Legal Memorandum: Enforceability of an Arbitration Provision

Issue: Is an arbitration provision unenforceable if it is procedurally and substantively unconscionable under Virgin Islands law?

Area of Law: Alternative Dispute Resolution, Business Organizations & Contracts
Keywords: Procedural unconscionability; Substantive unconscionability; Arbitration provision
Jurisdiction: Virgin Islands
Cited Cases: 706 P.2d 1028; 172 F.2d 80; 684 A.2d 1021; 341 F.3d 256; 134 F.3d 1054; 368 F.3d 269; 907 P.2d 51; 879 A.2d 281
Cited Statutes: Restatement (Second) of Contracts § 208; Uniform Commercial Code ("UCC") § 2-302; 11A V.I.C. § 2 302
Date: 03/01/2006

  The presence of an unlawful provision in an arbitration agreement may serve to taint the entire agreement, rendering the agreement completely unenforceable.  See, e.g., Paladino v. Avnet Computer Techs., Inc., 134 F.3d 1054, 1058 (11th Cir. 1998).  Under Virgin Islands contract law, the arbitration provisions in the agreement at issue here are unconscionable because they were foisted on Plaintiff on a non-negotiable, “take-it-or-leave-it” basis, and because the terms are so one-sided as to be onerous and oppressive. 

The Virgin Islands law of unconscionability (for contracts not involving the sale of goods) is found in § 208 of the Contracts Restatement:

If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable terms, or may so limit the application of any unconscionable term as to avoid any unconscionable result.

Restatement (Second) of Contracts § 208 (1979).  Section 208 is based on Uniform Commercial Code (“UCC”) § 2-302, codified in the Virgin Islands at 11A V.I.C. § 2‑302.[1]  See Reporter’s Note to Restatement (Second) of Contracts § 208.  Thus, Virgin Islands courts must look to § 208 of the Restatement and § 2-302 of the UCC to determine whether a contract or clause is unconscionable.   Neither of these two sections provides a definition of unconscionability, however.  And neither provides a litmus test for determining whether unconscionability exists.  The drafters of the Restatement and the UCC obviously […]

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