Contract Law 47 III Ferguson v Countrywide Credit Industries | Summary and Q&A

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July 24, 2017
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Contract Law 47 III Ferguson v Countrywide Credit Industries

TL;DR

The analysis discusses a court case involving the enforceability of an arbitration clause in an employment contract, highlighting the concept of unconscionability.

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Questions & Answers

Q: How does arbitration work as an alternative to lawsuits?

Arbitration involves a neutral third party, the arbitrator, who reviews evidence and arguments from both parties and issues a binding decision. The process is determined by the contractual agreement, and the decision generally cannot be appealed to a court.

Q: What factors are considered in determining procedural unconscionability?

Procedural unconscionability is assessed based on two factors. Firstly, whether there was inequality in bargaining power and meaningful negotiation between the parties. Secondly, whether the arbitration clause was hidden or presented as a take-it-or-leave-it proposition.

Q: How did the court assess substantive unconscionability in this case?

The court found the arbitration clause to be substantively unconscionable due to three reasons. Firstly, it only applied to certain claims against Countrywide, allowing them to go to court for their claims. Secondly, it imposed a significant portion of the arbitration costs on Ferguson, making it financially burdensome. Lastly, certain provisions limiting discovery disproportionately disadvantaged Ferguson.

Q: Has the United States Supreme Court ruled on the issue of unconscionability in arbitration clauses?

Yes, the Supreme Court has overturned California law in two cases, emphasizing the validity and enforceability of arbitration clauses. These cases focused on provisions preventing class arbitration, reflecting the ongoing struggle between federal and state laws regarding arbitration enforcement.

Summary & Key Takeaways

  • The case involves an employee, Miss T Ferguson, who filed a lawsuit for sexual harassment against her employer, Countrywide, and her manager. Countrywide attempted to enforce an arbitration clause in Ferguson's employment contract.

  • The court refused to enforce the arbitration clause, deeming it unconscionable under California law, which requires both procedural and substantive unconscionability to be present.

  • Procedural unconscionability refers to the fairness of the contracting process, including unequal bargaining power and surprise elements. Substantive unconscionability focuses on terms that are heavily one-sided and shock the conscience.

  • The court found the arbitration clause to be substantively unconscionable based on unequal applicability, higher arbitration costs for Ferguson, and limitations on discovery.

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