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The Ohio Court of Appeals held that an arbitration clause containing few details about the process was unconscionable because the signing party was “substantially less informed” than the drafters about the arbitration process.
In Felix v. Ganley Chevrolet, Inc., No. 86990, 86991, 2006 WL 2507469 (Ohio Ct. App. Aug. 31, 2006), the Felixes purchased a car from Ganley Chevrolet. The purchase agreement contained a six-sentence arbitration clause referring all disputes to “binding arbitration.”
When the interest rate increased, the Felixes sued Ganley, alleging deceptive trade practices. Ganley moved to compel arbitration pursuant to the purchase agreement. The trial court denied the motion.
On appeal, the Court held that the arbitration clause was unconscionable and therefore unenforceable. Under Ohio law, both substantive and procedural unconscionability must be present for an agreement to be held unconscionable.
To be procedurally unconscionable, the circumstances surrounding formation of the contract must be “such that no voluntary meeting of the minds was possible.” Applying that standard, the Court found the agreement was procedurally unconscionable, noting that the Felixes, despite being college graduates, knew nothing about arbitration. Moreover, the Court viewed the agreement with “considerable skepticism” because it was a preprinted consumer contract for an expensive product, and the Felixes were not represented by counsel.
The Court held that the arbitration clause was substantively unconscionable because it “failed to provide accurate information about the arbitration process, failed to describe the type of arbitration forum the plaintiffs would be bound to participate in, failed to clearly explain how arbitration is ‘simpler and more limited,’ and failed to mention that the burdens are different for each party in the appeal process.” Citing the lack of detail, the Court found that the Felixes were “substantially less informed” than Ganley about the arbitration process.
Interestingly, the only precedent cited for the Court’s finding of substantive unconscionability was a previous case involving Ganley and the identical arbitration clause. See Olah v. Ganley Chevrolet, Inc., No. 86132, 2006 WL 350204 (Ohio Ct. App. Feb. 16, 2006. Like the instant case, Olah provides no authority for the proposition that an arbitration clause can lack so much detail as to be unconscionable. Nevertheless, parties can avoid such a finding would by drafting an arbitration clause that names an outside administrator whose materials provide sufficient details about the process. See, e.g., National Arbitration Forum Code of Procedure.
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