Following the Supreme Court’s decision in AT&T Mobility, LLC v. Concepcion (see my prior blog post), a key battleground is going to be what defenses to arbitration of a named plaintiff’s claim remain viable.  We know that the mere fact that the arbitration provision does not allow a class arbitration is not enough to render it unenforceable.  But there are other defenses under state law that plaintiffs might try to use.  One of those is that some states’ law limits or precludes the enforceability of certain kinds of “adhesion” contracts or some provisions therein.  Plaintiffs sometimes argue, and courts sometimes find, that insurance contracts sold to individuals on a standard form, with no opportunity for bargaining over the contract terms are purportedly “adhesion” contracts.  A recent decision by a Colorado federal court, however, says that Concepcion bars a generalized adhesion contract defense to an arbitration provision.

In Daugherty v. Encana Oil & Gas (USA), Inc., 2011 U.S. Dist. LEXIS 76802 (D. Colo. July 15, 2011), the plaintiffs entered into independent contractor agreements with the defendant, under which they worked as pumpers who serviced and maintained the defendant’s natural gas wells.  The plaintiffs claimed that under the Fair Labor Standards Act they should have been treated as employees and paid overtime.  Id. at *2-3, 7. The defendant sought to compel arbitration of their individual claims under an arbitration clause in the independent contractor agreements.  The plaintiffs submitted affidavits stating that they were not aware of the arbitration clause, no one explained it to them, and they did not believe they had any ability to negotiate the contract terms.  Id. at *25.  The court concluded that, prior to Concepcion, it probably would have found the arbitration clause unconscionable under applicable Colorado law, but based on Concepcion, the arbitration clause was enforceable:

Plaintiffs’ argument has some validity and the Court would likely have found that the arbitration agreement at issue here unconscionable pursuant to the Davis analysis if it were issuing this decision pre-Concepcion. But the Court has to take the legal landscape as it lies and cannot ignore the Supreme Court’s clear message. Plaintiffs are essentially arguing that the adhesive nature of the contracts at issue here (i.e., standardized forms, lack of ability to negotiate, power disadvantage, etc.) makes the arbitration agreement unconscionable.

In Concepcion, the Supreme Court rejected the idea that arbitration agreements are per se unconscionable when found in adhesion contracts. The Court recognized that California’s rule applied only to adhesion contracts and observed that “the times in which consumer contracts were anything other than adhesive are long past.” The Court noted that states were “free to take steps addressing the concerns that attend contracts of adhesion – for example, requiring class-action-waiver provisions in adhesive arbitration agreements to be highlighted” but ruled that “[s]uch steps cannot, however, conflict with the FAA or frustrate its purpose to ensure that private arbitration agreements are enforced according to their term.”

The fact that the contract at issue in Concepcion was an adhesion contract did not affect the Supreme Court’s analysis and, indeed, the majority in Concepcion appeared to be little troubled by that fact. As a result, this Court has no alternative but to discount the weight to be attributed to the adhesive nature of the arbitration clause at issue here. Accordingly, the Court finds that the arbitration agreement contained within the ICAs is not unconscionable.

Id. at *26-27 (emphasis added; citations omitted).  The court found, however, that provisions of the arbitration clause requiring the plaintiffs to contribute to the cost of the arbitration, and requiring them to pay the defendant’s attorneys’ fees if the defendant prevailed, were unenforceable, but those provisions were severable from the remainder of the arbitration provision.  Id. at *27-36.  Subject to those limitations, the court compelled arbitration.

This decision is helpful to insurers that are seeking to compel an arbitration or appraisal of a named plaintiff’s claim in a putative class action.  As this court concluded, generalized defenses based on the purported adhesive nature of an insurance contract should not bar enforcement of the arbitration or appraisal provision.