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High Cost of Arbitration and Plaintiff's Limited Financial Means Render Arbitration Agreement Substantively Unconscionable
By Shelley B. Fowler

Over the years, arbitration clauses have been attacked on as many grounds as you can imagine. One common attack is that arbitration would be so expensive that it would prohibit an individual plaintiff from vindicating his or her rights. In response to this form of attack, many arbitration clauses provide that the party requesting arbitration agrees to advance filing and arbitrator fees, sometimes up to a stated maximum, subject to reimbursement as determined by the arbitrator.

I just happen to have on hand an arbitration clause from a form contract that provides: "We will advance your filing, administration, service or case management fee and your arbitrator or hearing fee all up to a maximum of $1500, which may be reimbursed by decision of the arbitrator at the arbitrator's discretion." Is that or similar wording sufficient to make the arbitration clause enforceable when the plaintiff has limited financial means? Let's look at a recent case.

John Clark was admitted into a nursing facility owned by Renaissance West, LLC, to recover after surgery for a hip fracture. He signed an arbitration agreement in which he agreed to arbitrate all disputes with the facility. After his discharge, he sued Renaissance for medical negligence and neglect of a vulnerable adult. Renaissance moved to compel arbitration. The trial court denied the motion. The court found that the arbitration agreement was substantively unconscionable and, therefore, unenforceable because Clark's limited income would make it difficult, if not impossible, to pay the arbitrator's fees, his portion of which was estimated to total approximately $22,800.

The Court of Appeals of Arizona affirmed. Recognizing the complex nature of medical malpractice claims, the appellate court found that the trial court properly concluded that Clark's case would be expensive to arbitrate. The appellate court also agreed with the trial court that the fees would be cost-prohibitive for Clark, who was retired, was living on a fixed income, and did not have any savings. Last, the appellate court noted that the arbitration agreement did not provide for a reduction or waiver of Clark's fees based on financial hardship. The appellate court concluded that the arbitration agreement effectively precluded Clark from obtaining redress for his claims and was, therefore, substantively unconscionable.

In this case, it does not appear that the arbitration clause provided that the nursing facility would advance a portion of Clark's costs. If such a provision had been included, it's not certain that the court would have decided the case any differently. After all, if the clause had provided, for example, that the facility would advance the first $1500 of Clark's costs, Clark still would have been required to advance $21,300 in arbitrator's fees.

This case might serve as a reason to take a good look at your arbitration provision's language regarding fees to see if you've sufficiently protected yourself against a claim that the arbitration would be prohibitively expensive for a person with limited finances.

Clark v. Renaissance West, LLC, 2013 Ariz. App. LEXIS 149 (Ariz. App. July 30, 2013).

Shelley B. Fowler is a Managing Editor of CARLAW, HouseLaw, PrivacyLaw, and Spot Delivery. Shelley can be reached at 410-865-5406 or by e-mail at rfowler@hudco.com.

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