Friday, February 12, 2010

Contract of Adhesion Claims Not Sticking in Federal Court

Article from May be very useful for drafting arbitration provisions for banks and other clients.

"In a growing trend, courts are refusing to let consumers out of arbitration clauses that include an opt-out provision that would have allowed the consumer to reject the clause within the first month or two of the contract.

As the judges see it, such a contract cannot be deemed a contract of adhesion -- in which the consumer was powerless to negotiate any of the terms -- because the opt-out provision, if exercised, would allow the consumer to alter the terms.

For banks and other regular targets of consumer suits, the rulings are paving the road from the courthouse to the arbitrator's office and providing a roadmap for ensuring that arbitration clauses will not be deemed unconscionable.

Even when the arbitration clauses prohibit the consumers from pursuing class actions, the courts are enforcing the provisions on the grounds that the opt-out provisions make them impossible to challenge."