Cengage Advantage Books: Fundamentals of Business Law 9th Edition by Roger LeRoy Miller

Exercise 19

Lhotka v. Geographic Expeditions, Inc.
California Court of Appeal, First District, 181 Cal.App.4th 816, 104 Cal.Rptr.3d 844 (2010).
FACTS Sandra Menefee and her son Jason Lhotka went on an expedition up Mount Kilimanjaro that had been arranged by Geographic Expeditions, Inc. (GeoEx). GeoEx's limitation-of-liability and release form, which both Lhotka and Menefee signed as a requirement for participating in the expedition, provided that each of them released GeoEx from all liability in connection with the trek and waived any claims for liability "to the maximum extent permitted by law." The release also provided that in the event of a dispute, the dispute would be mediated and then, if not yet resolved, arbitrated in San Francisco. The maximum recovery was limited to the amount paid for the trip with GeoEx. The release also stated, "I agree to fully indemnify [compensate] GeoEx for all its costs (including attorneys' fees) if I commence an action or claim against GeoEx based upon claims I have previously released or waived by signing this release." GeoEx led Menefee and Lhotka to believe that other travel companies required similar releases. Menefee paid $16,831 for herself and Lhotka to go on the trip. While on the trip, Lhotka died of an altitude-related illness. Lhotka's wife and others (the plaintiffs) sued GeoEx for wrongful death under various theories of liability. The trial court found that the release was unconscionable and refused to grant GeoEx's motion to compel arbitration. GeoEx appealed.
ISSUE Was GeoEx's arbitration clause procedurally and substantively unconscionable because it required all expedition participants to sign a release (without modification) limiting their potential recovery to the amount that they had paid for the trip?
DECISION Yes. The California appellate court affirmed the trial court's order denying GeoEx's motion to compel arbitration.
REASON Because GeoEx explicitly advised potential participants in its expeditions that they had to sign an unmodified release form to participate, and that other travel companies were no different, GeoEx led the plaintiffs to understand that no negotiations were possible. The court noted that "This [was] a sufficient basis for us to conclude that the plaintiffs lacked bargaining power." To be sure, the plaintiffs could have chosen not to sign. But this "take it or leave it" option created oppression that arose from an inequality of bargaining power and justified a finding of procedural unconscionability. As to the substantive unconscionability issue, the reviewing court pointed out that the arbitration provision in the GeoEx release limited any recovery that the plaintiffs could obtain to the amount they paid GeoEx. This provision guaranteed that the plaintiffs could not possibly obtain anything approaching full compensation for their harm. Further, GeoEx's arbitration scheme "provided a potent disincentive for an aggrieved client to pursue any claim, in any form-and may well guarantee that GeoEx wins even if it loses." Therefore, the arbitration clause was so one sided as to be substantively unconscionable.
FOR CRITICAL ANALYSIS-Economic Consideration What did the court mean when it said that GeoEx's one-sided arbitration scheme "may well guarantee that GeoEx wins even if it loses"?