South-Western Legal Studies in Business

Excessive Cost of Arbitration Makes Requirement Unconscionable

Appeals court held that an arbitration clause in a consumer contract was unconscionable as the cost of arbitration was far higher than the value of the contract in question and the cost left the consumer unable to afford the arbitration process.


Alternate Dispute Resolution

Key Words

Arbitration; Unconscionability

C A S E   S U M M A R Y

The Ayalas paid Olshan $22,650 to repair and stabilize the foundation to their home. Claiming that the repair did not work, the Ayalas sued for breach of contract and other claims. Olshan moved to stay proceedings and compel arbitration as provided by the contract for the foundation work. The arbitration association notified them that their share of the cost of arbitration would be over $37,000. The Ayalas pressed their objection to arbitration, contending that the cost effectively barred the use of that process. The trial court held the arbitration requirement to be unconscionable; Olshan appealed.


Affirmed. Unconscionability describes a contract that is unfair because of its overall one-sidedness. It has no precise definition because it is decided in light of various factors. Excessive costs of arbitration might render an arbitration agreement unconscionable. The law favors enforcement of arbitration agreements and the party opposing arbitration carries the burden of showing that the costs are oppressive, as the Ayalas have done here.


Olshan Foundation Repair Co. v. Ayala, 180 SW3d 212 (Ct. App., Tex. , 2005)

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