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Under Virgin Islands law, a lack of mutuality does not by itself demonstrate substantive unconscionability, according to the Third Circuit Court of Appeals. A lack of mutuality warrants a finding of substantive unconscionability only if the agreement also denies a party substantive rights and remedies that would be available in a court of law.
In Edwards v. Hovensa, LLC, No. 06-4601, 2007 WL 2200473 (3d Cir. Aug. 2, 2007), Edwards entered into an arbitration agreement with Wyatt, his employer, before he started working at a Hovensa factory. The arbitration agreement applied to claims against Hovensa.
When Edwards was injured on the job, he sued Hovensa for alleged negligence. Hovensa moved to compel arbitration. The district court denied the motion on the ground that the arbitration agreement was unconscionable and therefore unenforceable.
On appeal, the Court found that the arbitration agreement was not substantively unconscionable. Accordingly, the Court reversed the district court and remanded the case with instructions to compel arbitration.
The district court's finding of substantive unconscionability was premised on its conclusion "that the consideration was grossly inadequate and that Edwards did not benefit from any efficiency or economy in the arbitration process." In making this finding, the district court reasoned that because personal injury claims are allegedly larger, "the economic benefit of arbitration for employees with personal injury claims is not as significant as it is with respect to an employee's contractual or statutory employment claims."
The Court soundly rejected the district court's rationale for finding substantive unconscionability. Specifically, the Court found no justification for distinguishing personal injury claims from contractual or statutory claims because (1) arbitrability does not depend on the size of the claim and (2) personal injury claims do not necessarily involve larger sums of money.
The Court was also unpersuaded that the arbitration agreement's lack of mutuality would permit a finding of substantive unconscionability. As the Court explained, prior case law has established that an arbitration agreement is not substantively unconscionable solely because it requires only one side to submit its claims to arbitration. Instead, a lack of mutuality warrants a finding of substantive unconscionability only if the agreement limits the party's substantive rights or remedies in the arbitral forum.
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