Too poor to arbitrate, but rich enough to litigate???

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Yesterday the Arizona Court of Appeals decided a case that stands to undo the efficacy of arbitration agreements of all kinds in Arizona, including those found in the employment setting. Clark v. Renaissance West, LLC (Az. App. 7/30/2013). While the case involved elder abuse claims, the holding would seem to apply with equal force to all Arizona arbitration agreements. The plaintiff sued a nursing facility for elder abuse. The defendant moved to compel arbitration under an agreement that provided for a panel of three arbitrators to hear the claim, with each side to pay half of the arbitrators’ fees. The Court of Appeals found that the arbitration agreement was “unconscionable” and therefore unenforceable because the plaintiff allegedly could not afford to pay his share of the arbitrators’ fees. Plaintiff asserted that he made roughly $50,000 a year, while his expert witness opined that his share of the arbitrators’ fees would amount to $22,800.

The case raises a lot of troubling questions: (1) Why does the decision make no mention of the Federal Arbitration Act, which would seem to compel the opposite result? (2) How can a court conclude that arbitration is more costly than litigation when the U.S. Supreme Court has repeatedly reached the polar opposite conclusion? (3) Why does the opinion ignore the U.S. Supreme Court’s decision last month in Amex v. Italian Colors, which rejected concerns about arbitration affordability? (4) Isn’t this decision an invitation for every individual party to an arbitration agreement to simply claim financial hardship just to circumvent arbitration? and, (5) By opening the door to countless and costly “financial hardship” court hearings, hasn’t the court seriously undermined the cost-effectiveness of arbitration out of the gate? The court does provide one simple solution, and employers should consider this when they amend or roll out an arbitration program—if the arbitration agreement provides that arbitration fees may be waived based on financial hardship, the court appears to say that the agreement is enforceable. Employers are wise to consider that language to rescue otherwise unenforceable arbitration agreements.