The United States Court of Appeals for the Tenth Circuit, recently delivered its opinion in Beltran v. AupaireCare, Inc., Case No. 17-1359 (10th Cir. Oct. 30, 2018).  At the lower level the District Court certified a class of more than 90,000 au pairs who claimed that the defendant au pair agencies used the United States” J-1 Vis program to suppress wages and inflate their own fees in violation of federal and state wage laws.  The individual au pair agreements contained final and binding arbitration provisions before an arbitration provider selected by the defendants.  The arbitration provisions provided for the arbitration to be in California and the prevailing party’s entitlement to recover attorneys’ fees and costs.  The arbitration provision also provided for jurisdiction in California if the arbitration provisions were determined void or inapplicable.

The District Court determined the arbitration provision to be procedurally and substantively unconscionable as contracts of adhesion because, among other reasons, the au pairs were young, foreigners, spoke English as a second language, had no experience with contracts or contract law, were surprised because the arbitration provision was “buried” in the agreements.  The court noted that the defendants right to unilaterally select an arbitrator and the forum selection provisions were unconscionable because they negated the reasonable expectations of the non-drafting party.  The court refused to sever the clauses, noting that the arbitration provision was “permeated” with unconscionability.

The Court of Appeals, largely applying California law, reversed the court’s determination not to compel arbitration, but did remand to the district court to sever the arbitration provider selection clause, agreeing that the provider selection clause was, in fact, unconscionable but determining the arbitration provision, as a whole, was otherwise enforceable.  The Court of Appeals noted and determined de novo that the arbitration provision was not procedurally unconscionable, requiring a determination of oppression or surprise due to unequal bargaining power, because plaintiffs had meaningful alternatives.  The Court of Appeals reasoned that plaintiffs acknowledged that they sought to be au pairs in order to improve their English and enjoy the opportunity to travel.  The Court of Appeals also noted plaintiffs J-1 visas required them to be proficient in spoken English and had even been provided translations of their agreements.

The Court of Appeals agreed that the Arbitrator Provider selection provision was as unconscionable as an Arbitrator selection provision inasmuch as it would allow defendants from selecting only one arbitrator favorable or biased in favor of the defendants.  The Court of Appeals held that the inclusion of the phrase “neutral arbitration” does not cure the defect.

On the other hand, the Court of Appeals did determined the forum selection and fee shifting clauses to be valid and enforceable, the forum selection clause perhaps being inconvenient but not so gravely difficult as to practically deny plaintiffs their day in court, noting that plaintiffs who served as au pairs in Michigan or Pennsylvania were not gravely burdened buy arbitrating in California; and the fee shift clause being bilateral in application and not requiring a waiver of any statutory rights.

Concluding, the Court of Appeals determined that the severance of the one offending provision would best allow the parties agreement to move forward as agreed, particularly because both California and federal law provide a default method for appointing an arbitrator.

Both courts’ detailed analysis of the arbitration provisions should be a reminder that the drafting of arbitration agreements can, at times, be a daunting task fraught with unintended consequences.