Beware of Mandatory Arbitration Clauses!

July 5, 2018

One of the most significant legal developments of our time is that of mandatory arbitration clauses. First, let's begin by explaining very clearly what a mandatory arbitration clause is. Let's say that you go to the hospital because you are going to deliver a baby. Upon arriving, the hospital staff ask you to sign an agreement before they will provide you with medical services. Not in a mental condition to review all of the fine print, you sign the agreement, proceed to deliver your newborn, but God forbid your newborn has a variety of birth defects due to the malpractice of the doctor. You hire a lawyer, and sue the hospital for malpractice, but find out that the judge has dismissed your case because you waived your right to go to Court. 

You are probably asking yourself if you just read the paragraph above correctly. Yes, you did. The agreement you would have signed at the hospital would contain what we call a mandatory arbitration clause. What that says is that if there are any legal disputes between you and the hospital, that you do not have the right to sue in Court but rather have to go to arbitration. Why is this important? Because it is difficult to find a lawyer who will represent you in an arbitration on such a case because arbitrators almost always rule for the party with the most money, in this case the hospital. In disputes between creditors and consumers, they almost always rule for the creditor. 

An arbitration is a confidential proceeding where both sides submit their evidence and their arguments to a single individual known as the arbitrator. The arbitrator alone decides if you win or lose. There is no jury. The proceedings are confidential, the rules of evidence do not apply, and if you lose, you have no right to appeal. Though you may go to Court and ask the judge to set aside the arbitrator's decision, these efforts are rarely successful. 

Why would arbitrators almost always rule for the most well-heeled party? Because they are the ones that bring the arbitrators the business. Consumers do not typically bring arbitrators business. This is a very dangerous development as consumers are being locked out of their access to Courts on legitimate claims and they do not realize it until they go to sue. 

Lawyers have attempted to challenge these arbitration clauses, but for the most part, the U.S. Supreme Court has held these clauses to be enforceable and valid. Thus, oftentimes the judge has no choice but to dismiss the case and send you to arbitration once the party being sued files what we call a "Motion to Dismiss or to Compel Arbitration."

So how can you ensure your right to get in front of a judge or jury if you are wronged? If you have the opportunity, you can try to strike the arbitration provision from the contract and initial it. The problem that will often arise is that if you refuse to agree to the arbitration clause, then the service provider will usually just refuse you service.

Recently, the New York Times ran a three-part series called the "Fine Print" series, laying out in detail the significance of these mandatory arbitration clauses. The Times even interviewed arbitrators off the record, and some of the arbitrators were brutally honest about the realities of arbitration. In addition, the example mentioned above about the baby with severe birth defects is a real example. Read the article to get the whole story. Below are the links for the New York Times articles. I strongly recommend you read them.

Arbitration Everywhere, Stacking the Deck of Justice

In Arbitration, a Privatization of the Justice System

In Religious Arbitration, Scripture is the Rule of Law


Ryan C. Torrens, Esq.

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