November 2012 Bar Bulletin
Recent Washington Cases Affecting Arbitration
By James Verellen
(Second of Two Parts)1
Just in case you have not been keeping score, court decisions in 2011 and the first half of 2012 shed considerable light on a variety of commercial and consumer arbitration issues. Part I reviewed decisions regarding judicial review of arbitration rulings. This concluding segment addresses recent decisions related to federal preemption, unconscionability and who decides challenges to arbitration.
Challenges to Arbitration for Consumer Claims
The application of arbitration provisions to consumer claims continues to generate controversy. There is a tension between the strong public policy favoring arbitration and concerns that contracts of adhesion may unfairly deny consumers meaningful access to the courts.2 This tension is reflected in at least three areas: challenges to arbitration provisions (and class action waivers) as unconscionable agreements; claims that the FAA preempts various statutes and common law impacting the use of arbitration in the consumer setting; and the underlying question of "who decides" such issues.3
Unconscionability. State law controls defenses generally applicable to contract claims, including the defense of unconscionability.4 Unconscionability is frequently asserted as a defense to the enforcement of arbitration provisions in consumer contracts. Washington recognizes procedural and substantive unconscionability.
Procedural unconscionability is based upon impropriety arising out of events surrounding the formation of a contract, including the method of bargaining, whether the parties had a reasonable opportunity to comprehend and understand the terms, and whether any material terms were hidden or inconspicuous.5
Substantive unconscionability requires a showing that the contract is one-sided and overly harsh, and includes a gross disparity that is contrary to the reasonable expectations of the parties. Substantively unconscionable contracts are described as "shocking to the conscience," "monstrously harsh" or "exceedingly calloused."6
Many jurisdictions require a combination of procedural and substantive unconscionability before a contract provision will be invalidated. Washington case law recognizes that substantive unconscionability alone can be a sufficient basis to invalidate a contract.7 Although some Washington cases have analyzed procedural unconscionability without discussing substantive unconscionability,8 and two federal courts conclude that Washington recognizes that a contract may be unenforceable based on procedural unconscionability alone,9 the Washington Supreme Court has expressly declined to rule on that question.10
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