Anyone who has bought or sold a house, applied for a credit card, opened a checking account, borrowed money, or purchased a new car is all too familiar with the accompanying flurry of paperwork. Within the assortment of forms and almost without exception, one will find a dispute resolution provision called an arbitration clause. A few years ago, in a three part series of articles largely critical of forced mandatory arbitration of consumer and employment disputes, the New York Times noted that “[o]ver the last few years, it has become increasingly difficult to apply for a credit card, use a cell phone, get cable or internet service, or shop online without agreeing to private arbitration. The same applies to getting a job, renting a car, or placing a relative in a nursing home.”
Such clauses typically provide that any dispute or claim between parties will be resolved not through the judicial system but through binding arbitration, which is a private dispute resolution process that takes place before one or, in some cases, three arbitrators. Each side is solely responsible up front for their respective fees and costs of arbitration. The proceedings are conducted at the place specified in the arbitration clause. The arbitration award is typically in writing and is final, binding, and non-appealable. The arbitrator(s) may award the substantially prevailing party reasonable attorney’s fees and the costs of arbitration.
Although many point to desirable facets of arbitration (including speed and certainty of resolution), others criticize its drawbacks, including loss of the right to a jury trial, no right of appeal, no or limited discovery, limited assurance that otherwise binding legal precedent will be followed, and the requirement that both sides pay sometimes steep costs and fees up front.
Many courts therefore view these clauses with reservation and enforce them with reluctance. For instance, at least three federal circuits have refused to compel arbitration in various contexts and the Mississippi Supreme Court rejected an arbitration attempt where arbitration language in a contract with a community hospital was not sufficiently spread upon the minutes of that public body. See Wellness, Inc. v. Pearl River County Hospital, No. 2014-CA-01696-SCT (Miss. Sup. Ct. November 19, 2015). That same year, the Kentucky Supreme Court went even further, comparing arbitration agreements with surrendering parental rights or entering into personal servitude. See Extendicare Homes, Inc. v. Whisman, 2015 WL 5634309 (Ky. Sept. 24, 2015). More recently, the United States Supreme Court agreed to hear a California arbitration decision, MHN Government Services, Inc. v. Zaborowski, where the Ninth Circuit affirmed a district court’s refusal to compel arbitration in a 2-1 decision. The case was settled before oral arguments.
Whether seeking or opposing arbitration, it is wise to know the undercurrents and to appreciate that it is not a black and white area of the law. If you are dealing with an arbitration issue or are simply in a civil dispute and request legal assistance, please feel free to contact this office at 850-460-3213 or at [email protected].