Landmark California Cases on Unconscionability Doctrine in Contract Law

" 'To briefly recapitulate the principles of unconscionability, the doctrine has " 'both a "procedural" and a "substantive" element,' the former focusing on ' "oppression" ' or ' "surprise" ' due to unequal bargaining power, the latter on ' "overly harsh" ' or ' "one-sided" ' results." The procedural element of an unconscionable contract generally takes the form of a contract of adhesion, " 'which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.' " ... Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided.' " (Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 160.) "The procedural element of the unconscionability analysis concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. The element focuses on oppression or surprise. 'Oppression arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice.' Surprise is defined as ' "the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms." ' " (Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 581.) The California Supreme Court has consistently stated that " 'the procedural element of an unconscionable contract generally takes the form of a contract of adhesion ... .' " (Discover Bank, supra, 36 Cal.4th at p. 160; see also Armendariz v. Foundation Health Psychare Services, Inc.,, 24 Cal.4th at p. 113 (Armendariz) "Unconscionability analysis begins with an inquiry into whether the contract is one of adhesion."; Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071.) "Whether the challenged provision is within a contract of adhesion pertains to the oppression aspect of procedural unconscionability. A contract of adhesion is ' " ' "imposed and drafted by the party of superior bargaining strength" ' " ' and ' " ' "relegates to the subscribing party only the opportunity to adhere to the contract or reject it." ' " ' (Discover Bank, supra, 36 Cal.4th at p. 160.)" (Gatton, supra, 152 Cal.App.4th at p. 582.) "Absent unusual circumstances, use of a contract of adhesion establishes a minimal degree of procedural unconscionability notwithstanding the availability of market alternatives." (Id. at p. 585.) Unconscionability has both procedural and substantive elements. (Armendariz, supra, 24 Cal.4th at p. 99; Jones v. Wells Fargo Bank (2003) 112 Cal.App.4th 1527, 1539 5 Cal. Rptr. 3d 835.) Although both must appear for a court to invalidate a contract or one of its individual terms (Armendariz, at p. 114; Wayne v. Staples, Inc. (2006) 135 Cal.App.4th 466, 482 37 Cal. Rptr. 3d 544 (Wayne); Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 174 116 Cal. Rptr. 2d 671), they need not be present in the same degree: "The more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa." (Armendariz, at p. 114; see Wayne, at p. 482.) Procedural unconscionability focuses on the elements of oppression and surprise. (Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 160 30 Cal. Rptr. 3d 76, 113 P.3d 1100; Wayne, supra, 135 Cal.App.4th at pp. 480-481.) " ' " 'Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice . ... Surprise involves the extent to which the terms of the bargain are hidden in a "prolix printed form" drafted by a party in a superior bargaining position.' " ' " (Wayne, at p. 480; see also Mercuro v. Superior Court, supra, 96 Cal.App.4th at p. 174 "procedural unconscionability focuses on the oppressiveness of the stronger party's conduct".) Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create " ' "overly harsh" ' " or " ' "one-sided" ' results" (Armendariz, supra, 24 Cal.4th at p. 114; accord, Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071 130 Cal. Rptr. 2d 892, 63 P.3d 979 (Little) that is, whether contractual provisions reallocate risks in an objectively unreasonable or unexpected manner. (Jones v. Wells Fargo Bank, supra, 112 Cal.App.4th at p. 1539.) Substantive unconscionability "may take various forms," but typically is found in the employment context when the arbitration agreement is "one-sided" in favor of the employer without sufficient justification, for example, when "the employee's claims against the employer, but not the employer's claims against the employee, are subject to arbitration." (Little, at pp. 1071-1072; see also Armendariz, at p. 119 "it is unfairly one-sided for an employer with superior bargaining power to impose arbitration on the employee as plaintiff but not to accept such limitations when it seeks to prosecute a claim against the employee, without at least some reasonable justification for such one-sidedness based on 'business realities' "; Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 1330 83 Cal. Rptr. 2d 348 "'substantive unconscionability' focuses on the terms of the agreement and whether those terms are 'so one-sided as to "shock the conscience."'".)