California Legal Brief

The Rule of Fuentes v. Empire Nissan, Inc. is that a contract's format and illegibility generally do not support substantive unconscionability, but courts must closely scrutinize difficult-to-read contracts for unfair or one-sided terms when high procedural unconscionability exists, under circumstances where an employment arbitration agreement is presented in nearly illegible tiny print with minimal time for review.

Appeal from order denying motion to compel arbitration in Superior Court, Los Angeles County.

Defendant Appellant was Empire Nissan, Inc., et al. — the employer who sought to compel arbitration of wrongful termination claims.

Plaintiff Respondent was Evangelina Yanez Fuentes — the employee who opposed arbitration based on unconscionability.

The suit sounded in wrongful discharge and related employment claims. No cross-claims were described.

The key substantive facts leading to the suit were Fuentes signed an "Applicant Statement and Agreement" containing an arbitration clause printed in tiny, blurry font that was nearly unreadable, given only five minutes to review during job application process, later went on medical leave for cancer treatment, requested brief extension, and was terminated by Empire Nissan. She also signed two confidentiality agreements that appeared to create carveouts from arbitration for Empire Nissan's claims.

The procedural result leading to the Appeal: The trial court denied Empire Nissan's motion to compel arbitration, ruling that the agreement was unconscionable due to very high procedural unconscionability (illegible text, no meaningful opportunity to review) and low to moderate substantive unconscionability (fine-print terms and apparent one-sided carveout). The Court of Appeal reversed, holding that illegibility goes only to procedural unconscionability and finding no substantive unconscionability.

The key questions on Appeal: 1) Whether a contract's illegibility and small font size can support both procedural and substantive unconscionability; 2) Whether confidentiality agreements created a one-sided carveout from arbitration that rendered the arbitration agreement substantively unconscionable; 3) Whether the trial court properly declined to address validity of the arbitration agreement.

The Appellate Court held that illegibility and small font affect only procedural unconscionability, not substantive unconscionability, but that courts must still closely scrutinize difficult-to-read contracts for unfairness when high procedural unconscionability exists. The Court of Appeal erred by applying a presumption favoring arbitration rather than treating the agreement like any other contract and by directing entry of judgment rather than allowing consideration of contract validity arguments.

The case is inapplicable when employment arbitration agreements are clearly legible, parties have adequate time to review terms, or no significant procedural unconscionability exists in contract formation.

The case leaves open the relationship between contract legibility and mutual assent, the proper analysis when confidentiality agreements may modify arbitration requirements, and whether representative action waivers affect unconscionability analysis.