Brief Fact Summary. The arbitration provisions of a written agreement and the release which compelled arbitration of claims arising from the production and broadcast of a television program were contended by the Higginses (P) on the ground that these were unconscionable.
Synopsis of Rule of Law. When an arbitration clause in a written agreement is unconscionable and is being challenged, the clause and not the whole agreement may not be enforced.
Attached to the contract were several pages of exhibits and an authorization for release of medical information, emergency medical release and, a one-page document titled “Release” and which was classified as exhibit C, were all included in the contract. The first page of the agreement contained a caveat which specified that potential signors should not append their signature unless they have gone through the agreement. Included in contract and close to the end of the agreement, was a paragraph which stated that the signor must have read through the agreement and reviewed it with a legal counsel or at his/her discretion, have opted to read and review the agreement alone.
Among the last 12 numbered paragraphs that had no title or heading was paragraph 69, which stipulated that disputes or controversies would be resolved through a binding arbitration. There was no reference to draw the attention of the reader to this particular clause and the one-page release also contained a similar clause like this which relates to arbitration provision. The television producer and none of their representative held any discussion about the agreement was held with the Higgins (P) and when the agreement was presented at the Leomitis home, the Higgins (P) did not join the meeting. After this meeting, Mrs. Leomitis instructed the Higgins (P) after she handed over the documents to them, to “flip through the papers, sign and initial the documents of the agreement where it contained a signature line or box,” which they did without fully understanding the implication of appending their signatures.
After the signing of the agreement, reconstruction of the Leomitis house began and this was carried out by the representative from the show. The program was broadcasted and it featured the Higgins (P) and the Leomitis. After the broadcast of this show, the Leomitis compelled the Higgins (P) to leave their house. The Higgins (P) made this situation known to the producers who did not bother about their present predicament but went ahead to rebroadcast the show. This lead the Higgins (P) to sue the various parties in connection with the show (the “television defendants”) (D), including the Leomitis. The Higgins (P) claimed the other parties had breached the contract but the television defendants (D) petitioned to enforce arbitration. This was however opposed by the Higgins (P) on the ground that compelling the arbitration provision was unconscionable. This trial court ruled in favor of the defendants and the Higgins (P) met this judgment by filing for writ of mandate which challenging the trial court’s ruling. A review was therefore granted by the state’s intermediate court of appeal.
Issue. is it possible for an arbitration clause in a written agreement, which is unconscionable and is being challenged, the clause and not the whole agreement, to be enforced?
Held. (Rubin, J.) No. When an arbitration clause in a written agreement is unconscionable and is being challenged, the clause and not the whole agreement may not be enforced. Arbitration agreements are given the same treatment as any other contract by the state laws but the enforcement of arbitration clauses in contracts involving interstate commerce is governed by the Federal Arbitration Act (FAA). An arbitration agreement will not be enforced if it is unconscionable. The determination of whether a contract is a contract of adhesion is the first step towards analyzing whether an arbitration agreement is unconscionable. A contract of adhesion is a standardized contract drafted and imposed by the party having upper hand in terms of bargaining strength and relegates to the other party “only the opportunity to adhere to the contract or reject it.”
If the contract has being determined to be a contract of adhesion, the next step is to determine whether it is unconscionable. Procedural and substantive are the two elements which make up unconscionability. The primary focus of the procedural element is on “oppression” or “surprise”, which results form an unequal bargaining power. On the other hand, “overly harsh” or “one-sided” are the focus of the substantive element. For the court to refuse enforcement of the arbitration agreement these two elements must be present but it is not mandatory that the two elements are in the same proportion. A court is not allowed to entertain a claim that an arbitration provision is not binding if the claim is actually a subterfuge for challenging the whole agreement as stipulated under the FAA.
Thus, the intention of the Higgins (P) must be determined to find out if the Higgins (P) are challenging only the arbitration provisions or the agreement and release in Toto, and if the arbitration provisions is actually what the Higgins (P) are challenging, then it must be determined whether those arbitration provisions are unconscionable. The grouse the Higgins (P) had in this case was not on the agreement in general or the release, but the arbitration clause in particular and they laid more emphasis on paragraph 69. The clause of paragraph 69 was not made distinguishable and there was no specific reference to it but it was part of the several paragraphs that were grouped together in a particular section called “miscellaneous”. This however pertains to procedural unconscionablity. The Higgins (P) also argued that the arbitration provision was one-sided because the provision required only the Higgins (P) and not the television defendants (D) to submit to arbitration. This clearly pertains to substantive arbitration. The trial court’s ruling which held that the Higgins (P) ought to have read the agreement before signing and compelling them to arbitration was also rejected.
There is no rule that bars a party from claiming unconscionability if he/she reads an agreement. Hence the question is to whether the arbitration provisions are unconscionable since the Higgins (P) are only challenging the arbitration provision and not the agreement and release. First, looking at the agreement, it was compiled by the television defendants (D) who had more bargaining power than the Higgins (P) and this made the contract adhesive. Finally, the absence of the Higgins (P) at the meeting held by the television defendants (D) and the Leomitis, coupled with the fact that the documents had to be signed as a prerequisite for their participation in the program, it can be derived that the agreement was presented to the Higgins (P) on a take-it-or-leave-it basis by the party who had the upper bargaining position who was not willing to engage in negotiations.
Secondly, the conclusion that the arbitration provisions in the agreement and release were procedurally unconscionable was due to the fact that the arbitration agreement appeared in towards the tail end of the lengthy single-spaced document; that the television defendants (D) knew the Higgins (P) to be young, orphaned and inexperienced; the clause of the arbitration provision was not Higgins (P) highlighted in any way, nor made captivating in order to draw the attention of the signor, unlike the other clause that provided a box for the Higgins (P) to initial. The caveat on the top of the first page, which required the reader to read the entire agreement before appending signature and the second-to-the-last which states that the person signing the agreement has gone through the contract, does not in any way defeat the strong evidence of procedural unconscionability.
Thirdly, the arbitration provisions were one-sided because it required the Higgins (P) only to submit their claims to arbitration while it left out the television defendants (D). This shows that the arbitration provision was skewed towards the Higgins (P) and therefore the provisions were substantially unconscionable. Under the agreement, the arbitration could be compelled by the television defendants (D) without having a second thought that doing so would preclude them from seeking injunctive or other equitable relief in court. On the other hand, it was only the Higgins (P) that were precluded from seeking appellate review of the decision of the arbitrator or a provision requiring arbitration in consonance with the stipulations of the American Arbitration Association, which posits that costs of arbitration are to be borne equally by the parties. For these reasons, the petition for writ of mandate was granted to the Higgins (P) because the arbitration provisions were unconscionable and unenforceable.
Discussion. quite a number of decisions have held the fact that a contract is adhesive; constitute enough ground to render a contract procedurally unconscionable. Other decisions have requested for more factors to be shown before an adhesion contract can be found to be procedurally unconscionable. This could be as a result of unavailable market altenatives.