Arbitration|Courts|Employment|United States

"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.

These days, no such informed, strategic and knowing consent to arbitrate is required.  Nor is a written agreement required.  Consent to arbitration may be found by virtue of an individual’s going to work in the morning.  Or it may be found in the act of using a credit card to buy carrots at the A&P.

It can even be found by clicking on a “Buy With 1-Click” button on Amazon (the logic being that the click signifies not just an intent to buy the used watchband advertised on the website, but also informed consent to Amazon’s “Terms of Agreement,” which include a non-negotiated, non-negotiable, obscure, unilaterally propounded waiver of certain rights set forth in consumer protection laws and the Federal Rules of Civil Procedure).

Some call this kind of arbitration agreement “cram-down.”  Some call it “forced.”  Everyone calls in “enforceable.”  But none dare call it an “agreement.”  I know of no law school that teaches Amazon’s Terms of Agreement in Contracts class.

The heart of the problem, as Tom Stipanowich keeps trying to remind us, is our shared notions of fairness.  The notion that your intention in buying carrots at the grocery store, or in arriving at work, is equivalent to an intention to waive legal rights if you later discover that the store is price-fixing or the employer is discriminatory, strikes many, many people as simply unfair.  And when that happens, both arbitration and the law itself are undermined.

With this background, comes now the California State Legislature and Governor Brown, who on September 30 of this year enacted and signed a bill titled AB 2617.  It provides in part:

(1) A person shall not require another person to waive any legal right, penalty, remedy, forum, or procedure for a violation of this section, as a condition of entering into a contract for goods or services….
(2) A person shall not refuse to enter into a contract with, or refuse to provide goods or services to, another person on the basis that the other person refuses to waive any legal right, penalty, remedy, forum, or procedure….
(3) Any waiver of any legal right, penalty, remedy, forum, or procedure for a violation of this section, including the right to file and pursue a civil action or complaint…. shall be knowing and voluntary, and in writing, and expressly not made as a condition of entering into a contract for goods or services or as a condition of providing or receiving goods and services.
(4) Any waiver of any legal right, penalty, remedy, forum, or procedure…. that is required as a condition of entering into a contract for goods or services shall be deemed involuntary, unconscionable, against public policy, and unenforceable.
(5) Any person who seeks to enforce a waiver of any legal right, penalty, remedy, forum, or procedure for a violation of this section shall have the burden of proving that the waiver was knowing and voluntary and not made as a condition of the contract or of providing or receiving the goods or services.
It has been noted that the word “arbitration” does not appear in this legislation.  The Supreme Court’s lacunae in Concepcion notwithstanding, the Federal Arbitration Act plainly exempts from its scope state-law defenses to agreements that are based on “such grounds as exist at law or in equity for the revocation of any contract,” and this state law seems to speak to any contract, not just a contract to arbitrate.
Now let’s see whether California can protect its citizens from “gotcha” arbitration “agreements” or not.

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