Section 30 Unconscionable Arbitration Provisions

• Library: Arbitration and Mediation 2011

Disputes over whether an arbitration provision is unconscionable and thus unenforceable are frequent. Thus, there is considerable caselaw in this area.

The Supreme Court of Missouri addressed whether a one-sided arbitration provision was unconscionable in State ex rel. Vincent v. Schneider, 194 S.W.3d 853 (Mo. banc 2006). The arbitration provision allowed just one side to select the arbitrator. It also provided that the attorney fees and costs for the arbitration must be paid by the purchaser of the home and not the builder. The Supreme Court concluded as follows:

It is unconscionable to have a provision in an arbitration clause that puts all fees for arbitration on the consumer. This is particularly true when the cost-shifting terms could work to grant one party immunity from legitimate claims on the contract. At the time this contract was created the arbitration provision that shifts all arbitration fees to [the homeowners] was unconscionable and unenforceable.

Id. at 860–61.

In Doerhoff v. General Growth Properties, Inc., No. 06‑04099‑CV‑C‑SOW, 2006 WL 3210502 (W.D. Mo. Nov. 6, 2006), the Western District considered a nationwide lawsuit involving charges of $2 per month as a service fee on mall gift cards. The provider of the card, American Express, received approximately $7 million in revenue from the program, which provided for binding arbitration. The plaintiffs argued that this provision was unconscionable. The court agreed, in part, by citing from a previous
case, stating: “Standing alone, a public policy favoring arbitration is not enough to extend the application of an arbitration clause far beyond its intended scope.” Id. at *7 (quoting Greenwood v. Sherfield, 895 S.W.2d 169, 174 (Mo. App. S.D. 1995)). The court decided that the case could proceed as a class action in court.

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In Equal Employment Opportunity Commission v. Woodmen of World Life Insurance Society, 479 F.3d 561 (8^th Cir. 2007), the Eighth Circuit considered an employment agreement arbitration provision that required the parties to share the cost of arbitration. The employee introduced evidence at the trial court level that the costs associated with a private arbitrator chosen to handle the arbitration proceeding were high, and the district court accordingly “determined that the spiraling costs, coupled with [the employee’s] financial situation, relieved her of her obligation to continue the arbitration . . . .” Id. at 565–66. The Eighth Circuit concluded otherwise, finding that...