Arbitration in Consumer Contracts

I have had a long interest in the issue of whether arbitration should be compelled when the arbitration agreement is simply a part of the boilerplate in a contract for consumer goods or services. The Ohio Supreme Court has recently held that such contracts must be enforced, even when a specific statute grants the right to proceed in a class action or as a private attorney general. The case was Hayes v. Oakridge Home, Slip Opinion No. 2009-Ohio-2054.

Ohio is one of the few states that have gone this way. Most states have held that these arbitration agreements are void as against public policy. For example, the National Law Journal reports that Massachusetts recently held arbitration clauses to be be void as against public policy. Read that article here.

To Blog of Legal Times (BLT) reports today that The National Arbitration Forum has agreed in a settlement with the Attorney General of Minnesota to get out of the consumer arbitration business. You can read that article here.

When I read the article I actually had a good laugh at this quote:

“Until Congress resolves the legal and legislative uncertainty, the cost is simply too high for users and providers of consumer arbitration,” he said.

Until then, Kelly warned, “The consequence to American consumers is that there will be no meaningful alternative to costly and unpredictable litigation.”

He means, I guess, that the consumer should avoid "unpredictable" litigation over the "predictable" pro-business, anti-consumer award that typically comes out of consumer arbitrations.

Here's the thing. Consumers can't afford to litigate small claims. Lawyers won't handle them. Take a look at the typical FDCPA claim, in which you are only going after the statutory damages of $1,000.00. Lawyers can't afford to take on a case that is only going to bring in a couple hundred in legal fees. The only way the consumer has any kind of redress is if he can aggregate his claims with the claims of hundreds, or thousands, of others in a class action. And the only way to prevent the business from continuing the practice that is in violation of law is to obtain injunctive relief by suing as a private attorney general.

Ohio has closed that door. Perhaps, as the article suggest, Congress may overturn that with a well crafted statute.

~Tim