Can a California court refuse to enforce this clause as unconscionable, and how hard is that test?
The remedy is the familiar one: if the court AS A MATTER OF LAW finds the contract or any clause unconscionable AT THE TIME IT WAS MADE, it may refuse to enforce the contract, enforce the remainder without the unconscionable clause, or so limit the clause's application as to avoid an unconscionable result, and the parties must be afforded a reasonable opportunity to present evidence of the clause's commercial setting, purpose and effect (Civ. Code § 1670.5). The doctrine itself has two elements: it has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results, and the prevailing view is that both must be present in order for a court to exercise its discretion to refuse to enforce a contract or clause, but they need not be present in the same degree, because a sliding scale is invoked, so that the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required, and vice versa (Sanchez, quoting Sonic II and Armendariz). The standard, however, is demanding: the standard for substantive unconscionability (the requisite degree of unfairness beyond merely a bad bargain) must be as rigorous and demanding for arbitration clauses as for any contract clause (Sanchez). Sanchez applied those rules and held that the Court of Appeal had erred as a matter of state law in finding the agreement unconscionable, reversing the judgment below: the clause survived the test stated here.
The trap
California's reputation for striking adhesive terms leads both sides to misjudge this. The substantive bar cannot be lowered for arbitration clauses (Sanchez), and Sanchez also states that 'our unconscionability standard is, as it must be, the same for arbitration and nonarbitration agreements'. The timing is fixed at FORMATION and the finding is made 'as a matter of law' (§ 1670.5(a)), so a clause that merely turns out badly is not unconscionable. For sales contracts the governing section is still § 1670.5: California did not adopt Uniform Commercial Code section 2302 (Klein v. Asgrow Seed Co. (1966)), and the published California statutes we hold carry no Commercial Code § 2302 section.
7 authorities
- statuteCal. Civ. Code § 1670.5enactment date not established
The words that state the rule
(a) If the court as a matter of law finds the contract or any clause 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 clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. (b) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination.
The words that state the rule
In particular, the standard for substantive unconscionability—the requisite degree of unfairness beyond merely a bad bargain—must be as rigorous and demanding for arbitration clauses as for any contract clause.
The words that state the rule
A party cannot avoid a contractual obligation merely by complaining that the deal, in retrospect, was unfair or a bad bargain. Not all one-sided contract provisions are unconscionable; hence the various intensifiers in our formulations: “overly harsh,” “unduly oppressive,” “unreasonably favorable.”
The words that state the rule
The ultimate issue in every case is whether the terms of the contract are sufficiently unfair, in view of all relevant circumstances, that a court should withhold enforcement. Moreover, our unconscionability standard is, as it must be, the same for arbitration and nonarbitration agreements.
The words that state the rule
To aid understanding of the issues in this case, we begin by discussing general principles of unconscionability. “ ‘One common formulation of unconscionability is that it refers to “ ‘an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.’ ” [Citation.] As that formulation implicitly recognizes, the doctrine of unconscionability has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results.’ ” (Sonic II, supra, 57 Cal.4th at p. 1133.) “ ‘The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.’ [Citation.] But they need not be present in the same degree. ‘Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.’ [Citations.] In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, 114 [ 99 Cal.Rptr.2d 745 , 6 P.3d 669 ] (Armendariz).)
The words that state the rule
In the present case, we hold that Concepcion requires enforcement of the class waiver but does not limit the unconscionability rules applicable to other provisions of the arbitration agreement. Applying those rules, we agree with Valencia that the Court of Appeal erred as a matter of state law in finding the agreement unconscionable. Accordingly, we reverse the judgment below.
The words that state the rule
The California Legislature did not adopt Uniform Commercial Code section 2302. That section invalidated as a matter of law provisions found by the court to be “unconscionable.”
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.