Business Law Chapter 13 Homework Pizza Contends The Arbitration Agreement Neither Procedurally

Unlock access to all the studying documents.

View Full Document

CASE 13-3

ANDERSON v. MCOSKAR ENTERPRISES, INC.

Court of Appeals of Minnesota, 2006

712 N.W.2d 796

http://scholar.google.com/scholar_case?case=14986343261318628809&q=712+N.W.2d+796&hl=en&as_sdt=2,10

Shumaker, J.

Respondent McOskar Enterprises, Inc. owns and operates a fitness and health club in

Monticello known as “Curves for Women.” [Plaintiff/] Appellant Tammey J. Anderson

joined the club on April 2, 2003.

As part of the registration requirements, Anderson read an “AGREEMENT AND

RELEASE OF LIABILITY,” initialed each of the three paragraphs in the document, and

dated and signed it. The first paragraph purported to release Curves from liability for

injuries Anderson might sustain in participating in club activities or using club equipment:

In consideration of being allowed to participate in the activities and programs of

Curves for Women® and to use its facilities, equipment and machinery in addition to the

payment of any fee or charge, I do hereby waive, release and forever discharge Curves

The second paragraph provided for Anderson’s acknowledgment that fitness activities

“involve a risk of injury” and her agreement “to expressly assume and accept any and all

risks of injury or death.” After completing the registration, Anderson began a workout,

primarily with machines, under the supervision of a trainer. About 15 or 20 minutes later,

having used four or five machines, Anderson developed a headache in the back of her head.

She contends that she told the trainer, who suggested that the problem was likely just a

previous lack of use of certain muscles and that Anderson would be fine.

Anderson continued her workout and developed pain in her neck, shoulder, and arm.

She informed the trainer but continued to exercise until she completed the program for that

session.

Curves moved for summary judgment on the ground that Anderson had released the

club from liability for negligence. The district court agreed and granted the motion.

Anderson challenges the court’s ruling on appeal.

* * *

It is settled Minnesota law that, under certain circumstances, “parties to a contract may,

without violation of public policy, protect themselves against liability resulting from their

own negligence.” [Citation.] The “public interest in freedom of contract is preserved by

recognizing [release and exculpatory] clauses as valid.” [Citation.]

Releases of liability are not favored by the law and are strictly construed against the

benefited party. [Citation.] “If the clause is either ambiguous in scope or purports to release

the benefited party from liability for intentional, willful or wanton acts, it will not be

enforced.” [Citation.] Furthermore, even if a release clause is unambiguous in scope and is

limited only to negligence, courts must still ascertain whether its enforcement will

contravene public policy. On this issue, a two-prong test is applied:

Before enforcing an exculpatory clause, both prongs of the test are examined, to-wit:

(1) whether there was a disparity of bargaining power between the parties (in terms of

[Citation.]

The two–prong test describes what is generally known as a “contract of adhesion,”

more particularly explained in Schlobohm:

It is a contract generally not bargained for, but which is imposed on the public for

necessary service on a “take it or leave it” basis. Even though a contract is on a printed

form and offered on a “take it or leave it” basis, those facts alone do not cause it to be

* * *

* * * There is nothing in the Curves release that expressly exonerates the club from

liability for any intentional, willful, or wanton act. Thus, we consider whether the release is

ambiguous in scope.

* * *

Anderson argues that the release is ambiguous because it broadly exonerates Curves

from liability for “any act or omission, including negligence…” * * *

language is susceptible of two or more reasonable meanings, each party might carry away

from the agreement a different and perhaps contradictory understanding. In the context of a

release in connection with an athletic, health, or fitness activity, the consumer surely is

entitled to know precisely what liability is being exonerated. A release that is so vague,

general, or broad as to fail to specifically designate the particular nature of the liability

exonerated is not enforceable. [Citation.]

* * *

Even if a release is unambiguously confined to liability for negligence, it still will be

unenforceable if it contravenes public policy. Anderson contends that the Curves contract is

one of adhesion characterized by such a disparity in bargaining power that she was

compelled to sign it without any ability to negotiate.

But her argument is unpersuasive in view of the Schlobohm holding that “an adhesion

contract is … forced upon an unwilling and often unknowing public for services that

cannot readily be obtained elsewhere.” [Citation.] It is, according to Schlobohm, a contract

“imposed on the public for necessary service on a ‘take it or leave it’ basis.” Schlobohm

involved a “gym or health spa” known as Spa Petite. Similar to Curves, it offered fitness

services and required members to sign a contract that provided for a release of liability for

Even if there was a disparity of bargaining ability here—which has not been

demonstrated—there was no showing that the services provided by Curves are necessary

and unobtainable elsewhere. * * *

The Curves release did not contravene public policy, and we adopt the supreme court’s

conclusion in Schlobohm: “Here there is no special legal relationship and no overriding

public interest which demand that this contract provision, voluntarily entered into by

competent parties, should be rendered ineffectual.” [Citation.]

*** Chapter Outcome ***

Distinguish between procedural and substantive unconscionability.

Unconscionable Contracts

The court may refuse to enforce an unconscionable, or unfair, contract or

any part that it nds to be unconscionable.

Procedural unconscionability is discovered by scrutinizing the contract

for the presence of “bargaining naughtiness.” In other words, was the

negotiation process fair?

Substantive unconscionability relates to the actual terms of a contract;

includes oppressive or grossly unfair provisions such as exorbitant prices or

unfair exclusions.

CASE 13- 4

SANCHEZ v. WESTERN PIZZA ENTERPRISES, INC.

Court of Appeal, Second District, California, 2009

90 Cal.Rptr.3d 818, 172 Cal.App.4th 154

http://scholar.google.com/scholar_case?

case=18161264297915300969&q=172+Cal.App.4th+154&hl=en&as_sdt=2,10

Croskey, J.

[Octavio Sanchez works as a delivery driver at a Domino’s Pizza restaurant owned by

Western Pizza. He drives his own car in making deliveries. His hourly wage has ranged

from the legal minimum wage to approximately $0.50 above minimum wage. Western

Pizza reimburses him at a fixed rate of $0.80 per delivery regardless of the number of miles

driven or actual expenses incurred. Sanchez brought this class action against Western Pizza

alleging that the flat rate at which drivers were reimbursed for delivery expenses violated

wage and hour laws and that the drivers were paid less than the legal minimum wage.

Sanchez and Western Pizza are parties to an undated arbitration agreement. The

arbitration fees will be borne by Western Pizza and, except as otherwise required by law,

each party will bear its own attorney fees and costs; (5) small claims may be resolved by a

summary small claims procedure; and (6) the parties a waive the right to bring class

arbitration. The Superior Court of Los Angeles County denied the restaurant’s motion to

compel arbitration, and the restaurant appealed.]

Western Pizza contends * * * the arbitration agreement is neither procedurally nor

substantively unconscionable.

* * *

“[A] finding of procedural unconscionability does not mean that a contract will not be

enforced, but rather that courts will scrutinize the substantive terms of the contract to

ensure they are not manifestly unfair or one-sided. [Citation.] … [T]here are degrees of

procedural unconscionability. At one end of the spectrum are contracts that have been

freely negotiated by roughly equal parties, in which there is no procedural

unconscionability. Although certain terms in these contracts may be construed strictly,

courts will not find these contracts substantively unconscionable, no matter how one-sided

the terms appear to be. [Citation.] Contracts of adhesion that involve surprise or other

sharp practices lie on the other end of the spectrum. [Citation.] Ordinary contracts of

adhesion, although they are indispensable facts of modern life that are generally enforced

* * *

The Arbitration Agreement Is Procedurally Unconscionable

Procedural unconscionability focuses on oppression or unfair surprise, as we have stated.

Oppression results from unequal bargaining power when a contracting party has no

meaningful choice but to accept the contract terms. [Citation.] Unfair surprise results from

misleading bargaining conduct or other circumstances indicating that a party’s consent was

not an informed choice. [Citation.]

* * *

The arbitration agreement [in this case] states that the purpose of the agreement is “to

resolve any disputes that may arise between the Parties in a timely, fair and individualized

manner,” but otherwise does not extol the benefits of arbitration. The arbitration agreement

does not limit the limitations periods, the remedies available, or the amount of punitive

We conclude, however, that the record indicates a degree of procedural

unconscionability in two respects. First, * * * the inequality in bargaining power between

the low-wage employees and their employer makes it likely that the employees felt at least

some pressure to sign the arbitration agreement. Second, the arbitration agreement suggests

that there are multiple arbitrators to choose from (“the then-current Employment

Arbitration panel of the Dispute Eradication Services”) and fails to mention that the

designated arbitration provider includes only one arbitrator. This renders the arbitrator

selection process illusory and creates a significant risk that Western Pizza as a “repeat

The Arbitrator Selection Provision Is Substantively Unconscionable

“Substantively unconscionable terms may take various forms, but may generally be

described as unfairly one-sided.” [Citation.] “Given the lack of choice and the potential

disadvantages that even a fair arbitration system can harbor for employees, we must be

particularly attuned to claims that employers with superior bargaining power have imposed

Sanchez contends the arbitration agreement is substantively unconscionable in several

respects. He cites the class arbitration waiver, the small claims provision, the absence of

any provision requiring a written arbitration award, the designation of an arbitration

provider consisting of a single arbitrator, and the absence of any express provision for

discovery. In light of our conclusion that the trial court properly decided that the class

arbitration waiver is contrary to public policy and therefore unenforceable, we need not

decide whether that provision is unconscionable. [Citation.]

* * *

The Entire Arbitration Agreement Is Unenforceable

A trial court may either sever an unconscionable or otherwise unlawful provision from an

arbitration agreement and enforce the remainder, restrict the application of the provision so

as to avoid unconscionable results, or refuse to enforce the entire agreement. [Citation.]

Although a court has some discretion in this regard, a court may refuse to enforce the entire

agreement only if the central purpose of the agreement is tainted by illegality. [Citation.] *

* *

Whether a contract is severable in this regard is primarily a question of contract

interpretation. “‘Whether a contract is entire or separable depends upon its language and

*** Chapter Outcome ***

Explain when exculpatory agreements, agreements involving the commitment of a tort,

and agreements involving public o’cials will be held to be illegal.

NOTE: The answer to the first part of this “Chapter Outcome” is found above.

Tortious Conduct

An agreement requiring a person to commit a tort is an illegal agreement

and is unenforceable. This type of agreement is considered to be contrary

to public policy.

Corrupting Public Officials

*** Chapter Outcome ***

Explain the usual effect of illegality and the major exceptions to this rule.

C. EFFECT OF ILLEGALITY

General Rule: Unenforceability

With few exceptions, illegal contracts are unenforceable. Neither party may

recover under an illegal agreement where both parties are in pari delicto (in

equal fault).

Recovery of payments may be permitted by one party who must t one of

these categories:

Exceptions

Party Withdrawing Before Performance — May recover whatever was

contributed, as long as the party has not committed serious misconduct.

Party Protected by Statute — Usually designed to protect person in the

position of one party.

Party Not Equally at Fault — Such as when one party engages in fraud,

duress or undue in3uence.