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Thursday, November 14, 2013

The Case for Enforcing Adhesive Arbitration Agreements

Arbitration clauses appear in a wide variety of the form contracts through which consumers obtain goods, services and credit, as well as in employment agreements, and other contracts of ordinary individuals. These adhesive agreements to arbitrate are generally enforced by courts, but this enforcement is quite controversial. Countless law review articles criticize it, while the few that defend it are usually limited in important ways. This paper defends the general enforcement of adhesive arbitration agreements.

Section I shows that this general enforcement is socially desirable and that it benefits most consumers, employees and other adhering parties. Section II introduces the doctrines on which courts most commonly rely in refusing to enforce particular adhesive arbitration agreements, the unconscionability and effectively vindicate doctrines, and applies them to typical adhesive arbitration agreements. Sections III and IV apply these doctrines to two issues that are now hotly contested in the courts: an arbitration agreement's prohibition of class actions (discussed in Section III) and the costs of pursuing a claim in arbitration (discussed in Section IV).

This paper concludes in Section V that many courts have been too reluctant to enforce adhesive arbitration agreements that prohibit class actions or require plaintiffs to pay forum fees not required in litigation. This reluctance is largely caused by courts narrowly considering only how the arbitration agreement affects the particular adhering party before the court, and considering those effects given the existence of the particular dispute that gave rise to litigation. This paper calls on courts to take the broader approach of considering all the adhering parties who adhered to the same form contract and considering the agreement's effects on those parties as of the time they entered into the agreement. This ex ante perspective would lead courts to consider the adhering parties who benefit from, as well as those who are harmed by, adhesive arbitration agreements.

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