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Consumers Case Analysis

Some of the court’s numerous holdings in this case are plainly dictated by prior precedent, but the court’s holding that the contracts at issue are substantively unconscionable is a marked extension of prior law.

The holding that the choice of law provision is invalid is not noteworthy. It is no overstatement to say that the Wisconsin Supreme Court strongly favors application of Wisconsin law over that of other jurisdictions, the most extreme example probably being Beloit Liquidating Trust v. Grade, 2004 WI 39, 270 Wis.2d 356, 677 N.W.2d 298.

The court’s holding that Wisconsin law, rather than Delaware’s, applies, is thus more than amply supported by prior precedent.

The court’s holding that the arbitration clause in this case is procedurally unconscionable is only a minor expansion of prior law. The only relevant factual difference related to procedural inconscionability between the case at bar and Wisconsin Auto Title, Inc., v. Jones, 2006 WI 53, 290 Wis.2d 514, 714 N.W.2d 155, is that, in Jones, the plaintiff was indigent, while here, they were only “low-income.” To have distinguished Jones on this minor difference would eviscerate the holding in Jones.

However, the court’s holding that the contracts were substantively unconscionable is a significant extension of the law in Jones.

In Jones, the Wisconsin Supreme court held that the arbitration provision was substantively unconscionable, because it was “one-sided”; the borrower could only pursue arbitration, while the lender could access the courts. Jones, 714 N.W.2d at 160.

In the case at bar, in contrast, both parties may invoke arbitration.

In addition, the contract in Jones required the borrower to pay the filing fee for arbitration. Id., at 175. The contracts at issue in this case do not appear to have any similar provision.

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The contract in Jones also barred class-wide relief, but the Supreme Court did not base its decision on that ground. Instead, the court merely held that the bar on class action relief “contributes” to the finding of substantive unconscionability. Id. The court explicitly stated that it did not rest its holding on the inability to bring a class action. Id., at 177.

In the case at bar, the court went further, calling the waiver of class-wide relief “a significant factor.”

There was only one other factor in this case contributing to the finding of substantive unconscionability — that the Delaware choice of law provision barred all remedies under the Wisconsin Consumer Act. However, once the court invalidated the choice of law provision, there was no reason why the plaintiffs’ rights under the Act (such as double damages), other than the bar on class actions, were barred by the contracts.

Nevertheless, the court treated the choice of law provision and the arbitration provision as one. Whether that is proper is an issue that should be raised and preserved for potential Supreme Court review in future cases.

In any event, the decision comes very close to saying that any arbitration clause that bars class-action relief is per se substantively unconscionable, as the New Jersey Supreme Court held in Muhammad v. County Bank, 912 A.2s 88 (N.J.2006), a noteworthy expansion of the Supreme Court’s decision in Jones.

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David Ziemer can be reached by email.

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