The Federal Arbitration Act (FAA) was established in 1925, granting both state and federal courts the ability to facilitate private disputes through a process called arbitration. This essentially gives legally binding power to the results of a dispute which is settled outside of court under certain guidelines. However, since this important legislation was passed, there have been a number of landmark cases that have shaped the way in which this Act is applied.
In 1967, the case of Prima Paint Corp. v. Flood & Conklin Mfg Co. arose when a manufacturing company claimed that a firm with which it entered into a contract had misrepresented itself, therefore voiding the contract, including the arbitration clause which called for disputes to be settled through arbitration. The ruling in favor of forcing the case into arbitration established the “separability principle”. This principle outlines that challenges to the enforceability of a contract must be heard through arbitration before any attempts in court, unless the dispute is over the arbitration clause itself.
However, the 1981 case of Graham v. Scissor-Tail, Inc. determined that an arbitration clause may be deemed void if the designated process for arbitration is biased toward one party. For example, if a company forces customers to file a dispute through a process which is decided upon by an employee of the company, that would obviously favor the defendant and be considered a void arbitration clause.
A major case influenced arbitration in 2011, when the Supreme Court ruled through AT&T Mobility v. Concepcion that the Federal Arbitration Act precluded any state legislation. The specific impact stated that an arbitration clause could force individual consumers to file separate disputes rather than a class-action suit. Following this ruling, many companies altered their contracts to include clauses regarding class action motions.
In the most recent of rulings, the 2013 case of American Express Co. v. Italian Colors Restaurant established a Supreme Court ruling that a mandatory arbitration clause could force disputes to be settled individually through arbitration, rather than as a class-action suit, even if the plaintiffs could prove that this was not economically possible.
Many more cases have influenced the scope, application, and interpretation of arbitration clauses. The rulings have tended to favor enforcing the FAA as widely as possible, with power to supersede state rulings and forgo the relative ease of a class action suit, even when doing so will definitely deny some consumers the ability to seek compensation from fraudulent contracts. With many businesses employing forced arbitration clauses, the future surely holds many more cases as consumers find themselves losing their 7th amendment right to a jury trial.
If you have been forced into an arbitration situation through a clause in a contract, you can still be represented by a legal professional. The attorneys of Liggett Law Group can help you prepare every detail of your case and advise you on the options available to you.