By Partner Mark Anderson and Law Clerk Brandon Auerbach
Imagine having your cell phone number stolen and, as a result, losing twenty-four million dollars.Lorenzo Franceschi-Bicchierai, Bitcoin Investor Sues AT&T After Losing $23 Million In SIM Swap Hack, Vice https://www.vice.com/en_us/article/pawwkz/bitcoin-investor-sues-att-23-million-sim-swap-hack (last visited Oct. 30, 2019). You would want to sue, right? But you can’t because you are bound by an arbitration clause you probably never knew existed. This is exactly what has happened to cryptocurrency investor, Michael Terpin.Id Terpin was deprived of twenty-four million dollars because of SIM hijacking, which could have been prevented by AT&T, yet they are trying to restrain him from litigating his two hundred million dollar action because of an arbitration clause.Id
Under the Seventh Amendment of the Constitution, in controversies exceeding twenty dollars, “the right of trial by jury shall be preserved.”U.S. Const. amend. VII. Although not incorporated by the Fourteenth Amendment, the Seventh Amendment applies in state court in civil actions based on enforcement of statutory rights. Curtis v. Loether 425 U.S. 189, 194 (1974) Despite such Constitutional guarantees, corporations and business entities force consumers to waive their constitutional right by agreeing to unfair arbitration clauses prior to doing business.
Arbitration is marketed as the private cheaper alternative to litigation; however, arbitration results an uneven playing field with questionable objectivity. Barbara Repa, Arbitration Pros and Cons: Learn about the advantages and disadvantages of arbitration, Nolo Legal Encyclopedia, https://www.nolo.com/legal-encyclopedia/arbitration-pros-cons-29807.html (last visited Oct. 30, 2019).
In New York, arbitration clauses are applicable in a wide array of claims. In actions of intentional tort, arbitration clauses compel arbitration so long as a “reasonable relationship [exists] between the plaintiff’s intentional tort claim and [the] underlying contract.” Brandle Meadows, LLC v. Bette, 84 A.D.3d 1579, 1580 (3d Dept 2011) Similarly, actions of fraud in the inducement have been found to be “encompassed” by broad arbitration clauses, thereby leaving the arbitrator large discretion to decide on what constitutes fraud. Prima Paint Corp. v. Floot & Conklin Mfg. Co., 388 U.S. 395, 402 (1967) Further, a non-signatory to an arbitration agreement can be compelled to arbitrate, despite never physically accenting to arbitration. For instance, in Ayzenberg v. Bronx House Emanuel Campus, Inc., the court compelled arbitration upon a non-signatory to an arbitration clause merely because her significant other agreed to the arbitration clause with “apparent authority to sign for her.” Ayzenberg v. Bronx House Emanuel Campus, Inc. 93 A.D.3d 607, 607 (1st Dept 2012) Moreover, arbitration clauses are enforceable upon non-signatories so long as the “the issues the non[-]signatory is seeking to resolve . . . are intertwined with the agreement.” Denny v. BDO Seidman, L.L.P., 412 F. 3d 58, 70 (2d Cir. 2005) Therefore, arbitration has become an unavoidable evil for many consumers seeking judgment on the merits in court.
Since arbitration is inevitable in the legal profession, it must be vastly improving the practice of law, right? Many attorneys and plaintiffs would unanimously answer that question in the negative. Arbitration is intended to shorten the length of the legal process and limit costs for both parties; however, its intention varies greatly from its result. Costs of litigating and cost of arbitration actually vary little in price as a plaintiff still needs to hire representation. See supra note 5. Moreover, arbitration deprives plaintiffs of their right to speak in front of an impartial justice of the court. See supra note 5. Instead, binding arbitration forces plaintiffs to argue in front of arbitrators (who are not even required to be lawyers) that are hired by corporations to work on their behalf. Clayton Browne, Do Arbitrators Have to Be Lawyers? Chron, https://work.chron.com/arbitrators-lawyers-14405.html (last visited Oct. 30, 2019).
This flaws the legal process and leads to impartial arbitrators. See supra note 5
Generally, arbitration is wholly one-sided. It allows corporations to stay out of the news and receive beneficial decisions, while plaintiffs are deprived of an even playing field and an objective fact finder. See supra note 5 Despite the unfairness, courts still regularly allow unconscionable arbitration clauses to apply to a wide array claims. Courts even enforce binding arbitration clauses upon non-signatories. Ayzenberg, 93 A.D.3d at 607. In a perfect world, arbitration seems like a way to increase judicial economy; however, in practice, arbitration is not all it’s cracked up to be.
SBAGK’s attorneys specialize in areas like these. Consultations are always free, so if you feel you need to speak to an attorney about arbitration and what it means for you, SBAGK is ready to help.