Legal Memorandum: Enforcement of an Arbitration Clause in VI

Issue: Under U.S. Virgin Islands law, should a court refuse to enforce a mandatory arbitration clause when it is both procedurally and substantively unconscionable?

Area of Law: Alternative Dispute Resolution, Business Organizations & Contracts
Keywords: Arbitration clause; Procedurally and substantively unconscionable; Refusal to enforce
Jurisdiction: Federal, Virgin Islands
Cited Cases: 102 Cal. Rptr. 2d 1
Cited Statutes: Restatement (Second) of Contracts § 208, cmt. d (1981); 24 V.I.C. § 451b
Date: 09/01/2007

In Alexander v. Anthony Int’l, L.P., 341 F.3d 256, 270 (3d Cir. 2003), the court of appeals instructed that an arbitration provision may not be enforced when the provision at issue is both procedurally and substantively unconscionable. 

According to the Alexander court, procedural unconscionability “is generally established if the agreement constitutes a contract of adhesion.”  Id. at 265.  A contract of adhesion “is one which is prepared by the party with the excessive bargaining power who presents it to the other party on a take-it-or-leave-it basis.”  Id.  See also Kloss v. Edward D. Jones & Co., 54 P.3d 1 (Mont. 2002) (given that the contract was a contract of adhesion, it could not be presumed that the plaintiff waived her right to a jury trial, and a waiver was not within the plaintiff’s reasonable expectations, such that the arbitration agreement was unenforceable).

A contract is procedurally unconscionable if it was obtained by oppression.  “The oppression component of the test for procedural unconscionability ‘arises from an inequality of bargaining power of the parties to the contract and an absence of real negotiation or a meaningful choice on the part of the weaker party.'”  Villa Milano Homewners Ass’n v. Il Davorge, 102 Cal. Rptr. 2d 1, 7 (Cal. Ct. App. 2000) (citation omitted) (holding there was procedural unconscionability given that there was absolutely no opportunity for the individual buyers to negotiate the terms of the contracts). 

In the instant case, Plaintiff’s […]

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