COMMENTARY: Binding Arbitration Restricts Access to Courts

by Robert A. Schwartz, Attorney at Law

July 14, 2007

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If a contract had this language in it…

Any disputes regarding the provisions of services under this contract or the terms of this contract will be determined by arbitration in Tarrant County, Texas, pursuant to the Texas General Arbitrator Act V.T.C.A., Civil Practice and Remedies Code, §171.001 through §171.098.

…would you understand it before you signed the contract? Would you feel like you had no choice but to sign it or walk away?

The real question, however, is if you’d still sign the contract or proceed with the transaction with this language in the contract or product insert. As punitive as this language is, the answer still seems to be yes. Consumers in our country sign contracts and proceed in consumer transactions daily (and probably numerous times daily) that contain this very provision. Is that a bad thing? Not if you are big business.

Our Constitution gives every citizen the valuable right to a trial by jury in civil and criminal cases. A trial in which guilt or innocence is judged by peers. A trial in which every citizen may put on evidence and confront the counter evidence. Because of the importance of this right, strict guidelines must be followed to effectively waive it. Well, except when it comes to big business preemptively protecting itself from its own wrongdoing. Big business slips these arbitration provisions in contracts and transactions that say the consumer is agreeing to go to arbitration to resolve any disputes because big business gets the consumer to agree to it before any dispute arises. By doing so, big business prevents the consumer from going to court and essentially tips the scales of justice in its favor.

You probably are bound by at least one binding mandatory arbitration clause. Each day, home buyers, credit card users, insurance holders and car buyers are forced by these provisions to give up their constitutional right to have their case heard by a jury. In many instances, these legal and enforceable provisions are buried within the fine print of a consumer contract. They stack the deck and force consumers to give up their rights before a dispute even occurs. When a dispute does occur, the consumer may not seek redress through the courts and a trial by jury. The consumer’s only recourse is a costly arbitration process in which often uninformed, unknowledgeable or partial arbiters hear summarized evidence and make binding decisions.

Congress introduced a consumer-friendly piece of legislation July 12, named the Arbitration Fairness Act of 2007. If enacted, it will prohibit pre-dispute mandatory arbitration clauses in consumer and employment contracts.