Thank you for sharing!

Your article was successfully shared with the contacts you provided.
There is no question that counsel advising corporations whether to institute a mandatory arbitration process consider the fact that the corporation, as the drafter, could require a process that will favor itself. If the company finds that its interests include ensuring that its employees encounter a level playing field when claims are made against it, it will draft a fair agreement that complies with due process requirements. Problems arise when drafters decide that constructing a mandatory arbitration program is an advocacy event. Then, the relevant motivations may include avoiding claims altogether by onerous filing or expense requirements or — if claims are made — limiting access to information that would help prove the case, or limiting or eliminating remedies otherwise available in court. The challenge to a mandatory arbitration “agreement” now generally revolves around whether the “agreement” is unconscionable. To succeed, the challenger must show that it is both procedurally and substantively unconscionable. Procedural unconscionability is not difficult to prove if there is a contract of adhesion, where the signer had no real bargaining power. Most of the challenges involving substantive unconscionability have arisen because the expense of arbitration would prohibit the employee from pursuing his or her claims, or because the “agreement” limited remedies that would have been available in court. There is now a fairly substantial body of authority on unconscionability. It is fair to say that, in the majority of courts, a little bit of unconscionability is okay, because courts have become increasingly comfortable severing unconscionable clauses, and mandating arbitration under the remaining clauses. Or, even worse, they have left it to the arbitrator to decide whether one or more clauses are unconscionable and should be severed. One interesting new tactic, when a challenge to a potentially unconscionable clause occurs, is to waive enforcement of the offending provision. This happened recently in the 7th Circuit decision in Livingston v. Associates Finance Inc., where the Livingstons, attempting to sue for themselves and a class of borrowers, argued that they were unable to bear the costs of arbitration. In the district court, once the magistrate judge decided to allow discovery on the prohibitive costs issue, Associates agreed to pay all costs exceeding those which would have been incurred in the federal court. After the district court rejected that offer, finding that it invited further litigation over costs, Associates then agreed to pay “all costs of arbitration.” On appeal, the 7th Circuit found that Associates’ offer mooted the issue of excessive costs, and compelled arbitration. The 11th Circuit reached the same result in Anders v. Hometown Mortgage Services Inc., when at oral argument Hometown agreed to pay whatever costs Anders could not afford (as the arbitrator determines). The Anders case, however, also involved remedial restrictions. The arbitration “agreement” did not permit the arbitrator to award punitive damages, treble damages, penalties or attorney fees, all of which were statutory remedies. The court reviewed the procedural split in the circuits in handling this problem. Some circuits “let the arbitrator decide in the first instance whether remedial limitations are permissible.” The 9th Circuit would invalidate the “agreement.” The Anders court determined that, because there was a severability clause in the “agreement,” the arbitrator should determine whether those clauses are severable. These decisions provide no disincentive to sharp practices in drafting mandatory arbitration programs. I have yet to read a case where a company is enjoined from enforcing an unconscionable clause. If one or more clauses are challenged, simply waive enforcement when you reach the court of appeals. Always include a severability clause, and argue that the arbitrator must make the ultimate decision. Then, in arbitration, argue that the arbitrator derives his or her authority from the contract, and therefore may not vary its terms. And, if you lose, try the whole thing again in the next case. As Black’s Law Dictionary points out, an “unconscionable bargain or contract is one which no man in his senses, not under delusion, would make, on the one hand, and which no fair and honest man would accept, on the other.” Allowing a company multiple bites to enforce an unconscionable apple is simply unfair. Joseph Garrison is a name partner at Garrison, Levin-Epstein, Chimes & Richardson (www.garrisonlaw.com) in New Haven, Conn. If you are interested in submitting an article to law.com, please click here for our submission guidelines.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

Reprints & Licensing
Mentioned in a Law.com story?

License our industry-leading legal content to extend your thought leadership and build your brand.


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.