Cutting Edge Issues Involving the Use of Mandatory
Arbitration Clauses in Consumer Contracts by F. Paul Bland, Jr.
A large and rapidly growing number
of corporations now require millions of consumers and employees to give up their rights to a trial by jury in the U.S. public civil justice system, and instead submit all of their legal claims to bind- ing mandatory arbitration.1
Among the
businesses that now impose mandatory arbitration clauses in their consumer
1
The concerns addressed in this testimony all relate to “pre-dispute arbitration agree- ments,” meaning contract provisions agreed to in advance of any dispute or claim that require a party to take any claims that may later arise to arbitration instead of to court. The concerns discussed here do not relate to post-dispute arbitra- tion, in which two parties to an existing dispute agree after the dispute arises to submit that dispute to arbitration.
contracts are all of the largest credit card companies in the U.S., the vast major- ity of cell phone and residential phone companies, most car dealers, nearly all securities brokers, and a rapidly growing number of doctors, HMOs and nursing homes. Thousands of businesses also have these clauses in their contracts with their employees. One troubling aspect of this rapidly
spreading phenomenon is that most consumers have little or no meaning- ful choice but to give up their rights to a jury trial in favor of arbitration. Few people notice much less realize the significance of these clauses, which are often: (a) cast in dense and cryptic legalese incomprehensible to lay persons (and even many lawyers); (b) set forth
in minuscule print, often on the back side of a document; and/or (c) buried in the center of a mailing along with a variety of other pieces, most of which are solicitations and advertisements unlikely to be read by most recipients. Most people first learn that they have lost the right to sue – and thus have “waived” their constitutional right to trial by jury – only after a dispute arises. Even if consumers did read and understand the mandatory arbitration clauses at the time they were imposed, it still could not be said that these consumers have any meaningful choice as to whether to agree to arbitration: when nearly every major company in an entire industry adopts these clauses, the “choice” becomes illusory. The rapid recent spread of mandatory
arbitration clauses is due, in no small part, to a string of recent decisions of the U.S. Supreme Court, which has repeat- edly held that the Federal Arbitration Act embodies a strong federal policy in favor of enforcing agreements to arbitrate.2 The Maryland Court of Appeals has held that Maryland law does the same. Notwithstanding these federal and state policies, there is a huge and increasing amount of litigation that calls into the question the fairness and enforceability of particular arbitration clauses. While arbitration agreements are not per se un- enforceable,3
many courts have refused
to enforce particular clauses against con- sumers or employees in particular cases,
(Continued on page 38) 2 3
See, e.g., Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 28 (1991).
One major exception that the Maryland Court of Appeals has recognized is claims for breach of express warranty under the Magnuson-Moss Warranty Act. See Koons Ford of Baltimore, Inc. v. Lobach, 398 Md. 38, 919 A.2d 722 (2007).
36 Trial Reporter Fall 2007
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