Brown, et al. v. MHN Government Services, Inc., et al. Opinion – August 15, 2013

Validity of Arbitration Agreements

This case involved an agreement, labeled “Provider Services Task Order Agreement,” between two mental health professionals and their employer. The agreement contained, among other things, a “Mandatory Arbitration” provision and was governed by California law. After several years of working for MHN Government Services, Inc. (“MHN”), plaintiffs filed a complaint in Pierce County Superior Court alleging state law wage claims on behalf of themselves and a proposed class. In response, MHN filed a motion to compel arbitration and stay the proceedings. Plaintiffs, in response, moved to quash the demand for arbitration, claiming that that the following five provisions were unconscionable (1) the forum selection clause; (2) the contractual statute of limitations; (3) the arbitrator selection provision; (4) the fee-shifting provision; and (5) the punitive damages exclusion. The superior court denied the motion to compel arbitration. MHN appealed and the case was ultimately transferred to the Supreme Court, pursuant to RCW 2.06.030.

Procedural Unconscionability:

  • The arbitration agreement was procedurally unconscionable because the agreement’s general reference that the American Arbitration Association (AAA) rules would apply to any arbitration involved “procedural surprise” because it did not specify which set of AAA rules would govern the arbitration.

Substantive Unconscionability:

  • The agreement’s statute-of-limitations provision was substantively unconscionable because it required that by arbitration be “initiated within 6 months.” The court found that because the statute plaintiffs relied on required lawsuits to be brought in 3 years, any shortening of that time period was substantively unconscionable.
  • The agreement’s arbitrator-selection provision, which provided that “[a] single, neutral arbitrator who is licensed to practice law shall conduct the arbitration . . . MHN shall provide [Plaintiffs] with a list of three neutral arbitrators from which [Plaintiffs] shall select its choice of arbitrator for the arbitration,” was substantively unconscionable. The court reasoned that this provision was “overly harsh and one-sided in favor of MHN” because MHN had sole authority to select the three potential “neutral” arbitrators.
  • The agreement’s fee-shifting provision is substantively unconscionable. The provision at issue was effectively a prevailing-party fee-shifting provision. Despite this fact, the court held it unconscionable because it contradicted the Washington Minimum Wage Act, which allows only a prevailing employee to recover his or her fees.
  • The agreement’s forum-selection provision and punitive damages provision were upheld by the court.

Additionally, the court held that agreement was so permeated with unconscionability that the offending provisions could not be severed from the agreement. Therefore, the court held, the trial court did not err in refusing to order arbitration.