Policing Unfair Arbitration Clauses

Abstract

Until recently it was almost universally assumed that the Federal Arbitration Act (FAA) allowed courts to refuse enforcement of an arbitration clause found to be unconscionable as a matter of law. A.T.& T. Mobility v. Concepcion, 131 S. Ct. 1740 (2011) suggests that given the subjective nature of the doctrine of unconscionability, courts may no longer be able to use it to police arbitration clauses. Assuming this to be the case, we argue that there are two "reasonable expectations" doctrines available as alternatives. These are "The Circle of Assent" recognized only by the courts in Tennessee and the "Darner Motor" doctrine recognized by the courts in Arizona. These doctrines, applicable to any term that is non-negotiable, shift the burden of establishing unfairness from the party upon whom an arbitration clause is imposed to the draftsman who must establish that the other party would reasonably expect to find the term said to be unfair. In addition, because these doctrines do not involve unconscionability, they are not subject to Section 2-301(1) Uniform Commercial Code which allows for judicial modification to avoid an unconscionable result.

Keywords: arbitration clauses, unconscionability, reasonable expectations, unfair terms, adhesive contracts, non-negotiable terms

JEL Classification: K10, K12, K19, K30, K40, K41, K49