Arbitration Provisions and Unconscionability
This case is a lesson in: Do what the judge tells you to do.
Ruiz v. Millennium Square Residential Association, Civil Action No. 15-1014 (JDB), out of the U.S. District Court for the District of Columbia, is a fairly staid dispute over whether a condominium owner complied with the condominium association bylaws when he made changes to his unit. The bylaws contained an arbitration provision for disputes like this, which the plaintiff argued was unconscionable.
The court didn’t seem to think much of the unconscionability argument. First of all, procedurally, it was unpersuaded by the plaintiff’s allegation that, because he had to accept the bylaws as they were and couldn’t negotiate them, they were unconscionable. The court pointed out that this would make all condominium bylaws everywhere unconscionable, which the court termed “at odds with common sense.” The court pointed out that some very powerful buyers might in fact have the ability to negotiate condominium bylaws (which would seem to me to present a different case altogether, and so not very relevant to this case at all). The court also pointed out that the plaintiff could have chosen to buy real estate elsewhere if he didn’t like the bylaws at Millennium Square.
As for substantive unconscionability, the plaintiff raised three separate problems with the arbitration structure set forth in the agreement: (1) it didn’t require a written decision; (2) it didn’t provide for discovery; and (3) it didn’t allow the plaintiff to participate in selecting the arbitrators. The court was dismissive of the first two arguments, saying that precedent doesn’t require arbitration to have those characteristics, so there was no reason to find a clause not requiring them to be unconscionable.
The third argument is where the defendant dropped the ball in this litigation, apparently. The defendant tried to argue that the plaintiff did have a role in selecting the arbitrators under the agreement. This argument hinged on reading together two separate provisions of the agreement. The court, however, was unconvinced by this reading. The court then specifically requested that the defendant address whether the arbitration procedure would be unconscionable if the defendant’s reading was wrong and the plaintiff didn’t have a role. The court actually invited supplemental briefing on that issue. The defendant, however, declined to make that argument. Maybe the precedent was really bad for the defendant, but it’s generally a good idea to give the court supplemental briefing when it requests it, I think. The court concluded that the defendant’s behavior was a concession that the clause was unconscionable. Faced with a failure to argue by the defendant, the court concluded that the defendant’s reading of the contract was wrong; plaintiff had no role in selecting the arbitrators under the agreement; and that was unconscionable because the court had been given no ability to rule otherwise.
The court therefore severed the unconscionable arbitration procedure in the arbitration clause but upheld the rest of the clause. It requested that the parties work together to arrive at new, detailed, acceptable arbitration procedures.