Florida Arbitration Clause May Be Unenforceable
 
June 25, 2002
 

A Florida court recently set forth the standard under which an arbitration clause would be deemed "unconscionable" and, therefore, unenforceable. BellSouth Mobility LLC v. Christopher, 27 Fla. Weekly D1093a (May 8, 2002). In that case, a consumer filed a class action against BellSouth Mobility LLC (BellSouth). BellSouth moved to dismiss the action and compel arbitration. The service agreement at issue specifically required the parties to:

Use their best efforts to settle any dispute or claim arising from or relating to this agreement. To accomplish this, they shall negotiate with each other in good faith. If company and customer do not reach agreement within 30 days, instead of suing in court, company and customer agree to arbitrate any and all disputes and claims (including but not limited to claims based on or arising from an alleged tort) arising out of or relating to this agreement ... .

In addition, the agreement provided that the arbitrator could not award punitive damages. It also limited the customer's recovery to actual damages, and it precluded class action relief.

The trial court denied BellSouth's motion on the grounds that the arbitration clause was unconscionable because, among other things, Christopher, "had no true ability to bargain, it was not practical for him to seek another provider of service and it provided Christopher from seeking punitive damages, injunctive or declaratory relief, or class relief." Aside from considering the contract language, the trial court did not consider other evidence in reaching its conclusion. BellSouth appealed that ruling.

In considering the appeal, the appellate court noted that courts may decline to enforce a contract on the ground that it is procedurally and substantively unconscionable. It explained that "procedural unconsionability" relates to the manner in which the contract was entered into, such as the relative bargaining power of the parties and their ability to know and understand the disputed contract terms. For instance, a contract may be procedurally unconscionable, "if important terms were 'hidden in a maze of fine print and minimized by deceptive sales practices.'" A determination of "substantive unconscionability," on the other hand, requires a review of the agreement itself and a determination of whether the terms of the contract are unreasonable and unfair.

In the BellSouth case, the court concluded that the contract, on its face, supports a conclusion that the arbitration clause is, at a minimum, substantively unconscionable because it requires customers to give up many specific legal remedies. Also, because the clause gives BellSouth the right to file court actions for, among other things, collections matters, the court concluded that Bellsouth had an unfair advantage. The appellate court could not, however, determine whether the arbitration clause was procedurally unconscionable because the trial court had not taken evidence to draw such a conclusion. As a result, the appellate court ordered that an evidentiary hearing must be held to determine whether Christopher bargained for the provision, knowingly gave up his rights and/or had access to other wireless service. The court indicated that if the trial court made that determination in the affirmative, the arbitration clause would be unenforceable.

Parties who utilize arbitration clauses in their contracts, particularly in consumer contracts, should consider the standards set forth in this case and make the appropriate adjustments to their agreements to ensure that their arbitration clauses are enforceable.

For more information, contact Margaret A. Hackbarth by e-mail by clicking on her name, or call 888-688-8500.