Five Things You Should Know About Arbitration Clauses in Contracts

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To trial lawyers, arbitration is a dirty word. We have fought tooth and nail against any forced arbitration clauses as they take away your Constitutional right to a trial by jury for any dispute. Have you signed an arbitration clause and didn’t even know it? Most likely, yes. I would venture a guess that most American citizens have and you would never know it until a dispute arises. That’s when the wrongdoer throws the arbitration clause in your face and (figuratively) says “you can’t sue me (i.e., you can’t hold me responsible). Here are five things to know about arbitration clauses:

  1. “Mandatory” Arbitration clauses are not mandatory. An arbitration clause is nothing more than a waiver of the right to a jury trial to decide any dispute. But for a waiver to be valid it must be “knowing,” i.e., you must know what you are giving up or “waiving” at the time you give it up.  Arbitration clauses, by definition, are not “knowing” because you are required to sign or submit to them pre-dispute or pre-injury, before you even know what harm has or may be done. How can that possibly be a “knowing” waiver?  It can’t. Many courts have invalidated so-called “mandatory arbitration” clauses for his very reason.   Arbitration clauses often appear, for example, in the admission papers of a nursing home. The admitting family member must sign 20 pages or so to get their loved one admitted into the nursing home and the “mandatory arbitration” clause is hidden somewhere on page14 in fine print that no lay person could possibly read or understand.  The family member must sign these documents at what may very well be once of the worst times in his or her life, when the decision to place his or her spouse or partner, who perhaps they have lived with and loved for 40 years, into another living facility to be cared for by other people. The loved one’s health is probably failing. And yet nursing homes are slipping these “mandatory arbitration” provisions under the noses of their customers every day in America, without explaining what it is or what it means, during a life crisis for the consumer. What’s fair about that? Nothing.
  2. “Mandatory” arbitration clauses protect the institution not the consumer.  I have had some success in the nursing home scenario described above in getting Georgia judges to invalidate arbitration clauses because they are not a “knowing” waiver of a known right. One such arbitration clause I defeated stated that the arbitration must be conducted in “accordance with the American Health Lawyers Association (AHLA) Alternative Dispute Resolution Service Rules of Procedure for Arbitration….”  The American Health Lawyers Association is roughly 13,000 lawyers, which  “includes in-house counsel, compliance and privacy officers, finance officers, health care consultants, regulatory professionals, those employed in health care, public health, government, and academia.” This means the AHLA members are lawyers for the nursing homes. They are not lawyers for the patient or family member. Does that seem like a level playing field to you, conducting this forced arbitration according to the rules devised by the nursing home lawyers? Not hardly.
  3.  Arbitration clauses are unconscionable. I have successfully argued to courts to invalidate arbitration clauses because they are unconscionable, meaning they are so one-sided and so punitive that they violate the public policy of freedom to contract in Georgia. I have successfully argued the arbitration agreement is  void due to both substantive and procedural unconscionability. “Procedural unconscionability addresses the process of making the contract, while substantive unconscionability looks to the contractual terms themselves.” NEC Technologies, Inc. v. Nelson, 267 Ga. 390, 392 (1996). With respect to the process of making the contract, no one ever explains the terms of the contract and arbitration clause to the person signing it. Thus, the arbitration provision is substantively unconscionable in that it effectively eliminates the ability of claimants to develop the evidence they will need to prosecute their claims. The arbitration provision does not expedite and facilitate the economical presentation of claims; it affirmatively and absolutely retards the ability to pursue them, thereby wrongly insulating Defendant from liability for its negligence.
  4. “Mandatory” arbitration clauses are everywhere. They are in your mortgage, your credit card agreements, student loans, home inspections, surgical consents, just everywhere.  And consumers are fighting back.  The Consumer Financial Protection Bureau two days ago announced that it plans to propose rules that would prevent consumer financial services companies from using arbitration clauses to block class actions.  Because it is not cost-effective to pursue merely a single incident of a forced arbitration, allowing class actions to attack forced arbitration clauses would be an enormous relief to consumers.  If this proposal passes, it would most likely ban the inclusion of forced arbitration clauses in financial institution agreements, such as credit card agreements. This would be a huge step in favor of the consumer.
  5. “Mandatory” arbitration clauses are not here to stay.  I am fighting against arbitration clauses whenever they appear in any of my client’s documentation.  This is because I believe my clients have a better chance of real justice in a court of law allowing a jury of twelve normal walking-around human beings decide his or her case. This is a good fight and the little guy is in the right on this issue.  My suggestion:  Read all documents carefully. Refuse to sign any forced arbitration agreement. Cross out that arbitration paragraph before signing the entire agreement. Never concede.

Robin Frazer Clark pursues justice for those who have personal injury claims as a result of being injured in motor vehicle wrecks, trucking wrecks, defective products, defective maintenance of roads, premises safety, medical malpractice and other incidents caused by the negligence of others. Ms. Clark is the 50th President of the State Bar of Georgia and a Past President of Georgia Trial Lawyers Association and has practiced law in Georgia for 26 years. Mrs. Clark is listed as one of the Top 50 Women Trial Lawyers in Georgia and is a Georgia Super Lawyer. Robin Frazer Clark~Dedicated to the Constitution’s Promise of Justice for All.