Mandatory ADR Clauses Presentation 2 [Compatibility Mode]

8/3/2019 Mandatory ADR Clauses Presentation 2 [Compatibility Mode]

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Mandatory Alternative Dispute

Resolution ClausesCase Study: Binding Arbitration

auses n onsumer anEmployment Contracts



Binding Arbitration Clauses

Presentation Outline

• Brief History of Arbitration

• Arbitration as an Alternative to Court

• Case Study:

– Green Tree Financial Corp. v Randolph (2000)

– Circuit City Stores Inc. v Adams (2001)

• Ethical Issue



Brief History of Arbitration• Arbitration was developed by the medieval merchant

class as away of resolving trade disputes.• Bases on an honor system rather than the common law

court system.

– The court system lack the knowledge and

sophistication needed to deal with trade disputes. – Honor system: disinterested third party that decided

matter based on customary norms.

• The honor system began to fragment in the 19th

Century as trade became more prevalent.• Merchants turned to the court to strengthen the

enforceability of the arbitration agreements andawards.



Brief History of Arbitration• The courts refused deeming arbitration proceedings

impermissible when trade matters were litigated.• Merchants lobbied Congress to legitimize arbitration

agreements.

(FAA).

– This Act requires that where parties have agreed toarbitrate they must do so in lieu of going to court.

• As a result, the courts began recognizing arbitrationagreements as valid, binding contractual agreements.

• Thus, arbitration agreements became widely use.



Arbitration as an Alternative to Court

• Businesses were attracted to arbitration because it wasa cheaper and faster way to resolve disputes overcontractual agreements.

• To prevent claims from going to court, businessesbegan placing binding arbitration clauses in their

con rac s, nc u ng s a u ory con rac s. – Statutory contracts are agreements where the terms of

both parties are spelled out.

– If a party fails to perform one or more obligations under astatutory contact that person may be sued for breach of contract.

– The law provides remedies to restore the wronged party asif the breach never occurred.



Arbitration as an Alternative to Court

• Statutory contracts protect our legal

rights/civil rights.

•

ypes o statutory contracts: – Consumer contracts

– Employment contracts



Problem with Binding Arbitration

Clauses

• Binding arbitration clauses may be beneficial

to some, but often times that benefit is one-sided.

• Wh ?

• When a consumer or employee is under abinding arbitration agreement they lose theirconstitutional rights to due process.

– This is in accordance with U.S. Supreme courtrulings.




Clauses

• Due process are guaranteed by the 5th and

14th Amendments. – Its assures that citizens will be heard, protected

of law.

• Most consumers and employees DO NOT

realized that they have forfeited their dueprocess rights we entering contracts.




Clauses

Consumer Contracts

• Adhesion contracts: form

contracts.

• (e.g. credit cards, insurance,

Employment Contracts

• Incorporated in the body of

the application.

• Failure to read complete, ,

apartment leases, and heath

care services)

• Mandatory arbitration clauses

are usually hidden within the

body of these contracts, in fine

print, and are NOT visible to

the “naked-eye”.

application, only givingattention to relevant parts

(similar to consumer

contracts).



Green Tree Financial Corp. v Randolph,

531 U.S. 79 (2000)

• Randolph filed an action against Green Tree, in an

Alabama District Court

• Ascertaining that they violated the Federal Truth

to pay for an insurance policy to cover any

repossession cost.

• Randolph also ascertained that Green Tree

violated the Equal Opportunity Act by requiring

her to arbitrate her statutory causes of action.




531 U.S. 79 (2000)

• The Alabama District Court ruled against her.

• Randolph appealed her case in Court of Appealfor the 11th Circuit.

• Circuit Court found because the contract did not

disclose arbitration expenses (costs) that thebinding arbitration clause unenforceable becauseit would pose a risk the Randolph ability to

vindicate her statutory rights because it was costprohibitive.

• Green Tree filed suit in the U.S. Supreme Court.




531 U.S. 79 (2000)

• The U.S. Supreme Court overturned the Court of

Appeals decision stating that,“arbitration agreement which are silent as to payment of

arbitration expenses [were] held to be enforceable.”

• This case set precedent as to consumer claims wherearbitration costs are not disclosed.

• Note: Most claims are never arbitrated because of theexpense (cost) is too great for those trying to defendtheir statutory rights.



Circuit City Stores Inc. v Adams

532 U.S. 105(2001)

• Adams signed an application that contained an

agreement that required him to arbitration anyemployment dispute that arose during his

employment with Circuit City.

• Two year into his employment he filed an

discrimination suit byway of state in California.

• The Circuit City also filed suit, but in District

Court, to enjoin the suit and to enforce

arbitration.



Circuit City Stores Inc. v Adams

532 U.S. 105(2001)

• The District Court ruled in Circuit City’s favor,

finding the arbitration terms enforceable.• Adams appealed to the Court of Appeals for the

9th Circuit.

• Circuit Court overturned District Court’s rulingthat the FAA did not apply to contract employees.

• The retailer (Circuit City) appealed to the U.S.

Supreme Court, where the court rescinded theCircuit ruling: FAA does apply to employmentcontracts.



Ethical Issue• Mandatory alternative dispute resolution clauses were never

intended to strip the public of their statutory rights, but to protect

good faith, contractual agreements where parties in a businesstransaction are obligated to act in accordance to the agreement.

• However, through the appellate process where courts relied ons an ar s se or n e e era r ra on c , consumer anemployment contracts have been grafted in making binding disputeresolution clauses enforceable.

• For these reasons in 2007 the Arbitration Fairness Act (AFA) was

introduced in the U.S. House of Representative and the Senate. If passed, the AFA will ban binding arbitration clauses in consumerand employment contracts, as well as franchise and civil rightsdisputes.

Documents

Mandatory ADR Clauses Presentation 2 [Compatibility Mode]