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Arbitration Clauses

Have you unknowingly agreed to forfeit your right? 

If you have a credit card, bank account, cable TV or a mobile phone, or if you have otherwise agreed to a form contract presented to you at any time in the last several years, it is likely that you have unknowingly agreed to forfeit your right to sue the other party in court. 

For example, if you were to comb through all the mail you have received from your bank, you would find your account agreement.  Buried somewhere in the fine print, you'll find a "dispute resolution" or "arbitration" clause, which says that if you have a dispute with the bank, you cannot sue; you must resolve your dispute before an arbitrator instead of a court of law. For more information call800.849.5291 or email us, today! 


What is arbitration?

Arbitration works like this: let's say your bank overcharges you $500.  If you have an arbitration contract, then you cannot sue and have your claim decided by a jury.  Instead, your claim will be heard by a single individual who will decide all issues of fact and law. 

Consumer rights advocates have claimed that often the arbitration agencies and arbitrators can be biased because they receive so much of their business from big companies.  Also, if the claim is for a small amount of money, it may cost more money to arbitrate the claim than the claim is worth.

Other problems that people have pointed out with arbitration include:

You have no jury in an arbitration.  The fate of your claim rests only with an arbitrator, and not with a jury of local citizens

The arbitrator may have a concern that if he rules against the company, the company may not hire the arbitrator for more cases in the future.  Often it is the company who pays the arbitrator for his time.

The company may have a lawyer to help it, but you may not be able to afford a lawyer if your claim is small.

The arbitrator's decision may not be explained or published. 

The arbitrator’s decision may only be overturned by the court if you can go to the time and expense of proving extreme misconduct on his part. 

Depending on the terms of the particular arbitration clause, there could be a risk that you may have to pay the arbitrator and the corporation's attorneys. 

See also this article in Bloomberg Businessweek.

In addition, virtually all arbitration clauses also include a ban on bringing or participating in any form of class action.  In the above example, it might be possible for you to get legal representation if you could show that many, many other people were also overcharged - the sum of all your claims together would be enough to warrant hiring an attorney.  Arbitration clauses with class bans take away this option, forcing individual customers who have been wronged to face behemoth companies alone.

Often, customers never even know these provisions exist because they do not read the agreements.  Customers are rarely asked to agree to all terms before opening their accounts, and the arbitration agreements are mailed later. 

Most people who do take the time to read their contracts lack the legal knowledge necessary to truly understand how arbitration works and what they are giving up.  Even attorneys with full knowledge of these clauses often agree to them, simply because they have no other choice.  Bank accounts, credit cards, and mobile phones are necessary in today's world, and you cannot get any of those without signing on the line and agreeing to the terms presented.

Also, many times a person may agree to a contract by clicking a button on an internet website.  By clicking the button they have agreed to be bound by a long list of terms and conditions that they have never read.  This could include an arbitration clause.

Has arbitration worked?

Consumer groups have argued that the arbitration system is more prone to injustice than the system of judges and juries.  In fact, there is evidence to show that injustice has occurred.  The National Arbitration Forum (NAF), then one of the major arbitration companies in the U.S., was (Minnesota Attorney General lawsuit complaint against NAF) sued in 2009 by the Minnesota Attorney General on the grounds that it defrauded customers into believing that it was an impartial dispute resolution forum, when (National Arbitration Forum biased - Web article) in fact the NAF was biased heavily toward its corporate customers.   (See also this article in Bloomberg Businessweek.) 

One retired Chief Justice of the West Virginia Supreme Court, who worked briefly for the NAF as an arbitrator, was quoted as having described the company as "professionals in squeezing small sums of money out of desperately poor people."  Other former arbitrators have reported that they were no longer given cases if they rendered decisions against the corporations that hired NAF. 

Such abuses do not necessarily extend to all cases and all companies, of course, but the secrecy and structure of arbitration make injustice very difficult to detect.

In the NAF matter, the NAF agreed to shut down its consumer arbitration business as a result of the Attorney General’s lawsuit.

Is there any way to avoid arbitration?

Sometimes a good and knowledgeable attorney can successfully argue that an arbitration clause should not be enforced, or can make a deal with a defendant to arbitrate on favorable terms or before an arbitrator whom the attorney believes is fair.  From time to time, courts have refused to enforce an arbitration agreement.

In certain cases, a party can successfully argue that the agreement to arbitrate was invalid for different reasons. 

These could include:

The arbitration agreement has language in it that is very unfair to the consumer, for example by requiring the consumer to pay a heavy fee if they want to arbitrate.

The agreement is unfair because it says only the company gets to pick the arbitrator.

The agreement is unfair because it would make the consumer travel thousands of miles to the arbitration.

The agreement was never included in the contract but instead the company tried to add it later.

The customer never signed the agreement.

Sometimes, courts have found that an arbitration agreement was “unconscionable” -- so unfair to the consumer agreeing to it as to "shock the conscience." 

An experienced law firm is vital in pursuing any potential class claim against a corporate defendant.  The class action attorneys at Wallace & Graham have years of experience fighting arbitration clauses and many other issues involved in class actions, and have successfully obtained class action or class arbitration status for several cases that involved arbitration clauses. 

For free consultation call (800) 849 - 5291 or email us, today!