Changes in Washington Practice Report (#4) / Contractual provisions for mandatory arbitration

November 27, 2013

Washington State LawThis is installment #4 in a continuing series of Changes in Washington Practice Reports.

In their 2013-2014 edition of the Washington Handbook on Civil Procedure (volume 15A of Washington Practice), Tegland and Ende have identified a case regarding contractual provisions for forum selection as a “highlight” of the updated volume.

The case is Gandee v. LDL Freedom Enterprises Inc, 176 Wash. 2d 598, 293 P.3d 1197 (2013).

As noted in volume 15A, this case involves “a dispute between a consumer and a debt consolidation firm”, with the result that “contractual provisions for venue, personal jurisdiction, arbitration and attorney fees were all held unenforceable”.

Once this introduction to the case has been obtained from volume 15A, it is interesting to further explore this finding.

As stated in the ruling by the Washington Supreme Court, “This case involves the enforceability of a binding arbitration clause included within a debt adjustment contract…” and “We affirm the trial court’s holding that the clause is unconscionable….”

The court stated that a contract term is “substantively unconscionable” where it is “overly harsh….”

The court found that the requirement for arbitration out-of-state (in California) would be prohibitively costly; that a “loser pays” provision was excessively one-sided; and a short (30-day) contractual statute of limitations was extreme. All of these terms were found to be “substantively unconscionable”.

The arbitration clause was held to be unenforceable.

This finding may be contrasted with a subsequent 2013 ruling by the U.S. District Court (Cardwork Processing LLC v. Pinnacle Processing Group Inc., Slip Copy, 2013 WL 1148768 (W.D. Wash.).

It was found in this follow-up ruling that “Gandee does not break new legal ground” and Grandee and its predecessors require that the party seeking relief “present evidence that arbitration would impose prohibitive costs….”

The contract provision under Cardworks was found not to be as overly harsh as the provision under Gandee.

These cases illustrate the importance of the factual situation when relief is sought from a binding arbitration clause in a contract.

Volume 15A emphasizes this point by citing to three enforceable cases and three unenforceable cases regarding forum selection clauses.

Information about civil procedure may be found in Washington Practice volumes 9 to10A and 14 to15A, and by making use of the extracts, summaries and other legal resource materials to be found in Methods of Practice, volumes 1 to 1C of Washington Practice, by Cheryl Mitchell and Ferd Mitchell of Mitchell Law Office.