Court Rules that Binding Arbitration Requires Consumer Informed Consent
Washington State residents Sherrie K. Gorden and Debbie K. Miller individually signed up for a debt settlement program conducted by Lloyd Ward, a Texas attorney. Both citizens signed service agreements and paid retainers. The contracts were governed by Texas law and required binding arbitration in Texas for any disputes. According to Gorden and Miller, they were not at any time informed about the advantages or disadvantages of arbitration or the implications of the clause.
Gorden and Miller allege that payments to creditors that should have been handled by Lloyd Ward and his group were never made and were instead applied to fees paid to the group itself. They each filed lawsuits under laws protecting consumers from “predatory” fees. Gorden has settled her lawsuit, but Miller rejected a settlement and Lloyd Ward moved to force arbitration on her.
Judge Stephen M. Brown has ruled that the arbitration clause was not valid because Miller “was not informed of the advantages or disadvantages of arbitration, including the requirement that she must bring arbitration claims in Texas.”
The case has wide-ranging implications as binding arbitration clauses rise in popularity around the country. If companies are required to show proof that consumers understand and consent to arbitration with full understanding, it may result in more opposition to the clauses as consumer hesitate to give up the right to sue.