Unconscionability Claims Still Breathing

Before the U.S. Supreme Court’s ruling in AT&T Mobility LLC v. Concepcion, states often overturned arbitration agreements with class action waivers based on the doctrine of unconscionability. After Concepcion, it is clear that a class action waiver alone will not invalidate arbitration requirements. But the business community should recognize that the courts are still invoking the doctrine of unconscionability, and other considerations, to invalidate arbitration provisions.

In a recent California court of appeal decision, Sanchez v. Valencia Holding Company, LLC, the court found that the contract was adhesive and contained terms it found to be harsh or one-sided, so the arbitration provision was “permeated by unconscionability” and, thus, unenforceable. Several state courts have refused to enforce arbitration clauses that create cost barriers to consumer claims. The Ninth Circuit, applying California law, has also refused to enforce arbitration clauses that impose large costs relative to the size of the claim.

Forum selection clauses can also be challenged on the ground of substantive unconscionability. For example, courts in California have repeatedly held that an unreasonable venue provision may render an arbitration agreement substantively unconscionable if it interferes with the claimant’s due process rights or gives the defendant an advantage in the dispute resolution process.
The author provides a list of considerations to keep in mind when drafting arbitration clauses in consumer agreements. Among them: Require affirmative consent; avoid imposing prohibitive costs; and provide clear and conspicuous notice of the arbitration provision.