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Legal Memorandum: Substantively Unconscionable Agreements

Issue: What determines whether the terms of an agreement are substantively unconscionable?

Area of Law: Business Organizations & Contracts, Employee Law
Keywords: Agreement; Substantively unconscionable
Jurisdiction: Virgin Islands
Cited Cases: 400 F.3d 370; 116 P.3d 479; 433 F. Supp. 2d 538; 670 N.W.2d 129; 405 U.S. 174; 565 F.2d 255
Cited Statutes: Restatement (Second) of Contracts § 208, cmt. d (1981); 24 V.I.C. § 451b; 5 V.I.C. § 815
Date: 11/01/2007

Substantive unconscionability “refers to terms that unreasonably favor one party to which the disfavored party does not truly assent.” Alexander v. Anthony Int’l, L.P. 341 F.3d 256, 265 (3d Cir. 2003).  That is, the terms are so lopsided in favor of one party that they show “that the weaker party had no meaningful choice, no real alternative” but to “appear to assent to the unfair terms.”  Id. (citing Restatement (Second) of Contracts § 208, cmt. d (1981)).  Thus, substantive unconscionability is established by showing “that the contractual terms are unreasonably favorable to the drafter.”  Id.  

Among the types of terms that have been held to meet this standard are arbitration provisions that impose prohibitively high costs on one of the parties, such that they effectively deny that party a forum to vindicate his or her rights.  See Parilla v. IAP Worldwide Servs., VI, Inc. 368 F.3d 269, 278-79 (3d Cir. 2004); Blair v. Scott Specialty Gases, 283 F.3d 595, 610 (3d Cir. 2002); Reed v. Turner St. Croix Maint., Inc., 46 V.I. 544 (D.V.I. 2005).  See also Ostroff v. Alterra Healthcare Corp., 433 F. Supp. 2d 538, 545 (E.D. Pa. 2006) (discovery restrictions made agreement substantively unconscionable); Gittens v. Indus. Maint. Corp., No. Civ. 453/2002 (V.I. Super. Ct. Nov. 30, 2005) (arbitration agreement’s 30-day notice provision as well as its provision preventing the recovery of attorney’s fees were unconscionable and unenforceable).  The fact that the arbitration provision may also impose on the other […]

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