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Class Arbitration: Industry Coming to Terms with Court Ruling

Monday, June, 6, 2011

A recent ruling by the U.S. Supreme Court threatens consumers' rights by limiting class arbitration. "Requiring the availability of class arbitration was inconsistent with the FAA [Federal Arbitration Act]”, according to the Supreme Court this term.  The impact of this decision is just beginning to be felt by arbitration attorneys in the state at issue in the case, California, as well as nationwide.


Recent analysis of the decision has held that the high court regards class arbitration to interfere with the basic nature of arbitration itself, but not all legal scholars agree with this point of view.  Already legislation has been introduced into the United States Congress by Senator Al Franken and others who believe that arbitrations clauses should not require consumers to always pursue individual claims against an offending company.


The Purpose of Class Arbitration

One of the many kinds of arbitration, class arbitration works a bit like a class-action lawsuit. It is designed to help consumers address a problem in which millions of people may have been damaged, but each to only a small degree in financial terms.  If 10 million people lose a dollar each due to misleading advertising, no single person will find it worth his while to pursue the company either in court or in arbitration.  In a class arbitration, the company can be held accountable for all the damaged customers in one proceeding, raising the stakes and giving businesses a strong incentive to play fair with consumers.

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