SW Legal studies in Business

Arbitration Requirement Fails for Unconscionability
Description

California appeals court struck down a mandatory arbitration clause in a travel company contract as unconscionable on procedural and substantive grounds. Travelers had no choice in the matter and liability was too greatly restricted, so the clause was oppressive.

Topic Alternate Dispute Resolution
Key Words

Arbitration, Mediation, Unconscionability; Oppression

C A S E   S U M M A R Y
Facts

Lhotka went on a mountain climbing trip sponsored by GeoEx. The contract for the trip contained a dispute resolution clause that stated that in event of a dispute the parties could first go to mediation. If that did not resolve the matter, it would go to binding arbitration at the American Arbitration Association under California law. It stated that the maximum liability would be the cost of the trip purchased. Signing the dispute resolution agreement was mandatory if one wanted to go on the trip. Lhotka died of an altitude-related illness while on the trip. His mother sued GeoEx in California state court for wrongful death. GeoEx moved to compel arbitration. The trial court denied the motion. GeoEx appealed.

Decision

Affirmed. The agreement to arbitrate is unconscionable and, therefore, unenforceable. The trial court properly declined to enforce the entire arbitration clause. The arbitration agreement fails on both procedural and substantive grounds. The procedural element of unconscionability requires oppression. That occurs where a contract involves lack of negotiation and meaningful choice or when the unconscionable provision is hidden within a long, tedious form unlikely to be read. Substantive unconscionability exists when a contract provision reallocates risk in an objectively unreasonable or unexpected manner. GeoEx travelers had no opportunity to bargain and liability was greatly limited within the arbitration clause.

Citation

Lhotka v. Geographic Expeditions, ---Cal.Rptr.3d--- (2010 WL 325491, Ct. App., Calif., 2010)

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