By Doyice Cotten

A recent New York waiver case (Lobell v. Youtube, LLC and Google, Inc., 2017 U.S. Dist. LEXIS 127327) involved the allegation that a waiver was not enforceable because it was both an adhesionary contract and an unconscionable contract. The U.S. District Court for the Southern District of New York examined the issue in light of California law (as called for by the provisions of the contract).

Adhesionary Contract

The court defined an adhesionary contract as “a standardized contract, 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.” Plaintiffs often claim that waivers are adhesionary contracts and, as such, are unenforceable.  The court explained, however, that

Ordinary contracts of adhesion, although they are indispensable facts of modem life that are generally enforced, contain a degree of procedural unconscionability even without any notable surprises, and bear within them the clear danger of oppression and overreaching.

It went on to say that whether a contract is adhesive in character does not determine whether it is enforceable. It is just the beginning of the analysis to determine enforceability.

Unconscionability

The court stated that “A finding of unconscionability requires 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.” It explained that while both procedural and substantive unconscionability must exist, they need not be to the same degree – for instance, if the contract is very substantively oppressive, less procedural unconscionability is required.

Procedural Unconscionability

In Lobell, the plaintiff claimed procedural unconscionability primarily because he claimed there was no opportunity to read the waiver prior to signing. He said he was told it was just a formality and that he felt pressured to sign by others waiting in line to sign. Evidence, however, showed he neglected to read the waiver out of his own haste and indifference.

Lobell also claimed that the waiver was included in a manner that was indistinguishable from the other provisions. One look at the document disputed these claims; the document began with a header “RELEASE OF CLAIMS” setting it apart from the remainder of the document. The court ruled there was not sufficient evidence to raise a triable issue of material fact concerning procedural unconscionability and stated “Had the Plaintiff actually bothered to read the Agreement, the Release language would have been conspicuous.”

Substantive Unconsionability

The court explained that substantive unconscionability is employed to see that adhesionary contracts “do not impose terms that have been variously described as ‘overly harsh,’  ‘unduly oppressive,’ so one-sided as to ‘shock the conscience,’ or ‘unfairly one-sided.'” In other words, substantive unconscionability is not concerned with the so-called “bad bargain,” but rather, with contractual terms that are unreasonably favorable to the more powerful party.

The court stated that unconscionable terms are

‘terms that impair the integrity of the bargaining process or otherwise contravene the public interest or public policy; terms (usually of an adhesion or boilerplate nature) that attempt to alter in an impermissible manner fundamental duties otherwise imposed by the law, fine-print terms, or provisions that seek to negate the reasonable expectations of the nondrafting party, or unreasonably and unexpectedly harsh terms having to do with price or other central aspects of the transaction.’

Ruling

The court stated that, while the waiver is an adhesionary contract, it is enforceable because it is not unconscionable and “there is no public policy which opposes private, voluntary transactions in which one party, for a consideration, agrees to shoulder a risk which the law would otherwise have placed upon the other party.”

Note:

Waivers are, almost without exception, adhesionary contracts; also, almost without exception, courts in most states will enforce them, provided they are unambiguous, do not conflict with public policy, and are not unconscionable.

Photo Credit: Thanks to Steve Snodgrass on Flickr.