A trial court has discretion under Civ. Code, § 1670.5, subd. (a), to refuse to enforce an entire agreement if the agreement is permeated by unconscionability. An arbitration agreement can be considered permeated by unconscionability if it contains more than one unlawful provision. Such multiple defects indicate a systematic effort to impose arbitration not simply as an alternative to litigation, but as an inferior forum that works to the stronger party's advantage. The overarching inquiry is whether the interests of justice would be furthered by severance of the damage limitation provision.
The travel company told participants that they had to sign an unmodified release form to participate in an expedition and that other travel companies had the same requirements. The agreement limited recovery to the amount paid for the trip, required the survivors to indemnify the travel company for its legal costs and fees if they pursued any released claims, required them to pay half of any mediation fees and required them to mediate and arbitrate in a city far from their home. When the survivors of a client, who died on a hiking expedition with the travel company, filed a wrongful death action against it, the travel company filed a motion to compel arbitration. The trial court denied the motion and the order was appealed to the Court of Appeal of California.
Was the motion to compel arbitration properly denied?
The court observed that a sliding scale was applied in determining unconscionability so that the more substantively oppressive a term, the less evidence of procedural unconscionability was required to find it unenforceable, and vice versa. Although the activity was nonessential and recreational, the company's representation that its competitors would insist on the same terms was sufficient to find procedural unconscionability. The one-sided nature of the terms established substantive unconscionability, and the trial court reasonably found under Civ. Code, § 1670.5, subd. (a), that the agreement was so permeated by unconscionability that severing the limitation on damages would not further the interests of justice.