INTRODUCTION TO BUSINESS LAW
INSTRUCTOR JOHN RITCHIE
HOMEWORK #2 CASE
LHOTKA v. GEOGRAPHIC EXPEDITIONS INC.
181 Cal. App 4th 816 (2010)
ELENA LHOTKA, individually, as executor of the estate, and as guardian ad litem for NICHOLAS LHOTKA,
Plaintiffs and Respondents, v. GEOGRAPHIC EXPEDITIONS, INC., Defendant and Appellant.
SUMMARY
Geographic Expeditions, Inc. (GeoEx) appeals from an order denying its motion to compel arbitration of a
wrongful death action brought by the survivors of one of its clients who died on a Mount Kilimanjaro
hiking expedition. GeoEx contends the trial court erred when it ruled that the agreement to arbitrate
contained in GeoEx's release form was unconscionable.
BACKGROUND
Jason Lhotka was 37 years old when he died of an altitude-related illness while on a GeoEx expedition up
Mount Kilimanjaro with his mother, plaintiff Sandra Menefee. GeoEx's limitation of liability and release
form, which both Lhotka and Menefee signed as a requirement of participating in the expedition, provided
that each of them released GeoEx from all liability in connection with the trek and waived any claims for
liability “to the maximum extent permitted by law.” The release also required that the parties would
submit any disputes between themselves first to mediation and then to binding arbitration. It reads:
“I understand that all Trip Applications are subject to acceptance by GeoEx in San
Francisco, California, USA. I agree that in the unlikely event a dispute of any kind arises
between me and GeoEx, the following conditions will apply: (a) the dispute will be
submitted to a neutral third-party mediator in San Francisco, California, with both parties
splitting equally the cost of such mediator. If the dispute cannot be resolved through
mediation, then (b) the dispute will be submitted for binding arbitration to the American
Arbitration Association in San Francisco, California; (c) the dispute will be governed by
California law; and (d) the maximum amount of recovery to which I will be entitled under
any and all circumstances will be the sum of the land and air cost of my trip with GeoEx. I
agree that this is a fair and reasonable limitation on the damages, of any sort whatsoever,
that I may suffer. I agree to fully indemnify GeoEx for all of its costs (including attorneys'
fees) if I commence an action or claim against GeoEx based upon claims I have previously
released or waived by signing this release.”
Menefee paid $16,831 for herself and Lhotka to go on the trip. A letter from GeoEx president James Sano
that accompanied the limitation of liability and release explained that the form was mandatory and that,
on this point, “our lawyers, insurance carriers and medical consultants give us no discretion. A signed,
unmodified release form is required before any traveler may join one of our trips. Ultimately, we believe
that you should choose your travel company based on its track record, not what you are asked to sign․ My
review of other travel companies' release forms suggests that our forms are not a whole lot different from
theirs.”
After her son's death, Menefee sued GeoEx for wrongful death. GeoEx moved to compel arbitration.
The trial court found the arbitration provision was unconscionable, and on that basis denied the motion. It
ruled that the agreement at issue is both procedurally and substantively unconscionable․ [Procedurally]
the Sano letter establishes that the agreement was presented as a “Take It or Leave It” proposition and
was also represented to be consistent with industry practice. So, if the plaintiff and decedent wished to go
on this trip, they could do so only on these terms. [Substantively], the problematic terms are the limitation
on damages; the indemnity of GeoEx; the requirement that GeoEx costs and attorneys' fees be paid if suit
is filed related to certain claims; splitting the costs of mediation; the absence of an agreement on the cost
of arbitration; and the lack of mutuality as to each of these terms.
DISCUSSION
The question posed here is whether the agreement to arbitrate is unconscionable and, therefore,
unenforceable. We answer in the affirmative.
We turn first to GeoEx's contention that the court erred when it found the arbitration agreement
unconscionable. Although the issue arises here in a relatively novel setting, the basic legal framework is
well established. Unconscionability has generally been recognized to include an absence of meaningful
choice on the part of one of the parties together with contract terms which are unreasonably favorable to
the other party. Phrased another way, unconscionability has both a ‘procedural’ and a ‘substantive’
element.
The procedural element requires oppression or surprise. Oppression occurs where a contract involves lack
of negotiation and meaningful choice; surprise where the allegedly unconscionable provision is hidden
within a [long and wordy] printed form. The substantive element concerns whether a contractual
provision reallocates risks in an objectively unreasonable or unexpected manner. Under this approach,
both the procedural and substantive elements must be met before a contract or term will be deemed
unconscionable. Both, however, need not be present to the same degree. A sliding scale is applied so that
the more substantively oppressive the contract term, the less evidence of procedural unconscionability is
required to come to the conclusion that the term is unenforceable, and vice versa. This notion of a “sliding
scale,” as will be seen, figures centrally in the analysis of the agreement at issue here.
A. Procedural Unconscionability
GeoEx argues the arbitration agreement involved neither the oppression nor surprise aspects of
procedural unconscionability. GeoEx argues the agreement was not oppressive because plaintiffs made no
showing of an “industry-wide requirement that travel clients must accept an agreement's terms without
modification” and “they failed even to attempt to negotiate” with GeoEx. We disagree. GeoEx's argument
cannot reasonably be squared with its own statements advising participants that they must sign an
unmodified release form to participate in the expedition; that GeoEx's “lawyers, insurance carriers and
medical consultants give [GeoEx] no discretion” on that point; and that other travel companies were no
different. In other words, GeoEx led the plaintiffs to understand not only that its terms and conditions
were non-negotiable, but that plaintiffs would encounter the same requirements with any other travel
company. This is a sufficient basis for us to conclude the plaintiffs lacked bargaining power.
GeoEx also contends its terms were not oppressive, because Menefee and Lhotka could have simply
decided not to trek up Mount Kilimanjaro. It argues that contracts for recreational activities can never be
unconscionably oppressive because, unlike agreements for necessities such as medical care or
employment, a consumer of recreational activities always has the option of foregoing the activity. The
argument has some initial resonance, but on closer inspection we reject it as unsound.
2
While the nonessential nature of recreational activities is a factor to be taken into account in assessing
whether a contract is oppressive, it is not necessarily the dispositive factor. In the case of Szetela v.
Discover Bank (2002) 97 Cal.App.4th 1094, the defendant, a credit card company, argued the plaintiff
could not establish procedural unconscionability because the plaintiff had the option of taking his business
to a different bank. The court disagreed, and held the customer's ability to walk away rather than sign the
offending contract was not dispositive. Faced with the options of either closing his account or accepting
the credit card company's “take it or leave it” terms, Szetela established the necessary element of
procedural unconscionability even though he could have simply taken his business elsewhere.
Here, certainly, plaintiffs could have chosen not to sign on with the expedition. That option, like any
availability of market alternatives, is relevant to the existence, and degree, of oppression. But GeoEx
presented its limitation of liability and release form as mandatory and unmodifiable, and essentially told
plaintiffs that any other travel provider would impose the same terms. Under these circumstances,
plaintiffs made a sufficient showing of oppression to justify a finding of procedural unconscionability.
B. Substantive Unconscionability
We next address whether the substantive unconscionability of the GeoEx contract warrants the trial
court's ruling. The case of Harper v. Ultimo, supra, 113 Cal.App.4th 1402, considered a similar question.
The Harpers hired a contractor to perform work on their property. The contractor allegedly broke a sewer
pipe, causing concrete to infiltrate the plaintiffs' soil, plumbing and sewer and wreak havoc on their
backyard drainage system. Unfortunately for the Harpers, the arbitration provision in the construction
contract capped any compensation at $2,500 unless the parties agreed otherwise in writing.
Substantive unconscionability focuses on the one-sidedness or overly harsh effect of the contract term or
clause. The arbitration provision in the Harpers' contract did not allow even a theoretical possibility that
they could obtain meaningful compensation unless the contractor agreed. Not surprisingly, it did not.
The arbitration provision in GeoEx's release is similarly one-sided as that considered in Harper. It
guaranteed that plaintiffs could not possibly obtain anything approaching full recompense for their harm
by limiting any recovery they could obtain to the amount they paid GeoEx for their trip. In addition to a
limit on their recovery, plaintiffs, who were residents of Colorado, were required to mediate and arbitrate
in San Francisco-all but guaranteeing both that GeoEx would never be out more than the amount plaintiffs
had paid for their trip, and that any recovery plaintiffs might obtain would be devoured by the expense
they incur in pursing their remedy. The release also required plaintiffs to indemnify GeoEx for its costs and
attorney fees for defending any claims covered by the release of liability form. Notably, there is no
reciprocal limitation on damages or indemnification obligations imposed on GeoEx. Rather than providing
a neutral forum for dispute resolution, GeoEx's arbitration scheme provides a potent disincentive for an
aggrieved client to pursue any claim, in any forum-and may well guarantee that GeoEx wins even if it
loses. We see no reasonable justification for this arrangement. We agree with the trial court that the
arbitration clause is so one-sided as to be substantively unconscionable.
DISPOSITION
The order denying GeoEx's motion to compel arbitration is affirmed.
SIGGINS, J.
3
INTRODUCTION TO BUSINESS LAW
INSTRUCTOR: JOHN RITCHIE
FIRAC ANALYSIS
What it is and how to do it
FIRAC analysis is a method of summarizing judicial opinions so as to understand the legal principles the cases stand for.
FIRAC is a tool to help you organize the way you approach a case you are going to analyze. Like any other kind of tool you
can think of, using FIRAC requires skill that can be learned and improved by practice. Several of the homework
assignments you will do this quarter require you to do a FIRAC analysis, so by the end of the quarter you will have
acquired a new skill. Because the FIRAC method follows a logical pattern, it may be adapted to analyze other types of
text. Once you get the hang of it, you might find it useful in studying for other classes as well.
FIRAC is an acronym for a five-step process:
Each of these steps is discussed below.
Facts
Issues
Rules
Application
Conclusion
FACTS
The first step in the process is to determine what were the facts of the case that resulted in the judicial opinion
you are reading. Not all of the facts stated are important to the court’s decision, so you need to determine those that are
and make sure you include them in your summary. Note that the court usually provides a summary of the facts at the
beginning of the opinion but sometimes additional important facts are referred to later in the opinion. You need to
include them in your summary.
So how do you pick out the important facts? Ask questions like these:
Who is the plaintiff in the case?
Who is the defendant?
What happened?
What did the plaintiff ask for?
What did the lower court decide?
Which party filed the appeal (i.e. who lost last time - the plaintiff or the defendant)?
What is the basis for this appeal?
Does the appellate court emphasize any particular facts in its opinion?
What is the key fact the court bases its decision on?
ISSUES
The issues in the case are the legal questions that the court has to answer in order to determine how to decide
the case. Often, the court will state the issues it needs to resolve. However, judges are not always the best writers, so
sometimes it can be hard to figure out what they think the issues are. The way to identify the issues is to state them as a
question. Generally you can do this in either of two ways: (a) as a direct question (using a question mark); or (b) as a
statement beginning with “Whether.” For example, following are two ways of stating the same issue:
(a) Does a search without a warrant violate the Fourth Amendment?
(b) Whether a search without a warrant violates the Fourth Amendment.
Note: In most cases we analyze there will be more than one issue. It will help you to number the issues you identify,
because for each issue there will be a rule [see below]; and for each rule there will be an application [see below].
RULES
Once you have summarized the facts and identified the issues in the case, you need to figure out what are the
rules the court is going to apply to decide the case. The “rules” are the laws that apply to the case. Before the appellate
court can know how to decide a case, it has to ascertain what laws apply to the issues it has to address. To do so, the
court reviews applicable statutes and previous cases decisions (precedents) to see how similar situations have been
addressed by the legislature and other courts. An easy way for you to figure out where to look for the rules is to look for
the part of the opinion where the court is citing statutes and quoting from other cases. Remember: If you identified two
issues, you will also need to find two rules.
APPLICATION
The next step in the process is to explain how the court applies the rules to the facts of the case. This
is the part of the decision where the court identifies particular facts (which it may or may not have mentioned in the
summary at the beginning of the opinion) and explains why they are either consistent with the rule or contrary to the
rule. Again: If you identified two issues and two rules, you will also need to explain how each issue is resolved by
applying the rules to the facts.
CONCLUSION
Once the court has applied the rules to the facts of the case and resolved the issues it set up to
address, it issues its ruling, which will generally be one of the following: affirmed (which means the lower court’s decision
was right – i.e. the party that filed the appeal loses); reversed (which means that the lower court’s decision was wrong –
i.e. the party that appealed wins); or occasionally, reversed and remanded (which means that the lower court’s decision
was wrong and the case needs to go back to the lower court for further proceedings).
TEMPLATE
In order to complete your FIRAC homework assignments, you will be required to use a template in the
form set out below. An important purpose of the template is to serve as a guide to help organize your analysis. It is also
intended to standardize the format of students’ FIRAC assignments to facilitate the grading process for the instructor. For
these reasons, you will be required to use the provided template for submission of your homework assignments. Failure
to use the corresponding template provided with each homework assignment will result in a loss of points.
FIRAC ANALYSIS TEMPLATE
CASE NAME:
CITATION:
FACTS:
ISSUES:
RULES:
APPLICATION:
CONCLUSION:
A = Affirmed
R = Reversed
O = Other result
1.
2.
1.
2.
1.
2.
Additional comments:
HINT:
In order to keep everything in context, remember that the appellate court is trying to determine whether the
lower court made a mistake in deciding the case the way it did. The purpose is not to review the evidence or to take
testimony from witnesses or to gather additional evidence. The bottom line is: Did the lower court get it right?
HELPFUL LINK:
Here is a link to a web page posted by a retired law professor that goes into more detail about legal reasoning and
FIRAC analysis. It contains considerably more detail than we need for this class, but some may find it helpful:
http://www.daveguenther.com/firac/judicialopinionsintro.html
F2018 HW2 LHOTKA CASE ANALYSIS
Student Name:
CASE NAME:
CITATION.
FACTS:
ISSUE(S):
RULE(S):
APPLICATION:
CONCLUSION:
A = Affirmed
R = Reversed
O = Other result
WORD COUNT: ____
Additional comments:
Purchase answer to see full
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