Unconscionability - Consumer Transactions Case: Parties: Ferguson v. Countrywide Credit Industries, Inc. (2002, 9th) [pp.

553-560] Plaintiff - Ferguson (employee) Defendant - Countrywide (employer) trial court held arbitration clause unconscionable. D

Procedural History: appealed.

Facts: Ferguson brought a claim against Countrywide for sexual harassment, retaliation and hostile work environment. Countrywide then filed a petition for an order compelling arbitration of P's claims, because of an employment contract signed by P prior to employment. P disputed that she had ever signed such agreement, but trial court said that even if she had signed it, it is unenforceable because it is unconscionable. Countrywide then appealed that decision. Issue: Whether the trial court was correct to deny Countrywide's petition to compel arbitration, based on its unconscionability. Yes. Holding: Affirmed. K unconscionable. Arbitration clause unconscionable.

Reasoning: A standardized K is usually enforceable, unless it is unconscionable. To render a contract unenforceable based on unconscionability, there must be both procedural and substantive unconscionability (although a greater degree of one can make up for less of the other). • Procedural Unconscionability - K can be procedurally unconscionable if there is oppression or surprise. Court says there was oppression here, because although P was given time to review it and to make the decision of whether to accept it, her employment was based on whether she would first sign it. There were no negotiations here, and the employer has a much greater bargaining power, b/c if she chose not to sign, she could not begin employment. • Substantive Unconscionability - where the actual terms of the agreement are so one-sided they shock the conscious ○ One sided coverage of arbitration agreement - arbitration clause specifically covers certain claims and not others. The ones that must be arbitrated are more likely claims that an employee would bring, and the ones not subject to the arbitration clause are claims the employer is more likely to bring. Very one-sided, in Countrywide's favor. ○ Arbitration Fees - they can be unconscionable if it would cost P more in arbitration fees than a normal litigation would have. Here, it would have been. For public policy, they don’t want Ps not bringing cases in b/c of the costs. ○ One-sided discovery provision - again, the terms in regards to discovery also very one-sided and in Countrywide's favor (D would have certain advantages over P from these provisions). There is no mutuality here. The court recognized a pattern of one-sided terms to Countrywide's advantage. Because this lack of mutuality so permeated the K, the court could not just partially enforce the remainder of the K w/o unconscionable terms, but had to deny the enforceability of the K as a whole. § 2-302. Unconscionable contract or Term. (1) If the court as a matter of law finds the contract or any term of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable term, or it may so limit the application of any unconscionable term as to avoid any unconscionable result.

RULE: A standardized K is usually held enforceable, unless it is unconscionable. For K to be unconscionable there must be procedural and substantive unconscionability (although a greater degree of one can make up for less of the other). K can be procedurally (manner in which K was enacted) unconscionable if there is oppression or surprise (unequal bargaining power; lacks meaningful choice). K can be substantively unconscionable where the actual terms of the agreement are so one-sided they shock the conscious (party benefits from unreasonably favorable terms). . Notes • Can an employer insist that all disputes arising btwn employer and employee be mandated to go to arbitration? • FAA (Federal Arbitration Act) - says if you sign an arbitration agreement, the courts will enforce it, unless its unconscionable or if state law says it would be unenforceable ○ Why would state law be applied? This is a federal question case (title VII), but FAA says that this statute would not apply to contracts that would be unenforceable under state law, so state law would be applied here. • Distinction btwn procedural and substantive unconscionability • Procedural test: if there is unequal bargaining power; that there's no opportunity for meaningful negotiations ○ Countrywide says - well they had enough time to review the K • Substantive test: terms so one-sided as to shock the conscious ○ Very vague standard ○ Court appears to fill it out with discussion ○ Discovery part itself not so one-sided, but part of a pattern

Sign up to vote on this title
UsefulNot useful