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That Signed Agreement Might Not Hold Up

Daily Journal of Commerce
January 27, 2015


When parties enter into a contract, it is common practice to allocate risk through the use of "release of liability" or "limitation of liability" clauses. Generally speaking, these clauses shift exposure for legal liability to one party, and away from the other. However, relying on the enforceability of these clauses in Oregon just got a bit more uncertain, thanks to a recent Oregon Supreme Court decision.

Last month, in Bagley v. Mt. Bachelor Inc., the Oregon Supreme Court held that an "anticipatory release" (i.e., an agreement that releases one party from liability for its own negligent conduct, before an injury even occurs) in a contract between a ski area operator and a patron visiting the ski area is "unconscionable," and therefore invalid.

In this case, a young snowboarder was seriously injured while going over a man-made jump in the ski operator's "terrain park." The accident left him ‎paralyzed. He brought an action against the ski area operator, alleging the ‎ski area operator was negligent in the design, construction, ‎maintenance and inspection of the jump. The ski area operator asked the court to dismiss the lawsuit because the plaintiff snowboarder had signed a "release and indemnity agreement" at the time he purchased his season pass that immunized the ski area operator from any liability for personal injury.

The "release and indemnity agreement" provided, among other things, that, in return for the right to snowboard on ‎the premises, plaintiff "agree(d) to release and indemnify (the ski area operator) from any and all claims for property damage, injury, or death which I/we ‎may suffer or for which I/we may be liable to others, in any way connected ‎with skiing, snowboarding, or snowriding.  This release and indemnity ‎agreement shall apply to any claim even if caused by negligence. The only ‎claims not released are those based upon intentional misconduct."

The plaintiff argued that the release was against public policy and unconscionable and, as a result, unenforceable. Both the trial court and the ‎Court of Appeals sided with the ski area operator; the plaintiff then petitioned the Supreme Court for review.

Upon review, the Supreme Court analyzed the issue of whether the release was "unconscionable" – a general legal term used to describe conduct that "affronts the sense of justice, decency or reasonableness."

The court explained that there are two types of unconscionability: procedural and substantive. "Procedural unconscionability" refers to circumstances surrounding the contract's formation and focuses on two factors: oppression and surprise. "Oppression exists when there is inequality in bargaining power between the parties, resulting in no real opportunity to negotiate the terms of the contract and the absence of meaningful choice;" "surprise involves whether terms were hidden or obscure from the viewpoint of the party seeking to avoid them." In contrast, "substantive unconscionability" refers to the terms of the contract and whether they run counter to public interest or public policy.

Addressing first the procedural component, the court (after admitting ‎the release was clear and conspicuous, and that its terms were not surprising to ‎the plaintiff) concluded the contract was a consumer contract between parties of considerably ‎unequal bargaining power, with the release presented on a take-it-or-leave-it basis. The problem was heightened, the court reasoned, by the limited number of ski areas available in Oregon, and the general use of similar releases at those areas. As a result, the court held the release to be procedurally unconscionable.

Turning to the question of substantive unconscionability, the court addressed three issues: 1, whether the release would cause a harsh or inequitable result; 2, whether the ski area operator's business served an important public interest or function; and 3, whether the release purported to disclaim liability for some misconduct beyond ordinary negligence. As to the first issue, the court held, in part, that the result would be harsh because, accepting as true the allegations in ‎the plaintiff's complaint, the plaintiff would not have been injured if the defendant had ‎exercised reasonable care in designing, constructing, maintaining or ‎inspecting the jump on which he was injured. And that harsh result also ‎would be inequitable because the defendant, not its patrons, has the expertise ‎and opportunity to foresee and control hazards of its own creation on its ‎premises, and to guard against the negligence of its employees.

Regarding the second issue, the court, after acknowledging that the ski area operator's business "(does) not provide the kind of ‎public service typically associated with government entities or heavily regulated ‎private enterprises such as railroads, hospitals or banks," nonetheless ‎holds that the business is one involving "legitimate public interests ‎concerning (its) operation."

Finally, as to the third issue, although the court agreed that the scope of the release only pertained to ordinary negligence (and not to intentional misconduct). The court simply said that the scope of the release "carries less weight than the other substantive factors." In sum, the court held the anticipatory release between the parties to be both procedurally and substantively unconscionable and, therefore, unenforceable.

This is a very important ‎decision, both with respect to its own facts and to the broader question of when, if ‎ever, an owner of premises open to the public can obtain a valid release from ‎liability for its own negligence on those premises. The answer to that question ‎appears to be "never."

You may say, "But wait – my contracts are commercial matters, and not consumer transactions." And you'd be ‎correct: right now, no court decision extends the Bagley analysis to all commercial transactions. But the court ‎may not be finished. The next case it hears could be one involving an anticipatory release of negligence ‎liability in which the releasing party (a subcontractor, for example) was at such a financial disadvantage that it ‎had to give the release if it wanted the work.

And, in such circumstances, it could well be that the court ‎would say, once again, that the financial disparity and the take-it-or-leave-it posture of the negotiations ‎meant that the releasing party was "oppressed," and should be relieved of the burden of its release. So ‎when your lawyer wants to talk with you about this topic, take it seriously. We do.‎

As published in the Daily Journal of Commerce, January 27, 2015.