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Legal Memorandum: Unconscionable Arbitration Clause in VI

Issue: When is an arbitration clause unconscionable under the laws of the Virgin Islands?

Area of Law: Alternative Dispute Resolution, Business Organizations & Contracts
Keywords: Arbitration clause; Unconscionable; Enforceability
Jurisdiction: Federal, Virgin Islands
Cited Cases: 706 P.2d 1028; 172 F.2d 80; 684 A.2d 1021; 173 F.3d 933; 341 F.3d 256; 415 F. Supp. 264; 134 F.3d 1054; 368 F.3d 269; 907 P.2d 51
Cited Statutes: Restatement (Second) of the Law of Contracts § 208; Uniform Commercial Code ("UCC") § 2-302; 11A V.I.C. § 2-302; Restatement (Second) of Contracts § 211, 178, 205
Date: 11/01/2004

Arbitration clauses are not per se unconscionable or unenforceable.  But 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).  

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 the Law 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 (“This Section is new; it follows UCC § 2-302.”).  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.  See, e.g., Maxwell v. Fid. Fin. Servs., Inc., 907 P.2d 51, 57 (Ariz. 1995).  The drafters of the Restatement and the UCC obviously envisioned that courts […]

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