|
Even though the underlying contract contained a New York choice-of-law provision, a federal district court in Missouri applied Missouri law while refusing to enforce an agreement to arbitrate on an individual basis.
In Doerhoff v. General Growth Properties, Inc., No. 06-04099-CV-C-SOW, 2006 WL 3210502 (W.D. Mo. Nov. 6, 2006), Doerhoff’s grandmother gave her a $25 gift card for use at shopping malls owned by General Growth Properties (GGP).
The gift card agreement contained an arbitration clause that applied to disputes with American Express Travel Related Services Company, Inc. (American Express) and its affiliates. The arbitration clause referred to American Express because GGP administered the gift card program in partnership with American Express. The arbitration clause also required arbitration on an individual basis, thus precluding class-wide arbitration.
When she first used the gift card, Doerhoff discovered that $8 in service fees had already been deducted. She subsequently sued GGP, alleging unfair trade practices, unjust enrichment, and breach of contract. GGP filed a motion to compel arbitration.
The Court first examined whether the arbitration clause required Doerhoff to arbitrate disputes with GGP since American Express was the only company expressly named. The Court determined that GGP was a party to the gift card agreement and arbitration clause because it would be “disingenuous” to conclude otherwise.
The Court then turned to Doerhoff’s argument that the bar on class-wide proceedings rendered the arbitration clause unconscionable and therefore unenforceable.
The gift card agreement contained a New York choice-of-law provision, and as the Court observed, the bar on class-wide proceedings “would likely be enforceable” under New York law because New York courts have consistently upheld agreements to arbitrate on an individual basis. However, the Court refused to apply New York law because it “would be contrary to the fundamental policy of Missouri.”
The Court thus analyzed the issue under Missouri law and relied on Whitney v. Alltel, 173 S.W.3d 300 (Mo. Ct. App. 2005) in ruling that the bar on class-wide proceedings rendered the arbitration clause unconscionable and unenforceable.
Specifically, the Court found that the arbitration clause was procedurally unconscionable because it was “presented in fine print and given in a ‘take it or leave it’ fashion.” The Court found that the arbitration clause was substantively unconscionable because the bar on class-wide proceedings would deprive Doerhoff of a “practical remedy” and because the clause required Doerhoff to pay the costs of arbitration.
To facilitate the enforcement of agreements to arbitrate on an individual basis, parties should avoid provisions that impede the arbitration of minor claims. For example, in this case, the finding of substantive unconscionability rested partly on Doerhoff’s obligation to bear the costs of arbitration, and in Whitney, the finding of substantive unconscionability rested largely on liability limitations.
Subscribe to a free weekly update on ADR case law and
legislation
|