We Care Hair Development, Inc. v. Engen

Engen's (defendant) franchise agreement with We Care Hair (plaintiff) required arbitration of disputes, but his separate sublease with an intermediary landlord tied to We Care Realty had no arbitration requirement and let the landlord evict him for any breach of the sublease -- including any breach of the franchise agreement -- without going through arbitration first. When We Care Hair sued Engen, he raised a state-court claim that the sublease arrangement was unconscionable; the federal district court compelled arbitration and enjoined the state suit, and Engen appealed.

Whether a finding that a contract provision is void as unconscionable depends on the circumstances existing at the time of contract formation, including the parties' relative bargaining positions and whether the provision's operation would create unfair surprise.