The legal services folks want this case because it's first impression, and it will produce more cases, because these clauses were widely used.
The trial court grants summary judgment for the defendant. The intermediate appellate court affirms. The argument is that you can't apply UCC §2-302 because this transaction passed before congress adopted the UCC for the District of Columbia, and laws can't be retroactive. Counter-argument: it's not retroactive, it just states what has always been the case (i.e., the common law): we've always had the idea of unconscionability.
But would this have come under the law of equity? Nobody is seeking specific performance.
So the case has to be remanded back to see if the trial court would find it unconscionable (i.e., the trial court refused so to find because they denied there was a law of unconscionability; Judge Skelly Wright tells the trial court that there is, in fact, such a law). There was nothing in the case on the subject, because it's just summary judgment, and there was no testimony.
Nice dicta here: when should things be found unconscionable. Also a nice dissent here about infringing on freedom of contract. There's a little bit of judgmentalism about the plaintiff's character here, regardless of the fact that there's essentially no evidence about her.
Hart and Sachs: The Legal Process separation of legislative and judicial powers, role of judges, etc.
Some nice arguments:
Reference to the Campbell's Soup v. Wentz: prices for vegetables that would go into soup. Specific carrot varietals were developed by Campbell's, so that they'd stay orange in soup (regular carrots get sort of off-color). They've got a fancy output contract with growers. It has a clause that says if Campbell's can't recieve (i.e., literally, they're unable to unload them off your truck), you're still not able to resell them elsewhere. You don't get paid for them, but you have to dump them and let them rot. There's also a locked-in price. The judge was a very upper class person, with every available connection and privilege, including being president of ALI, and an original appointment by FDR: not just any man. His statement in its entirity: "this is carrying a good joke too far." Sort of the "you know it when you see it" standard.
Leff defines procedural and substantive unconscionability. Procedural: suprises from hidden language, etc. Substantive: actual trickery. But still, we don't have a bright-line rule. So, can we live with a standard that's basically, "does this make the judge throw up?" The British had no problem with it: judges came from good families, and a gentleman does not have to explain to another gentleman what is unconscionable. But the US, which inherits this tradition is uncomfortable with potential inconsistency.
But the court doesn't take into account whether or not the costs of selling to poor populations are higher.
These cases are basically gone from the courts since the Reagan era. And Legal Services is smaller and weaker.
There are language difficulties as well: foreign folks don't necessarily speak English, and they're not necessarily well off either.
So, in WI, the salesperson would come and show the McCormack Reaper (now International Harvester): if you don't like, call this number and we'll take it back. That gets said in German to the farmer. Then, in English, the contract says: you bought it, you keep it.
There are cases that say this tactic (offering, e.g., to do the sale in Spanish, and then trotting out a differing contract in English) is in itself unconscionable. If you bring someone into a store by saying you speak their language, that's one thing. But what if someone comes in the store knowing some English: how fluent do you have to be to defend yourself? That's Frostifresh v. Reynoso.
Truth in lending: we will compute interest in the same way, and we will make the information available so that consumers can make apples-to- apples comparisons.
But that's no help, so we fall back on price unconscionability. But the court finds the mark-up not shocking. The plaintiff could figure out the total amount of the sale. So there's no unconscionability here.
So was there sneaking up here? There was no misrepresentation. Should there be a state dept. of Good Bargains? Of course not, but would anything less do? What about regulation of the clarity in stating the deal? Would that help? Well, smart people (UW students) regularly fall into bad credit card debt... Looks as though this is a problem without a solution. Well, the solution would be for everybody to get rich: then companies would treat them all nice.
The economics of providing service are tough: Gateway wants to shunt you to electronic bulletin boards or outsourced call centers.
Anyway, this is a class action suit for deceptive sales practices. Advertising support that you don't give is a kind of misrepresentation. But an individual's damages aren't enough to merit a suit, so we pile them all together.
The opinion says that the court follows ProCD, so the arbitration clause is part of the contract. So UCC §2-207... why doesn't that apply? Why is this not just a written confirmation of a deal, with a writing that adds a term? If it's that, then doesn't the customer have the right to construe these as proposed new terms (note that the consumer is not a merchant)? So if they're not accepted, they just die.
Note that Gateway doesn't say "hey, when you get the box, there will be a lot of terms and conditions in it." The problem with all this is that in a "deal now, conditions later" situation, people think they've made a deal, but the deal is really something else. Should vendors be required to tell customers about all this?
Now, most computers cost over $500, and we haven't got it in writing. So am I justified in thinking we've got a contract when I get off the phone from placing my order? See &2-201(c): we don't have a statute of frauds problem here because we've already paid.
So why are these additional terms more than just proposals? Have I accepted them by not sending the box back? Well, that sounds like officious intermeddling.
Still, folks like Posner and Easterbrook say that in the name of efficiency we need, we need to solve this problem, and for some reason the solution is to push the burden onto the consumer, not the vendor.
Anyway, despite Macaulay's objections under the UCC, the court affirms that there is a contract here. On the bright side, though, the arbitration clause is found to be unconscionable. Many courts say you have to have both procedural and substantive unconscionability. Some courts say that a lot of one makes up for a deficit of the other.
The court doesn't have a procedural issue here, because the consumer has 30 days to read and understand all the terms. On the other hand, the substantive side is interesting. By the way, setting up clauses in order to defraud customers might be an ethics issue... maybe you should disbar people. Anyway, the fact that Chicago is the only location doesn't trouble the court too much (in spite of the fact that travel costs approach the cost of the computer). But you have to pay advance fees of $4K. If you win, you get $2K back. If you lose, you need to pay Gateway's lawyers. Can you find this out? Well the contract incorporates, by reference, the rules of this arbitration organization. This is a little too much for the court to stomach: it's not dispute resolution-- it just says "no one can challenge us."
Basically, Gateway has just de-regulated itself: they're in the business of selling goods as-is, with all faults, but not disclosing that fact, and not allowing any sensible remedy: you have bought a computer which we will stand behind if we feel like it.
Why would they not settle this? 75% of law students read this case, and yet Gateway let it become public. And Gateway's response is to change arbitration venues.
Interesting that the court is willing to overturn an arbitration clause on the grounds of unconscionability. Remember the Montana Doctors Associates case: the FAA takes precedence over all state laws, and you can't have a state rule that affects arbitration unless it applies to all contracts. But unconscionability applies to all contracts... but then what clauses AREN'T unconscionable (if they're all in small print on page 57)...
There's a lot of litigation about arbitration and unconscionability, and it's about a 40-60% split as to whether it works.