Earlier this week, we linked to a brief comment that Prof. Szalai posted in Outsourcing Justice regarding a decision the US Court of Appeals for the Fourth Circuit issued at the end of October. In that decision, Goodwin v. Branch Banking & Trust Co., 2017 U.S. App. LEXIS 21629, the court applied West Virginia contract law to refuse to enforce an arbitration provision based on the unconscionableness of some of its provisions.
Alvin Goldman (Professor of Law Emeritus, University of Kentucky, NAA Member) writes to us with the following observation:
“According to the appellate court, WV law does not allow a party that imposed an unconscionable provision in a contract to waive it so that the rest of the contract can be enforced. In constitutional law the analog to this contention is known as the due process doctrine of void for over-breadth. The underlying rationale is that because the illegal portion of a statute (or regulation or executive decree) may chill the exercise of a protected right on the part of those who cannot afford to bring a legal challenge to its enforcement, or who do not want to expend the needed resources for litigation, the entire statute should be struck down. Thereby, the overbreadth doctrine deters legislatures, agencies and other law makers from trying to reach beyond their constitutional authority. Applying that reasoning to the law of contracts, the effect is to deter dominant parties from inserting unconscionable provisions when contracting with those who may be forced by circumstances (or ignorance) to abide by what should not have been in the contract in the first place.
In the linked blog, Prof. Szalai praised the appellate court for creating “good policy for courts when reviewing the fairness of arbitration clauses involving vulnerable parties.” That praise, I think, is premature inasmuch as the Fourth Circuit did not adopt the principle as part of the federal law of arbitration. Instead of applying this concept based on the applicable state law, the Court of Appeals for the Fourth Circuit could have gone a step further and adopted that result as a US Arbitration Act remedial principle in dealing with agreements that violate any applicable state’s contract law. Had it done so, I would agree with the professor’s praise.”