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Zahra Takhshid, Assumption of Risk in Consumer Contracts and the Distraction of Unconscionability, 42 Cardozo L. Rev. __ (forthcoming, 2021), available at SSRN.

It has been a while since many of us have been able to attend the gym. Yet, before Covid-19, those committed to working out in this setting were kindly asked (read: required) to sign a contract that released the business operating the fitness facility from liability for any injury that might occur while using the premises. Accordingly, if an injury happened due to the business’ negligence, its defense against tort-based liability was contractual: it relied on the exculpatory clause that the user signed before the user was hurt. If the user took legal action, courts faced a Hamlet-style dilemma: to enforce or not to enforce the contract that was designed to prevent the operation of tort law. On the one hand, as we all know and as Danielle Hart has empirically shown, courts are heavily inclined to enforce contracts. On the other, at stake are bodily injuries that the business could have probably prevented if only it had exercised more caution.

In her forthcoming article, Assumption of Risk in Consumer Contracts and the Distraction of Unconscionability, Zahra Takhshid importantly focuses on this tension between contract law and tort law and pays particular attention to recreational activities in the commercial sphere that have resulted in bodily injuries. She opens with the unfortunate story of Gina Stelluti, a woman who suffered long-term injuries because an instructor of a spinning class she took for the first time neglected to secure her bicycle’s handlebars. The New Jersey Supreme Court upheld an exculpatory clause signed by Stelluti in which she released the gym from liability for negligence. This court clarified that only gross negligence—as opposed to the gym’s ordinary negligence—might have justified invalidating the exculpatory clause. For Stelluti, that meant no compensation.

Descriptively, Takhshid reports that “exculpatory clauses are now routinely enforced in a stunningly broad range of cases” in which “plaintiffs injured in recreational activities [sue] those who negligently provided such activities.” Her use of the word “now” is significant because Takhshid also argues that the result in cases like Stelluti v. Casapenn Enters., LLC would have probably been different in the past. She explains that for many years courts in a variety of jurisdictions had followed the 1963 Californian decision in Tunkl v. Regents of Univ. of Cal., holding negligent businesses responsible for physical injuries despite exculpation clauses. More recently, however, courts have demonstrated increasing reluctance to hold negligent businesses liable. Takhshid attributes the change to a shift in the way courts analyze the issue. Courts, she reports, have moved from scrutinizing exculpation clauses under the public policy doctrine to handling them via the unconscionability doctrine. Takhshid sees this doctrinal shift as detrimental to the state’s ability to protect injured consumers. While the older cases “were concerned with the public policy as part of the regulatory role of the state to protect consumers,” the newer cases narrowly focus on the relationship between the contractual parties. Accordingly, if no evidence of oppression is available, they enforce the parties’ contract.

The question raised by Takhshid’s article is normative: should we let standard contracts have this impact over tort law? Significantly, she emphasizes that when people decide to participate in certain activities, they assume the risks that come with them. For example, those who play soccer assume the risk of an injury that may come from physical contact with another player. Signing an exculpation contract with the business organizing the game would add an obligation not to sue this business when such injury occurs. But, Takhshid insists, we must distinguish between such assumed risks and other perils that originate in the organizer’s negligence. When an exculpation clause is raised as a defense against a business’ carelessness, the legal response must differ. Then, she argues, “courts should announce the clause void as against tort law’s public policy of protecting physical integrity.”

The article offers strong comparative support to its normative call. Delving into the parallel regulation of the issue in other countries across the pond, it shows that “many foreign jurisdictions–both common law and civil law–treat physical integrity as an inalienable right.” Similarly, Takhshid concludes, bodily injuries that arise from the negligence of service providers such as the gym in Stelluti should remain beyond the reach of private parties and contractual terms. Allowing contracts to undermine tort law’s duty of care would put at risk “one of the main ways societies and legal systems protect people against bodily injures and promote safety.”

Takhshid’s observations about the state of the law and her normative arguments are highly compelling. Her new article contributes to the growing literature that criticizes the unfair use of standard contracts in ways that generally exploit and enhance consumers’ powerlessness and particularly deprive them of the right to their day in court. Consumers’ re-empowerment, however, may demand more than a return to the public policy principles that guided decisions such as Tunkl. We may also need to re-embrace the ideology that inspired courts to refuse to enforce contracts in the decades between the end of the Lochner era and neoliberalism’s rise to dominance. This period of demonstrated willingness to refuse enforcement was explained in a recent Jot as follows: “whenever a contract creates substantial negative externalities—that is, whenever it adversely affects the well-being of other people—there are prima-facie grounds for curtailing freedom of contract.”

Nonetheless, the newer cases described by Takhshid, which enforce exculpation clauses even when it means legitimizing negligence, turn back to unrestrained freedom of contract. They epitomize a neoliberal era in which corporations increasingly use contracts and contract law to manipulate and even take over the state’s regulatory role. In that sense, these cases can demonstrate the model presented in Katarina Pistor’s The Code of Capital. What Pistor calls “legal coding” is a capital-producing process that heavily depends on adding unique legal qualities to regular assets. The coding process starts privately. In the case of recreational injuries, it takes place by adding exculpation clauses to standard contracts. The next step, however, depends on the state. In the context of exculpation clauses, enforcement by courts is necessary to insulate businesses from the risk of having to pay for their negligence. And, as Pistor argues, the more the state is willing “to recognize and enforce privately coded capital,” the greater socioeconomic inequalities grow.

Takhshid’s article offers a chilling demonstration of Pistor’s theory. The more the state’s courts enforce privately drafted exculpation clauses, the less the state can secure health and safety via its tort law. The obvious beneficiaries are the businesses while consumers pay the price and inequality increases. Thus, the article belongs with the law and political economy project as it illuminates how contracts’ enforcement is far from being neutral and instead facilitates rising inequality. For that reason, courts must protect the state’s power to regulate what Takhshid calls “risk-creating enterprises” and incentivize them to take due care of their clients’ health and safety. As the article concludes: we should not “let contract erode tort for a domain where tort law’s regulatory bite is important.”

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Cite as: Hila Keren, Contract Law v. Tort Law, JOTWELL (May 19, 2021) (reviewing Zahra Takhshid, Assumption of Risk in Consumer Contracts and the Distraction of Unconscionability, 42 Cardozo L. Rev. __ (forthcoming, 2021), available at SSRN), https://contracts.jotwell.com/contract-law-v-tort-law/.