August 16, 2007

Unconscionable Beans and Rice

by PG

Despite having gotten a reasonable overview of unconscionability in contracts, I hadn't thought to apply it to a settlement agreement. While aware that contracts in which a starving party promised to pay a million dollars for a meal would probably be invalidated as unconscionable*, I wouldn't have made the same judgment about an agreement in which a starving party foregoes remedies for a wrong committed against it, in exchange for necessities. Yet U.S. District Judge Susan Illston's refusal to dismiss Larry Bowoto, et al. v. Chevron Corp. (N.D. CA) sounded a lot like an invalidation of a settlement agreement based on unconscionability.

In the suit, Nigerian villagers allege that Chevron was behind the government forces that put a violent and fatal end to a protest of the corporation's pollution of the Niger Delta -- a protest that at one point included taking Chevron employees hostage. Government forces killed two protestors in the process of freeing the hostages in May 1998, and shot another four dead and burned down two villages in January 1999 in the course of putting down another protest at an oil rig. Chevron argued that 1) the troops were not under their control; and 2) some of the individual victims as well as representatives of the burnt villages had signed releases of liability in exchange for Nigerian currency, rice, beans and blankets.

The plaintiffs have made literally a dozen claims under state and federal law, and several of these have been dismissed either in phase 1 (plaintiffs' allegations failing to meet the standard for the legal claim) or phase 2 (after discovery, plaintiffs lack sufficient evidence to present to a jury). For example, in a Monday decision (2007 U.S. Dist. LEXIS 59374), Judge Illston dismissed the plaintiff's claim of crimes against humanity. The next day, however, she maintained state claims of secondary liability through aiding and abetting, conspiracy, respondeat superior, as well as of assault and battery, negligence of duty, negligent and intentional infliction of emotional distress and wrongful death claims.

The part of the decision that interests me is Part IX, which discusses Chevron's defense that an individual plaintiff had signed a release of liability. Some of the problems with this defense that Judge Illston identifies seem almost inarguable: the plaintiff does not understand English and no one translated the document for him before he signed it; he was not told that it contained a release; he was told that he had to accept Chevron's money in order to get his dead son's body back; the community leaders who signed on behalf of the two burned villages did not clearly have the authority to bind the villages, much less the individuals residing in them. But at the end, Judge Illston says simply, "Additionally, there is some indication that the Opia and Ikenyan release was signed under duress or undue influence. As the supplies provided along with the money (blankets, pillows, and mattresses) indicate, at the time the document was signed, the communities and their members may have been literally fighting for survival."

This is a more controvertible reason for invalidating the release. Suppose none of the rest had occurred, and the release had been translated and explained to everyone such that there was a meeting of the minds, all individual villagers signed it, no bodies were being held hostage. If the only issue with the release were that it was signed by poor, distressed people who exchanged their signatures for necessities and money, should that alone suffice to void the agreement?

* "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." 350 2.2d 445.

August 16, 2007 10:49 PM | TrackBack

So this is a little nitpicky, but I am gearing up to tutor Contracts this Fall:

Technically, there are two issues here: unconscionability and duress. Duress is a barrier to contract formation, while unconscionability occurs when there is a valid contract that is later voided due to procedural and/or substantive unconscionability, depending on the jx.

In the case of a starving person who promised to pay a million dollars for a meal, it would be said that their promise obtained under economic duress was invalid as an acceptance and therefore no K was formed. The opinion here refers to the release of the body and the payment of neccesities as possible elements of duress.

When the case refers to the lack of language ability, etc. those are elements of unconscionability. Thus, even though there is a signed contract, it may not be enforced because of the differences in the negotiating positions of the parties and/or the promises made warrants a finding of unconscionability.

While similar, they are not the same. Judge Illiston, however, did not make a finding of either, and she does not need to, as this is only a ruling on a motion for summary judgment. As she points out, "there are serious questions as to [the contracts'] enforceability" and therefore summary judgment is inapropriate, but that does not mean that she found actual duress or unconscionability... that would need to be proved at trial as a defense to contract formation (duress) or that the contract should be held invalid due to unconscionability.

As an aside, my brother was until recently a paralegal for Michael Sorgen, the attorney for Bowoto et. al., and did some work on this case.

Posted by: Dave at August 17, 2007 09:50 PM

I'm confused as to why starvation prevents one from forming a valid contract, but illiteracy and fraud permit for a contract that is valid at signing and only later voidable. It seems to me that while one could form many contracts while starving that ought to be upheld (for example, the marriage contract), no contract that a signatory could not read and did not understand should be upheld.

Posted by: PG at August 20, 2007 10:20 PM

Some further clarification: duress when not caused by the promisee in a K is a barrier to contract formation: in other words, if Chevron somehow put the Nigerians in a position of starvation, and then told them there would be food if they signed the release, no K is formed. However, economic duress without the action by the promisee is not recognized as a barrier to K formation in the US, though it is in some European jx and in maritime law in the US (salvage).

Thus, unless it can be shown that Chevron somehow caused or aggravated the poverty of the plaintiffs there can be no finding of duress in the US, and Illston must have been referring to a possible finding of unconscionability and not duress, as you originally noted. My mistake... I had forgotted duress was only used in the US in maritime law.

But, the mechanics as I described them are correct: duress, when found, is a barrier to K formation. If a starving person is offered food at an unconscionable price, and the starving person accepts, the acceptance is seen as invalid and it invalidates the K, and a fair price is determined by the court. Note that unconscionability is an element of duress... if the starving person is offered a fair price for food, there can be no finding of duress. However, if there is no actual duress (in other words, the person is not starving), but the terms of sale of the food are unconscionable (substantial unconscionability) and there is some sort of procedural unconscionability (i.e. small print of terms, illiteracy, etc.) then a finding of unconscionability may be found; even though the K is technically a valid K, it is voided.

Posted by: Dave at August 20, 2007 11:36 PM
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