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13 Tips for Consumer Arbitration Clauses That Work from the Experts John A

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13 Tips for Consumer Arbitration Clauses That Work from the Experts John A corpcounsel.com | June 3, 2014 13 Tips for Consumer Arbitration Clauses That Work From the Experts John A. Shope and Eric A. Haskell The U.S. Supreme Court has made clear that state law prohibiting the enforcement of a class action waiver in an arbitration clause is preempted by the Federal Arbitration Act (FAA), even if the practical effect is that a claim will not be pursued (see AT&T Mobility LLC v. Concepcion and American Express Co. v. Italian Colors Restaurant). But that doesn’t mean that plaintiffs’ counsel and courts hostile to arbitration won’t keep looking for ways to avoid enforcing an arbitration clause in a consumer agreement. Here are some drafting tips to maximize the chance that your agreement will be enforced: includes an arbitration clause of arbitration administrators that so provide, but the safer course is to do so 1. The Consumer Actually Has to foreclosing class actions and jury explicitly in the agreement itself. For Agree trials, and (2) requiring the customer example, the arbitration shall cover An agreement to arbitrate can be to take an affirmative act (such as “any and all claims or disputes arising made in any of the ways that any other clicking “I agree”) to signal agreement. out of or relating to the customer contract can, and, under the FAA, courts agreement, including the breach, must be evenhanded in applying 2. Clarify What the Arbitrator application, validity, interpretation or those general rules. But courts are Will Decide scope thereof.” skeptical when an arbitration clause While a court must always decide is buried in text, is not immediately whether an agreement to arbitrate available, is not visible until after the was made in the first place, that 3. Provide That the Arbitrator Shall underlying transaction is complete agreement can also include a provision Have No Power to Conduct Class, or in some other way is a surprise. that, if expressed unmistakably, Mass, Private Attorney General or While the mere posting of terms on a delegates to the arbitrator the power Consolidated Proceedings Without website (known as a “browsewrap”) is to determine the validity and scope Your Client’s Consent often enforceable, sometimes it’s not. of the arbitration clause itself. Several That way, if a rogue arbitrator Avoid a fight by (1) highlighting courts have held that this may be attempts to allow a class action (or at the beginning that the contract done solely by reference to the rules similar variant), his or her action June 3, 2014 may be set aside in court. Adding a 7. Pay Attention to the Fees to all parties. But until that issue is belt to the suspenders, provide that There is certainly an argument that settled, make any carve-outs apply if the prohibition on class action arbitration inherently requires an by subject matter rather than party, were to be stricken, the entire arbitrator’s fee that would be greater although be aware that some courts arbitration clause is invalid. than fees charged by publicly funded reject even this approach. courts, and that such expense is no 4. Select Your Arbitration basis to invalidate an arbitration clause. 11. Specify That the FAA Applies Administrator Carefully However, the Supreme Court has left Provide expressly that the FAA applies, Many companies chose the now- open the possibility that excessive but do not specify the application of any defunct National Arbitration Forum arbitral fees may do so. Review the state’s law—unless you further provide because of its low fees, but when the fees of your intended administrator(s), that any state law does not apply if it is forum was sued by the Minnesota and, if in doubt, provide that any fees preempted by the FAA Attorney General for alleged greater than the filing fees of the improprieties and elected to exit the customer’s home trial court will be paid by the company. 12. Consider a Severability Clause consumer arbitration business, many Authorize the court to sever any companies had to litigate whether a unenforceable provision of the arbitration substitute could be appointed¾not 8. Specify Who Has the Right to clause (other than the prohibition of a always successfully. Arbitrate class and like proceedings). Plaintiffs’ counsel will often seek to make an end-run around an arbitration 5. Provide for a Substitute Arbitrator 13. Don’t Overreach A mutually designated arbitration clause by suing peripheral players such as subcontractors or employees. To Too many consumer agreements administrator may not be available have clauses that so strongly favor the when the dispute arises, so make avoid this problem, explicitly provide that the agreement to arbitrate covers company that no court or arbitrator sure your agreement authorizes will be willing to enforce them. Such the court to appoint a substitute. claims against those third parties, which should be specified by name or role. clauses are actually counterproductive, Alternatively, give the claimant a because they increase the likelihood choice of administrators, such as the that a court will want to refuse to American Arbitration Association 9. Name the Venue enforce the arbitration clause. Ask (AAA), JAMS or the International Most companies want to arbitrate in yourself whether an intelligent and Institute for Conflict Prevention and their own backyard. But some courts reasonable consumer, knowing all Resolution (CPR). have held that, for smaller claims, material facts, would agree to what requiring the consumer to arbitrate you’ve drafted. If not, rewrite. 6. Pay Attention to Your far from home is unconscionable. Administrator’s Rules (JAMS requires a consumer hometown John A. Shope is a partner in the Boston Administrator rules are important. option.) So specify your preferred venue, office of Foley Hoag, where he specializes For example, the AAA and JAMS but authorize the arbitrator to select in class action defense, consumer law and require consumer arbitration another one if that one is unreasonably commercial arbitration. He also serves as clauses to permit consumer claims burdensome to the customer. an arbitrator for the AAA. Eric A. Haskell in small claims court; JAMS makes is an associate at the firm specializing in the company responsible for any 10. Make the Obligation to complex commercial litigation. consumer’s fee expense over $250. Arbitrate Mutual Make sure that your clause doesn’t California has held that the obligation contradict the procedures, policies to arbitrate must display a “modicum or practices of the designated of bilaterality.” There is a strong administrator, but do provide that, argument that, like other California should there be a conflict, your principles hostile to arbitration, this agreement will control—with the rule is forbidden by the FAA, since the Reprinted with permission from the June 3, 2014 edition of COR- PORATE COUNSEL © 2014 ALM Media Properties, LLC. This understanding that you may then common law does not require that all article appears online only. All rights reserved. Further duplication without permission is prohibited. For information, contact 877- have to use a different administrator. contractual obligations apply equally 257-3382 or [email protected]. # 016-06-14-05.
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