Opinion ID: 1755180
Heading Depth: 1
Heading Rank: 15

Heading: Unconscionable Contracts

Text: Myers contends that the contracts were unconscionable because the fees were excessive on their face and the contracts do not meet the prudent investor standard of § 72-1239.01. Brief for appellant at 27. Myers cites no authority to support his contention that the fees were excessive. Relying on Custer Public Power Dist. v. Loup River Public Power Dist., 162 Neb. 300, 75 N.W.2d 619 (1956), Myers also argues that the contracts were unconscionable and void as against public policy. In Custer Public Power District, the district contracted to buy substantially all of its electricity from a power system for 26 years instead of generating its own electricity. We held the contract was void as injurious to public welfare. We, however, did not hold the contract was unconscionable. `The power of courts to invalidate contracts for being in contravention of public policy is a very delicate and undefined power which should be exercised only in cases free from doubt.' Id. at 316, 75 N.W.2d at 629-30. It is the Legislature's function through the enactment of statutes to declare what is the law and public policy. Clemens v. Harvey, 247 Neb. 77, 525 N.W.2d 185 (1994). Unlike the utility contract in Custer Public Power District, this contract involved only a portion of the NIC's investment duties. Because the Legislature has authorized the NIC to contract for investment management services, the contracts did not violate public policy. The unconscionability of a contract provision presents a question of law. See Melcher v. Boesch Motor Co., 188 Neb. 522, 198 N.W.2d 57 (1972). When considering whether an agreement is unconscionable, this court has stated that the term unconscionable means manifestly unfair or inequitable. See Weber v. Weber, 200 Neb. 659, 265 N.W.2d 436 (1978). A contract is not substantively unconscionable unless the terms are grossly unfair under the circumstances that existed when the parties entered into the contract. Adams v. American Cyanamid Co., 1 Neb.App. 337, 498 N.W.2d 577 (1992). In a commercial setting, however, substantive unconscionability alone is usually insufficient to void a contract or clause. See id., citing 1 E. Allan Farnsworth, Farnsworth on Contracts § 4.28 (2d ed. 1990). A court must also consider whether the contract formation was procedurally unconscionable. See id. An essential fact in determining unconscionability is the disparity in respective bargaining positions of parties to a contract. See Ray Tucker & Sons v. GTE Directories Sales Corp., 253 Neb. 458, 571 N.W.2d 64 (1997). In Ray Tucker & Sons, the issue was whether a limitation of liability provision in a contract for yellow pages advertising was unconscionable. We refused to address the substantive unconscionability issue because the record showed no disparity in the parties' bargaining positions. In addition, the record failed to show that the customer could not have obtained equally effective advertising elsewhere. See id. In general, we have been reluctant to rewrite contracts between parties experienced in business, as opposed to contracts between consumers and skilled corporate parties. See, e.g., Reichert v. Rubloff Hammond, L.L.C., 264 Neb. 16, 645 N.W.2d 519 (2002); Darr v. D.R.S. Investments, 232 Neb. 507, 441 N.W.2d 197 (1989). Unconscionability presents a question of law. Usually, the issue should not be determined before the plaintiffs have an opportunity to present evidence of disparity in their bargaining positions and that the provisions unreasonably favored the defendant. See, e.g., Carlson v. General Motors Corp., 883 F.2d 287 (4th Cir. 1989). But here, the taxpayer is asserting unconscionability on behalf of a state agency. And the pleadings and attachments conclusively refute any disparity between the parties' bargaining positions. Regarding the NIC's bargaining position, each NIC council member shall have at least ten years of experience in the financial affairs of a public or private organization or have at least five years of experience in the field of investment management or analysis. § 72-1238. Section 72-1240 requires the state investment officer to have at least 5 years of experience in managing investment portfolios and be well qualified to administer and invest the money available for investment. Myers cannot reasonably assert that these officers were in an inferior bargaining position or ill equipped to evaluate whether the benefits of the contracts justified the clearly expressed risks and fees. Myers' claim of unconscionability must fail.