Absent unusual circumstances, use of a contract of adhesion establishes a minimal degree of procedural unconscionability notwithstanding the availability of market alternatives. If the challenged provision does not have a high degree of substantive unconscionability, it should be enforced. But, courts are not obligated to enforce highly unfair provisions that undermine important public policies simply because there is some degree of consumer choice in the market.
In this consolidated appeal, T-Mobile USA, Inc., appeals from an order denying its motion to compel arbitration of actions challenging the early termination fee charged to cellular telephone service subscribers and challenging the practice of selling locked handsets that a subscriber cannot use when switching carriers. T-Mobile contends the court erred in concluding that the arbitration clause in its service agreement is unconscionable. The reviewing court agreed that there was no surprise but held that the adhesive nature of the service agreement established a minimal degree of procedural unconscionability, despite the availability of market alternatives. Courts were not obligated to enforce highly unfair provisions that undermined important public policies simply because there was some degree of consumer choice in the market. Applying a sliding scale analysis, the court found that the evidence of substantive unconscionability was strong enough to tip the scale and render the arbitration provision unconscionable under Civ. Code, § 1670.5.
Was the service agreement in this case unconscionable?
The procedural element of the unconscionability analysis concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. The element focuses on oppression or surprise. Oppression arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice.” Surprise is defined as “ ‘the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms.’
In the consumer context, class actions and arbitrations are “often inextricably linked to the vindication of substantive rights.”. There is nothing extraordinary about the circumstances of this case that distinguishes it from the typical consumer class actions described in Discover Bank. Because it is directly within the scope of the holding in that case, we conclude that the class action waiver has a high degree of substantive unconscionability. Applying the sliding scale test for unconscionability, even though the evidence of procedural unconscionability is limited, the evidence of substantive unconscionability is strong enough to tip the scale and render the arbitration provision unconscionable. The trial court properly denied the motion to compel arbitration.