Business Law 11th Edition by Kenneth Clarkson,Roger LeRoy Miller,Gaylord Jentz,Frank Cross

Exercise 16

Simpson v. MSA of Myrtle Beach, Inc.
Supreme Court of South Carolina, 2007. 373 S.C. 14, 644 S.E.2d 663.
www.findlaw.com/11stategov/sc/scca.html a
• Background and Facts MSA of Myrtle Beach, Inc., in South Carolina does business as Addy's Harbor Dodge (Addy), a car dealership. Sherry Simpson signed a contract with Addy to trade in her 2001 Toyota 4Runner for a new 2004 Dodge Caravan. Directly above the signature line on the first page of the contract, a signee was instructed in bold type to "SEE ADDITIONAL TERMS AND CONDITIONS ON OPPOSITE PAGE." The additional terms and conditions contained an arbitration clause, which provided, among other things, that "[i]n no event shall the arbitrator be authorized to award punitive, exemplary, double, or treble damages (or any other damages which are punitive in nature or effect) against either party." Six months later, Simpson filed a suit in a South Carolina state court against Addy, claiming that the dealer had misrepresented the trade-in value of her vehicle, artificially increased the purchase price, and failed to provide all rebates promised, in violation of state statutes. Addy filed a motion to compel arbitration. Simpson responded that the arbitration clause was unconscionable and unenforceable. The court denied Addy's motion. Addy appealed to the South Carolina Supreme Court.
a. In the "2007" section, click on "March." In the result, click on the number next to the name of the case to access the opinion.
Chief Justice TOAL:
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* * * In South Carolina, unconscionability is defined as the absence of meaningful choice on the part of one party due to one-sided contract provisions, together with terms that are so oppressive that no reasonable person would make them and no fair and honest person would accept them.* * *
In analyzing claims of unconscionability in the context of arbitration agreements,* * * courts * * * focus generally on whether the arbitration clause is geared towards achieving an unbiased decision by a neutral decision-maker. It is under this general rubric that we determine whether a contract provision is unconscionable due to both an absence of meaningful choice and oppressive, one-sided terms. [Emphasis added.]
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Absence of meaningful choice on the part of one party generally speaks to the fundamental fairness of the bargaining process in the contract at issue. In determining whether a contract was tainted by an absence of meaningful choice, courts should take into account the nature of the injuries suffered by the plaintiff;whether the plaintiff is a substantial business concern; the relative disparity in the parties' bargaining power; the parties' relative sophistication; whether there is an element of surprise in the inclusion of the challenged clause; and the conspicuousness of the clause.
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* * * [W]e * * * acknowledge Simpson's claim that she did not possess the business judgment necessary to make her aware of the implications of the arbitration agreement, and that she did not have a lawyer present to provide any assistance in the matter. Similarly, we note Simpson's allegation that the contract was "hastily" presented for her signature.
* * * [W]e also find it necessary to consider the otherwise inconspicuous nature of the arbitration clause in light of its consequences. The loss of the right to a jury trial is an obvious result of arbitration. However, this particular arbitration clause also required Simpson to forgo certain remedies that were otherwise required by statute. While certain phrases within other provisions of the additional terms and conditions were printed in all capital letters, the arbitration clause in its entirety was written in * * * small print, and embedded in paragraph ten (10) of sixteen (16) total paragraphs included on the page. Although this Court acknowledges that parties are always free to contract away their rights, we cannot, under the circumstances, ignore the inconspicuous nature of a provision, which was drafted by the superior party, and which functioned to contract away certain significant rights and remedies otherwise available to Simpson by law. Furthermore, * * * the present transaction may be distinguished from [a transaction] where both parties were sophisticated business interests in an arms-length negotiation.
Accordingly, we find that when considered as a whole and in the context of an adhesion contract for a vehicle trade-in, the circumstances reveal that Simpson had no meaningful choice in agreeing to arbitrate claims with Addy.
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The general rule is that courts will not enforce a contract which is violative of public policy, statutory law, or provisions of the Constitution. In our opinion, this rule has two applications in the present case. First, this arbitration clause violates statutory law because it prevents Simpson from receiving the mandatory statutory remedies to which she may be entitled * * *. Second, unconditionally permitting the weaker party to waive these statutory remedies pursuant to an adhesion contract runs contrary to the underlying statutes' very purposes of punishing acts that adversely affect the public interest. Therefore, under the general rule, this provision in the arbitration clause is unenforceable. [Emphasis added.]
Accordingly, we find the provision prohibiting double and treble damages to be oppressive, one-sided, and not geared toward achieving an unbiased decision by a neutral decision-maker. In conjunction with Simpson's lack of meaningful choice in agreeing to arbitrate, this provision is an unconscionable waiver of statutory rights, and therefore, unenforceable.
• Decision and Remedy The court affirmed the lower court's denial of Addy's motion to compel arbitration. The state supreme court found the arbitration clause to be unconscionable and unenforceable. Simpson had no meaningful choice in agreeing to arbitrate, and the terms limiting her remedies were oppressive and one sided.
• The Ethical Dimension Could the court have severed the unconscionable portions of the arbitration clause and otherwise allowed arbitration to proceed Why or why not
• The Legal Environment Dimension The dealer's contract also provided that Addy did not have to submit to arbitration any claims it might have against Simpson for "monies owed" and that these claims "shall not be stayed pending the outcome of arbitration." Is this provision unconscionable Discuss.