CONTRACTS: WATCH OUT FOR ARBITRATION CLAUSES: THEY’RE EVERYWHERE AND THEY’RE DEADLY

They’re Everywhere

If you ae a normally active adult, then you sign a document containing an arbitration clause at least once a week, and probably more often than that.  Virtually every time you sign a business’ form contract, it is pretty safe to guess that the boilerplate on the back, which you never read, includes an arbitration clause.  If you are a small businessperson, it is a pretty safe guess that all your contracts with your suppliers and servicers included an arbitration clause.

So What?

“So I sign them all the time. I admit I didn’t know that, but what’s the difference?”  In most cases, it makes no difference.  Few transactions get out of control.  Even where there is a problem with what we buy, it’s often not enough of a problem for us to make a fuss, and the seller, using good business sense, will often correct the problem.  But not always: sometimes the problem is expensive and sometimes the seller isn’t willing to just make it right.  So you want to fight for your rights.  And that’s when you run smack into the arbitration clause.

They’re Deadly

You’re thinking, “I’ll just go to court and get a judgment from my peers and get compensated.”  But not if you signed an arbitration clause. First of all, the arbitration clause is mandatory: if you signed, you don’t have a choice between court and arbitration . . . you must go to arbitration.  And unlike court, there is no right to appeal from arbitration: if the arbitrator is biased, too bad.  And most importantly, to my mind, you give up your basic constitutional right to a jury.

What do you get in place of a jury?  A professional arbitrator who is agreed on by the parties.  Most of them are former lawyers or judges with considerable legal experience.  That’s good.  The problem is that arbitration is their living.  They will not make a living on your case alone.  Rather, they must have continuing business. You’re going to be in arbitration once in your life.  The company will be in arbitration repeatedly and, therefore, represents the possibility of ongoing business for the arbitrator.  Conversely, if the arbitrator holds for you against that company, do you think that company will ever allow that arbitrator to work again in their arbitrations?  It is for that reason that the little guy in the arbitration — maybe a consumer, maybe a small business — so rarely wins.

How did this happen?

Very simply, many large corporations decided they just could not entrust lawsuits to juries because juries kept holding for victims, and sometimes in large amounts.  They tried many things to cut back on these verdicts.  They instituted what they called Tort Reform, which their media associates said was to cut down on “frivolous” lawsuits – i.e., lawsuits against business.  In some states, they put huge amounts of money into electing sympathetic members of the Supreme Courts, who would in turn cut down on those verdicts.  But the best way to cut down on the problem was to keep victims out of court altogether.  So they instituted arbitration clauses, claiming that those clauses were an improvement over “expensive” litigation in courts.  And this last strategy has succeeded remarkably well.

So what do we do?

The long-run soluton is for all of us to stop believing what we hear.  Everything we see on the internet or in the media is not true.  Remember who owns the media and what is in their interest.

For the present, look at the boilerplate on the documents you sign, rathe than just signing blindly.  The arbitration clause will not be set out to attract your attention, but it will be labeled “Arbitration”.  My suggestion is to draw a big X through the clause and put your initials in the margin.  “That doesn’t sound like lawyer advice.”  Well, it is.  When the issue of the clause’s enforceability is litigated, the company can never argue the fairness of the clause; so they argue that there was a “meeting of the minds” about the arbitration clause (even though you did not know it was there), and you are therefore bound.  The Xing out which I recommend raises serious questions – legally – about that meeting of the minds.

There may be other ways to contest the applicability of the clause, depending on the particular facts.  That is the reason you need to see a qualified and experienced lawyer as soon as possible.

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