Gandee v. LDL Freedom Enterprises, Inc.
293 P.3d 1197
Wash.2013Background
- Gandee entered into a debt adjustment contract with LDL Freedom Enterprises dba Financial Crossroads containing a binding arbitration clause and severability clause.
- Freedom moved to compel arbitration in 2011; the trial court denied as untimely and held the venue provision unconscionable, severing the fee provision.
- Gandee claimed arbitration would be prohibitively costly; Freedom argued the clause followed AAA rules and other arbitration options could be cheaper.
- The clause required arbitration within 30 days and venue in Orange County, California; the prevailing party could recover fees and costs.
- The trial court found three provisions substantively unconscionable and concluded severance would fundamentally rewrite the agreement, so the clause could not be severed.
- On appeal, the court addressed unconscionability and, separately, preemption under the FAA in light of Concepcion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the arbitration clause is substantively unconscionable. | Gandee: unconscionable terms pervade clause. | Freedom: terms are enforceable under FAA and severable. | Clause substantively unconscionable; severance not feasible. |
| Whether the unconscionability ruling is preempted by the FAA as per Concepcion. | Gandee argues Concepcion preempts state unconscionability findings. | Freedom asserts FAA preemption applies to invalidating Discover Bank-type rules. | No preemption; state analysis remains valid. |
| What remedy governs an unconscionable, permeating arbitration clause. | Substantively unconscionable terms cannot be severed; entire clause may be void. | Severance should preserve the agreement where possible. | Arbitration clause pervades the contract; severance not permitted; clause unenforceable. |
Key Cases Cited
- Adler v. Fred Lind Manor, 153 Wn.2d 331 (2004) (substantive unconscionability alone can void a contract)
- Zuver v. Airtouch Commc’ns, Inc., 153 Wn.2d 293 (2004) (limits waiver-based mootness of unconscionability; severability analysis)
- Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79 (2000) (costs and accessibility in arbitration; prohibitive-cost challenge)
- Concepcion, 563 U.S. 333 (2011) (FAA preempts Discover Bank rule; arbitration clauses survive unconscionability if not overarching barrier)
- Discover Bank v. Superior Court, 36 Cal.4th 148 (2005) (California rule invalidating most class-action waivers; overruled by Concepcion)