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A federal district court in Texas found no "hidden costs" that would render a franchise agreement arbitration clause substantively unconscionable where the arbitration administrator displayed the arbitration fees on its website.
In Wasserman v. We The People Forms and Service Centers USA, Inc., No. 3:07-CV-0606-D, 2007 WL 2228617 (N.D. Tex. Aug. 3, 2007), Wasserman and We The People Forms ("We The People") entered into a franchise agreement that contained an arbitration clause. Wasserman filed suit against We The People for breach of contractual obligations under the franchise agreement.
In response, We The People moved to stay litigation pending arbitration. The Court granted the motion rejecting Wasserman's challenges to the validity of the arbitration agreement.
Wasserman contended that the "hidden costs" of arbitration rendered the clause substantively unconscionable. The Court disagreed, noting that the clause plainly disclosed that arbitration will be conducted under the American Arbitration Association (AAA) rules, each party will bear their own costs and expenses, and each party will pay one-half of administrative fees.
Additionally, a complete listing of the AAA's arbitration rules and specific costs are readily available on the AAA website. The Court did not find any substantive unconscionability in making both parties bear the costs equally, nor did it find any indication that the arbitration clause provided We The People with access to any additional remedies beyond those available to Wasserman.
Wasserman also argued that the clause was procedurally unconscionable because We The People denied Wasserman the 10-day cooling-off period granted under state and federal franchise law. The Court concluded that any violation of the 10-day cooling-off period would be insufficient to render the clause unenforceable. Under California law, a contract provision must be both substantively and procedurally unconscionable in order to be unenforceable.
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