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By Leslie King O’Neal

Is an Illegible Arbitration Agreement Enforceable?

The FAA requires arbitration agreements to be in writing.[i]  But, does the writing have to be legible? Is an unreadable arbitration agreement enforceable? In Fuentes v. Empire Nissan, Inc.[ii] the California Supreme Court considered whether illegibility constitutes substantive or procedural unconscionability.

For more about the Fuentes case, see prior post:

Arbitration Agreements Come in Many Forms

A “Visually Impenetrable” Document

Fuentes signed an arbitration agreement and confidentiality agreement as part of her employment application for Empire Nissan. The document was “visually impenetrable” to the point it “challenge[d] the limits of legibility. Fuentes had only five minutes to review the application. Also, she had no time to ask questions, and she did not receive a copy of the documents she signed.  Fuentes worked at Empire Nissan for two and a half years before she was terminated. She sued for wrongful termination and Empire Nissan moved to compel arbitration.

Trial Court Finds Arbitration Agreement Unconscionable & Unenforceable

Fuentes asserted the arbitration agreement was unenforceable and against public policy because the agreement was illegible and she had so little time to review it. Further, she argued it was unenforceable because it was unconscionable. Denying Nissan’s motion to compel arbitration, the trial court held Fuentes established a high degree of procedural unconscionability and a low to moderate degree of substantive unconscionability because of the fine print terms.

Appellate Court Reverses, Finds No Unconscionability

Empire Nissan appealed, arguing Fuentes did not establish substantive unconscionability. The Court of Appeal reversed, concluding that the illegibility went only to procedural unconscionability—not to substantive unconscionability. Under California law, a contract is unconscionable if one party lacks a meaningful choice in deciding whether to agree and the contract has terms unreasonably favorable to the other party. The two aspects are procedural and substantive elements. Both elements must be proved to find a contract unconscionable, but not to the same degree. Courts apply a sliding scale analysis. The more substantively oppressive the term, the less procedural unconscionability need to conclude it is unenforceable and vice versa.[iii]

 Relying on California and federal law’s strong policy favoring arbitration, the appellate court upheld the arbitration agreement. It found there was no substantive confidentiality and stated it did not need to address procedural unconscionability.

Tiny, Blurry Font Alone Doesn’t Make Contract Unfair

Fuentes’ arbitration agreement consisted of 900 words squeezed into about three vertical inches of text. One sentence is 214 words long. The agreement refers to six different statutes, various government agencies and several sections of the California Code. The California Supreme Court concluded the tiny print and almost illegible format did not indicate substantive unconscionability. “The fact that a term is printed in tiny, blurry font does not make it harsh, one-sided or otherwise unreasonably unfair.” The California Supreme Court found that font size cannot render a contractual term substantively unconscionable, but it could require a lesser showing in the sliding scale analysis.

California Supreme Court Remands for Further Findings

Unfortunately, the California Supreme Court declined to decide whether the arbitration agreement was substantively unconscionable. Instead, the Court remanded the case to the trial court for factual findings about whether Nissan’s president signed the confidentiality agreement. The Court also declined to rule on whether there was a valid contract because the trial court did not rule on this argument (it ruled on a different ground). So, the plaintiff has to go through another proceeding to determine whether her case will be arbitrated or tried in court.

Takeaways

• Unconscionability can be grounds to invalidate an arbitration agreement. CA requires proof of substantive and procedural unconscionability.
• Illegibility alone does not make an arbitration agreement unconscionable and unenforceable.
• As shown by the Fuentes case, trying to invalidate an agreement using unconscionability can be a long process.