Unconscionability in the wake of Tadych v. Noble Ridge
BY THOMAS M. WILLIAMS
NOTE: The opinions and viewpoints expressed in this article are those of the author and do not necessarily represent the opinions or positions of the author’s law firm or its clients.
For me—and I suspect for many others—the term “unconscionability” brings back memories from the first year of law school. It was then that my Contracts 101 professor taught me that a contract provision can sometimes be so unfair, so unjust, that it would be deemed unenforceable. I also learned that this “unconscionability” standard is a high bar; because parties are generally free to contract however they want, courts will deem a contract provision unconscionable only in the most exceptional of circumstances.
Washington law has traditionally been in harmony with these principles. Washington practitioners could therefore reasonably expect—because of the high standard involved—that unconscionability disputes in their practice would be few and far between. Indeed, after 12 years of handling contract-based and contract-adjacent cases, I have encountered an unconscionability dispute only once. But the Washington Supreme Court’s recent opinion in Tadych v. Noble Ridge Constr., Inc., 200 Wn.2d 635, 519 P.3d 199 (2022), may have just changed the game.
Unconscionability Basics in Washington
“It is black letter law of contracts that the parties to a contract shall be bound by its terms.” Adler v. Fred Lind Manor, 153 Wn.2d 331, 344, 103 P.3d 773 (2004). But no “black letter law” is without its exceptions. Relevant here, a contract provision is unenforceable if it is deemed unconscionable. To that end, Washington recognizes two forms of unconscionability—substantive and procedural—either one of which can render a contract provision unenforceable. See Gandee v. LDL Freedom Enterprises, Inc., 176 Wn.2d 598, 603, 293 P.3d 1197 (2013) (“In Washington, either substantive or procedural unconscionability is sufficient to void a contract.”) (emphasis in original).
To determine whether a contract provision is substantively unconscionable, Washington courts consider how the provision operates and whether it is “one-sided or overly harsh.” Schroeder v. Fageol Motors, Inc., 86 Wn.2d 256, 260, 544 P.2d 20 (1975). Of course, the fact that a given contract provision benefits one party over another is not sufficient, by itself, to establish substantive unconscionability—as a bargained-for exchange, a contract is designed to do that. Washington courts therefore use terms like “‘shocking to the conscience,’ ‘monstrously harsh,’ and ‘exceedingly calloused’ … to define substantive unconscionability.” Nelson v. McGoldrick, 127 Wn.2d 124, 131, 896 P.2d 1258 (1995); see also Montgomery Ward & Co. v. Annuity Bd. of S. Baptist Convention, 16 Wn. App. 439, 444, 556 P.2d 552 (1976) (an unconscionable contract is “one which no man in his senses, not under delusion, would make, on the one hand, and which no fair and honest man would accept, on the other”) (quoting Black’s Law Dictionary (4th ed. 1951)).
In contrast, procedural unconscionability considers not the impact of the disputed contract provision, but rather the equity between the contracting parties at the time of the contract’s formation. Procedural unconscionability is therefore described as “the lack of a meaningful choice, considering all the circumstances surrounding the transaction.” Nelson, 127 Wn.2d at 131. Circumstances that courts will consider include “[t]he manner in which the contract was entered, whether each party had a reasonable opportunity to understand the terms of the contract, and whether the important terms [were] hidden in a maze of fine print[.]” Id. (quoting Schroeder, 86 Wn.2d at 260).
Unconscionability in Tadych v. Noble Ridge
The Tadychs hired Noble Ridge Construction to build them a custom home. The legal dispute that reached the Supreme Court concerned the enforceability of a single sentence in the contract governing that relationship, which changed the applicable statutes of limitations from six years11 See RCW 4.16.310 (six-year statute of limitations for “[a]ctions or claims arising from construction”); RCW 4.16.040 (six-year statute of limitations for “[a]n action upon a contract in writing”). to one: “Any claim or cause of action arising under [the contract] … must be filed in a court of competent jurisdiction within one year … from the date of Owner’s first occupancy … .” Tadych, 200 Wn.2d at 640-41.
The Tadychs moved into their new home in April 2014. In February 2015—before the one-year limitation period had passed—the Tadychs discovered flooring problems and other issues with Noble Ridge’s work. The Tadychs notified Noble Ridge of the issues discovered, and then met with Noble Ridge to discuss them. Although these events all took place before the one-year limitation period expired in April 2015, the Tadychs ultimately waited until 2017 before filing suit.22 The facts recited by the Supreme Court suggest that the Tadychs delayed filing suit because Noble Ridge promised to repair all of the defects discovered and further discouraged the Tadychs from suing. Based on those facts, the Tadychs asserted an equitable estoppel claim against Noble Ridge as an alternative means to circumvent the contract’s one-year suit limitation provision. But because the Supreme Court held that the provision was unconscionable, it did not address the Tadychs’ equitable estoppel claim. See Tadych, 200 Wn.2d at 646 n.8. On summary judgment, the trial court upheld the one-year contractual limitation period and dismissed the Tadychs’ claims. The Court of Appeals affirmed.
In a 5-3 decision,33 Justice Montoya-Lewis did not participate in the decision. the Supreme Court reversed, holding that the contract’s one-year limitation period was substantively unconscionable and therefore unenforceable. In its analysis, the majority began by setting forth the same unconscionability standards discussed above. But then the decision appears to deviate from those same standards in at least two significant ways.
First, the majority opinion suggests that a contract provision is substantively unconscionable if it “unduly benefits” only one party. See Tadych, 200 Wn.2d at 644 (finding substantive unconscionability where “the one-year contractual limitation … unduly benefits the contractor at the expense of the homeowner’s right to bring a legitimate claim”). This seemingly conflicts with prior precedent requiring something more than one-sidedness to establish substantive unconscionability—e.g., a provision which is “shocking to the conscience,” “monstrously harsh,” or “exceedingly calloused.” Nelson, 127 Wn.2d at 131. Perhaps trying to fit within that framework, the majority also found that the contract’s one-year suit limitation “effectively abolishes a plaintiff’s statutory right under [the applicable statute of limitations] to bring a claim.” Tadych, 200 Wn.2d at 643. But the very facts of the Tadych case demonstrate that the Tadychs’ right and ability to bring a claim was not “effectively abolished” by the contractual limitation: the Tadychs knew of their claims two months before the one-year suit limitation period expired.
Second, the majority concluded its analysis of substantive unconscionability by applying the standard previously reserved for procedural unconscionability claims—i.e., by assessing the fairness of the bargaining process. Compare Nelson, 127 Wn.2d at 131 (procedural unconscionability determined by “all circumstances surrounding the transaction including the manner in which the contract was entered, whether each party had a reasonable opportunity to understand the terms of the contract, and whether the important terms were hidden in a maze of fine print”),44 Internal quotations and citations omitted. with Tadych, 200 Wn.2d at 645 (applying the same factors to the Tadychs’ substantive unconscionability claim). The court ultimately held that there was unfairness in the bargaining process—which it said supported a finding of substantive unconscionability—because (1) the Tadychs are laypersons; (2) Noble Ridge drafted the contract; (3) there was no evidence that the contractual limitation provision was negotiated; and (4) the provision was located in a section titled “Warranty” on the tenth page of the 14-page contract. But even if one were to assume that fairness at the time of formation is relevant to a substantive unconscionability analysis, the court appears to have disregarded (or at least does not address) other relevant factors. For example, the Tadychs did have “a reasonable opportunity to understand the terms of the contract”: the Tadychs received the contract one month before they signed it, during which time they elected not to consult legal counsel. Moreover, although the one-year contractual limitation language was not bolded, capitalized, or otherwise emphasized, it also was not “hidden in a maze of fine print.”
It is also worth noting that to reach its holding, the Supreme Court analogized the Tadychs’ circumstances to two other cases—Gandee and Adler. But the contract in Gandee shortened a four-year limitations period to just 30 days—a far cry from the one-year contractual limitation period provided for in the Tadychs’ contract. See Gandee, 176 Wn.2d at 607. Similarly, the contractual provision at issue in Adler involved a significantly shorter limitations period (180 days), and also severely impacted other aspects of the plaintiff’s claims. See Adler, 153 Wn.2d at 357 (provision in employment contract unconscionable because it could bar certain damages and could force employee to forgo opportunity to have claim investigated by the federal Equal Employment Opportunity Commission or the Washington Human Rights Commission). The Tadych decision therefore represents a broader application of the unconscionability doctrine.
Where Do We Go From Here?
Taken as a whole, the Tadych decision presents a significant potential shift in Washington contract law—courts may be more willing to invalidate otherwise enforceable contract provisions under the unconscionability doctrine than they have been historically. If you are a contract drafter, some preventative measures can be employed such as avoiding form language, emphasizing important provisions that have a potential for later conflict, and ensuring that the other contracting party is aware of those provisions and has an opportunity to negotiate them. On the other hand, if you represent a party faced with an unfavorable contract provision, do not discount an unconscionability argument. The standard may not be as high as you learned it was in law school.
1. See RCW 4.16.310 (six-year statute of limitations for “[a]ctions or claims arising from construction”); RCW 4.16.040 (six-year statute of limitations for “[a]n action upon a contract in writing”).
2. The facts recited by the Supreme Court suggest that the Tadychs delayed filing suit because Noble Ridge promised to repair all of the defects discovered and further discouraged the Tadychs from suing. Based on those facts, the Tadychs asserted an equitable estoppel claim against Noble Ridge as an alternative means to circumvent the contract’s one-year suit limitation provision. But because the Supreme Court held that the provision was unconscionable, it did not address the Tadychs’ equitable estoppel claim. See Tadych, 200 Wn.2d at 646 n.8.
3. Justice Montoya-Lewis did not participate in the decision.
4. Internal quotations and citations omitted.