Consumer Arbitration Agreements: Not Understanding What You Didn’t Agree To

A recently posted paper, reporting on the results of an empirical study, reveals unsettling facts about consumer understanding of arbitration contracts.  Titled “Whimsey Little Contracts” With Unexpected Consequences: An Empirical Analysis of Consumer Understanding of Arbitration Agreements, the paper explores the extent to which consumers are aware of, and understand the effect of, arbitration clauses in connection with their purchases of goods and services.

The authors report “a profound lack of understanding about the existence and effect of arbitration agreements among consumers.”  Fewer than half of those surveyed recognized that a sample contract included an arbitration clause, and more than half of those respondents believed that the clause not deprive them of a right to seek judicial redress.

So in whose book is this a contract?

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Agreements to Arbitrate, Redux

Following up on a prior post, two recent cases have tested the enforceability of “agreements” that one party unilaterally propounded and the other party had no idea existed.  Though the Ninth Circuit found both to be non-binding, the logic in both cases implies that knowing consent — an element of contract law that is emphasized in law school as fundamental —  seems no longer to be a requirement in “agreeing” to arbitrate future disputes.

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The Sound of Glass, Tinkling

The College of Commercial Arbitrators is perhaps the definitive authoritative body for best practices in commercial arbitration from the perspective of practitioner arbitrators.  Its promulgated standards are widely respected and its leaders are leaders of leaders.

It is therefore with great satisfaction that I note that the CCA has selected its first female President, Deborah Rothman.

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“Agreements” to Arbitrate: How Stands First Options?

As recently as 1995, the Supreme Court observed, in First Options of Chicago v. Kaplan, that arbitration was a creature of contract: “[A] party who has not agreed to arbitrate will normally have a right to a court’s decision about the merits of its dispute.”

Yet what constitutes an agreement to arbitrate seems to be very much in play since First Options was decided.  In that case, owners of an investment company were held to have agreed to arbitrate disputes involving that company, but were held not to have agreed to arbitrate disputes in their personal capacities.  The analysis parsed the distinct legal capacities of informed and sophisticated parties, and determined that the same people consented to arbitrate in one capacity, but did not consent to arbitrate in another — and that they had done so intentionally, strategically and with a particular purpose in mind that the courts were bound to respect.

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