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Case Law Update: Is Your Arbitration Clause Enforceable?

Posted Wednesday, February 27, 2013 by Christopher L. Thayer

alt textIn Gandee v. LDL Freedom Enterprises, the Washington Supreme Court was asked to determine whether an arbitration clause contained in a debt adjustment contract was enforceable. Arbitration clauses are routinely included in a variety of contracts, from leases to cell phone contracts and financing agreements. Arbitration is often seen as preferable to litigating disputes in court for several reasons: (1) it is generally quicker; (2) it is not “public”; (3) you can avoid the uncertainty of a jury trial or a judge who may not be experienced in the area; and (4) for some situations it can be less expensive because you can agree to streamlined procedures and loosened evidence rules. However, arbitrators (often retired judges or experienced attorneys) charge a fee for their services ($400/hour+) and this cost can be quite daunting for a consumer with limited resources. In Gandee, the Washington Supreme Court held that the arbitration clause in this particular consumer context was “unconscionable” and unenforceable.

The court looked at three factors in arriving at this conclusion. First, the Court found that the plaintiff had presented adequate evidence that the cost of the arbitration was prohibitive. The plaintiff had come forth with evidence of her limited resources and also detailed the anticipated costs of proceeding with an arbitration hearing in California (the venue set forth in the contract). Second, the court looked at the “loser pays” attorneys’ fees and costs provision in the contract. This clause provided that the party that prevails at arbitration is entitled to an award of attorneys’ fees and costs. The court felt that this “effectively chills Gandee’s ability to bring suit under the [Consumer Protection Act]…” Third, the Court focused on a provision in the arbitration clause that effectively sought to shorten the statute of limitations from three years to 30 days, and found that this provision was substantively unconscionable.

It should be noted that this case arises in the consumer context; where the relative power and resource disparity between a large corporate entity and the individual consumer is taken into consideration. Arbitration clauses in commercial cases are far less likely to be stricken. When faced with an arbitration clause in a consumer context, however, the Gandee decision makes it clear that Washington courts will not hesitate to strike such clauses where appropriate.

For more information, contact Christopher Thayer at (206) 805-1494.

DISCLAIMER: This blog is not legal advice. This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice under any circumstances, nor should it be construed as creating an attorney-client relationship. The information on this blog is a general statement of the law and may not be up to date, accurate or applicable to your specific circumstances. Prior success in litigation is not an indication of future results; each case is unique and past results cannot predict future outcomes.

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