The opinion of the court was delivered by: B. Lynn Winmill Chief Judge United States District Court
MEMORANDUM DECISION AND ORDER
The Court has before it a motion to stay and compel arbitration (Dkt. 9) and a motion to strike (Dkt. 15) filed by Defendants HG Lease Holdco, LLC*fn1 and BL Special Manager, LLC. For the reasons set forth below, the Court will deny the motion to compel arbitration because it finds that the arbitration clause was both procedurally and substantively unconscionable and therefore unenforceable.
This case involves a commercial lease with option to purchase. In August 2007, Plaintiff Higher Ground Worship Center and Defendant BTM5 entered into a "Build to Minister Lease/Purchase Agreement." Another defendant in this case, Robert Knowles, created BTM5, as well as another entity, Defendant Arks, Inc., for the purpose of assisting churches and Christian organizations in the construction or expansion of their facilities. Arks describes itself in materials it distributed to church ministries as a "Church Consulting Company" that aims to provide an "unparalleled package of services to assist churches in their new building projects." Through its "Build to Minister Lease/Purchase Program," Ark offered "turn-key financing and construction loan solution for churches that need to build and have the ability to service a reasonable loan, but can't get traditional financing."
Plaintiff Higher Ground alleges that Arks induced it to enter into a lease and purchase agreement by offering unique financing and promising "that it would build an 'affordable church' that would appraise at a value significantly higher than it would cost the church to exercise its purchase option." Pl's Opp'n at 3, Dkt. 13. According to Higher Ground, Arks estimated that the purchase option would be "24-45% under market value," giving the ministries "instant equity" in their church. The lease and purchase agreement designated Arks' affiliate, BTM5, to serve as the contracting party on behalf of Arks.
Higher Ground alleges that the representations Arks and BTM5 made were false.
It asserts claims against Arks, BTM5, Knowles, HG Lease, and BL Special Manager for
(1) violations of the Consumer Protection Act; (2) fraud; (3) declaratory judgment that the lease and purchase agreement is null and void; (4) breach of contract; (5) breach of the covenant of good faith and fair dealing; and (6) breach of fiduciary duty.
Defendants HG Lease and BL Special Manager maintain that these claims are subject to an arbitration clause in the lease and purchase agreement, which reads as follows:
Lessor foresees no difficulty arising from the business agreement as outlined in this Agreement or in working with the Lessee, but in an effort to be prudent, addresses the issue herein: The parties to this Agreement are Christians and believe that the Bible commands them to make every effort to live at peace and to resolve disputes with each other in private or within the Christian church (see Matthew 18:15-20; 1 Corinthians 6:1-8). Therefore, the parties agree that any claim or dispute arising from or related to this Agreement, with the exception of non-payment of rent, shall be settled by biblically-based mediation and, if necessary, binding arbitration. In the event of such dispute, both parties would agree upon a Christian conciliator or conciliators who would mediate the dispute in accordance with the Rules of Procedure for Christian Conciliation o fthe Institute for Christian Conciliation, a division of Peacemaker Ministries (complete text of Rules is available at www.Peacemaker.net). The parties understand that these methods shall be the sole remedy for any controversy or claim arising out of this Agreement and expressly waive their right to file a lawsuit in any civil court against one another for such disputes, except to enforce an arbitration provision.
Based on this provision, Defendants HG Lease and BL Special Manager*fn2 move to stay this litigation and compel arbitration.Higher Ground responds that the arbitration clause is unconscionable and therefore unenforceable because the terms were dictated to Higher Ground, who is a relatively unsophisticated party compared to Defendants, and because the clause is excessively one-sided and lacks mutuality. *fn3
The Federal Arbitration Act provides that agreements to arbitrate are generally valid and enforceable unless grounds for revoking the agreement exist in law or equity. 9 U.S.C. § 2; Perry v. Thomas, 482 U.S. 483, 490, 107 S.Ct. 2520, 2525 (1987). Whether there is a legal or equitable reason for revoking the agreement is a matter of state contract law. Circuit City Stores, Inc. v. Adams, 279 F.3d 889,892 (9th Cir. 2002). Federal courts determining the validity of an agreement to arbitrate should apply ordinary state-law principles that govern the formation of contracts; thus, ...