Doctrine Of Unconscionability Research Articles

Reining in the Big Promise of Big Data: Transparency, Inequality, and New Regulatory Frontiers

The growing differentiation of services based on Big Data harbors the potential for both greater societal inequality and for greater equality. Anti-discrimination law and transparency alone, however, cannot do the job of curbing Big Data’s negative externalities while fostering its positive effects.To rein in Big Data’s potential, we adapt regulatory strategies from behavioral economics, contracts and criminal law theory. Four instruments stand out: First, active choice may be mandated between data collecting services (paid by data) and data free services (paid by money). Our suggestion provides concrete estimates for the price range of a data free option, sheds new light on the monetization of data collecting services, and proposes an “inverse predatory pricing” instrument to limit excessive pricing of the data free option. Second, we propose using the doctrine of unconscionability to prevent contracts that unreasonably favor data collecting companies. Third, we suggest democratizing data collection by regular user surveys and data compliance officers partially elected by users. Finally, we trace back new Big Data personalization techniques to the old Hartian precept of treating like cases alike and different cases – differently. If it is true that a speeding ticket over $50 is less of a disutility for a millionaire than for a welfare recipient, the income and wealth-responsive fines powered by Big Data that we suggest offer a glimpse into the future of the mitigation of economic and legal inequality by personalized law. Throughout these different strategies, we show how salience of data collection can be coupled with attempts to prevent discrimination against and exploitation of users. Finally, we discuss all four proposals in the context of different test cases: social media, student education software and credit and cell phone markets. Many more examples could and should be discussed. In the face of increasing unease about the asymmetry of power between Big Data collectors and dispersed users, about differential legal treatment, and about the unprecedented dimensions of economic inequality, this paper proposes a new regulatory framework and research agenda to put the powerful engine of Big Data to the benefit of both the individual and societies adhering to basic notions of equality and non-discrimination.

(Mis)perceptions of Law in Consumer Markets

There are good reasons to believe that consumers’ behavior is sometimes influenced by systematic misperceptions of legal norms that govern product quality. Consumers might misperceive specific rules, such as those found in food safety regulations, as well as more general standards, such as the unconscionability doctrine or limitations on waivers of default substantive or procedural rights. When demand is affected by systematic misperceptions of legal norms, lawmakers may be able to maximize welfare by deviating from the legal standard that would be optimal in the absence of misperception. We use a formal model to characterize these optimal deviations under different legal regimes (with different types and magnitudes of sanctions). In particular, should the legal standard be adjusted to correct or confirm the misperception? For instance, if consumers under-estimate the level of legal protection is it desirable to raise the legal standard to correct the misperception? Or should lawmakers lower the legal standard to confirm the misperception?

Contracts and Automation: Exploring the Normativity of Automation in the Context of U.S. Contract Law and E.U. Consumer Protection Directives

Given a choice between two systems of contract rules, a court or legislature may have a normative obligation to adopt the rule that is more susceptible to coding and automation. This paper explores the ramifications of that normative proposition through the lens of multiple contract doctrines that traditionally involve “messy” judgments or multiple interacting judgments regarding which human beings are – arguably – capable of making finely nuanced analyses. Using the common law doctrine of unconscionability and Polish Civil Code Article 385 on unfair terms in consumer contracts, this paper explores the differences between contract rules that require human analysis versus those that can be applied with strong reliability by automated processes. Finally, the paper analyzes some of the potential pitfalls of this normative proposition in light of technological, economic, and moral/ethical concerns.

Abstract Morality for an Abstract Order

The first part of this Article outlines a conception of “the market” as an abstract and complex emergent order that is unplanned and has no specific ends. I draw on major classical liberal thinkers to elaborate this picture in order to emphasize the role that such a description plays in the liberal case for a market order. The second part describes in broad outline the kinds of rules needed to sustain the market. These rules can be reasonably described as “abstract.” The third part connects abstract moral and legal rules with a psychological framework known as construal-level theory. This framework usefully connects the degree of abstraction or level at which a problem is construed with the evaluation and judgments of agents, including judges, litigants and the general public. I argue that beneficence (generosity) is a concrete virtue and justice is an abstract one. In a concrete construal of a moral or legal problem the tendency is to evaluate and decide on the basis of the concrete virtue rather than the abstract. The fourth and last part illustrates the general issues by discussing two relevant legal examples: the police power and the contract doctrine of unconscionability. I also illustrate the interplay between special interests and the benevolent attitudes of people spurred on by low-levels of problem construal.

Behavioural Case for Contractual Penalties under the Common Law

Abstract: One of the more important divergences between the common and civil laws relates to the enforceability of penalties in contracts. Put simply, the common law rejects penalties as being repugnant to the compensatory nature of contract damages. The civil law enforces penalty clauses as a manifestation of freedom of contract, unless the stipulated damages are determined to be manifestly excessive. This article compares these two approaches and finds the civil law rule to be the superior one. It uses insights from law and economics and, more importantly, from behavioural law and economics (BLAE) to show that penalties can be used to encourage parties to make more rational decisions. In summary, BLAE shows that penalties serve numerous functions other than punishing a party for non-performance. Penalties serve to signal the reliability of a party to provide additional resources to improve the chance of timely performance and to allocate the risk of loss to the most efficient insurer. It concludes that the common law's law of liquidated damages (penalties) should be rejected and the enforceability of penalties should only be limited by the doctrine of unconscionability.

A Theory for Regulation of Essential Products

This essay introduces an innovative framework for consumer protection, based on consumers’ basic needs. Current contract law is based on a binary model: contracts which lack consent are considered void and are not enforceable under the unconscionability doctrine. Yet, voluntariness is not binary. Rather, voluntariness is a hierarchical continuum reflecting human needs. Certain products are purchased because the consumer has to have them, while other products are purchased as a discretionary consumer choice. Current law does not make the distinction between essential and non-essential markets. Consumers of luxuries and consumers of essentials are considered equal, and receive similar legal protection under the contractual framework of the consumer transaction. This essay offers a theory of essential markets and their regulation. The essay surveys the behavioral literature discussing human needs and the distinction between essentials and luxuries, and applies the needs-based theory to consumption, creating a pyramid of markets following Maslow’s hierarchy of needs. The essay identifies the determinants of market essentiality, including a moral baseline of consumption; lack of good substitutes and inability to decline purchase; and time constraints creating difficulty to defer purchase. The continuum of market essentiality is then demonstrated using four examples, including electricity for heating, infant formula, broadband services, and a violin. The essay argues that essential needs-based consumption induces a behavioral market failure, where consumers' decision-making process is particularly vulnerable and distorts sellers' incentives towards a sub-optimal equilibrium. Markets of essentials tend toward failure of demand, due to consumers’ bounded voluntariness and lower probability of informed choice. Accordingly, sellers in markets of essentials have higher incentives for collusion and lower incentives for price competition and for investment in product quality. Thus, the likelihood of market failure increases with the essentiality of the product: the more basic the underlying need, the higher the probability for market failure. The difficulty of regulators to tell which markets are essential is addressed. The essay suggests two methods for assessment of essentiality - the first, through political assessment, and the second, through analysis of market data documenting elasticity of demand for popular product categories. Low elasticity of demand for popular product categories is proposed as a market signal for consumers’ bounded voluntariness and for product essentiality. The normative implications of this structural division of markets are discussed and initial policy guidelines suggested. Essentiality and its tendency to create a behavioral market failure implies that consumer law should be structured with a hierarchy of rights, similar to constitutional or international human rights laws. Essential products should be subject to a higher degree of paternalism compared with non-essentials.

Law and Christian Ethics: Signposts for a Fruitful Conversation

This essay invites Christian ethicists to engage in a mutually beneficial conversation with the secular law, particularly the common law. It argues that the common law’s feature of narrative accountability provides a natural bridge to Christian ethics. It also points out contact points between the two fields regarding normative concepts of persons, actions, norms, and the common good. Finally, it illustrates the possibilities of a conversation between law and Christian ethics by delving into the leading case on the doctrine of unconscionability, which permits courts to refuse to enforce contracts that shock the conscience.

Abstract Morality for an Abstract Order: Liberalism’s Difficult Problem

The first part of this Article outlines a conception of “the market” as an abstract and complex emergent order that is unplanned and has no specific ends. I draw on major classical liberal thinkers to elaborate this picture in order to emphasize the role that such a description plays in the liberal case for a market order. The second part describes in broad outline the kinds of rules needed to sustain the market. These rules can be reasonably described as “abstract.” The third part connects abstract moral and legal rules with a psychological framework known as construal level theory. This framework usefully connects the degree of abstraction or level at which a problem is construed with the evaluation and judgments of agents, including judges, litigants and the general public. I argue that beneficence (generosity) is a concrete virtue and justice is an abstract one. In a concrete construal of a moral or legal problem the tendency is to evaluate and decide on the basis of the concrete virtue rather than the abstract. The fourth and last part illustrates the general issues by discussing two relevant legal examples: the police power and the contract doctrine of unconscionability. I also illustrate the interplay between special interests and the benevolent attitudes of people spurred on by low-levels of problem construal.

Policing Unfair Arbitration Clauses

Until recently it was almost universally assumed that the Federal Arbitration Act (FAA) allowed courts to refuse enforcement of an arbitration clause found to be unconscionable as a matter of law. A.T.& T. Mobility v. Concepcion, 131 S. Ct. 1740 (2011) suggests that given the subjective nature of the doctrine of unconscionability, courts may no longer be able to use it to police arbitration clauses. Assuming this to be the case, we argue that there are two reasonable expectations doctrines available as alternatives. These are The Circle of Assent recognized only by the courts in Tennessee and the Darner Motor doctrine recognized by the courts in Arizona. These doctrines, applicable to any term that is non-negotiable, shift the burden of establishing unfairness from the party upon whom an arbitration clause is imposed to the draftsman who must establish that the other party would reasonably expect to find the term said to be unfair. In addition, because these doctrines do not involve unconscionability, they are not subject to Section 2-301(1) Uniform Commercial Code which allows for judicial modification to avoid an unconscionable result.

FAA Preemption after Concepcion

AT&T Mobility LLC v. Concepcion is an important case for its holding that the FAA preempts application of state unconscionability doctrine to invalidate an arbitration clause with a class arbitration waiver. But in a number of respects, the effect of Concepcion has been overstated, including its effect on application of state unconscionability doctrine to arbitration clauses. Concepcion does not preempt all or even most state unconscionability doctrine as applied to arbitration agreements. Properly construed, Concepcion preempts state unconscionability doctrine only when that doctrine conditions enforcement of arbitration agreements on procedures inconsistent with “fundamental attributes of arbitration” of the sort illustrated in Concepcion itself ― such as the use of juries, court-monitored discovery, evidentiary rules, and, of course, class arbitration. If, however, the Supreme Court were to construe Concepcion more broadly (or eliminate application of unconscionability to invalidate arbitration clauses altogether), courts would retain some residual authority to police the fairness of arbitration clauses, but only by finding a dispute resolution process not to be arbitration at all.

AN INTERPRETIVE ACCOUNT OF UNCONSCIONABILITY IN TRUST LAW

The principle of public policy and factors such as fairness, reasonableness and good faith have – since the introduction of constitutionalism in South African law – become the cornerstone of the law and of its impact on all relationships – even therelationships in contracts. One such development is the assimilation of the doctrine of unconscionability in contract law. In this article, this concept, within the context of a trust formed by way of contract, is investigated. While the doctrine ofunconscionability is not without controversy, the question arises as to whether it has any role to play in trust law. The two-pronged approach traditionally used to determine the presence of an unconscionable contract or term is evaluated in light of its potential application in the case of trust deeds. The author submits that the incorporation of the doctrine will be advantageous in the developmental process in respect of a new constitutional trust-law order that is in harmony with the spirit,purport and objects of the Constitution. The doctrine of unconscionability has become a reality in South African law of contract; it should therefore also be embraced in the establishment of the trust as a dynamic tool in the commercial environment.

Defects in Consent and Dividing the Benefit of the Bargain: Recent Trends

Contract law professors and students, attorneys, judges know that discussions about consent are rarely about consent. This results from three factors. First, it is the appearance of consent that is necessary to form a contract. Second, not every manifestation of consent is sufficient to create a contract that cannot be avoided. Third, interpretations of consent have the potential to allow courts to intervene when the benefit of the bargain is seen to be unfairly divided or one of the parties is actually worse off as a result of the contract. This Article assesses the extent to which recent decisions about consent are actually indirect means of addressing unfairness with respect to the terms of the exchange. Part of the reason for focusing on more recent cases is that it is possible that the doctrine of unconscionability has replaced more traditional theories as a means of addressing questions of fairness. This modest empirical effort suggests that the notion that courts rely on traditional notions of defects in consent to rescue those who are disadvantaged is obsolete.

Substantive Unfairness of Pre-Dispute Arbitration Clauses in Consumer Contracts: The Argument for the Unconscionability Doctrine

Development of the doctrine of unconscionability in Canadian common law provinces would serve as an effective mechanism to render pre-dispute arbitration clauses unenforceable in the context of consumer contracts. While laws which facilitate the commercial arbitration process are generally seen as a favourable development, the negative backlash to arbitration occurs because it is often used a means to gain an advantage against unsuspecting consumers. The author asserts that the law should facilitate the use of arbitration in the commercial context between parties of roughly equal bargaining power, while simultaneously curbing enforceability of mandatory pre-dispute arbitration clauses in consumer contracts. In the past three decades, provincial legislators have devised statutes in order to facilitate the process of commercial arbitration. During the same time period, legislators have also created numerous mechanisms to protect the substantive rights of consumers, with notable examples being the development of laws enabling class action proceedings as well as consumer protection laws. When these policy objectives appear to conflict, it is up to the courts to strike the appropriate balance in order to ensure the intent of the legislature is carried out. The current balance struck by the Supreme Court of Canada patently places too much emphasis on the promotion of arbitration while ignoring the genuine desire of legislators to protect the interests of consumers. The purpose of this paper is to explore and critique the law in Canadian common law provinces regarding unconscionability in the context of pre-dispute arbitration clauses in consumer contracts. The author reviews the theoretical and practical underpinnings as to why mandatory pre-dispute arbitration clauses unfairly disadvantage consumers, while at the same time offering a doctrinal analysis of how a claim of unconscionability could be successfully argued. As unconscionability is a more developed doctrine in the United States, a brief comparative analysis is undertaken in order to highlight the potential lessons for Canadian jurists. In addition, as this area of law is not currently settled in Canada, the author aims to make policy-based arguments as to why a reassessment of the current jurisprudence is necessary in order to influence future developments in the common law.

Unconscionability in American Contract Law: A Twenty-First Century Survey

The notion that a court tasked with enforcing a private agreement should be allowed – or even, in some cases, required – to withhold enforcement because of the unfairness of the agreement is not a new one; scholars have traced it back well beyond the earliest days of the Anglo-American legal system. In the United States, the current formulation of that idea can be found principally in the doctrine of unconscionability, which has enjoyed since its incorporation into the Uniform Commercial Code a place in the menu of contract law doctrines, even if a somewhat insecure and sometimes disputed one. This Chapter summarizes with a few broad strokes the earlier story of modern unconscionability law in the U.S. It then focuses on the history of that doctrine in American courts over the last two decades, identifying those situations in which it has been most frequently advanced, and those where it has been most likely to succeed. This also entails exploring the interaction of that doctrine with the federal law favoring enforcement of private contractual agreements to submit future disputes to arbitration. Finally, the Chapter considers generally the possible future development of unconscionability law, with particular regard to the continued utility of the “procedural/substantive” dichotomy, and the employment of unconscionability as a tool for policing contracts of adhesion.

An Analytical Framework for Legal Evaluation of Boilerplate

This chapter develops an analytical framework that could help legal analysts – especially common law judges – make better decisions about boilerplate in the context of rights deletions deployed by firms against consumers. It is based on one aspect of the author’s recent work, Boilerplate: The Fine Print, Vanishing Rights, and the Rule of Law (Princeton University Press, 2012). A great deal of mass-market boilerplate – such as hidden lists of terms that recipients have no idea exist – should not be treated as contractual, and should be regulated by other means. But when courts insist on treating boilerplate as contractual, I encourage them to consider an improved analysis. That analysis takes into account three factors: (1) the nature of the right of recipients deleted by the boilerplate; (2) the quality of consent to the boilerplate deletion; and (3) the extent of social dissemination of the deletion. Two particular features of current doctrine should be improved. The procedural/substantive requirement in unconscionability doctrine is misapplied when a judge ignores the nature of the right once she concludes that the quality of consent is adequate, because some rights are market-inalienable, or partially market-inalienable. Market-inalienable rights tend to be rights that are constitutive of civil society, that are not salient to individual decision-makers, and/or that are important for the progress or well-being of the collective as a whole. Also, the notion of reasonable expectation should be avoided because it engenders a truly mischievous positive/normative ambiguity, and seems to license a conclusion that the more something is imposed on people, no matter what it is, the more it is permissible. The approach taken here need not be interpreted as innovative, because it can be understood as a reinvigoration of principles of equity that have been corrupted.

Standard Form Contracts as Privately Imposed Regulatory Schemes: A Case for State Intervention

In light of Concepcion v. AT&T, this paper questions the legitimacy of the rules imposed by large communication companies on their consumers. In doing so, it shows that, even at its best, the applicability of the unconscionability doctrine to these matters derive from a misconception that state intervention in standard form consumer contracts, that impose the same norms uniformly across the market, generates autonomy concerns. It argues that these rules should not be treated as agreements. Rather they are abstract norms imposed by a powerful entity. In that sense, they are much more similar to statutes. They are, in effect, private regulatory schemes. That being the case, they have no claim to legitimacy and they are valid only inasmuch as they are agreeable to the principles of justice and public policy. Even though this would not lead to a per se invalidation of these norms, it could open the door to stronger judicial, legislative, and administrative intervention. Recognizing form-contracts as quasi-statutes free such intervention from claims of paternalism and undue interference with private autonomies. It shows them for what they really are: necessary democratic inputs to an otherwise morally impermissible practice.

Unconscionability, Exploitation, and Hypocrisy

I argue that under a wide range of conditions it will be difficult for the state to justify non-enforcement of contracts on grounds of unconscionability without making itself vulnerable either to the charge of paternalism or the charge of hypocrisy. On the one hand, the state might take the view that there is something morally wrong with the agreement because it didn’t make sense for the weaker party to enter into it in the first place. But this kind of justification seems to be premised upon a paternalistic judgment about the weaker party’s rational capacities. On the other hand, the state might take the view that although the agreement was entered into freely and rationally by both parties, it nonetheless involves a morally problematic form of exploitation, because the stronger party has secured terms that take unfair advantage of the impoverished circumstances of the weaker party. But then it is difficult to see what could be morally wrong with the contract unless the conditions under which it was made were unjust. And if the injustice of the initial conditions contributes to the state’s view that the agreement is morally problematic, then it will often be awkward for the state to invoke these moral problems to justify non-enforcement of the agreement, because the state will usually be deeply implicated in creating and preserving those unjust conditions of contract. The state’s justification thus makes it vulnerable to the charge of hypocrisy: it appears to be subjecting contracting parties to a kind of critical scrutiny to which it does not subject its own actions. I consider two ways in which a defender of the unconscionability doctrine might respond to the hypocrisy charge. First, he might attempt to diffuse the objection by rejecting the key premise that drives it — that the state is in fact subjecting contracting parties to a form of critical scrutiny to which it does not subject its own actions. He might do so by arguing that the state has good reasons to preserve background injustices at least in the short-run. Second, he might deny that hypocrisy has any bearing on permissibility in this context. If this objection succeeds, then the state can continue to decline to enforce exploitative contracts notwithstanding the charge of hypocrisy. I argue that the diffusion strategy succeeds in some but not all circumstances, while the second objection fails in general because the state has a pro tanto reason not to act hypocritically.

Unconscionability, Unfair Exploitation and the Nature of Contract Theory - Comments on Melvin Eisenberg's ‘Foundational Principles of Contract Law'

This short paper contains comments prepared for the 'Foundational Principles of Contract Law Roundtable’ held at Berkeley in January 2013. It discusses the relationships between contract law and democracy, between contract prices and human dignity, and between the American doctrine of unconscionability and the European doctrine of unfair exploitation contained in the proposed Common European Sales Law.

Regulating Mandatory Arbitration

Over the last twenty-five years, the Supreme Court has relied on party autonomy and the national policy favoring arbitration to expand the Federal Arbitration Act’s scope beyond Congress’s original intent. Choosing these loaded premises has allowed the Court to reach the outcomes it desires while denying that it is making any political or moral judgments in its decisions – a type of bureaucratic formalism. One controversial outcome of the Court’s formalism, overall, has been the increased prevalence of mandatory arbitration. Although it reduces judicial caseloads and lowers companies’ dispute-resolution costs, it also restricts or eliminates individual rights and reduces public regulation of the companies that require it. The Court has supported the spread of mandatory arbitration despite these negative effects. Because of the Court’s support, the parties being subjected to mandatory arbitration began asking lower courts for relief through the unconscionability doctrine in the early 1990s. And because the unconscionability doctrine could not provide the wide-scale relief they wanted, they also turned to Congress, convincing its members to introduce 139 anti-arbitration bills since 1995 – the majority of which proposed eliminating mandatory arbitration. A review of these efforts, including an original survey of these bills, reveals that these parties have been disregarding mandatory arbitration’s public benefits in favor of a rights-oriented, liberal approach that rejects regulation as a possible way to improve mandatory arbitration’s overall fairness. This Article shows that both the Supreme Court’s and the reform advocates’ approaches to mandatory arbitration are flawed. It makes more sense, at least for now, to continue mandatory arbitration’s use while improving its overall fairness through legislative or agency regulation. Regulating mandatory arbitration with the goal of improving its fairness is consistent with pragmatic principles and is superior to the Supreme Court’s formalism and the reform advocates’ liberalism in the current mandatory-arbitration context. Taking this approach will allow us to study mandatory arbitration over time before deciding whether to eliminate it – a fair way to proceed given the importance of the rights at stake and the positive effects that mandatory arbitration can (possibly) have on the public good.

The Effect of Bargaining Power on Contract Design

Over the past forty years, an irrelevance proposition has been prevalent in law-and-economics scholarship: bargaining power should affect only price and not nonprice terms of a contract. In contrast, practitioners and commentators in industry regularly invoke bargaining power to explain static and dynamic variance in nonprice contract terms. This Article unpacks and analyzes the assumptions of the strong- and weak-versions of this bargaining power irrelevance proposition to bridge the gap between theory and the real world. In the first half of the Article, we identify and discuss a variety of explanations for the effect of bargaining power on contract design. These include the effects of shifts in market supply and demand and the effect of negotiating price first and nonprice terms later. In the second half of the Article, we present an in-depth examination of one set of explanations, concerning the impact of bargianing power and information asymmetry on nonprice terms, when the value and cost of nonprice terms vary across contracting parties. In the extreme cases in which one or the other party enjoys overwhelming bargaining power, the efforts of that party to capture a larger share of the surplus by screening or signaling may compromise the efficiency of the nonprice terms. We show that this incentive disappears or is mitigated when bargaining power is more evenly shared between the parties: for example, when a monopolist faces the threat of competition, when the parties can renegotiate, or when they engage in bilateral bargaining with more even bargaining power. As a whole, the Article provides a theoretical basis for interpreting the intuition among market participants that the impact of bargaining power extends beyond price terms. Before concluding, we briefly suggest implications for legal policy, particularly the contract law doctrine of unconscionability.