Leading Defenses to Enforceability of Particular Arbitration Clauses
While agreements to arbitrate are
generally enforceable, there are many reasons why courts will not enforce an arbitration clause in a particular case. The National Consumer Law Center and the Public Justice Foundation have published a manual, Consumer Arbi- tration Agreements, which collects and discusses literally hundreds of cases where courts have refused to enforce arbitration clauses. (I should disclose that I’m a co-author of this book.) This article will provide just a brief overview as to a few of the types of arguments that are available in some settings. First, a number of courts have refused
to enforce particular arbitration clauses on the grounds that corporations had failed to form enforceable agreements in the first place. In Maryland, for example, the Court of Appeals refused to compel arbitration in a case where the contract’s language used permissive or optional language,7
and where the contract was
drafted in a way that gave the corpora- tion such broad leeway to unilaterally
7
Wells v. Chevy Chase Bank, 363 Md. 232, 768 A.2d 620 (2001).
change and re-write the terms that the arbitration clause was illusory.8 Second, many courts have refused to
enforce arbitration clauses in many cases when corporations have added a range of terms to arbitration agreements that are not inherent to arbitration, but which tilt the playing field sharply in favor of the more powerful party. For example, some arbitration clauses require individuals to travel long distances to participate in arbitrations, or pay prohibitively high costs to arbitrate their claims. While I know of no reported Maryland case yet striking down any arbitration provision as being unconscionable, there are nearly 100 cases from courts throughout the U.S. that have struck down part or all of arbitration clauses that were written in ways that heavily favor one party. It must be noted, however, that unconscio- nability challenges turn upon their facts, and plaintiffs who challenge arbitration clauses must make extensive evidentiary records to prove that various factors are present in a particular case, or they will likely fail. Third, in a variety of circumstances, courts have held that even though two
8
Cheek v. United Healthcare of the Mid-At- lantic, 378 Md. 139, 835 A.2d 656 (2003).
parties may have agreed to arbitrate some type of claims, disputes that arise outside the scope of the agreement to arbitrate cannot be forced into arbitra- tion. For example, parties who are not signatories to an arbitration clause and who are not named in the clause often try to invoke arbitration clauses, and courts often refuse to compel arbitration in those cases. Finally, in many cases, courts will
refuse to enforce an arbitration clause when the corporation has chosen to litigate the case in court for some time, and then later changed its mind and attempted to arbitrate the case when it appeared that the court case was going poorly. In a number of cases, courts have held that corporations who have engaged in such gamesmanship have waived their right to invoke the arbi- tration clause. The author has argued and won cases in the Florida Supreme Court and the U.S. Court of Appeals for the Eighth Circuit on this issue,9
for
example, and many more cases are cited in Consumer Arbitration Agreements.
9
See Lewallen v. Green Tree Servicing, LLC, 487 F.3d 1085 (8th
Cir. 2007); Raymond
James Fin. Servs., Inc. v. Saldukas, 896 So.2d 707 (Fl. 2005).
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WWW.MDTRIALLAWYERS.COM 40 Trial Reporter Fall 2007
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