THE CASE:

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LHOTKA v. GEOGRAPHIC EXPEDITIONS INC.

181 Cal. App 4th816 (2010)

ELENA LHOTKA,individually, as executor of the estate, and as guardian ad litem for NICHOLAS LHOTKA, Plaintiffs and Respondents,v. GEOGRAPHIC EXPEDITIONS, INC.,Defendant and Appellant.

SUMMARY

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. GeoEx contends the trial court erred when it ruled that the agreement to arbitrate contained in GeoEx's release form was unconscionable.

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. GeoEx moved to compel arbitration.

The trial court found the arbitration provision was unconscionable, and on that basis denied the motion. It ruled that the agreement at issue is both procedurally and substantively unconscionable [Procedurally] the Sano letter establishes that the agreement was presented as a "Take It or Leave It" proposition and was also represented to be consistent with industry practice. So, if the plaintiff and decedent wished to go on this trip, they could do so only on these terms. [Substantively], the problematic terms are the limitation on damages; the indemnity of GeoEx; the requirement that GeoEx costs and attorneys' fees be paid if suit is filed related to certain claims; splitting the costs of mediation; the absence of an agreement on the cost of arbitration; and the lack of mutuality as to each of these terms.

DISCUSSION

The question posed here is whether the agreement to arbitrate is unconscionable and, therefore, unenforceable. We answer in the affirmative.

We turn first to GeoEx's contention that the court erred when it found the arbitration agreement unconscionable. Although the issue arises here in a relatively novel setting, the basic legal framework is well established. Unconscionability 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 [long and wordy] 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. This notion of a "sliding scale," as will be seen, figures centrally in the analysis of the agreement at issue here.

1. Procedural Unconscionability

GeoEx argues the arbitration agreement involved neither the oppression nor surprise aspects of procedural unconscionability. GeoEx argues the agreement was not oppressive because plaintiffs made no showing of an "industry-wide requirement that travel clients must accept an agreement's terms without modification" and "they failed even to attempt to negotiate" with GeoEx. We disagree. GeoEx's argument cannot reasonably be squared with its own statements advising participants that they must sign an unmodified release form to participate in the expedition; that GeoEx's "lawyers, insurance carriers and medical consultants give [GeoEx] no discretion" on that point; and that other travel companies were no different.In other words, GeoEx led the plaintiffs to understand not only that its terms and conditions were non-negotiable, but that plaintiffs would encounter the same requirements with any other travel company. This is a sufficient basis for us to conclude the plaintiffs lacked bargaining power.

GeoEx also contends its terms were not oppressive, because Menefee and Lhotka could have simply decided not to trek up Mount Kilimanjaro. It argues that contracts for recreational activities can never be unconscionably oppressive because, unlike agreements for necessities such as medical care or employment, a consumer of recreational activities always has the option of foregoing the activity. The argument has some initial resonance, but on closer inspection we reject it as unsound.

While the nonessential nature of recreational activities is a factor to be taken into account in assessing whether a contract is oppressive, it is not necessarily the dispositive factor. In the case of Szetela v. Discover Bank (2002) 97 Cal.App.4th 1094, the defendant, a credit card company, argued the plaintiff could not establish procedural unconscionability because the plaintiff had the option of taking his business to a different bank. The court disagreed, and held the customer's ability to walk away rather than sign the offending contract was not dispositive. Faced with the options of either closing his account or accepting the credit card company's "take it or leave it" terms, Szetela established the necessary element of procedural unconscionability even though he could have simply taken his business elsewhere.

Here, certainly, plaintiffs could have chosen not to sign on with the expedition. That option, like any availability of market alternatives, is relevant to the existence, and degree, of oppression. But GeoEx presented its limitation of liability and release form as mandatory and unmodifiable, and essentially told plaintiffs that any other travel provider would impose the same terms. Under these circumstances, plaintiffs made a sufficient showing of oppression to justify a finding of procedural unconscionability.

1. Substantive Unconscionability

We next address whether the substantive unconscionability of the GeoEx contract warrants the trial court's ruling. The case of Harper v. Ultimo, supra, 113 Cal.App.4th 1402, considered a similar question. The Harpers hired a contractor to perform work on their property. The contractor allegedly broke a sewer pipe, causing concrete to infiltrate the plaintiffs' soil, plumbing and sewer and wreak havoc on their backyard drainage system. Unfortunately for the Harpers, the arbitration provision in the construction contract capped any compensation at $2,500 unless the parties agreed otherwise in writing.

Substantive unconscionability focuses on the one-sidedness or overly harsh effect of the contract term or clause. The arbitration provision in the Harpers' contract did not allow even a theoretical possibility that they could obtain meaningful compensation unless the contractor agreed. Not surprisingly, it did not.

The arbitration provision in GeoEx's release is similarly one-sided as that considered in Harper. It guaranteed that plaintiffs could not possibly obtain anything approaching full recompense for their harm by limiting any recovery they could obtain to the amount they paid GeoEx for their trip. In addition to a limit on their recovery, plaintiffs, who were residents of Colorado, were required to mediate and arbitrate 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. We see no reasonable justification for this arrangement. We agree with the trial court that the arbitration clause is so one-sided as to be substantively unconscionable.

DISPOSITION

The order denying GeoEx's motion to compel arbitration is affirmed.

SIGGINS, J.