Rights of First Refusal to License Mineral Rights and Unconscionability

If you are looking for a case with a nice analysis of procedural and substantive unconscionability, a recent case out of Ohio, Christ Holdings, LLC v. Schleappi, Case No. 15 NO 0427, has one. 

The case involved a right of first refusal that the defendants claimed was unconscionable. The trial court agreed with the defendants, but this court reversed the finding. The court started by looking at procedural unconscionability and noting that it requires consideration of “age, education, intelligence,  business acumen and experience,” etc. The court then presented in some amount of detail the education and employment history of both parties, concluding that their educational level is roughly equivalent but that the plaintiff did have more business acumen and experience than the defendant. 

However, importantly for this decision, the court noted that the parties actually had a history of conducting real estate transactions between them without the aid of any attorneys, negotiating several times over the course of several years. To the court, this was an indication that both parties were knowledgeable in the particular type of real estate transaction at issue here, even if the plaintiff had more general business acumen. 

The trial court had also been very concerned about the fact that the defendant had been operating under time constraints. But this court noted that the time constraints were not the plaintiff’s fault: he gave no indication that he wouldn’t have given her time to read the contract over if she had requested it (which she did not). 

After finding no procedural unconscionability, the court then turned to substantive unconscionability. The trial court had found substantive unconscionability for a number of reasons, most notably, though, because this right of first refusal involved the licensing of mineral rights. The trial court asserted that rights of first refusal should be limited to real estate purchases, not to the leasing or licensing of real estate as was at issue here. The trial court seemed to think that rights of first refusal to license were unconscionable in and of themselves, without further inquiry into their terms. This court, however, said that there was no reason to so narrowly restrict the ability of the parties’ to use rights of first refusal in their agreements. It found the right of first refusal to be enforceable and remanded for further proceedings.