Fill-in-the-blank arbitration clause rider

Here is a PDF of an annotated arbitration-clause rider that can be filled in (with appropriate legal advice) and attached to a contract.

Basic information

• Arbitration defined, by JAMS (an arbitration provider).

• Arbitration and mediation, by the American Arbitration Association (an arbitration provider).

• International Arbitration Bodies and Rules, by Peter Sherwin & Ana Vermal (Proskauer Rose)

• A Comparison between the ICC Arbitration Rules and the UNCITRAL Arbitration Rules

• Federal Arbitration Act, 9 U.S.C. § 1 et seq.

• New York Convention of 1958: United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38 (implemented by 9 U.S.C. § 201 et seq.).

• List of signatories to the New York Convention.

• English-language version of UNCITRAL arbitration rules.

Arbitration clause checklist (excerpts), by Tom Arnold. Tom is a former law partner of DCT and founder of Arnold, White & Durkee, which grew to become one of the nation's largest intellectual-property law firms before merging with Howrey & Simon (now Howrey LLP).

Prohibition of amiable compositeur

The Pactix arbitration section includes an optional clause prohibiting the arbitration panel from acting as amiable compositeur or ex aequo et bono. An arbitration panel acting as such by agreement of the parties is allowed to set aside technical considerations of the law and instead to issue an award it deems just. Under the laws of some jurisdictions (and under many standard arbitration rules such as the UNCITRAL rules), an arbitrator can act as as amiable compositeur or ex aequo et bono only if expressly authorized by the arbitration agreement. The Pactix optional clause goes further and expressly prohibits the arbitration panel from doing so.

Enforceability of arbitration clauses — in general

From a federal appellate court opinion:

Under the Federal Arbitration Act, (FAA), written agreements to arbitrate a dispute arising out of a transaction involving commerce are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

The FAA allows state law to invalidate an arbitration agreement, provided the law at issue governs contracts generally and not arbitration agreements specifically.

Thus, generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements.

Dale v. Comcast Corp., No. 05-03315-CV-WCO-1 (11th Cir. Sept. 4, 2007), slip op. at 6 (extra paragraphing added, citations and internal quotation marks omitted) (reversing district court order compelling arbitration; arbitration clause was unenforceable because class-action waiver, which made it cost-prohibitive for individual subscribers to pursue their own comparatively-small claims, was unconscionable).

Enforceability of arbitration clauses — in otherwise-illegal contracts

From the reporter's headnote of a U.S. Supreme Court opinion:

Regardless of whether it is brought in federal or state court, a challenge to the validity of a contract as a whole, and not specifically to the arbitration clause within it, must go to the arbitrator, not the court. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395, and Southland Corp. v. Keating, 465 U. S. 1, answer the question presented here by establishing three propositions.

First, as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract.

Second, unless the challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance.

Third, this arbitration law applies in state as well as federal courts.

The crux of respondents’ claim is that the Agreement as a whole (including its arbitration provision) is rendered invalid by the usurious finance charge. Because this challenges the Agreement, and not specifically its arbitration provisions, the latter are enforceable apart from the remainder of the contract, and the challenge should be considered by an arbitrator, not a court.

Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. __, 163 L. Ed. 2d 1038 (2006).

Arbitrability of "arising out of or relating to" claims

In NCR Corp. v. Korala Assoc., Ltd., No. 06-3685 (6th Cir. Jan. 16, 2008), a U.S. appeals court dealt with the question whether a claim that was only tangentially related to a contract was required to be arbitrated because of the contract's arbitration clause. The court's answer was no, because adjudicating the claim did not require reference to the contract:

Under this Court’s precedent, the following standard emerges for determining which of NCR’s claims must be resolved in arbitration: while we must bear in mind the presumption of arbitrability, the cornerstone of our inquiry rests upon whether we can resolve the instant case without reference to the agreement containing the arbitration clause. If such a reference is not necessary to the resolution of a particular claim, then compelled arbitration is inappropriate, unless the intent of the parties indicates otherwise. ...

NCR could not maintain a copyright infringement claim against KAL without referencing the 1998 Agreement. While a court would not need to reference the 1998 Agreement to determine if NCR owns a copyright for APTRA XFS, a court would need to reference the Agreement to determine what, if any, authorization NCR provided to KAL with respect to the APTRA XFS software contained on the ATM that NCR loaned to KAL under the 1998 Agreement. ...

We reach a different conclusion, however, with respect to NCR’s claim that KAL directly infringed the S4i software copyright. No reference to the 1998 Agreement is necessary to determine whether (1) NCR owns a copyright in the S4i software or (2) KAL was licensed or authorized to access and/or copy the S4i software.

Id., slip op. at 4, 5.

Enforceability of arbitration clauses — unconscionability

From a federal appellate court opinion:

[T]he basic test for determining unconscionability is whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract.⁴

Georgia law recognizes both procedural and substantive unconscionability. Procedural unconscionability addresses the process of making [a] contract, while substantive unconscionability looks to the contractual terms themselves.

To determine substantive unconscionability, courts focus on matters such as the commercial reasonableness of the contract terms, the purpose and effect of the terms, the allocation of the risks between the parties, and similar public policy concerns.

4. Georgia courts also define an unconscionable contract as "such an agreement as no sane man not acting under a delusion would make and that no honest man would take advantage of.”

Dale v. Comcast Corp., No. 05-03315-CV-WCO-1 (11th Cir. Sept. 4, 2007), slip op. at 6 (extra paragraphing added, citations and internal quotation marks omitted) (reversing district court order compelling arbitration; arbitration clause was unenforceable because class-action waiver, which made it cost-prohibitive for individual subscribers to pursue their own comparatively-small claims, was unconscionable).

Enforceability of arbitration clauses — class-action waivers

We recognize that in at least two other cases, we have found arbitration agreements precluding class action relief to be valid and enforceable. [These cases] involved claims for which attorneys’ fees and other costs were recoverable. * * *

Without the benefit of a class action mechanism, the subscribers would effectively be precluded from suing Comcast for a violation of 47 U.S.C. § 542. The cost of vindicating an individual subscriber’s claim, when compared to his or her potential recovery, is too great.

Additionally, because the Cable Act does not provide for the recovery of attorneys’ fees or related costs for the violations alleged by the subscribers, and because state law allows fees and costs to be awarded only where bad faith is shown, it will be difficult for a single subscriber to obtain representation. This will allow Comcast to engage in unchecked market behavior that may be unlawful. Corporations should not be permitted to use class action waivers as a means to exculpate themselves from liability for small-value claims.

Dale v. Comcast Corp., No. 05-03315-CV-WCO-1 (11th Cir. Sept. 4, 2007), slip op. at 6 (extra paragraphing added, citations and internal quotation marks omitted) (reversing district court order compelling arbitration; arbitration clause was unenforceable because class-action waiver, which made it cost-prohibitive for individual subscribers to pursue their own comparatively-small claims, was unconscionable).

Applicable law — federal, or state?

From a federal appellate court opinion:

[W]e have previously recognized that there is a strong default presumption that the Federal Arbitration Act, not state law, supplies the rules for arbitration.

New Regency Productions, Inc., v. Nippon Herald Films, Inc., No. 05-55224, at 11364 (9th Cir. Sept. 4, 2007) (affirming district court's vacating of arbitration award for "evident partiality" because arbitrator had failed to disclose indirect business links (of which he was not aware) between new employer and one of the parties to the dispute).

Waiver of arbitration right

New York's highest state appellate court held in 2007 that "[t]here is no waiver of arbitration where urgent need justifies resort to the courts." Stark v. Molod Spitz DeSantis & Stark, P.C., No. 114, at 12 (N.Y. Oct. 16, 2007) (reversing denial of motion to compel arbitration; law firm did not lose its contractual right to insist on arbitration of claims by its former partner merely because firm had participated in prior "special proceeding," brought in court by former partner, concerning disposition of urgent client-related matters).