MIAMI BUSINESS LITIGATION: CONTRACT DEFENSE OF UNCONSCIONABILITY

As a defense to the enforcement of a contract, a party can claim the affirmative defense that the agreement is “unconscionable.” The unconscionability defense requires that the party claiming it show that both the substance of the agreement is unreasonably favorable to a party and that the agreement was made procedure by which the parties entered the contract was entered into with an absence of meaningful choice. The recent case, SHEDDF2-FL3, LLC v. Penthouse S., LLC, 3D19-1100, 2020 WL 6472548 (Fla. 3d DCA Nov. 4, 2020), affirmed this dual requirement. Peter Mavrick is a Miami business litigation lawyer, and also represents clients in business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

“Unconscionability is a common law doctrine that courts have used to prevent the enforcement of contractual provisions that are overreaches by one party to gain ‘an unjust and undeserved advantage which it would be inequitable to permit him to enforce.’” Basulto v. Hialeah Auto., 141 So. 3d 1145 (Fla. 2014). “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.” Basulto v. Hialeah Auto., 141 So. 3d 1145 (Fla. 2014).

In business litigation, a party claiming that its contract is unconscionable has a heavy burden. When possible, courts will tend to enforce a parties’ agreement in accordance with its terms rather than allow a party to evade his or her contractual duties on the basis that the agreement is not fair. Conceptually, a party is in the best position to bargain for his or her rights. Accordingly, a court must find that a contract is both unfair in its substance as well as in the process of how it was agreed to. Florida Holdings III, LLC v. Duerst ex rel. Duerst, 198 So. 3d 834 (Fla. 2d DCA 2016) (“An agreement […] will be deemed unenforceable on grounds of unconscionability when it is both procedurally and substantively unconscionable”).

“Procedural unconscionability focuses on the manner in which the contract containing […] was made and asks ‘whether the complaining party had a meaningful choice at the time the contract was signed.’” Florida Holdings III, LLC v. Duerst ex rel. Duerst, 198 So. 3d 834 (Fla. 2d DCA 2016). Courts considering the question as to whether there is “meaningful choice” analyze the “totality of the circumstances.” SA–PG Sun City Ctr., LLC. v. Kennedy, 79 So.3d 916 (Fla. 2d DCA 2012). Relevant factors include (1) whether the party resisting arbitration had a realistic opportunity to bargain over the provision (or conversely, whether the terms were presented on a take-it-or-leave-it basis) and (2) whether the party resisting arbitration had a reasonable opportunity to understand the terms of the contact (or conversely, whether the terms were concealed, minimized, or buried in fine print). Florida Holdings III, LLC v. Duerst ex rel. Duerst, 198 So. 3d 834 (Fla. 2d DCA 2016).

Under Florida law, an unconscionable agreement also must be be “substantively” unconscionable. “Substantive unconscionability requires an assessment of whether the contract terms are “so ‘outrageously unfair’ as to ‘shock the judicial conscience.’” […] A substantively unconscionable contract is one that “no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other.” Woebse v. Health Care & Ret. Corp. of Am., 977 So. 2d 630 (Fla. 2d DCA 2008).

When Florida courts assess whether a contract is unconscionable, they do not hold litigants to a particular threshold or proof to establish the procedural or substantive elements. “Although both types of unconscionability are necessary to invalidate an […] agreement, they need not be equally present, and courts should evaluate them independently.” Hobby Lobby Stores, Inc. v. Cole, 287 So. 3d 1272 (Fla. 5th DCA 2020); Basulto v. Hialeah Auto., 141 So. 3d 1145 (Fla. 2014) (“[B]oth the procedural and substantive aspects of unconscionability must be present, although not necessarily to the same degree, and both should be evaluated interdependently rather than as independent elements”). This analysis in business litigation is called the “sliding scale” approach, and involves weighing both elements together to evaluate whether there is unconscionability. “This approach recognizes that although the concept of unconscionability is made up of both a procedural component and a substantive component, it often involves an evaluation in which the two principles are intertwined.” Basulto v. Hialeh Auto., 141 So. 3d 1145 (Fla. 2014).

Litigants seeking to establish unconscionability can succeed even when there is evidence of relatively minor procedural unconscionability, as long as the element of substantive unconscionability is significant enough. The recent case, SHEDDF2-FL3, LLC v. Penthouse S., LLC, 3D19-1100, 2020 WL 6472548 (Fla. 3d DCA Nov. 4, 2020), describes a circumstance where a litigant failed to establish procedural unconscionability. In Penthouse, the defendant’s counsel conceded at oral argument “that there was absolutely no evidence of procedural unconscionability.” Accordingly, the defense failed as a matter of law and therefore the contract may be enforced even if the contract itself was unconscionable. Kendall Imports, LLC v. Diaz, 215 So. 3d 95 (Fla. 3d DCA 2017) (holding that because the party challenging the contract based on unconscionability failed to establish “any degree of procedural unconscionability,” the contract was not unconscionable).

Peter Mavrick is a Miami-Dade business litigation attorney who also practices business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.