In recent years, the law of unconscionability frequently has provided the basis for revoking an arbitration agreement under Section 2 of the Federal Arbitration Act. The familiar test in many jurisdictions is that to be invalidated for unconscionability, a contract must be found to be both procedurally and substantively unconscionable. Procedural unconscionability usually is held to involve the manner in which the contract was entered into, whether the complaining party had a meaningful choice and opportunity to bargain regarding the terms of the contract, or was presented the contract on a take-it-or-leave-it basis. With such criteria, many consumer contracts, which cannot reasonably be negotiated individually in our mass production and mass consumption society, often are automatically found to be procedurally unconscionable, leaving only the question of whether the contract is substantively unconscionable.
In Cicle v. Chase Bank USA, a recent decision of the U.S Eighth Circuit Court of Appeals involving claims relating to a Chase credit card, the court recognized that it would be unworkable, and much of commerce would screech to a halt, if all credit card agreements, and similar take-it-or leave-it agreements between consumers and businesses that are used all the time in today’s business world, were deemed unconscionable and unenforceable contracts of adhesion. The court reversed an order that denied a motion to compel arbitration and that held a class arbitration waiver to be unconscionable. Applying Missouri law, the Eighth Circuit ruled that elements of procedural and substantive unconscionability must be considered together, and balanced, so that, if there is gross procedural unconscionability, not much will be needed in the way of substantive unconscionability, and vice versa. Thus, although the court found there was an aspect of procedural unconscionability in the credit card agreement because of Chase’s superior bargaining position and the lack of opportunity for negotiation, it was not sufficient to render the agreement unenforceable unless the agreement was grossly unconscionable in substance.
This flexible approach of balancing the procedural and substantive elements of unconscionability doctrine is preferable to a rigid standard that automatically brands most consumer contracts as procedurally unconscionable, simply because the terms of the contract were not individually negotiated with consumers.