Moreover, we do not agree with the Williamses’ argument that the
arbitration agreement is substantively unconscionable because it entitles the
victor in arbitration to recover fees from the losing party.                 As the Supreme
Court has instructed, the mere “‘risk’ that [a litigant] will be saddled with
prohibitive costs is too speculative to justify the invalidation of an arbitration
agreement.”20
      Nor are we convinced by the Williamses’ suggestion that plaintiffs should
be categorically exempt from paying arbitration fees. The Williamses quote
Cole v. Burns International Secretary Services,21 a case from the D.C. Circuit,



      Bank shall be responsible for paying all administrative and arbitrator(s) fees
      beyond those that are the responsibility of the customer under this
      Agreement . . . .

      20   Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91 (2000).
      21   105 F.3d 1465 (D.C. Cir. 1997).
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to support this suggestion. But the Williamses take the quote out of context.
Cole involved an employment arbitration.22                    Moreover, the arbitration
agreement in Cole did not specify which party would pay the arbitrator’s fees
or whether such fees could be waived or reduced in cases of hardship.23 The
court in Cole specifically held that an “employee can never be required, as a
condition of employment, to pay an arbitrator’s compensation in order to secure
the resolution of statutory claims under Title VII (any more than an employee
can be made to pay a judge’s salary).”24 This does not mean, as the Williamses
suggest, that plaintiffs can never be required to pay arbitration fees. We
decline to adopt such an interpretation.
       In sum, none of the arguments the Williamses advance concerning
substantive unconscionability are persuasive.                     The provisions in the
arbitration agreement—including the provision entitling the victor to collect
reimbursements from the losing party—are not one-sided or oppressive.
                                              III
       Having determined that the Williamses and Community Bank had a
valid agreement to arbitrate, we next address “whether any federal statute or
policy renders the claims nonarbitrable.”25 The Williamses argue that their
claims are nonarbitrable pursuant to 12 C.F.R. § 1026.36 and 15 U.S.C. § 1602.
They also appear to argue separately that 12 U.S.C. §§ 5481, 5531, 5536(a)
render their claims nonarbitrable. We address each argument in turn.
       According to 12 C.F.R. § 1026.36, “a contract or other agreement for a
consumer credit transaction secured by a dwelling . . . may not include terms



       22 Id. at 1467.
       23 Id. at 1483-89; see also Am. Heritage Life Ins. Co. v. Orr, 294 F.3d 702, 712 (5th Cir.
2002) (discussing and distinguishing Cole).
       24 Cole, 105 F.3d at 1468.
       25 JP Morgan Chase & Co. v. Conegie ex rel. Lee, 492 F.3d 596, 598 (5th Cir. 2007)

(quoting Wash. Mut. Fin. Grp., LLC v. Bailey, 365 F.3d 260, 263 (5th Cir. 2004)).
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that require arbitration . . . .”       “Consumer credit means credit offered or
extended to a consumer primarily for personal, family, or household
purposes.”26       “[T]he adjective ‘consumer’, used with reference to a credit
transaction, characterizes the transaction as one in which [(1)] the party to
whom credit is offered or extended is a natural person, and [(2)] the money,
property, or services which are the subject of the transaction are primarily for
personal, family, or household purposes.”27
      The Williamses argue that their loan was a consumer loan—and, thus,
subject to 12 C.F.R. § 1026.36 and 15 U.S.C. § 1602(i)—because their purpose
in taking out the loan was personal. According to the Williamses, the purpose
of the loan was to build a personal residence on the 23 acres of vacant land.
Although these arguments may satisfy the second element of “consumer” as
defined in 15 U.S.C. § 1602(i), they do not satisfy the first. The purpose of the
loan may have been personal, as the Williamses allege, but the loan was not
offered or extended to a natural person. The undisputed terms of the loan
agreement indicate that that Community Bank extended credit to CAAAW,
LLC—a business entity, not a natural person. Indeed, Carria Williams and
Dennis Williams specifically signed the agreement in their capacity as
manager and member of CAAAW, LLC, respectively. Because CAAAW, LLC
is a business entity and not a natural person, the loan agreement in this case
does not meet the first element of “consumer” as defined in 15 U.S.C. § 1602(i)
in reference to a consumer credit transaction. Accordingly, because the loan
agreement in this case cannot be considered a consumer credit transaction,
neither 12 C.F.R. § 1026.36 nor 15 U.S.C. § 1602 render the Williamses’ claims
unarbitrable.



      26   12 C.F.R. § 1026.2(a)(12).
      27   15 U.S.C. § 1602(i).
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      In a separate line of argument, the Williamses argue that Community
Bank committed an unfair, deceptive, abusive act, or practice in violation of 12
U.S.C. §§ 5481, 5531, 5536(a) by coaxing the Williamses into forming an LLC
and taking out a less favorable commercial loan rather than the residential
loan that the Williamses had initially desired. They appear to argue that a
violation of these laws renders their claims unarbitrable. The Williamses,
however, have not provided any authority in their briefing on appeal that
suggests a violation of the referenced laws results in the voiding of an
otherwise valid arbitration agreement. Thus, we conclude that the Williamses
have failed to provide the court with any federal policy or statute that renders
their claim unarbitrable.
                               *        *         *
      For these reasons, we AFFIRM the district court’s order on Community
Bank’s motion to compel arbitration and stay proceedings pending arbitration.




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