Author: Hans Smit*
Published: December 2010
Standard and Model Arbitration Clauses
Mass marketers have shown an understandable affinity for arbitration clauses in their contracts. In arbitration, there is no jury, parties can choose their own arbitrators, and the claimant must put up its share of the estimated cost of arbitration up front. In addition to these advantages, building on the notion that arbitration is a product of contract, mass marketers have also included in their contracts clauses excluding punitive damages or other clauses limiting otherwise available remedies, including clauses precluding class actions.
The notion that arbitration is a contractual form of dispute settlement provided an arguable legal basis for these attempts at loading the dice in favor of providers of mass goods or services. Since class actions are a most attractive device for combining small individual claims into a large collective one, the question of whether class actions would be available in arbitration raised an issue of primary concern to mass marketers who sought to use recourse to arbitration as a means to limit their liability. Their concern took two forms: first, are class actions available in arbitration; and second, if they are, can recourse to them be contractually precluded?
The first question was answered affirmatively by the Supreme Court in Bazzle. In that case, the Court ruled that it was, at least in the first instance, for the arbitrators to decide whether a class action could be brought. Implicit in that ruling was the decision that the arbitrators had to decide what form of class action was appropriate.
*Stanley H. Fuld Professor of Law Emeritus, Columbia University. The author gratefully acknowledges the assistance of Parvan Parvanov, class of 2011, Columbia Law School, in the preparation of the footnotes.