An arbitration clause is a part of a contract which requires that any dispute between the parties be handled in arbitration, rather than trial courts. An increasing number of companies are implementing these clauses and requiring everyone from their employees to their customers to sign them. The goal is to prevent class actions from forming and taking the company to court for large sums of money. However, these clauses are not always enforceable and many plaintiffs have found ways around them.
An unconscionable contract is a contract that is unenforceable in a court of law. Arbitration agreements may be found unconscionable on “such grounds as exist at law or in equity” to revoke a contract. There are two types of contractual unconscionability: procedural and substantive. Procedural unconscionability addresses the fairness of the bargaining process, which “is concerned with ‘unfair surprise’, fine print clauses, mistakes or ignorance of important facts”. Substantive unconscionability, on the other hand, determines the fairness of the terms of the contract itself. For example, a contract may be considered substantively unconscionable if its terms favor one party too heavily over another.
An arbitration agreement may be substantively unconscionable if the fees and costs to arbitrate are so excessive as to “deny a potential litigant the opportunity to vindicate his or her rights.” In such cases, it is up to the plaintiff to prove to the court that the arbitration would be prohibitively expensive.
First, the plaintiff has to present evidence concerning the cost to arbitrate. The evidence provided “must be based on specific facts showing with reasonable certainty the likely costs of arbitration.” Second, the plaintiff “must show that based on their specific income/assets, they are unable to pay the likely costs of arbitration.” The third and final consideration for the court is whether the arbitration agreement allows for a party to avoid or reduce the costs of arbitration based on financial hardship.
One case that exemplifies this is Clark v. Renaissance West in Arizona. The plaintiff sued the nursing home for medical malpractice, alleging that it was due to their negligence that he formed a pressure ulcer which required surgery and long term care to remedy. Clark had signed a contract with the nursing home that included an arbitration clause but he argued that the clause was unenforceable and took the case to trial. The trial court ruled that the arbitration clause was, indeed unconscionable, and the appellate court agreed after Renaissance West appealed the lower court’s decision.
Most arbitration clauses state that the company will choose and pay for arbitration. In this case however, the contract called for three arbitrators in the event that the parties could not agree on one, and for both parties to split the arbitration fees, regardless of who won the case. Clark brought in an expert who testified that, based on the complexity of Clark’s case, they could be in arbitration for at least five days (assuming an 8-hour day). Taking that into consideration, arbitration alone would have cost Clark about $22,800. Since Clark is retired and living on a fixed income, such an exorbitant amount is clearly beyond his means.
The appellate court’s decision is a mixed blessing for plaintiffs trying to avoid unfair arbitration provisions. On the one hand, the plaintiff won and the arbitration clause has been rejected. On the other hand, this case has proven the lengths to which plaintiffs must go in order to prove that the arbitration clause is unconscionable.
The Chicago class action attorneys at Lubin Austermuehle have decades of experience representing consumers throughout the greater Chicago area and the Mid-West region, including Illinois, Indiana, Wisconsin and Iowa. Class action lawsuits give consumers a way to assert their rights in cases of consumer fraud, even if they lack the resources individually to fight a much larger opponent. Please contact us today online, at (630) 333-0333, or at 630-333-0333 to schedule a confidential consultation with one of our attorneys.