A few weeks ago I took a quick look at a friend’s cell-phone contract, and there it was: the dreaded mandatory arbitration clause. You know, the clause hidden inside the fine print that says something along the lines of, “You agree to arbitrate any claim you may have against us rather than pursue it in court.” Usually it reeks of some corporation using fine print to keep you from ever seeing the inside of a courtroom if their product blows up, or their software wipes out your hard drive.

Moreover, these clauses are everywhere. Let’s say that someone at your credit card company screws up and broadcasts your personal information all over the web. Surprise! Your card agreement probably contains an arbitration clause preventing you from getting into court. Checked your “click-wrap” agreements lately? Yup, they are probably hiding there as well. If there is a contract of adhesion to be had, then there is probably an arbitration clause lurking in the shadows.

So what’s the problem with these wonders of modern contracts anyway? To understand that, we have to look at how the world works when arbitration is not involved. Let’s say something goes wrong, like your nifty new phone goes belly-up way earlier than expected. You’re not likely to file suit over a two-hundred dollar phone. However, a plaintiff’s lawyer out there has surely got your back, and will probably file a class action suit on behalf of everyone whose phone has just given up the ghost. This, after all, is how we keep corporations from screwing the little guy in small portions, but on a mass scale. When you and everyone else gets hurt just a little, the class action devise steps in to get you some money for a new phone, new hard drive, identity theft monitoring, or whatever you happen to need to remedy the wrong.

Now, lets look at life after arbitration clauses. You buy some nifty new software, and next thing you know you have the BSOD for life. Again, you’re not going to sue, but what about that helpful class action lawyer? He can’t file a regular class action because of the arbitration clauses, but can he get class-wide arbitration, or is he (and your new computer) stuck in single-party arbitration land?

That question was addressed by the Supreme Court last fall in Stolt-Nielsen v. Animalfeeds International Co., and their decision was just issued at the end of April. To summarize a forty-page opinion, the Court said that when an arbitration clause is silent on the issue of class-wide arbitration, then, well, “No Class-Wide Arbitration For You!” Another way of putting it is that if your cell phone blows up on you, then you’re on your own when it comes to getting some sort of recovery, and you’re going to have to do that in arbitration rather than court. Hence, it looks like we’re all going to have to start reading that fine print just a little more carefully.

Sean Wlodarczyk

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