Center Successfully Requests Publication of Case Holding Arbitration Contract Unconscionable

November 3, 2020

The Second District Court of Appeal granted the Center’s request to publish Swain v. LaserAway Medical Group (2020) 57 Cal.App.5th 59, a decision holding that LaserAway’s arbitration contract was unconscionable and therefore unenforceable. The Center was joined on its amicus letter by the Katharine & George Alexander Community Law Center at Santa Clara Law, National Consumer Law Center, Public Law Center, and Public Counsel. The Court of Appeal had originally rejected a request for publication, but changed course after the Center and colleagues submitted their letter.

The published opinion will help protect California consumers by providing a clear illustration of the point at which the terms of an arbitration clause become so one-sided that the consumer cannot be held to it. 

The plaintiff in this case did something that most of us do every week: she agreed to arbitration without knowing it. After she suffered injuries from her treatment at LaserAway, she sought damages and injunctive relief under various consumer protection statutes. LaserAway filed a motion to compel arbitration, which the trial court denied because it found the arbitration clause to be procedurally and substantively unconscionable. The Court of Appeal affirmed, and rejected LaserAway’s alternative argument that the exception to unconscionability in Code of Civil Procedure Section 1295 (relating to arbitration clauses in medical service contracts) should apply.

The opinion provides a useful illustration of procedural and substantive unconscionability in arbitration provisions. The court of appeal found the agreement procedurally unconscionable not only because it was a contract of adhesion, but also because its language was confusing and the customer was given no opportunity to review the contract. The fact that the service was not essential and available market alternatives existed did not change the court’s determination. Additionally, the court held the agreement substantively unconscionable because it lacked mutuality and required that the customer pay a premium for the arbitration. The agreement allowed LaserAway to litigate claims to collect fees from consumers, but required that the consumer waive all of her rights to litigate. The provision also required the consumer to pay arbitration fees she couldn’t afford. Where an arbitration provision demonstrates overt one-sidedness and contains a financial barrier to a consumer’s participation in arbitration, the court held, a finding of substantive unconscionability is merited.

The opinion also clarifies the application of Code of Civil Procedure Section 1295, which creates an exception to the unconscionability defense in contracts between healthcare providers and patients. The Second District made clear that the burden is on the party that wishes to benefit from that exception to prove that the exception applies. Thus, it was LaserAway’s burden to prove that the exception should overcome the consumer’s showing of unconscionability. However, not only did LaserAway forfeit this argument by failing to raise it adequately at trial, but the company also failed to adduce sufficient evidence to demonstrate that it was a healthcare provider governed by Section 1295 in the first place.

Swain v. LaserAway provides much-needed guidance on arbitration agreements, since these provisions are ubiquitous and often one-sided. Not all arbitration agreements contain unconscionable terms or presented in unfair circumstances; however, consumers can be severely disadvantaged when rushed to sign an agreement that impairs their ability to seek recourse for their injuries. The opinion in this case provides important instruction in the controversial but increasingly common area of consumer arbitration contracts.