Is My Arbitration Clause Enforceable?

Posted: October 29, 2019 by Lauren N. Rutkowski

Maryland legislative policy favors the enforcement of arbitration and mediation agreements. Despite the fact that arbitration and mediation agreements are favored, these clauses and agreements still must adhere to the general contract principles established in Maryland. [This means arbitration clauses are subject to standard contract defenses.] Unfortunately, typographical errors and ambiguous language could lead to an otherwise valid arbitration and mediation agreement being invalidated by the court.
 
In Marcia Rankin, et al. v. Brinton Woods of Frankford, LLC, et al., The Maryland Court of Special Appeals found that the arbitration clause contained in the Admission Contract (“the Contract”) for Brinton Woods of Frankford, LLC (“Brinton Woods”) was confusing, ambiguous, invalid, and unconscionable as a result. When determining the validity of an arbitration clause, the court must consider whether the terms of the agreement are so one-sided as to oppress or unfairly surprise an innocent party, or whether there exists an egregious imbalance in the obligations and rights imposed by the clause.
 
In Maryland, unconscionability is determined by two prongs; the clause must be both procedurally and substantively unconscionable to be invalidated. Procedural unconscionability focuses on the contract-drafting process and includes the use of devices such as fine print, convoluted or unclear language, and also looks to the bargaining process in forming the contract. Substantive unconscionability looks to the actual text of the clause and is concerned with whether the terms are unreasonably or grossly favorable to the more powerful party. 
 
The arbitration and mediation clause in Rankin v. Brinton was found both procedurally and substantively unconscionable and rendered void. First, with regard to procedural unconscionability, the court found that the arbitration clause was either “imprecise drafting, which is supported by the numerous errors contained throughout, or a deliberate attempt to mislead an inattentive reader.” This arbitration clause constituted an “adhesion contract,” one “that is drafted unilaterally by the dominant party and then presented on a ‘take-it-or-leave-it’ basis to the weaker party who has no real opportunity to bargain.” Brinton Woods drafted the Contract which contained the arbitration clause and was considered the stronger of the two parties to the Contract. Further the court noted that the Contract’s opening paragraph was likely to mislead the average person by failing to reference the existence of an arbitration clause. The opening paragraph of the Contract stated in pertinent part: “This contract contains your financial obligations, as well as your rights as a Resident of this Facility.” The court also found worrisome that the arbitration clause was in no way highlighted to attract the lay-reader’s attention. The clause was found in the middle of the Contract, in a numbered paragraph, and contained no emphasis by bolding, underlining or italicizing the language.
 
The Contract’s arbitration clause was also substantively unconscionable as numerous sentences were found to be in conflict. One example provided by the court involved a paragraph of the clause which indicated that the loser at arbitration may choose to appeal the decision to the Maryland Circuit Court. However, in the very next paragraph, the arbitration clause stated that the “judgment” shall not be appealable. The Court took issue with the fact that the term “judgment” was never defined or even referenced at any other section of the clause. Further, a lay person would not know if the arbitrator’s decision would be binding or appealable based on the two paragraphs. Finally, the clause also required the Plaintiff to make a $1,000 arbitration deposit before filing for arbitration and required the loser of arbitration to pay all fees and costs of the winning party. The court noted that this financial burden would unreasonably preclude a claimant who may be financially burdened from filing a claim for arbitration.
 
The ultimate takeaway from this case should be ‘drafters beware’. Drafters of an arbitration clause should make sure there are no typographical or grammatical errors in their arbitration clauses. Drafters should also make every effort to highlight the language in arbitration clauses by increasing the font size or emphasizing the language using bold, underline, or italics. Finally, drafters should be careful what financial burdens are included in this section, and how they are apportioned among the parties to a contract.



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