ARBITRATE NOT

There is a fad these days in favor of arbitration.  I call it a fad because it appears everywhere, even where it should not.

I certainly do not mean to say that arbitration never has its place.  Under the current state of the law, companies dealing with the general public would be silly not to have an arbitration clause in their agreements with consumers, like cell phone companies or credit card issuers routinely do.  If properly written, private arbitration can prevent any kind of class action.  The Supreme Court has now held twice once the consumer agrees to arbitrate, that agreement may include a waiver of any class action right that would otherwise exist.

But arbitration is not indicated in every contract between any party, nor should it be inserted quite as often as it is.  One reason is that short of corruption or misconduct by the arbitrator, arbitration awards are not appealable.  As the Supreme Court recently reminded us, “it is not enough to show that the arbitrator committed an error – or even a serious error.”  The reasoning is that the parties meant to resort to a (supposedly) quicker, private mode of dispute resolution, so allowing appeals short of gross misconduct would defeat the purpose.  The parties who contracted for arbitration have to live with their decision, even when the arbitrator commits a clear error of law.

Both the lack of appeal and the lack of class action mechanisms have given rise to protests in some circles – but not from the circles that matter.  Bear in mind that, after all, the Court here is merely interpreting the Federal Arbitration Act.  This is not a constitutional question.  That means Congress could easily amend the Act to expand the grounds for appeal or prohibit class-action waivers.  It does not appear in any hurry to do so.

In any event, before writing in an arbitration clause, it is important to consult an attorney knowledgeable about the consequences of doing so.