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Invalidating the arbitration clause


Bales Follow Mark B. Arbitration is a common means of resolving commercial disputes.

Although arbitration is an attractive "Invalidating the arbitration clause" to litigation, arbitration can be disadvantageous to a potential plaintiff because of high costs. Such scenarios can arise when negotiating adhesion contracts or employee handbook agreements, and when they do arise, the question of whether an agreement can be invalidated because of its cost implications must be answered convincingly.

In Green Tree Financial Corp. Randolph, the United States Supreme Court left open the possibility of an arbitration agreement being invalidated because of prohibitive costs. However, the Green Tree Court did not comment on how detailed the showing of prohibitive costs must be in order to do so.

Instead, Green Tree ultimately leaves examination of specific cost issues to the lower courts, and those lower courts must also decide the appropriate standard for invalidating an agreement. The federal circuit courts take varying approaches on how to invalidate an agreement based on cost. One circuit holds any agreement that places significant costs on the party bringing the claim per se invalid.

The majority of jurisdictions apply a case-by-case analysis in determining whether to invalidate an agreement. However, two main approaches exist in applying the case-by-case test. Part II of this article provides background on arbitration costs as opposed to litigation costs, and examines the Green Invalidating the arbitration clause opinion that set the stage for possibly invalidating arbitration agreements based on prohibitive costs.

Circuit City Stores, Inc. Rockwell Semiconductor Systems, Inc.

Part IV analyzes the specific advantages and disadvantages of the group-of-plaintiffs approach and the individual-plaintiff approach. Part V of this article concludes that the best method of analyzing prohibitive costs is the Morrison group-of-plaintiffs approach. Skip to main content. The Invalidating the arbitration clause Journal of Business Law. Abstract Arbitration is a common means of resolving commercial disputes.

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Recommended Citation Richard A. Bales and Mark B.

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