Smith v. Professional Claims

Citation: Smith v. Professional Claims, Inc., 19 F. Supp. 2d 1276 (M.D. Ala. 1998).

Factual Background
Plaintiffs Charlotte Smith and Linda Burke read an advertisement in the local newspaper for an electronic insurance billing service. They attended an introductory session, and then paid a “substantial amount” to attend a second session where they received documents and software, which they allege did not live up to what they had been told at the first session.

They filed suit in state court alleged fraud, misrepresentation, and violation of Alabama's [Deceptive Trade Practices]] Act. Defendants removed the case to federal court on diversity grounds; then produced a contract and software license agreement signed by Ms. Burke. Both documents included an arbitration clause requiring that any action be brought in Lexington County, South Carolina. (An interesting side note: the contracts also included the name of the defendant's agent for service &mdash; in Reno, Nevada.)

Trial Court Decision
Plaintiff Smith did not contest her signature, but argued that defendants had “fraudulently concealed the arbitration clause,” never told them about the clause, nor gave them a copy of the signed contracts. The court did not care. Under Alabama law, “a person who signs a contract is on notice of the terms therein and is bound thereby even if he or she fails to read the document.”

Concentrating his opinion on the forum selection clause, Judge Albritton tossed out a claim of unconscionability, a “doctrine reserved for egregious cases.” Under both federal and Alabama law, forum selection clauses may be struck down if enforcement would be unfair because the contracts were “affected by fraud, undue influence or overweening power,” or the specified forum would be seriously inconvenient for the trial.

Ms. Smith was unable to meet these requirements. Nor could she succeed under the tort and consumer protection claims, since these were really variations of the contract claims. A final matter considered was whether Ms. Burke was bound since she did not sign the contract. The court held that she was a joint venturer with Ms. Smith and, therefore, was bound.