One would be hard pressed to find a law school graduate in the past half century who was not aware of the Williams v. Walker-Thomas Furniture Co. case. Many law professors consider the case, which challenges the enforceability of a cross-collateralization clause in an installment sales contract, to be a classic for its contribution to the doctrine of unconscionability. However, this elevation to “classic” status has not been without controversy and a great deal of commentary. Some scholars have questioned the continuation of teaching the case in first year Contracts due to concerns about the racial and socioeconomic issues imbedded in the case. They fear that the case perpetuates harmful stereotypes about people of color and those living in economically disadvantaged communities. Others claim that the case lays the foundation for legal remedies that will ultimately harm certain communities rather than help them. In his thought-provoking article The Bitter Ironies of Williams v. Walker-Thomas Furniture Co. in the First Year Law School Curriculum, Professor Duncan Kennedy convincingly counters this claim and asserts the importance of the case’s contribution to the unconscionability defense, which he argues ultimately benefits rather than harms people living in certain communities, specifically those living in poor Black neighborhoods.
Professor Kennedy’s article is “part of a larger project exploring the economics of housing and credit in poor Black neighborhoods” in which he “defends the range of legal initiatives that legal services lawyers and clinicians, with progressive lawyers and academic allies, have undertaken on behalf of poor Black neighborhoods against the perennial neoliberal accusation that they ‘hurt the people they are supposed to help.’” He begins his piece by discussing how professors and casebooks present and examine the case, which often involves querying whether banning the challenged clause would hurt or help poor buyers or borrowers. The ensuing discussion often includes arguments regarding the possibility of increased risk and costs for the seller that will be passed on to consumers resulting in higher sales prices or increased interest rates that will prevent some buyers from participating in the market. Professor Kennedy notes that some argue that this outcome is “especially unfortunate” for buyers like Ms. Williams who are poor and demonstrates “the quintessential case for the idea that well-meaning humanitarian policy initiatives are chronically counterproductive as well as grossly paternalist.”
Professor Kennedy finds it ironic that although Judge Skelly Wright does not mention Ms. Williams’s race or the fact that she lives in a poor Black neighborhood in his opinion, Williams is often the only case or one of a few involving a poor, Black litigant that first year law students will encounter in their Contracts course, unless their professor supplements the casebook with additional materials. According to Professor Kennedy, “[r]ace will be salient in the way students, whether or not of color, experience the case as a story about racial reality.” This reality will be informed by students’ lived experiences and the various narratives about Black people and communities to which they have been exposed. Professor Kennedy mentions that one such narrative that operates in the case stems from conservative politicians’ efforts to characterize Black mothers utilizing public assistance as irresponsible “welfare queens.” He also notes that professors “oriented to the law and economics critique of the decision” perpetuate the narrative “that we would expect merchants selling household goods on credit to charge high prices with bad terms because of, and only because of, the high default rates of the Black poor” despite empirical evidence to the contrary. Given the intersection of race, class, and consumer protection that permeates the case, Professor Kennedy argues that Williams provides an important vehicle by which to challenge these narratives and the “hurt the people you’re trying to help” argument that flows from them.
He finds it “striking that liberal defenders of the use of unconscionability doctrine to police contract terms, and of the outcome in Williams in particular, only rarely…challenge [the “hurting the people” argument] directly.” He highlights the scholarship of Professors Bruce Ackerman, Russell Korobkin, Jean Sternlight, and Elizabeth Jensen as examples of “literature taking up the question of how much, if any, of a seller’s increased cost of compliance with a new duty will be passed along, how much he will reduce sales, and how his response to the new duty will affect consumer welfare.” Professor Kennedy also cites Professor Louis Michael Seidman’s reflections on Judge Wright’s legacy as an important recognition of the “contested and complicated” economics behind assertions about the market and consumer welfare impact of Judge Wright’s regulatory interventions. Notwithstanding whether judicial or legislative interventions during the decade and a half that followed the Williams case increased the credit supply for consumers, Professor Kennedy asserts that they likely “improved the welfare of borrowers in poor Black neighborhoods. And did it without raising the price of credit or reducing the supply at all, or by a very little. That they improved the credit supply without increasing it does not detract from the beauty of what they did.”
According to Professor Kennedy, law professors teaching Williams use “conventional neo-classical economic analysis” to examine the narrow question of “whether it is likely or even very likely that a jurisdiction that banned cross-collateralization clauses, in the contracts of poor buyers in typical poor Black neighborhoods made them better off.” He relies on arguments regarding information asymmetry, lack of a competitive market in relevant D.C. neighborhoods for household goods, and unique market conditions that existed at the time of the case to effectively challenge assumptions that underlie this conventional analysis. Regarding the D.C. market conditions, Professor Kennedy provides an enlightening and informative account of the stark realities of racially segregated housing, concentrated poverty, lack of educational opportunities, and lack of access to mainstream credit that Ms. Williams and similarly situated buyers faced at the time and still do today.
Of particular importance to Professor Kennedy’s claim that the decision in Williams may actually benefit rather than harm poor Black communities is his discussion of the Walker-Thomas store being part of an oligopolistic financial market whereby a small number of sellers and lenders “typically compete not on price but on factors like location, branding, advertising, discounts, and sales. … When costs increase because of a new compulsory term, the seller will raise his price to compensate. … A quasi-captive market like the one in Williams allows larger increases above cost because it is difficult for customers to desert to stores outside the neighborhood.”
Professor Kennedy also details what he calls “low road” commercial practices by which sellers in poor Black neighborhoods sold goods on installment credit. Such practices included concentrating their sales on credit to poor Black buyers/borrowers, using cross-collateralization clauses to have a robust supply of repossessed goods for reselling, setting purchase prices by one-on-one in store bargaining with customers rather than set sticker prices, and engaging in door-to-door sales that resulted in installment agreements with missing purchase prices that the seller supplied at a later time.
Professor Kennedy theorizes that this business model that maximized buyers’ reservation price (the highest price they were willing to pay) and the price they were financially able to pay meant that it was “implausible that sellers could raise prices much, if at all, in response to the banning of the [cross-collateralization] clause. Sellers almost certainly had to ‘eat the cost,’ or the vast majority of it, because they had already exhausted buyer willingness to pay for the underlying good.” Therefore, according to Professor Kennedy, banning the clause as contemplated in Williams would not have “hurt the people you’re trying to help,” as some contend, but rather it would have provided a useful tool by which to protect members of poor Black neighborhoods against the psychological and material costs associated with blanket repossession.
As someone who has taught the Williams case for over a decade, I found Professor Kennedy’s article to be an important contribution to the existing literature about the case. He has provided a useful pedagogical tool to help professors reexamine our approach to analyzing and discussing the case and its possible implications. He has also reminded us that poor minority communities continue to be subjected to abusive and exploitative credit practices, so there remains more to do to provide greater protections in hopes of bringing about greater racial and economic equity.
