Reinsurance Focus

The Ninth Circuit affirmed a ruling holding an arbitration agreement to be unconscionable under California contract law. Attempting to narrow the limits of the U.S. Supreme Court’s ruling in AT&T Mobility v. Concepcion, the Ninth Circuit found the agreement unconscionable in a manner not “uniquely applicable to arbitration.” The arbitration agreement at issue was part of an employment contract, and the district court found the arbitrator selection process to be peculiarly unfair, insofar as it essentially left the choice of arbitrator to the employer. The provision employed a process allowing both sides to nominate three choices, and then strike out choices until only one selection remained. It allowed the party against whom arbitration was sought to make the first deletion from the list, with the parties to take turns thereafter. The district court found that this effectively meant that the last arbitrator standing would be one of the three employer-chosen names. It also found other terms in the contract unfairly balanced in the employer’s favor and “shocked the conscience.” The Ninth Circuit affirmed the district court’s finding that the contract was unconscionable under state contract law, in a way that did not unfairly target its arbitration provision, thus avoiding the strictures of Concepcion and the FAA, which presumptively favor arbitration. Chavarria v. Ralph’s Grocery Co., No. 11-56673 (9th Cir. Oct. 28, 2013).

This post written by John Pitblado.

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