February 23, 2021 Articles

Consumer Arbitration: Next-Level Advice for Next-Generation Agreements

Two trends—requests for public injunctive relief and mass arbitration—may cause a quantum evolution.

By Michael P. Daly

Think you can rely on that arbitration agreement that may or may not have been cut and pasted from the internet? Think again. Such agreements have been evolving for years, to be sure. As a bulwark against class actions, they have long been resisted by plaintiffs, reviewed by judges, and refined by defendants. Over decades, that process produced modern arbitration agreements that benefit not only companies (by averting aggregate claims) but also consumers (by enabling individual ones). But two trends—requests for public injunctive relief and mass arbitration—may cause a quantum evolution (or perhaps speciation) the likes of which have not been seen since the Supreme Court blessed class action waivers a decade ago. It has therefore never been more important for businesses to stress-test their arbitration agreements.

Arbitration Agreements 101

The judicial hostility to arbitration that animated the Federal Arbitration Act (FAA) nearly 100 years ago is still alive and well in some quarters. Perhaps harking back to first-generation arbitration agreements, some courts seem to assume that class actions are good at providing relief to consumers and that arbitration is good only at allowing businesses to avoid accountability.

But research suggests that arbitration organizations enforce their due process protocols, consumers are successful more frequently and more quickly in arbitration, most class actions are dismissed or settled on an individual basis, and the rest are efficient at driving money into the hands of the lawyers on both sides of the dispute. See Searle Civil Justice Institute, Consumer Arbitration Before the American Arbitration Association, Preliminary Report (Mar. 2009). In contrast to arbitration, courts are overtaxed, counsel are overpaid, and consumers are overlooked.

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