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Washington Mutual Finance Group v. Bailey

United States Court of Appeals, Fifth Circuit
364 F.3d 260 (2004)


Washington Mutual Finance Group (WM Finance) (plaintiff) provided a loan and insurance to Bailey (defendant), an illiterate individual. The loan and insurance agreements contained provisions stating that any disputes arising under the agreements must be submitted to arbitration. Bailey signed these agreements without being able to read them due to his illiteracy. Bailey informed WM Finance of his illiteracy, but WM Finance did not read or explain the agreements to Bailey. A dispute arose under the contracts, and Bailey brought suit against WM Finance in Mississippi state court. WM Finance filed a separate action in federal state court seeking to stay Bailey’s state action and compel arbitration of the dispute. The cases were consolidated in federal court. The federal court held that since Bailey could not read the contracts and WM Finance did not explain the contractual provisions to Bailey, the arbitration clauses were invalid and unenforceable. WM Finance appealed.

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