A recent Louisiana Supreme Court decision over the enforceability of an arbitration clause has the justices battling it out. Against well-established precedent favoring arbitration clauses, the court recently found that a provision in an indoor trampoline park's participant agreement was unenforceable because it was adhesionary and lacked mutuality of consent. Duhon v. ACTIVELAF, LCC, d/b/a Sky Zone Lafayette et al., No. 2016-0810 (October 19, 2016). The case is important for Louisiana employers with arbitration agreements.
Justice Weimer issued a strong dissent, finding the arbitration clause to be valid and enforceable. Concurring, Justice Hughes agreed that it lacked mutuality but found that the provision was not hidden. Justice Clark, however, found that the contract "lack[ed] mutuality to such an extent that the contract [was] adhesionary." Justice Crichton, concurring and assigning reasons, emphasized that while Louisiana favored the enforcement of arbitration agreements, the contract at issue not only concealed the arbitration clause but also penalized patrons for initiating litigation.
Background
What began as an afternoon of fun jumping escalated into legal fisticuffs. James Duhon and three minors went to Sky Zone in Lafayette, Louisiana. As directed by a staff member, Duhon electronically completed a participation agreement on behalf of himself and the youths, checking three boxes acknowledging the risk of injury, waiving and releasing all claims against Sky Zone, and certifying that he and the children were physically fit to participate in all activities. Duhon also agreed to submit "any disputes" to binding arbitration and to pay liquidated damages if he filed suit.
Claiming that he was injured at the facility, Duhon sued. In response, Sky Zone filed several exceptions (equivalent to a motion to dismiss), including an exception of prematurity alleging that the agreement contained a mandatory arbitration clause, rendering Duhon's suit premature. The trial court refused to enforce the arbitration agreement, finding a lack of mutuality because only Duhon was bound to arbitrate claims. On appeal, the First Circuit Court of Appeal of Louisiana reversed the decision, relying on the strong presumption favoring enforceability of arbitration agreements, which has been expressed by several Louisiana Supreme Court decisions.
The Supreme Court of Louisiana's Decision
Louisiana's highest court disagreed. While acknowledging that state and federal law "explicitly" favor enforcement of arbitration clauses, the court found that Sky Zone's arbitration clause was adhesionary and unenforceable because of its "placement in the Agreement and its lack of mutuality."
Specifically, the court found that the arbitration language was buried in the 11th line of the third paragraph of the agreement and lacked distinguishing features, which served to "conceal" the arbitration language from Sky Zone patrons. The court also noted that no check box was placed next to the arbitration clause, while the other two check boxes were placed next to paragraphs limited to a single subject matter. Looking at the agreement as a whole, the court concluded that the arbitration language "appears to be the only specific provision not relegated to a separate paragraph or set apart in some explicit way," and that the clause was "camouflaged" within the 11-sentence paragraph, effectively "cloak[ing] it within a blanket of boilerplate language."
Also, the court found that the arbitration clause lacked mutuality, as it required only Sky Zone patrons to submit to arbitration. The court observed that the agreement repeatedly included '"I acknowledge' and 'I agree' language, with the 'I' referencing the 'applicant.'" The court noted that nowhere did the agreement mention that "the parties" or Sky Zone were bound to arbitration.
Even more troublesome, the court found, was the punitive damages provision requiring patrons, but not Sky Zone, to pay liquidated damages of $5,000 within 60 days of filing suit, with legal interest of 12 percent per year.
Importantly, the Supreme Court of Louisiana stated that the determination of whether an arbitration clause in a standard form contract is adhesionary is made on a case-by-case basis. Based on the facts at hand, the court found that "concealment" of the arbitration clause and "lack of mutuality" made the arbitration provision adhesionary and unenforceable.
The Takeaway
Be careful how you word your arbitration clauses. Employers might want to consider implementing a way to make arbitration provisions stand out, such using as a bold font or separate paragraph. Also, even though this case did not arise in the employment context, employers may take this as a reminder to incorporate language obligating all parties to arbitrate their disputes.
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