Welcome to The Briefcase

Commentary and analysis of Ohio criminal law and whatever else comes to mind, served with a dash of snark.  Continue Reading »


Arbitration and Unconscionability

Back in July of 2004, Idamay Fortune filed a lawsuit against her nursing home, claiming that one of their aides was negligent in allowing Idamay to fall in the shower.  Little did she know that she was embarking upon a legal oddyssey which would culminate last week with the 5th District's somewhat mystifying decision upholding the nursing home's insistence that the dispute had to be resolved through arbitration.

The arbitration clause was contained on the 6th page of the agreement Fortune signed at the time she entered the nursing home.  The nursing home filed a motion to stay the civil action and refer the matter to arbitration.  The court scheduled a hearing, at which the sole evidence offered was a copy of the agreement.  After pondering it for a few weeks, the judge denied the motion.

So everyone scurried off to the court of appeals, which decided a year later that the judge had screwed up:  while the court found the agreement was "substantively unconscionable" -- and we'll get to all this in a minute -- it remanded the case back to the trial court to determine whether the agreement was "procedurally unconscionable."  The trial court took evidence on the latter:  The plaintiff herself was "unavailable," but her son testified that she was 70 years old, had a high school education, could manage her own business affairs (she'd bought two cars and home), and had the agreement for two days before she signed it.  The judge decided that he didn't feel like getting reversed twice in the same case, held that this wasn't enough to show that the agreement was procedurally unconscionable, and granted the nursing home's motion.  Sure enough, last week the 5th District, in Fortune v. Castle Nursing Homes, agreed.

So let's pop the hood on this baby and take a look at what's inside.  As the appellate court noted the first time around, while arbitration agreements used to be de rigeur for business contracts in which the participants wished to have a method of resolving disputes that didn't involve them trudging down to court and mixing with the hoi polloi, they've become standard for all manner of consumer contracts now, from auto dealers to cellphone providers.  And, as the court also noted, that brings up questions regarding the vastly disparate bargaining power between those businesses and the average consumer. 

In response to that, the courts have developed a doctrine of unconscionability with regard to those contracts.  There are two components of it:  "substantive unconscionability," basically concentrating on whether the terms are fair and commercially reasonable, and "procedural unconscionability," which deals with the difference in bargaining power, especially including the degree of sophistication of the buyer.

Here's where it gets weird.  First, both substantive and procedural unconscionability have to be found in order to void the arbitration agreement.  Second, the buyer has to produce a "quantum" of evidence regarding both.  Finally, since both these issues are questions of law, the appellate court reviews them de novo.

None of this makes a whole lot of sense.  In Fortune's case, the appellate court had concluded that the agreement was substantively unconscionable because the terms weren't fair, and it was thus commercially unreasonable.  Why wasn't this enough?  Why would you have to go further and show that the agreement was "procedurally" unconscionable?  And what is meant by requiring the consumer to produce a "quantum" of evidence regarding both?  Without stating what the actual quantum is -- preponderance of the evidence, clear and convincing -- the phrase is meaningless.  And even the concurrence in the second Fortune opinion noted that de novo review was inappropropriate, since the question presented wasn't one of law, but of fact:  procedural unconscionability involves determination of

age, education, intelligence, business acumen and experience, relative bargaining power, who drafted the contract, whether the terms were explained to the weaker party, whether alterations in the printed terms were possible, whether there were alternative sources of supply for the goods in question.

What you have here is a court simply parroting prior law, rather than engaging in any real analysis.  If you trace back the cites for the various propositions enunciated in Fortune, you find a treatise on commercial law and a Federal district court decision out of Michigan.

There is no question that the reason that more and more businesses are sticking arbitration clauses into their agreements is because they feel it is to their benefit, so it doesn't seem unfair to impose upon them the burden of demonstrating that the provision is fair.  It might make sense to refuse to allow the arbitration provision to be enforced if it's determined to be either substantively or procedurally unconscionable, but why should both be required? What that boils down to is saying, "We feel that the agreement itself was unfair, or that the manner in which it was agreed to was unfair, but we're going to enforce it anyway."

If you're representing a consumer on one of these cases, there are some great decisions out of the 8th District, including  one that I highlighted last year.  Unless you're stuck in the 5th District, I'd tap into those.


Recent Entries

  • April 26, 2017
    Like Mark Twain, rumors of my demise have been greatly exaggerated. Except I am pretty sure he's actually dead, while I am not, and for that matter, nobody's spreading rumors that I am. Great lead, huh? The nice thing about...
  • April 20, 2017
    The Supreme Court takes a look at the trial tax
    And you thought this was the week you only had to worry about income taxes
  • April 18, 2017
    What's Up in the 8th
    Remembering Warren Zevon, and the Fourth Amendment lives
  • April 17, 2017
    Case Update
    Structural error, prejudice, and police run amok.
  • April 13, 2017
    Some arguments on sentencing
    Why oral arguments can be fun, even when they're not yours
  • April 12, 2017
    What's Up in the 8th
    Oh fun: declarations against interest v. non-hearsay. Also, the difference between not guilty and innocent, and Ohio's statute penalizing the refusal to take chemical test in a DUI case goes bye-bye
  • April 11, 2017
    Case Update
    Filibusters, and appellate cases on all the ways lawyers can screw up.
  • April 7, 2017
    Change of course
    A new approach in my client-attorney relationships
  • April 4, 2017
    What's Up in the 8th
    A true rocket docket, and Anthony Sowell pops up again
  • April 3, 2017
    Case Update
    Free merchant speech, an argument on Brady, another look at Creech