In California, parties who agree to private binding arbitration usually receive little sympathy from the courts when they seek to litigate their disputes. But that does not always hold true.

In particular, when contracts with unfair arbitration clauses hidden in the fine print are foisted on unaware consumers by high pressure salesmen, the courts sometimes will give claimants a break. The California Court of Appeal recently upheld a trial court's finding that such an arbitration clause was not enforceable. (Magno v. The College Network, Inc.)

It’s almost certain that you, like most Americans, are bound by mandatory arbitration clauses which require you to waive your right to access the courts in case of a dispute.

Consumers have little choice but to waive those rights, because the clauses are presented on a take-it-or-leave-it basis, buried in the fine print of a sales contract, credit card agreement, employee handbook, health insurance plan or even a billing insert.

However, the Court of Appeal came down on the customers' side in the case of a company being sued over allegedly misleading claims and sleazy practices.

Sales representatives from an entity called the College Network, or TCN, claimed TCN was associated with Indiana State University (ISU) and California State University (CSU). They pitched an online learning program that purportedly would enable students to earn Registered Nursing (RN) degrees.

The targets of their sales pitches were licensed vocational nurses, who were pressured to sign up and purchase the course immediately, with the promise that they could complete their coursework online and obtain clinical training through CSU. The appeal was obvious; in California, RNs earn about $40 per hour, compared to $20 for LVNs.

In small print, on the back of the TCN purchase agreement, was an arbitration clause requiring any disputes to be arbitrated – in the company’s home state, Indiana!

There, 2,000 miles from where the students lived, the dispute would be heard by one arbitrator, chosen by TCN. The student would have to pay a $250 filing fee just to open the arbitration, and would face having to pay the arbitrator’s fee and TCN’s attorney’s fee in the (presumably likely) event that the arbitrator hired by TCN ruled in TCN’s favor.

The salesmen neither mentioned the clause during their sales pitches, nor did they ensure that the unsuspecting victims initial the clause.

When the students later learned that they were not even eligible for admission to ISU, they demanded refunds from TCN. When TCN refused, they sued.

In superior court, TCN trotted out the arbitration clause, asking the judge to compel the arbitration rather than giving the students their day in court.

However, the trial court found that, because of TCN’s practices, the arbitration clause was unconscionable and unenforceable.

The court determined that the high-pressure sales pitches, which rushed the students into signing, amounted to what is known in legal terms as “procedural unconscionability.” In addition, the fact that the clause would compel college-age students to travel to Indiana to assert their claims constituted “substantive unconscionability.” The Court of Appeal agreed.

As a result of these unconscionable practices, TCN was barred from requiring the students to arbitrate their claims.

M. Laurie Murphy