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Substantive unconscionability in a severable provision of a contract does not render the agreement to arbitrate elsewhere within the contract unconscionable and unenforceable, according to a federal district court in Mississippi.
In Remza Drywall Inc. v. W.G. Yates & Sons Const., No. 1:07CV106-LG-JMR, 2007 WL 2033047 (S.D. Miss. July 10, 2007), Remza sued Yates seeking payment for work allegedly done as a subcontractor on a series of construction projects. Yates moved to stay the litigation and compel arbitration in accordance with arbitration agreements signed by Remza at the beginning of each disputed project. Remza maintained that all agreements to arbitrate where invalid, because each were both procedurally and substantively unconscionable.
The Court held that the agreements to arbitrate were neither procedurally nor substantively unconscionable, and granted Yates's motion to stay and compel.
First, the Court found no procedural unconscionability in the agreement. While the arbitration provision was contained within the contract with no separate heading, courts could not make special requirements for the presentation of arbitration terms different from other terms in a contract. The Court also rejected Remza's contention that the arbitration clauses were in complex and legalistic language, finding the provisions to be clear.
The Court also declined to find that Remza had been denied an opportunity to consult with counsel before entering the agreements, noting that the various agreements to arbitrate were made over a one and one-half year period of time, giving Remza ample opportunity for attorney review. The Court was also unpersuaded by the fact that Remza's principal's primary language was not English, noting that parties are charged with knowing the contents of a contract he or she signs, regardless of the language used.
Next, the Court found substantive unconscionability in the "limitation of damages" clause in the contract, which prohibited Remza from receiving special, consequential, or punitive damages. However, the Court found the offending clause severable from the contract as a whole, and refused to find the agreement to arbitrate unenforceable on that basis.
The Court then rejected Remza's assertion that the agreement was substantively unconscionable in providing that Yates could seek certain claims in a court of law, observing that no mutuality of obligation was necessarily required under Mississippi law, that the clause was reasonable due to the nature of the parties' businesses, and that there was an additional good faith requirement that Yates had to fulfill before exercising the option. Finally, the Court refused to find substantive unconscionability in a provision requiring that arbitration take place in a particular location, without a showing that the complaining would be unduly burdened, or that the other party would in fact not consent to another location.
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