No. ____________

In the

Supreme Court of Texas

Austin, Texas

____________________________

IN RE JAMES NORTON, JR., Relator

___________________________________________________

PETITION FOR WRIT OF MANDAMUS to the 146th Judicial District Court of Bell County, Texas

___________________________________________________

Richard Tomlinson Texas Bar No. 20123500 Law Office of Richard Tomlinson 3100 Timmons Lane, Suite 100 Houston, Texas 77027 Telephone: 713-627-2100 Facsimile: 713-627-2101

Leslie A. Bailey Pro Hac Vice Motion Pending Matthew S. Melamed Pro Hac Vice Motion Pending Public Justice, P.C. 555 12th Street, Suite 1620 Oakland, California 94607 Telephone: 510-622-8150 Facsimile: 510-622-8155

Attorneys for Relator, James Norton, Jr.

____________________________

Oral Argument Requested

ii

IDENTITY OF PARTIES AND COUNSEL Relator, James Norton, Jr., certifies that the following is a complete list of the names and addresses of all parties and their counsel. Relator: Colonel James Norton, Jr.

Represented in Trial Court, Court of Appeals, and Supreme Court by: Richard Tomlinson

Law Office of Richard Tomlinson 3100 Timmons Lane, Suite 100 Houston, Texas 77027

Represented in Supreme Court by: Leslie A. Bailey

Public Justice, P.C. 555 12th Street, Suite 1620 Oakland, California 94607 Matthew S. Melamed Public Justice, P.C. 555 12th Street, Suite 1620 Oakland, California 94607

Respondent: Honorable Rick Morris

Judge, 146th Judicial District Court of Bell County, Texas

Post Office Box 324 1201 Huey Road Belton, Texas 76513

Real Party in Interest: Cash in Advance of Florida, Inc.

Represented in Trial Court by: Ronald E. Pearson

Pearson & Pearson 2109 Bird Creek Terrace Temple, Texas 76502

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TABLE OF CONTENTS

IDENTITY OF PARTIES AND COUNSEL......................................................................ii TABLE OF CONTENTS ...................................................................................................iii INDEX OF AUTHORITIES ............................................................................................... v STATEMENT OF THE CASE .........................................................................................vii STATEMENT OF JURISDICTION ................................................................................viii ISSUE PRESENTED ......................................................................................................... ix

1. Where a prevailing consumer is entitled to attorney’s fees under the state debt collection and usury statutes, is a term in an arbitration clause that prohibits the arbitrator from awarding attorney’s fees unconscionable under Texas law because it waives statutory remedies in violation of public policy and exculpates the lender from liability? (Yes.) .................. ix

STATEMENT OF FACTS.................................................................................................. 1 SUMMARY OF ARGUMENT........................................................................................... 4 ARGUMENT....................................................................................................................... 6 I. Cash In Advance’s Attorney’s Fees Prohibition Is Unconscionable Under

Texas State Law. ...................................................................................................... 6 A. The Attorney’s Fees Prohibition Is Unconscionable Because It

Eliminates The Statutory Remedy Of Attorney’s Fees To Which Prevailing Plaintiffs Are Entitled. ................................................................. 7

B. The Attorney’s Fees Prohibition Is Also Unconscionable Because It Acts As An Exculpatory Clause.................................................................. 13

PRAYER ........................................................................................................................... 15 CERTIFICATION............................................................................................................. 16 CERTIFICATE OF SERVICE.......................................................................................... 17 APPENDIX (presented in a separately bound volume)

Plaintiff’s Original Petition ............................................................................. Tab 1 Defendant Cash in Advance of Florida, Inc.’s Original Answer, Plea in Abatement and Motion to Sever ..........................................................Tab 2 Notice of Setting for Motion to Abate ............................................................ Tab 3 Plaintiff’s Opposition to Plea in Abatement ................................................... Tab 4 Reporter’s Record of Motion for Plea in Abatement and Motion to Sever .... Tab 5

iv

Order Abating Cause ...................................................................................... Tab 6 Petition for Writ of Mandamus in the Third Court of Appeals ...................... Tab 7 Memorandum Opinion Denying the Petition for Writ of Mandamus ............ Tab 8 Relator’s Motion for Rehearing En Banc ....................................................... Tab 9 Order Denying Motion for Reconsideration En Banc ................................... Tab 10 Tex. Fin. Code § 349.001 .............................................................................. Tab 11 Tex. Fin. Code § 349.002 .............................................................................. Tab 12 Tex. Fin. Code § 349.004 .............................................................................. Tab 13 Tex. Fin. Code § 392.403 .............................................................................. Tab 14 Plaintiff’s Exhibits Below

Phone Card Purchase Agreement of 09/02/06 .................................. Tab A1 Phone Card Purchase Agreement of 10/10/06 .................................. Tab A2 Phone Card Purchase Agreement of 10/31/06 .................................. Tab A3 Phone Card Purchase Agreement of 11/30/06 .................................. Tab A4 Phone Card Purchase Agreement of 02/10/07 .................................. Tab A5 Phone Card Purchase Agreement of 03/01/07 .................................. Tab A6 Phone Card Purchase Agreement of 04/02/07 .................................. Tab A7 Phone Card Purchase Agreement of 06/01/07 .................................. Tab A8 Additional Terms and Conditions of This Agreement ...................... Tab A9 Attorney-Client Employment Contract ............................................ Tab A10 Affidavit of Craig Jordan ................................................................. Tab A11

Defendant’s Exhibits Below Consumer Application for New Account .......................................... Tab B1 Notice to Customers .......................................................................... Tab B2 Automatic Clearing House Debit Agreement and Specifications of Cash Payment Agreement ..................................... Tab B3 Void Check from Col. James Norton, Jr. .......................................... Tab B4

v

INDEX OF AUTHORITIES

Cases Adler v. Fred Lind Manor, 103 P.3d 773 (Wash. 2004) ................................................... 12 Alexander v. Anthony Int’l, L.P., 341 F.3d 256 (3d Cir. 2003)......................................... 11 Booker v. Robert Half Int’l, Inc., 413 F.3d 77 (D.C. Cir. 2005) ....................................... 11 Camacho v. Holiday Homes, Inc., 167 F. Supp. 2d 892 (W.D. Va. 2001) ....................... 14 Delta Funding Corp. v. Harris, 912 A.2d 104 (N.J. 2006)............................................... 12 DeOrnellas v. Aspen Square Mgmt., Inc., 295 F. Supp. 2d 753 (E.D. Mich. 2003) ......... 14 Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681 (1996) .................................................. 7 Ex parte Thicklin, 824 So.2d 723 (Ala. 2002), rev’d on other grounds,

Patriot Mfg., Inc. v. Jackson, 929 So.2d 997 (Ala. 2005) ............................................. 14 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) ......................................... 13 Graham Oil Co. v. ARCO Products Co., 43 F.3d 1244 (9th Cir. 1994) ........................... 11 Hadnot v. Bay, Ltd., 344 F.3d 474 (5th Cir. 2003)............................................................ 11 In re Halliburton, 80 S.W.3d 566, 572 (Tex. 2002)............................................................ 8 In re Luna, 175 S.W.3d 315 (Tex. Ct. App. 2008)............................................................ 11 In re Norton, No. 03-08-00651-CV (Tex. Ct. App. Nov. 14, 2008) .................................vii In re Norton, No. 03-08-00651-CV, 2009 WL 1024715 (Tex. Ct. App. Apr.

17, 2009) ....................................................................................................................vii, 9 In re Poly-America, L.P., 262 S.W.3d 337 (Tex. 2008).............................................passim In re Security Service Federal Credit Union, 264 S.W.3d 292 (Tex. Ct.

App. 2008) ............................................................................................................... 10, 11 Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006) ................................................... 11 Lowden v. T-Mobile, USA, Inc., 2006 WL 1009279 (W.D. Wash. Apr. 13,

2006), aff’d, 512 F.3d 1213 (9th Cir. 2008) .................................................................. 11 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) ...7, 8, 13 Perry v. Thomas, 482 U.S. 483 (1987)................................................................................ 6 Plattner v. Edge Solutions, Inc., 2004 WL 1575557 (N.D. Ill. May 27, 2004) ................ 14 Post v. ProCare Automotive Serv. Solutions, 2007 WL 1290091 (Ohio Ct.

App. May 3, 2007)......................................................................................................... 12 Simpson v. MSA of Myrtle Beach, Inc., 644 S.E.2d 663 (S.C. 2007)................................ 12 Walker v. Packer, 827 S.W.2d 833 (Tex. 1992).................................................................. 4

vi

West Virginia ex rel Dunlap v. Berger, 567 S.E.2d 265 (W. Va. 2002) ........................... 14 Statutes 9 U.S.C. § 2 ......................................................................................................................... 6 Acts 1997, 75th Leg., ch. 1008, § 6(a) .............................................................................. 10 Tex. Fin. Code § 342.004 .................................................................................................... 1 Tex. Fin. Code § 342.005 .................................................................................................... 1 Tex. Fin. Code § 349.001(a)(1) ........................................................................................... 2 Tex. Fin. Code § 349.001(a)(2) ....................................................................................... 2, 7 Tex. Fin. Code § 349.002 .................................................................................................... 2 Tex. Fin. Code § 349.002(b) ........................................................................................... 2, 7 Tex. Fin. Code § 349.004(1) ............................................................................................... 2 Tex. Fin. Code § 349.004(2) ........................................................................................... 2, 7 Tex. Fin. Code § 392.403(a)(1) ........................................................................................... 2 Tex. Fin. Code § 392.403(b) ........................................................................................... 2, 7 Tex. Gov’t Code § 22.002 ................................................................................................viii Tex. Lab. Code § 451.002 ................................................................................................... 8 Tex. Rev. Civ. Stat. Ann., art. 5069 .............................................................................. 9, 10

vii

STATEMENT OF THE CASE Underlying Proceeding:

Suit asserting usury and abusive debt collection. Respondent:

Honorable Rick Morris, Judge, 146th Judicial District Court of Bell County, Texas.

Respondent’s Action From Which Relator Seeks Relief: August 4, 2008 order abating the cause of action against Real Party in Interest and compelling Relator to bring his claims in arbitration.

Prior Petitions:

Petition for Writ of Mandamus filed on October 24, 2008 in the Third Court of Appeals, Austin, Texas. Petition denied in a memorandum opinion signed by Justice Waldrop on November 14, 2008. Before Justices Puryear, Pemberton and Waldrop. In re Norton, No. 03-08-00651-CV (Tex. Ct. App. Nov. 14, 2008) (mem.). Relator’s Motion for Rehearing En Banc filed on December 1, 2008 in the Third Court of Appeals, Austin, Texas. Petition denied in a per curiam order on April 17, 2009, over a dissent by Justice Henson. Before Chief Justice Jones, Justices Patterson, Puryear, Pemberton, Waldrop and Henson. In re Norton, No. 03-08-00651-CV, 2009 WL 1024715 (Tex. Ct. App. Apr. 17, 2009) (per curiam).

viii

STATEMENT OF JURISDICTION

The Court has jurisdiction to consider this petition for writ of mandamus under

Tex. Gov’t Code § 22.002.

ix

ISSUE PRESENTED

1. Where a prevailing consumer is entitled to attorney’s fees under the state debt collection and usury statutes, is a term in an arbitration clause that prohibits the arbitrator from awarding attorney’s fees unconscionable under Texas law because it waives statutory remedies in violation of public policy and exculpates the lender from liability? (Yes.)

1

STATEMENT OF FACTS

Colonel James Norton, Jr. (“Col. Norton”) entered into eight purported “Phone

Card Purchase Agreements” with Cash in Advance of Florida, Inc. (“Cash in Advance”)

between September 2, 2006 and June 1, 2007. (App., Tabs A1-A8.) Under the terms of

the purported agreements, Col. Norton received an immediate cash advance and the

promise of several phone cards in exchange for the promise to repay Cash in Advance the

amount he was advanced plus an additional sum. (Id.) In each of two transactions, Col.

Norton received a $1000 cash advance in exchange for the promise to pay $550 per

month for 12 months or an early termination fee of $1300. (App., Tabs A1, A2) In each

of four transactions, Col. Norton received a $1000 cash advance in exchange for the

promise to pay Cash in Advance $470 per month for 12 months or an early termination

fee of $1350. (App., Tabs A3, A4, A7, A8.) And in each of two transactions, Col.

Norton received a $600 cash advance in exchange for the promise to pay Cash in

Advance $282 per month for 12 months or an early termination fee of $810. (App., Tab

A5, A6.) If these transactions were loans, the annual percentage rate would range from

465 to 560 percent. Col. Norton initially made the monthly payments, but ultimately fell

into default. (App., Tab 1 ¶ 13.) At that point, Cash in Advance sent him a dunning

letter stating, in part, that he was engaged in “theft by check.” (Id. ¶ 14.)

On March 25, 2008, Col. Norton filed a petition in the District Court of Bell

County, 146th Judicial District of Texas, alleging that Cash in Advance’s purported

“Phone Card Purchase Agreements” were, in fact, loans, and that the loan terms violated

Texas’s anti-usury statutes, Tex. Fin. Code §§ 342.004 and 342.005. (Id. ¶ 15.) For

2

these violations, Col. Norton sought to recover the principal and additional sums he had

been charged, pursuant to Tex. Fin. Code §§ 349.001(a)(1), 349.002, and 349.004(1).

(Id. ¶ 16.) In addition, Col. Norton alleged that Cash in Advance violated the Texas Debt

Collection Act (“TDCA”), Tex. Fin. Code § 302.301(a)(2), by accusing him of

committing “theft by check.” (Id. ¶¶ 14,17.) For this violation, Col. Norton sought

injunctive relief under Tex. Fin. Code §§ 392.403(a)(1). (Id. ¶ 17.) Col. Norton also

sought attorney’s fees under the anti-usury laws and the TDCA, Tex. Fin. Code §§

349.001(a)(2), 349.002(b), 349.004(2), and 392.403(b), which specifically provide that a

prevailing consumer is entitled to attorney’s fees. (Id. ¶¶ 16, 17.)

On April 17, 2008, Cash in Advance moved to compel arbitration of Col. Norton’s

claims pursuant to an arbitration clause in the purported “Phone Card Purchase

Agreements.”1 (App., Tab 2 1-2.) The arbitration clause states, in part: “Throughout the

arbitration, each party shall bear his or her own attorney’s fees and expenses, such as

witness and expert witness fees.” (App., Tab A9.) Col. Norton opposed the motion on

the ground that this term (hereinafter “attorney’s fees prohibition”) prohibits a prevailing

consumer from collecting attorney’s fees. (App., Tab 4 4-6.) Col. Norton argued that the

attorney’s fees prohibition was unconscionable because it eliminates a remedy available

under the debt collection and usury statutes in violation of public policy and because it

would effectively exculpate Cash in Advance from liability for its alleged wrongdoing.

(Id. 5-6; App., Tab 5 21:14-22:1, 25:2-9, 38:1-9.) 1 Cash in Advance titled its motion “Defendant Cash in Advance of Florida, Inc.’s Original Answer, Plea in Abatement and Motion to Sever.” (App., Tab 2.) In the motion, Cash in Advance sought an order abating all claims until the claims were arbitrated. (Id.) Neither Cash in Advance’s answer nor its motion to sever is at issue in this petition. For clarity of language, therefore, this Petition will refer to the motion as a motion to compel arbitration.

3

On July 25, 2008, the motion to compel arbitration was heard before Judge Morris.

(App., Tab 5). Col. Norton submitted evidence establishing that, in cases like this, where

a plaintiff alleges violations of state usury and debt collection statutes, it is virtually

impossible for that plaintiff to secure representation absent a fee-shifting provision. (Id.

17:11-17, 18:2-12, 21:14-22:1, 25:2-9, 38:1-9, Tab A11.) Col. Norton’s attorney,

Richard Tomlinson, testified that he could only afford to bring this case in two

circumstances: (1) if attorney’s fees were available to Col. Norton; or (2) if Col. Norton

paid Mr. Tomlinson a $10,000 retainer and an hourly rate of $300. (Id. 38:1-15.) Mr.

Tomlinson estimated that this case, if it continues through an arbitration hearing, will

require “no less than eighty to a hundred hours of work” and could cost Col. Norton

between $24,000 and $30,000. (Id. 38:10-13.)

This estimate was supported by testimony from Craig Jordan, currently the

chairperson of the Consumer & Commercial Law Section of the Texas State Bar. (App.,

Tab A11.) Mr. Jordan testified that, because payday loan cases (1) involve complex

usury and licensing provisions of the Texas Finance Code; (2) require the plaintiff to

prove that seemingly legitimate transactions are in fact shams designed to evade the

Finance Code restrictions; and (3) inspire vigorous defense from defendants, a plaintiff’s

attorney would likely expend a minimum of 80 hours investigating and preparing a

payday loan case. (Id.) Cash in Advance did not contest any of this evidence.

Col. Norton himself testified that he could not afford to pay Mr. Tomlinson’s

$10,000 retainer if the attorneys’ fees prohibition is enforced. (App., Tab 5 25:7-9.)

Rather, Col. Norton testified that he was only able to hire Mr. Tomlinson because he did

4

not have to pay for Mr. Tomlinson’s services unless he prevailed or reached a settlement

with Cash in Advance. (Id. 25:2-6.) Col. Norton also introduced the attorney-client

contract between himself and Mr. Tomlinson, under which Mr. Tomlinson received no

retainer, but rather agreed to seek fees and costs pursuant to applicable statutory

attorney’s fees provisions. (App., Tab A10.)

Notwithstanding this unrebutted factual record, the district court granted Cash in

Advance’s motion on August 4, 2008. (App., Tab 6.) On October 24, 2008, Col. Norton

filed a Petition for Writ of Mandamus in the Third Court of Appeals, Austin, Texas.

(App., Tab 7.) The sole issue presented was whether the district court abused its

discretion by ordering the parties to arbitrate pursuant to an arbitration agreement that

prevents Col. Norton from seeking attorney’s fees if he prevails – a remedy to which he

would be statutorily entitled if the case is permitted to proceed in court. (Id.) The

petition was summarily denied on November 14, 2008. (App., Tab 8.) Col. Norton

moved for rehearing en banc on December 1, 2008. (App., Tab 9.) The motion was

denied without opinion over a vigorous dissent from Justice Diane M. Henson, who

would have granted Col. Norton’s petition for writ of mandamus pursuant to this Court’s

holding in In re Poly-America, L.P., 262 S.W.3d 337 (Tex. 2008). (App., Tab. 10.)

SUMMARY OF ARGUMENT

A writ of mandamus must issue if a trial court has abused its discretion or violated

a legal duty and there is no adequate remedy by appeal. Walker v. Packer, 827 S.W.2d

833, 839 (Tex. 1992). These criteria are plainly present here.

5

The trial court’s decision to compel Col. Norton to arbitrate his claims against

Cash in Advance pursuant to an arbitration clause that prohibits the arbitrator from

awarding attorney’s fees to a prevailing plaintiff constituted an abuse of discretion for

two reasons. First, it eliminates a substantive remedy – the right to seek attorney’s fees –

to which prevailing plaintiffs are entitled under applicable statutes. That result directly

conflicts with this Court’s holding in Poly-America, 262 S.W.3d at 352-53, which struck

down as unconscionable a term in an arbitration clause that, like the term at issue here,

stripped the arbitrator of the authority to award remedies available to the plaintiff under

an applicable statute.2

Second, the trial court’s decision to compel arbitration was an abuse of discretion

because the attorney’s fees prohibition acts as an exculpatory clause that, if enforced, will

permit Cash in Advance to escape liability for its alleged wrongdoing. The

uncontroverted evidence established that Col. Norton’s claims against Cash in Advance

are complex and require representation by attorneys with specialized expertise. The

uncontroverted evidence also showed that, if Cash in Advance’s attorney’s fees

prohibition is enforced, Col. Norton will be unable to secure counsel as a practical matter.

As a result, if the prohibition is enforced, Col. Norton will be unable to pursue his claims

– even if he is 100% correct that Cash in Advance has violated Texas law. As a result,

the prohibition is exculpatory and unconscionable under Texas law.

2 Poly-America was published after the trial court’s decision in this case, but before the court of appeals denied Col. Norton’s Petition for Writ of Mandamus.

6

In addition, Col. Norton has no adequate remedy by appeal; a party may not seek

appellate review of a district court’s order compelling arbitration. See Poly-America, 262

S.W.3d at 345. Rather, “[m]andamus is the proper means by which to seek review of an

order compelling arbitration under the FAA.” Id.

Because the trial court’s order abating the cause and compelling arbitration

constituted an abuse of discretion, and because Col. Norton has no adequate remedy by

appeal, the Court should grant the petition for writ of mandamus.

ARGUMENT

I. Cash In Advance’s Attorney’s Fees Prohibition Is Unconscionable Under Texas State Law.

Cash in Advance’s arbitration clause states that “[t]he arbitrator shall apply

applicable substantive law consistent with the Federal Arbitration Act.” (App., Tab A9).

Section 2 of the Federal Arbitration Act (“FAA”) states that arbitration clauses are “valid,

irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the

revocation of any contract.” 9 U.S.C. § 2. The United State Supreme Court has

interpreted § 2 to mean that “state law, whether of legislative or judicial origin,” may be

applied to invalidate arbitration clauses “if that law arose to govern issues concerning the

validity, revocability, and enforceability of contracts generally.” Perry v. Thomas, 482

U.S. 483, 492 n.9 (1987) (quoted in Poly-America, 262 S.W.3d at 347). Prior to

enforcing an arbitration clause, therefore, “a state court must initially determine – through

the neutral application of its own contract law – whether . . . ‘generally applicable

contract defenses . . . may be applied to invalidate arbitration agreements without

7

contravening’ the policies of the FAA.” Poly-America, 262 S.W.3d at 348 (quoting

Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)).

Unconscionability is a generally applicable contract defense under Texas law. See

id. (“Unconscionable contracts [] – whether relating to arbitration or not – are

unenforceable under Texas law.”). Thus, if a term in Cash in Advance’s arbitration

clause is unconscionable, it is invalid.

As set forth below, Cash in Advance’s attorney’s fees prohibition is

unconscionable and therefore unenforceable under Texas law for two reasons: (1) it

eliminates a remedy to which prevailing plaintiffs are entitled under applicable statutes;

and (2) it acts as an exculpatory clause, permitting Cash in Advance to escape liability for

its alleged wrongdoing.

A. The Attorney’s Fees Prohibition Is Unconscionable Because It Eliminates The Statutory Remedy Of Attorney’s Fees To Which Prevailing Plaintiffs Are Entitled.

It is black-letter law in Texas that parties must not be forced to “forgo the

substantive rights afforded by [] statute” by proceeding in arbitration. Poly-America, 262

S.W.3d at 349 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473

U.S. 614, 628 (1985)). Here, Col. Norton alleges violations of Texas’s anti-usury statutes

and the TDCA, which provide that a prevailing consumer is entitled to an award of

attorney’s fees. Tex. Fin. Code §§ 349.001(a)(2), 349.002(b), 349.004(2), 392.403(b).

Cash in Advance’s arbitration clause, however, prohibits an arbitrator from awarding

attorney’s fees. (App., Tab A9.) For this reason alone, it violates Texas public policy

and is unconscionable and invalid under Texas law.

8

This Court recently made clear that terms in arbitration clauses that eliminate

statutory remedies violate public policy and cannot be enforced. Poly-America, 262

S.W.3d at 337. In Poly-America, the plaintiff sued his former employer for retaliatory

discharge under the Texas Worker’s Compensation Act (“TWCA”). Id. at 345. The

employer moved to compel arbitration pursuant to an arbitration clause in the

employment contract that prohibited the arbitrator from awarding the remedies of

reinstatement or punitive damages. Id. at 352. The TWCA, however, specifically

provides for such remedies in a retaliatory discharge case. Id. (citing Tex. Lab. Code §

451.002). Because a term in the arbitration clause eliminated remedies available under

the TWCA, this Court held that the term was “substantively unconscionable and void.”

Id. at 352, 360-61.3

In so holding, this Court first noted that statutory claims are generally arbitrable,

but that a term in an arbitration clause is not enforceable where a party is forced to forgo

statutory rights or remedies. Id. at 349 (citing Mitsubishi Motors, 473 U.S. at 628, and In

re Halliburton, 80 S.W.3d 566, 572 (Tex. 2002)). This Court then looked to the purpose

of the TWCA remedies provision, finding that “the availability of remedies for retaliatory

discharge protects employees’ exercise of their statutory rights to compensation under the

Act.” Id. at 350. In light of that purpose, the dispositive question was whether the

challenged terms in the arbitration clause contravened the TWCA’s anti-retaliation

provisions. Id. at 351.

3 A finding of substantive unconscionability is sufficient to declare a term in an arbitration clause unconscionable. Poly-America, 262 S.W.3d at 360-61.

9

This Court answered this question in the affirmative, holding “invalid, as

substantively unconscionable and void, provisions of the parties’ contract that prohibit

the award of punitive damages or reinstatement and thus inhibit effective vindication of

[the plaintiff’s] retaliatory-discharge claim in an arbitral forum.” Id. at 360-61. To hold

otherwise, this Court wrote, would enable an “employer [to] avoid the Act’s penalties by

conditioning employment upon waiver of the very provisions designed to protect

employees who have been the subject of wrongful retaliation.” Id. at 352.4

The reasoning of Poly-America applies here in spades. Like the arbitration clause

in Poly-America, enforcing the attorney’s fees prohibition in this case would “inhibit

effective vindication of Col. Norton’s claim” and permit Cash in Advance to avoid

statutory penalties designed to protect consumers who have been the subject of usurious

loans and illegal debt collection practices. See id. And just as the remedies of

reinstatement of and punitive damages “protect[] employees’ exercise of their statutory

rights to compensation under the [TWCA],” id. at 350, the attorney’s fees provisions in

Texas’ anti-usury and debt collection statutes are essential to the statutory protections

enacted to combat credit abuses in this state. In the preface to the Texas Consumer

Credit Code, the Legislature declared that passage of the anti-usury and debt collection

statutes – including their associated attorney’s fees provisions – was necessary because,

inter alia, the previous penalties imposed had not provided effective or workable

safeguards. Tex. Rev. Civ. Stat. Ann. art 5069, Declaration of Legislative Intent (Vernon

4 As Justice Henson observed in her dissent in this case, while the Poly-America court did not invalidate the attorney’s fees prohibition at issue there, the statute under which the plaintiff sued in Poly-America does not provide for attorney’s fees. In re Norton, 2009 WL 1024715, at *1 (Tex. Ct. App. Apr. 17, 2008) (J. Henson, dissenting).

10

1971).5 The Legislature further observed that credit abuses and usury bring great social

and economic hardship to many citizens of Texas, including intolerable burdens on those

who can least afford to bear them – the uneducated, the unsophisticated, the poor, and the

elderly. To protect these vulnerable segments of the population, the Legislature declared

that “firm and effective penalties for usury and other prohibited practices in credit

transactions” are necessary. Id.

Thus, the remedy of attorney’s fees at issue in this case is at least as integral to

effectuating the statutory scheme of combatting credit abuses as the remedies of

reinstatement and punitive damages were to the TWCA in Poly-America. The trial

court’s order compeling arbitration in this case therefore constitutes an abuse of

discretion that plainly warrants mandamus review. Indeed, at least one Texas court of

appeals has already invalidated a term in an arbitration clause identical to the one at issue

in this case. In In re Security Service Federal Credit Union, 264 S.W.3d 292 (Tex. Ct.

App. 2008), the court considered whether an arbitration clause that prohibited the

awarding of attorney’s fees was enforceable against a consumer who filed a claim under

the Texas Deceptive Trade Practices-Consumer Protection Act (“DPTA”), which

provides for the award of attorney’s fees to prevailing plaintiffs.6 Id. at 297-98. The

court concluded that, because “the attorney’s fees provisions of the DPTA are essential to

vindicating consumer rights in Texas,” the term was unconscionable and unenforceable. 5 Tex. Rev. Civ. Stat. Ann., art. 5069 is the precursor to the Texas Finance Code provisions that give rise to Col. Norton’s claims of usury and illegal debt collection and the remedy of attorney’s fees for prevailing plaintiffs under these provisions. See Acts 1997, 75th Leg., ch. 1008, § 6(a). 6 The language of the attorney’s fees prohibition in In re Security Service Federal Credit Union is nearly identical to the prohibition in this case. Compare Security Service, 264 S.W.3d at 297 (“However, each party shall bear the expense of its own counsel . . .”), with Cash in Advance’s prohibition, “Throughout the arbitration, each party shall bear his or her own attorney’s fees and expenses. . . .” (App., Tab A9.)

11

Id. at 300. While the Security Service decision was issued prior to this Court’s ruling in

Poly-America, it relied in part on In re Luna, the court of appeals opinion upheld by this

Court in Poly-America, in holding that the attorney’s fees prohibition was substantively

unconscionable. See Security Service, 264 S.W.3d at 300 (citing In re Luna, 175 S.W.3d

315, 324 (Tex. Ct. App. 2008), aff’d, Poly-America, 262 S.W.3d at 352).

Courts in numerous other jurisdictions have likewise refused to enforce arbitration

clauses (or terms contained in arbitration clauses) that prohibit the award of attorney’s

fees and other remedies that would otherwise be available to prevailing plaintiffs under

statute. See, e.g., Kristian v. Comcast Corp., 446 F.3d 25, 52-53 (1st Cir. 2006) (striking

down term prohibiting the award of attorney’s fees available to prevailing plaintiffs under

federal and state antitrust statutes); Booker v. Robert Half Int’l, Inc., 413 F.3d 77, 83

(D.C. Cir. 2005) (striking down term barring punitive damages available under District of

Columbia Human Rights Act); Alexander v. Anthony Int’l, L.P., 341 F.3d 256, 267-68

(3d Cir. 2003) (striking down arbitration clause prohibiting the award of attorney’s fees

available to prevailing plaintiffs under Virgin Islands Wrongful Discharge Act); Hadnot

v. Bay, Ltd., 344 F.3d 474, 478 n.14 (5th Cir. 2003) (upholding a district court order

striking down term banning punitive and exemplary damages available under Title VII);

Graham Oil Co. v. ARCO Products Co., 43 F.3d 1244, 1247 (9th Cir. 1994) (striking

down arbitration clause barring franchisee from recovering statutory attorney’s fees

available under the Petroleum Marketing Practices Act); Lowden v. T-Mobile, USA, Inc.,

2006 WL 1009279, at *8 (W.D. Wash. Apr. 13, 2006), aff’d, 512 F.3d 1213 (9th Cir.

2008) (striking down arbitration clause barring prevailing plaintiffs from recovering

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statutory attorney’s fees available under the Washington Law Against Discrimination);

Delta Funding Corp. v. Harris, 912 A.2d 104, 114 (N.J. 2006) (striking down term

preventing prevailing plaintiffs from recovering attorney’s fees available under the Real

Estate Settlement Procedures Act); Post v. ProCare Automotive Serv. Solutions, 2007

WL 1290091, at *3 (Ohio Ct. App. May 3, 2007) (striking down term that prohibited a

prevailing plaintiff from recovering attorney’s fees available under Ohio statute);

Simpson v. MSA of Myrtle Beach, Inc., 644 S.E.2d 663, 671 (S.C. 2007) (striking down

term barring award of double or treble damages available under two South Carolina trade

regulation statues); Adler v. Fred Lind Manor, 103 P.3d 773, 786 (Wash. 2004) (striking

down term prohibiting prevailing plaintiffs from recovering attorney’s fees available

under the Washington Law Against Discrimination).

In conclusion, the two Texas consumer protection statutes Cash in Advance is

alleged to have violated in this case clearly provide for the award of attorney’s fees to

prevailing plaintiffs, but Cash in Advance’s arbitration clause would prevent the

arbitrator from awarding those fees to Col. Norton if he prevails on his claims. Under

this Court’s decision in Poly-America, Cash in Advance may not eliminate the statutory

right to attorney’s fees through a term in its arbitration clause. Because the attorney’s

fees prohibition bars the arbitrator from awarding that statutory remedy, it violates Texas

public policy and is unconscionable under Texas law. For this reason alone, the trial

court’s decision to enforce the clause and force Col. Norton into arbitration constitutes an

abuse of discretion that warrants mandamus review by this Court.

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B. The Attorney’s Fees Prohibition Is Also Unconscionable Because It Acts As An Exculpatory Clause.

Standing alone, the trial court’s decision to eliminate the right to attorney’s fees –

to which Col. Norton is entitled by statute – provides ample basis for granting mandamus

in this case. However, even if Texas law did not guarantee attorney’s fees to prevailing

plaintiffs in cases like this one, the factual record demonstrates that the attorney’s fees

prohibition in Cash in Advance’s arbitration clause would exculpate the lender from

liability for the kinds of abuses alleged here. For this reason as well, the clause is

unconscionable and therefore invalid.

The U.S. Supreme Court has stated repeatedly that arbitration must allow a party

to “effectively vindicate” its rights. Mitsubishi Motors, 473 U.S. at 637; Gilmer v.

Interstate/Johnson Lane Corp., 500 U.S. 20, 28 (1991) (quoting Mitsubishi Motors).

Here, Cash In Advance did not dispute Col. Norton’s showing that, if the attorney’s fees

prohibition is enforced, he will not be able pursue his claims. Supra, at 3-4.7 As Craig

Jordan testified, cases such as Col. Norton’s are extremely complex: “[t]hey usually

require the services of an attorney with specialized expertise in this area of law”; they

often require a global examination of the defendant’s business practices and procedures;

and they tend to be vigorously defended. (App., Tab A11.) Because of Col. Norton’s

inability to afford to pay counsel and the complexity of the claims at issue, Cash in

Advance’s attorney’s fees prohibition would prevent Col. Norton (and undoubtedly other

7 For example, even if Col. Norton were to find another attorney who was willing to pursue this case for as little as $125 per hour, far less than the rate charged by his counsel, Col. Norton could not afford to pay the fees for the attorney’s time on this case. See supra, at 3 (evidence that a case such as this requires at least 80 hours to investigate and prepare, and that Col. Norton can not afford to pay $10,000 for representation; an attorney who bills $125 per hour for 80 hours would cost $10,000).

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consumers) from securing counsel to challenge alleged payday lending abuses,

effectively insulating Cash in Advance from liability for claims such as those raised here

even if those claims are 100% correct. Such an exculpatory clause is grossly one-sided

and unconscionable under Texas law. See Poly-America, 262 S.W.3d at 348 (“[I]n

general, a contract will be found unconscionable if it is grossly one-sided.).

A growing number of courts across the country have rejected arbitration clauses

and terms in arbitration clauses like the one at issue here precisely because they prevent a

party from effectively vindicating its rights. See, e.g., Plattner v. Edge Solutions, Inc.,

2004 WL 1575557, at *1 (N.D. Ill. May 27, 2004) (striking down clause requiring a

plaintiff with financial difficulties to arbitrate in a distant forum because it “effectively

precludes [the] plaintiff from bringing his claim”); DeOrnellas v. Aspen Square Mgmt.,

Inc., 295 F. Supp. 2d 753, 766 (E.D. Mich. 2003) (striking down term allowing the

defendant to remove the arbitration proceedings to any location nationwide on the ground

that it “may prevent the vindication of the plaintiffs’ rights”); Camacho v. Holiday

Homes, Inc., 167 F. Supp. 2d 892, 897 (W.D. Va. 2001) (striking down clause requiring

the plaintiff to pay one-half of all arbitration fees and expenses because it would preclude

the plaintiff from vindicating his rights); Ex parte Thicklin, 824 So.2d 723, 733 (Ala.

2002), rev’d on other grounds, Patriot Mfg., Inc. v. Jackson, 929 So.2d 997 (Ala. 2005)

(striking down term prohibiting the award of punitive damages because if the prohibition

were allowed to stand, “the door will be open wide to rampant fraudulent conduct with

few, if any, legal repercussions”) (quotation and citation omitted); West Virginia ex rel.

Dunlap v. Berger, 567 S.E.2d 265, 278 (W. Va. 2002) (striking down a “no punitive

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damages” term because it would “categorically shield[] [the defendant] from any liability

for such sanctions, regardless of [its] level of wrongdoing”).

This Court should grant mandamus review in order to join this overwhelming

weight of authority and hold that the attorney’s fees prohibition in Cash in Advance’s

arbitration clause acts as an unconscionable exculpatory clause in this case.

PRAYER

Because the district court abused its discretion in compelling arbitration, and

because Col. Norton has no effective remedy on appeal, this Court should grant this

Petition for Writ of Mandamus declaring the attorney’s fees prohibition in Cash in

Advance’s arbitration clause unconscionable and invalid under Texas law, and remand

the matter to the district court for further proceedings consistent with that ruling.

Respectfully submitted,

______________________________ Richard Tomlinson Texas Bar No. 20123500 Law Office of Richard Tomlinson 3100 Timmons Lane, Suite 100 Houston, Texas 77027 Leslie A. Bailey Pro Hac Vice Motion Pending Matthew S. Melamed Pro Hac Vice Motion Pending Public Justice, P.C. 555 12th Street, Suite 1620 Oakland, California 94607 Attorneys for Relator James Norton, Jr.

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CERTIFICATION

Before me, the undersigned authority, on this day personally appeared James

Norton, Jr., who being by me first duly sworn, did depose and say:

1. “I am over 21 years of age, have never been convicted of a felony, and am

fully competent to make this affidavit/certification.

2. “I am the plaintiff in this lawsuit.

3. “I have read the Petition for Writ of Mandamus. The facts set forth therein

are within my personal knowledge based on my direct involvement in this matter.

4. “The facts stated in the Petition for Writ of Mandamus are true and

correct.”

_______________________________ James Norton, Jr.

Subscribed and sworn to before me, the undersigned authority, on this ____ day of

July, 2009, to certify which witness my hand and seal of office.

_______________________________ Notary Public in and for the State of Texas

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CERTIFICATE OF SERVICE I certify that I served a true and correct copy of the foregoing Petition for Writ of

Mandamus on the Respondent and on counsel for the Real Party in Interest in this action

on July ___, 2009, by United States certified mail, return receipt requested.

Respondent: Honorable Rick Morris Judge, 146th Judicial District Court of Bell County, Texas Post Office Box 324 1201 Huey Road Belton, Texas 76513

Attorney for Real Party in Interest, Cash in Advance of Florida, Inc.:

Ronald E. Pearson Pearson & Pearson 2109 Bird Creek Terrace Temple, Texas 76502

_______________________________ Richard Tomlinson Texas Bar No. 20123500 Law Office of Richard Tomlinson 3100 Timmons Lane, Suite 100 Houston, Texas 77027 telephone: 713-627-2100 facsimile: 713-627-2101