The Basics of Consumer Arbitration in New York

Whenever you open a bank account, sign up for a credit card, or even download an app, it comes with a lengthy account-holder agreement, a long scroll of terms and conditions. And when you click “agree” or sign the dotted line, one of the many contractual conditions you’ve probably agreed to is an arbitration clause.

“People don’t know that provision is in there,” says Joseph H. Mizrahi, a partner at Mizrahi Kroub LLP. “That’s unfortunate because they’re losing a crucial Constitutional right: to be able to litigate their claim in a courtroom and in front of a jury of their peers.”

“The vast and overwhelming majority of consumers who have come to our office have been utterly unaware that there was this sort of clause in their standard contract,” adds Daniel Schlanger, a consumer protection attorney at Schlanger Law Group.

“It’s often accompanied by a class action waiver. Virtually every arbitration clause nowadays is both an agreement to not go to court and an agreement that in any arbitration, you will proceed individually and not on a class basis. I think it’s terrible and unfair,” he says. “That said, it has not been my experience that arbitration hearings are uniformly hostile to consumers.”

So what is arbitration? Its procedures resemble those of a courtroom, albeit in an abbreviated form. The most common services that execute arbitrations are JAMS and AAA, which provide the arbitrator who oversees each case. Often, arbitrators are former judges, Mizrahi says, “but sometimes they’re former corporate officers who might have anti-consumer positions—definitely in comparison to a typical jury, which usually sides with consumers rather than corporations.”

Arbitrations are also private, tend to move much faster—procedures for gathering information and documents are more limited—and, except in narrow circumstances, involve no right to an appeal. “Otherwise, the rules are modeled in a similar way to a court proceeding,” Schlanger says.

Some arbitration clauses allow consumers to file in small claims court, and some have provisions that allow consumers to opt out within a certain period of time (commonly 30 or 60 days). So if you happen to notice the opt out, should you?

“Yes, I most definitely would recommend that,” Mizrahi says.

The fine print in consumer contracts can be difficult to fully understand. The National Association of Consumer Advocates has some valuable background information, Mizrahi says. “Otherwise, you really need to find a consumer law attorney who can guide you.”

Consumer law attorneys commonly offer a free consultation for initial advice. If you decide to work together, consumer statutes allow for fee shifting, “meaning the corporation that we sue usually pays the legal fees upon a settlement or a win,” Mizrahi says.

Even if you’ve already clicked “agree” or signed a contract that requires arbitration, “it doesn’t mean you can’t win,” Schlanger says. “It has been my experience that most arbitrators are open to hearing the evidence and hearing the arguments.”

Sometimes you can beat the arbitration clause itself, he adds. Since it’s a contractual matter, arbitration must be agreed to knowingly. When the clause is proven hard to find or difficult to distinguish, some attorneys have defeated it. “That doesn’t mean that if you didn’t read it, you can say, ‘I didn’t agree to it because I didn’t read it,’” Schlanger says, “but sometimes the court finds that the arbitration agreement isn’t binding because it wasn’t clearly enough disclosed or because there were conflicting terms and conditions provided to the consumer.”

Both attorneys are optimistic that lawmakers will limit or ban forced arbitration clauses in the near future. “Although we still have a long way to go, we’re seeing positive shifts already,” Mizrahi says of the Supreme Court rulings on Morgan v. Sundance and Viking River Cruises v. Moriana from early 2022.

“The [rulings] say these arbitration provisions are not sacred ground anymore, and potentially give the blueprint for how to craft legislation for getting out of forced arbitration. We know consumer advocacy groups are working hard so these provisions aren’t something consumers have to live or die by. Instead, they can go to court, allow a jury of their peers to hear their claim, and have a fair shot against huge and well-financed institutions.”