The California Court of Appeal held that the trial court properly resolved an unconscionability challenge to an arbitration agreement because there was not "clear and unmistakable" evidence of intent to submit that question to the arbitrator.

In Baker v. Osborne Development Corp., No. E042006, 2008 WL 256688 (Cal. Ct. App. Jan. 31, 2008), Baker sued Osborne for breach of contract, negligence, and breach of implied and express warranties stemming from the construction of a home. The purchase contract did not contain an arbitration agreement, but the documentation accompanying an express warranty on the home did contain an arbitration agreement.

Osborne moved to compel arbitration, alleging that the claims were within the scope of the warranty's arbitration agreement. In opposing the motion, Baker argued that the arbitration agreement was unconscionable and therefore unenforceable. The trial court denied the motion on the ground of unconscionability.

On appeal, the Court first addressed whether the parties intended to submit the question of unconscionability to the arbitrator. On this issue, the Court found that "the arbitration agreement did not 'clearly and unmistakably' reserve to the arbitrator the issue of whether the arbitration agreement was enforceable."

In reaching that decision, the Court noted that one provision of the agreement reserved questions of enforceability or voidability to the arbitrator, while another provision indicated that courts would have some authority to find terms of the agreement unenforceable.

The Court sustained the trial court's finding of unconscionability. It agreed that the arbitration agreement was procedurally unconscionable because the terms of the incorporated arbitration agreement were not available to Baker at the time of contracting, and the agreement was substantively unconscionable due to one-sidedness in the types of claims within the scope of the agreement.

Dicta in this case indicating that arbitration agreement validity matters may be referred for arbitral resolution is controversial. Other cases interpreting the Federal Arbitration Act have concluded that arbitrability determinations (such as the scope of the agreement) may be referred to arbitration, but that contract validity matters are reserved for the court to decide as a threshold matter.