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Legal Memorandum: Mutuality Requirement and Conscionable Contract

Issue: What is the mutuality requirement for determining whether a contract is unconscionable?

Area of Law: Business Organizations & Contracts
Keywords: Conscionable contract; Mutuality requirement
Jurisdiction: Federal
Cited Cases: 173 F.3d 933; 283 F.3d 595
Cited Statutes: None
Date: 11/01/2005

  “[T]he paramount consideration in assessing conscionability is mutuality.”  Abramson v. Juniper Networks, Inc., 9 Cal. Rptr. 3d 422, 436 (Cal. Ct. App. 2004).  Thus, when, “only the weaker party’s claims are subject to arbitration, and there is no reasonable justification for that lack of symmetry, the agreement lacks the requisite degree of mutuality.”  Id. at 437.  In Abramson, the California court considered whether an arbitration agreement was procedurally and substantively unconscionable.  It concluded that the agreement was oppressive and therefore procedurally unconscionable, given that it was presented to the employee on a “take-it-or-leave-it” basis.  Id. at 441-42.  Of significance to the court was the fact that the defendant did not contradict the employee’s assertion that he had no meaningful opportunity to negotiate.  Id. at 441.  Similarly, the agreement was substantively unconscionable because it lacked in mutuality.  Id. at 443-44.  The agreement at issue contained a “trade-secret carve-out,” meaning that, the types of claims likely to be brought by the employer against the employee were not subject to compulsory arbitration.  Id.  “To sum up, the arbitration provisions challenged in this case are entirely lacking in mutuality and basic fairness,” concluded the court.  Id. at 444.  Because it was unconscionable, the agreement could not be enforced.  Id. at 445.  The trial court’s order compelling arbitration was erroneous.  Id.  (stating, inter alia, that employers may not require employees to pay arbitration forum costs as part of mandatory arbitration clause).  See McLaughlin v. Innovative Logistics Group, Inc., E.D. Mich. Sept. 26, 2005, […]

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