Businesses that use arbitration agreements with consumers will want to look at this one.

While in a nursing home Clark signed an agreement to arbitrate claims. When he later brought suit against it the nursing home raised the agreement as a defense. After an evidentiary hearing the trial court ruled it procedurally valid but substantively unconscionable: Clark’s expert testified that the arbitrators’ fees would exceed $22,000, Clark couldn’t afford that because he was retired and lived on a fixed income. The nursing home appealed; the Court of Appeals affirms.

“An arbitration agreement may be substantively unconscionable if the fees and costs to arbitrate are so excessive as to ‘deny a potential litigant the opportunity to vindicate his or her rights,’” citing Harrington, 211 Ariz. 241. The court in Harrington said that was a valid argument but that those plaintiffs hadn’t proved it. That’s why Clark got an evidentiary hearing and proved up the purported arbitration costs and his income. On appeal the nursing home questioned the expert’s conclusions and qualifications and whether Clark’s income was enough to cover the arbitration fees but those were factual and discretionary matters concluded by the trial court.

Harrington pointed out a solution: AAA rules allow fees to be reduced or waived in cases of “extreme hardship.” The nursing home wasn’t using those rules; it was a private, you-pick-one-and-we’ll-pick-one agreement that split costs equally. A provision that lets the arbitrator shift costs on a showing of extreme hardship may be the price to pay for keeping some of these agreements alive.   

(link to opinion)