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Legal Memorandum: Deferring Unconscionability Matters to Arbitration

Issue: Under federal law in the Third Circuit (Virgin Islands), is a determination of whether a contract provision requiring arbitration is unconscionable a matter for the court or for the arbitrator?

Area of Law: Alternative Dispute Resolution, Business Organizations & Contracts
Keywords: Unconscionability matters to arbitration; Contract provision; Court's duty
Jurisdiction: Federal, Virgin Islands
Cited Cases: 243 F. Supp. 2d 334; 324 F.3d 212; 517 U.S. 681; 333 F. Supp. 2d 318
Cited Statutes: None
Date: 03/01/2005

           A court should not defer matters of unconscionability to arbitration.  The Supreme Court has made it clear that “generally applicable defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening [the FAA’s strong policy in favor of arbitration].”  Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996) (emphasis added). 

Under Virgin Islands law, an arbitration provision that is unconscionable is unenforceable.  Plaskett v. Bechtel International, Inc., 243 F. Supp. 2d 334, 339 (D.V.I. 2003).  As the district court correctly concluded in Plaskett, the question of unconscionability was one for the court, not an arbitrator, to resolve, since it was a gateway issue.  Id. at 340 (“The Court’s role is to determine whether an arbitration provision or a term of such provision is unconscionable in light of all the material facts.”); see Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) (the court decides whether there is a valid agreement to arbitrate); Howsam, 537 U.S. at 84 (“a gateway dispute about whether the parties are bound by a given arbitration clause raises a ‘question of arbitrability’ for a court to decide.”); Spinetti v. Serv. Corp. Int’l, 324 F.3d 212, 216 n.1 (3d Cir. 2003) (a public policy argument is one that the court, not arbitrator, should consider in deciding whether an arbitration agreement is valid and enforceable); Bellevue Drug Co. v. Advance PCS, 333 F. […]

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