April 4, 2024
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Forced arbitration violates your rights


Lisa Spiwak

Lisa Spiwak

By Lisa Spiwak

Arbitration has become very popular as an alternative dispute resolution to the traditional court system. Arbitration’s popularity stems from the fact that it is a way to resolve legal disputes outside of the courts in a faster, cheaper and more flexible manner. Arbitration awards are completely binding on the parties and those parties give up their right to appeal.

All of the above is terrific if both parties willingly opt for arbitration instead of going to court. However, many consumers enter into arbitration agreements without understanding what they are entering into and what they are giving up.

In fact, the majority of contracts entered into by consumers do not even give that consumer an option regarding arbitration.  The contract simply contains a boilerplate mandatory arbitration clause that the consumer is forced to agree to and that is not open to negotiation.

It has become a part of the requirement for entering into the agreement.

Since consumers are forced to waive their right to a jury trial in order to enter into a particular contractual relationship, couldn’t that contract be considered in violation of our Constitution? The Seventh Amendment of the U.S. Constitution awards us the right to a trial by jury. Arbitration takes that right away.

Arbitration has been in existence for many years. The Federal Arbitration Act (FAA) was enacted on Feb. 12, 1925, and provided for judicial facilitation of private dispute resolution through arbitration. It applies in both state and federal courts. Mandatory arbitration clauses have become commonplace with most American companies. Virtually every agreement we are asked to sign contains an arbitration clause. This includes credit card agreements, employment contracts, car rental agreements, car finance contracts, apartment rental agreements, student loans, health care claims and virtually all banking transactions. In my research for this piece, I was unable to uncover a single consumer contract that excludes arbitration.

If a consumer is not given the option of disagreeing to arbitration when entering into a contract, then the question becomes what bearing does this have for that consumer? The answer is that it has significant bearing. First of all, the arbitration clause will dictate where the arbitration is to be held and which law governs the agreement. The venue and governing law will always be convenient for the company who prepared the contract but it may not be convenient for the consumer.

For example, regardless of where you live in the United States, American Express’s contract states that their arbitrations are to be held in New York with that as the governing state law.

This is the case even if you live in California, got your credit card issued in California and made purchases with the card at a store in California. Therefore, if you live in California and want to dispute something with American Express, you are forced to travel to New York even though it is totally inconvenient for you and may prove too costly to even be worth the fight.

You have lost before you have even begun! Yet, American Express does not give you the option to waive the arbitration agreement in their contract. If you want an American Express card, you have to comply with the terms of their “one-sided” arbitration clause.

Mandatory arbitration clauses further put consumers at a huge disadvantage because they take away scrutiny by the public. The arbitration process is completely confidential and private. The last thing that large corporations want is bad publicity by unhappy customers.

Public lawsuits are a powerful tool available to disgruntled customers. Media attention of a public lawsuit can assist customers in that it can alert other disgruntled customers to come forward with their complaints and further bolster the action against the corporation.

Arbitration makes sure this does not happen.

Lastly, another huge problem with arbitration is that it is not unbiased.  Arbitrators’ livelihood depends on attracting business from corporations with many cases. Therefore, arbitrators are likely biased toward the corporations that have “repeat matters” and not toward the consumer who is just going to use that arbitrator one time. If the arbitrator rules in favor of the corporation, that corporation is more likely to hire that arbitrator again and again.

It is evident that boilerplate mandatory arbitration clauses do strip consumers of their constitutional right to a trial by jury and as such should be stricken from corporate contracts unless expressly agreed to by all parties.

• Lisa Spiwak is a partner with Spiwak & Iezza in Thousand Oaks. Reach her at LSpiwak@SpiwakandIezza.com.