Do you discuss arbitration with your clients before they enter into a written listing or purchase agreement calling for them to consider initialing an arbitration provision?

  • Yes, whether or not they ask. (71%, 15 Votes)
  • No, unless they ask. (24%, 5 Votes)
  • I tell them to initial the provision. (5%, 1 Votes)

Total Voters: 21

Retail giant Amazon has quietly changed its policies on settling customer disputes.

Before the change on May 3, 2021, Amazon’s conditions of use stated that all disputes or claims related to any of Amazon’s services will be resolved by binding arbitration, rather than in court. Now, Amazon’s conditions of use states any dispute or claim relating to a customer’s use of Amazon’s services will go to court in the state or Federal courts in King County, Washington.

Arbitration is a form of alternative dispute resolution in which the parties in an agreement forego a court action and agree to be bound to an arbitrator’s decision. The arbitrator is a neutral third party appointed by a court or selected by the parties to the agreement to hear the dispute. The arbitrator makes the final decision, awarding judgment in favor of one of the parties to the agreement. [Calif. Code of Civil Procedure §1297.71]

Arbitration provisions are commonly used in real estate trade union purchase agreements.

Editor’s note – Realty Publications, Inc. (RPI) has been publishing forms since 1978, none of which have ever contained arbitration provisions as a matter of policy.

Dropping the mandatory arbitration clause from Amazon’s conditions of use means customers can now sue the company in court and be part of class action lawsuits.

The change was sparked by consumer lawyers who used Amazon’s original mandatory arbitration rules to extract hefty fees against the multinational technology company. The old rules allowed for Amazon to cover consumers’ arbitration filing fees. The lawyers filed over 75,000 arbitration cases on behalf of Amazon Echo users complaining that the technology recorded users without their permission. This triggered a bill for millions of dollars in filing fees that Amazon was asked to pay, as first reported by the Wall Street Journal.

Now, in an industry-defining move, Amazon is saying “enough.”

A shift in thinking

The rationale behind arbitration is that it saves on court costs and expedites the dispute resolution process. In practice, however, arbitration often results in absurd legal consequences.

In arbitration, the arbitrator’s award is a final decision, not subject to judicial oversight for error. Even when an arbitrator’s error is obvious, the court is forced to enter judgment in favor of the arbitrator’s erroneous award. [Hall v. Superior Court (1993) 18 CA4th 427]

Thus, persons agreeing to mandatory arbitration have no assurance an award will be a fair or legally correct final decision. (After all, the root word for arbitration and arbitrary are the same).

Trade union purchase agreements, such as the ones offered by the California Association of Realtors® (CAR) include a boilerplate arbitration provision. Unless the arbitration provision states an arbitration award is “subject to judicial review” – which CAR forms do not – the award resulting from arbitration brought under the clause is binding and final.

Arbitration is reputed to be swifter and less costly than trials. However, arbitration does not often live up to its reputation for being quick and inexpensive. Filing fees for arbitration are excessively high compared to filing fees for litigation, as Amazon came to realize. Also, the loser in an arbitration proceeding needs to pay the arbitrator’s charges, in addition to the winner’s attorney fees.

When a dispute cannot be avoided, the best alternative is mediation.

Mediation, like arbitration, is an alternative dispute resolution. However, unlike arbitration, mediation allows for judicial intervention when a resolution is not found or when the dispute is not resolved to the parties’ liking.

Mediation is less costly, informal and confidential. Under this process, a mediator works with the parties who are involved in a dispute to craft a mutually agreed-to solution using the familiar arena of offer, counteroffer, compromise, benefits and risks.

To avoid the obligatory arbitration provision found in trade union forms, consider using a form which uses mediation as an alternative dispute resolution, such as the ones offered by RPI.

Download RPI’s full library of real estate forms for free at our Forms Download page.

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Arbitration, explained