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Binding Arbitration Battle Strategies

Someday, there may be no more civil trials and each and every dispute will be sent to arbitration. Until then, the battle for consumers will be where their complaints are heard. Since consumers are particularly vulnerable to boilerplate contracts that contain arbitration clauses, it is imperative that consumer attorneys be aware of what to do and when to do it in terms of fending off referral of the case to arbitration.

Strike First! If you see an arbitration clause in your client’s contract, do not simply file your suit and wait for the Motion to Compel Arbitration. Attack the arbitration clause by :

Filing a Declatory Judgement
This is critical because a declaratory judgment can never be sent to arbitration. The fundamental test for whether your client’s case goes to arbitration comes from two questions: 1) Is there a valid contract between the parties?; and 2) Are the claims brought by the plaintiff arbitratable? Filing a Declaratory Judgment assumes the answer to question 1 is Yes and you are asking the court to decide Question 2.

When filing a Declaratory Judgment, you should focus entirely on showing the court your client’s case is not arbitratable. While your case may have specific reasons to challenge the clause, you can challenge any and all arbitration clauses with the following:

A. Unconscionable Costs of Arbitration.
B. Failure of Consent.

Unconscionable Costs of Arbitration. The strategy here is to show the court that the costs of arbitration are unconscionable and therefore, the court can not enforce the arbitration clause. The vast majority of cases will be under the AAA or American Arbitration Association. They set the costs and fees of arbitration based on the amount of the claim. If your client expects exemplary or additional damages, then your claim will escalate and so will the cost of the FILING FEES! These are just the fees to get into the game. The cost of playing the game – i.e., paying the arbitrators for their time deciding your case is a whole other expense. If you have a panel of three arbitrators, you will pay three times for each hour spent considering your case. BE CAREFUL to bring as much of the costs of arbitration into the DEC action as possible. Even though I can tell you it will cost a great deal (over $70,000 in one homeowner case), you must prove the expenses are unconscionable. The AAA provides a breakdown of their costs based on the amount of the claim. To show what the arbitration panel will cost, you might have to depose a AAA administrator in order to present evidence to the court. CAUTION: Before you get too excited on this point, every time I bring it up with defendants, they inevitably concede to paying for the entire cost of the arbitration. As a practical matter, if the case should end up in arbitration, you should fight to keep that fact from the panelists deciding your case.

Failure of Consent. You already know your clients did not willingly and knowingly consent to the arbitration clause. Get the jump on this point by deposing the sales agent who sold your client the contract. Inevitably, they will know the word arbitration is in the contract at best, but no one wants them to actually understand what they are making your client sign. Ask them to define what an arbitration is, how it works, who pays for it, when does it happen, where does it happen and what rights of appeal there are.
1.Olshan Foundation Repair Co. v. Ayala, __S.W.3d___; 1005 WL 2138287 (Tex. App. – San Antonio, no pet. h.); McNulty v. H & R Block, Inc., 843 A.2d 1267 (Pa. Super. Ct. 2004)
2.AT & T Tech., Inc. v. Communications Workers, 475 U.S. 643, 648-49 (1986); First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995)

 Phone: 409 813 1443 Fax: 409 813 1468

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