More and more and more I see arbitration clauses in contracts of all types and nature.
An arbitration clause is a provision that says that if there is a dispute between the parties to the contract, the parties are not allowed to proceed with a lawsuit in the civil justice system, but instead will go to arbitration.
Arbitration is somewhat akin to a glorified small claims court, where there are generally no formal rules of discovery or evidence; the parties go and tell their story; the decision is made by an arbitrator, not a judge (and sometimes not even a lawyer); and there is no right to appeal an erroneous or egregious decision.
The difference from small claims court is that usually it is not minor claims capped at $5,000 that go into arbitration, but significant disputes over significant damages claims, and in small claims court, there is a right to appeal to a higher court a bad or erroneous decision. Not so with arbitration.
The idea is that arbitration is cheaper than litigation in court, and perhaps it is, but not always. Plus, that possible cost savings can be offset by unfair results, lack of review, and toothless enforcement of bad acting, when the teeth and fairness of the civil justice system may be badly needed.
Arbitration clauses appear in contracts for the purchase and financing of automobiles, mortgage loan agreements, cell phone agreements, bank account agreements, franchise agreements, college enrollment agreements, construction contracts, and just about any type of agreement you can think of where one of the parties has a staff of lawyers who are told to write up form agreements that will keep them from having to defend themselves court.
This tends to protect big companies that may act unconscionably, sell worthless goods and products, rip people off, and defraud the public.
Both the state and federal government have enacted legislation recognizing the enforcement of binding arbitration clauses in a contract, but with some exceptions. However, more and more the trend is to uphold arbitration clauses, and throw those disputes and claims under a contract into an arbitration setting, and out of the court system.
One issue that big companies fear is class action lawsuits, where a systematic, widespread course of action may have the aggregate effect of unfairly enriching bad actors by enormous sums of money, but any single individual claim is not practical to pursue, unless a class is certified, and they are lumped together into one big case.
These claims may include claims that are not worth pursuing on a case-by-case basis, such as unfair fees and charges in the small print on transactions that are duplicated again and again, or the sale of bogus products for small sums of money that are worthless, but only involve enormous sums of money if aggregated for which class certification provides a means of justice in the court system.
And so one of the main benefits of routine arbitration clauses for big companies is that they are protected from class action lawsuits if they engage in widespread overreaching and dirty dealing.
So next time you are asked to sign a contract that comes in the mail or is handed to you by a salesman, don’t just sign it. Peruse it to see if there is an arbitration clause. You may even want to X out that clause, write in the margin “not agreed to,” and initial. Some people do.
-- Ken Garten is a Blue Springs attorney. Email him at email@example.com