By: Tiana Cherry
On January 13, 2016, Plaintiff Julio Lamboy Ruiz, a condominium owner, refused to go to arbitration after making architectural changes to his home that were alleged to not adhere to the condominium’s bylaws enforced by Millennium Square Residential Association and Millennium Square Unit Owners Association (“the Associations”).[1] Plaintiff claimed the arbitration clause was unconscionable and therefore unenforceable.[2] As a result, Plaintiff sought a declaratory judgment that the architectural changes made to his condominium did not violate the bylaws.[3] Conversely, Defendants filed a motion to stay and moved to compel arbitration.[4] The United States District Court for the District of Columbia granted Defendant’s motion to compel arbitration, directing the parties to sever the unconscionable provision in the arbitration agreement.[5]
Under the Federal Arbitration Act (“FAA”):
“[a] written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”[6]
Arbitration agreements under the FAA “may be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability.”[7] To successfully demonstrate unconscionability under District of Columbia law, there must be (1) an absence of meaningful choice on the part of one of the parties, and the (2) contract terms must be unreasonably favorable to the opposing party.[8] However, in an “egregious situation,”[9] proving only “one or the other [form of unconscionability] may suffice.”[10]
In the present case, Plaintiff argues that the first element of unconscionability is met because he, like other condominium owners, was not given an option to bargain over the bylaws before agreeing to them and therefore the bylaws were a contract of adhesion.[11] Plaintiff further argues that the second element of unconscionability is met for three reasons: (1) the bylaws do not require the arbitrators to provide a written decision justifying their award; (2) the bylaws do not provide for discovery of any sort, and impose an arbitration schedule that bars discovery; and (3) the bylaws do not allow Plaintiff to select arbitrators.[12]
The Court considered Plaintiff’s claims and used the District of Columbia’s test for unconscionability to determine whether the arbitration agreement was unenforceable.[13] The Court found that Plaintiff failed to meet the first element of unconscionability because Plaintiff did not provide any evidence that the bylaws were a contract of adhesion.[14] The Court explained that Plaintiff was not “powerless” or without “real choice” because Plaintiff chose the condominium knowing its bylaws[15] and Plaintiff failed to show that there was no opportunity for negotiation and that the services could not be obtained elsewhere.[16]
Conversely, the Court found that Plaintiff established the second element of unconscionability.[17] The Court concluded that Plaintiff’s first two arguments that the arbitration agreement did not require a written explanation for the arbitrator’s awards and that discovery was not allowed failed because “nothing in D.C. law suggests that arbitration agreements without Plaintiff’s preferred characteristics are substantively unconscionable.”[18] However, the Court did find that the arbitration provision that precluded Plaintiff from participating in the arbitrator-selection process proved to be unconscionable because it did not give Plaintiff any role in the selection process.[19] Instead of ruling that the contract was unenforceable, the Court concluded that the arbitrator-selection provision in the contract should be severed.[20] The Court explained that although some courts have held that the specification of an arbitrator was integral to the parties’ agreement to arbitration, this case differed because the bylaws did not specify a particular arbitrator or forum, but instead specified an arbitrator selection mechanism.[21]
This decision has a broader impact on District of Columbia condominium owners and other potential consumers in the area. Consumers should pay attention to the bylaws of contracts they agree to and attempt to sever unconscionable provisions prior to signing agreements. Severing such provisions could save consumers time and resources. Furthermore, severing off provisions such as the one in the present case could give consumers more freedom of choice in who will arbitrate any potential disputes and allow consumers to remain involved in the contracts that they must adhere to.
[1] See Ruiz v. Millennium Square Residential Ass’n, 2016 BL 8900 (D.D.C. Jan. 13, 2016).
[2] See Ruiz, 2016 BL 8900 at * 1-2; see also Federal Arbitration Act (“FAA”), 9 U.S.C. § 1.
[3] See Ruiz, 2016 BL 8900 at * 2.
[4] Id.
[5] See Ruiz, 2016 BL 8900 at * 8.
[6] 9 U.S.C. § 2.
[7] Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68 (2010).
[8] Curtis v. Gordon, 980 A.2d 1238, 1244 (D.C. 2009) (citing to Urban Invs., Inc. v. Branham, 464 A.2d 93, 99 (D.C.1983)).
[9] Urban Invs., Inc. v. Branham, 464 A.2d 93, 99 (D.C.1983).
[10] Urban Invs., Inc. v. Branham, 464 A.2d 93, 99 (D.C.1983).
[11] See Ruiz, 2016 BL 8900 at * 4.
[12] Id.
[13] Id.
[14] See Andrew v. Am. Imp. Ctr., 110 A.3d 626, 633 (D.C. 2015) (stating that “a contract of adhesion is . . . [when] one imposed upon a powerless party, usually a consumer, who has no real choice but to accede to its terms”).
[15] Ruiz, 2016 BL 8900 at * 4 (citing to Moore v. Waller, 930 A.2d 176 , 182 (D.C. 2007)).
[16] Id.
[17] Id.
[18] Id.
[19] See Ruiz, 2016 BL 8900 at * 6.
[20] Id.; see also D.C. Code §§ 42-1902.08(a), 42-1901.02(5) (stating that “The D.C. Condominium Act specifically provides that “[a]ll provisions of the condominium instruments” “shall be deemed severable, and any unlawful provision thereof shall be void.”)
[21] See Ruiz, 2016 BL 8900 at * 7.
