Reference no: EM131915172

Problem: Lhotka v. Geographic Expeditions 181 Cal. App. 4th 816 (2010) (Petition for review denied Lhotka v. Geographic Expeditions, 2010 Cal. LEXIS 3320 [Cal. S. Ct.])53

Judge Siggins

Geographic Expeditions, Inc. (GeoEx), appeals from an order denying its motion to compel arbitration of a wrongful death action brought by the survivors of one of its clients who died on a Mount Kilimanjaro hiking expedition.

BACKGROUND Jason Lhotka was 37 years old when he died of an altitude-related illness while on a GeoEx expedition up Mount Kilimanjaro with his mother, plaintiff Sandra Menefee. GeoEx's limitation of liability and release form, which both Lhotka and Menefee signed as a requirement of participating in the expedition, provided that each of them released GeoEx from all liability in connection with the trek and waived any claims for liability "to the maximum extent permitted by law." The release also required that the parties would submit any disputes between themselves first to mediation and then to binding arbitration. It reads: "I understand that all Trip Applications are subject to acceptance by GeoEx in San Francisco, California, USA. I agree that in the unlikely event a dispute of any kind arises between me and GeoEx, the following conditions will apply: (a) the dispute will be submitted to a neutral third-party mediator in San Francisco, California, with both parties splitting equally the cost of such mediator. If the dispute cannot be resolved through mediation, then (b) the dispute will be submitted for binding arbitration to the American Arbitration Association in San Francisco, California; (c) the dispute will be governed by California law; and (d) the maximum amount of recovery to which I will be entitled under any and all circumstances will be the sum of the land and air cost of my trip with GeoEx.

I agree that this is a fair and reasonable limitation on the damages, of any sort whatsoever, that I may suffer. I agree to fully indemnify GeoEx for all of its costs (including attorneys' fees) if I commence an action or claim against GeoEx based upon claims I have previously released or waived by signing this release." Menefee paid $16,831 for herself and Lhotka to go on the trip. A letter from GeoEx president James Sano that accompanied the limitation of liability and release explained that the form was mandatory and that, on this point, "our lawyers, insurance carriers and medical consultants give us no discretion. A signed, unmodified release form is required before any traveler may join one of our trips. Ultimately, we believe that you should choose your travel company based on its track record, not what you are asked to sign. . . . My review of other travel companies' release forms suggests that our forms are not a whole lot different from theirs." After her son's death, Menefee sued GeoEx for wrongful death and alleged various theories of liability including fraud, gross negligence and recklessness, and intentional infliction of emotional distress. GeoEx moved to compel arbitration. The trial court found the arbitration provision was unconscionable and on that basis denied the motion.

This appeal timely followed.

DISCUSSION

The question posed here[is] whether the agreement to arbitrate is unconscionable and, therefore, unenforceable.

II. Unconscionability (I omitted-Ed.) (1) We turn first to GeoEx's contention that the court erred when it found the arbitration agreement unconscionable. "[U]nconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. Phrased another way, unconscionability has both a ‘procedural' and a ‘substantive' element." The procedural element requires oppression or surprise. Oppression occurs where a contract involves lack of negotiation and meaningful choice, surprise where the allegedly unconscionable provision is hidden within a prolix printed form. The substantive element concerns whether a contractual provision reallocates risks in an objectively unreasonable or unexpected manner. Under this approach, both the procedural and substantive elements must be met before a contract or term will be deemed unconscionable. Both, however, need not be present to the same degree. A sliding scale is applied

so that ‘the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.'" in San Francisco-all but guaranteeing both that GeoEx would never be out more than the amount plaintiffs had paid for their trip, and that any recovery plaintiffs might obtain would be devoured by the expense they incur in pursing their remedy. The release also required plaintiffs to indemnify GeoEx for its costs and attorney fees for defending any claims covered by the release of liability form. Notably, there is no reciprocal limitation on damages or indemnification obligations imposed on GeoEx. Rather than providing a neutral forum for dispute resolution, GeoEx's arbitration scheme provides a potent disincentive for an aggrieved client to pursue any claim, in any forum-and may well guarantee that GeoEx wins even if it loses. Absent reasonable justification for this arrangement- and none is apparent-we agree with the trial court that the arbitration clause is so one-sided as to be substantively unconscionable. Affirmed.

Questions

1. Why was the Lhotka/Geographic Expeditions agreement to arbitrate ruled unconscionable?

2. Differentiate procedural and substantive unconscionability.

3. Kalliope and David Valchine entered court-ordered mediation to try to resolve the problems that had led them to seek a divorce. Lawyers represented both Kalliope and David at mediation. The mediation led to a marital settlement agreement between Kalliope and David. One month later, Kalliope sought to set aside the agreement, arguing that she had been coerced by her husband, her husband's attorney, and the mediator. Kalliope testified that the mediator threatened to report her to the judge for being uncooperative in refusing to sign a reasonable settlement offer. She claimed that the mediator also told her that she could sign the agreement and then object to its provisions at the final hearing. See Kalliope Vitakis-Valchine v. David L. Valchine, 793 So.2d 1094 (Fla. App. 4th Dist. 2001); 34 So.3d 17 (Fla. App. 4th Dist. 2010). Should the settlement be set aside? Explain.

4. Is an arbitration clause as a condition of employment a fair method of alternate dispute resolution, if entered knowingly and voluntarily? Explain.

5. In an effort to reduce legal expenses, some major banks and other businesses follow policies providing that all customer complaints will be subject to arbitration. Is mandatory arbitration fair to consumers? Explain.