Reference no: EM131702845

BUSINESS LAW---Enforceability of a Binding Arbitration Clause

One type of alternate dispute resolution (ADR) is arbitration. The primary method of securing arbitration is through a binding arbitration clause in a contract. However, sometimes the courts find these clauses in contracts to be unenforceable or unconscionable.

Read the case below and answer the questions that follow.

ComputeNow, a hypothetical computer company, allegedly shipped faulty laptops with defective cooling fans, power supplies, and other essential materials to individuals all over the world for two years. Mary bought one of these defective products. Her computer exploded, causing a fire in her home office. She wished to sue ComputeNow for the damage to her home and its furnishings. However, when she purchased the computer, a binding arbitration clause was included in the contract. So, instead she must arbitrate. Some of the terms of her arbitration agreement are as follows:

1. Any dispute or difference arising out of or in connection with this contract shall be determined by the appointment of a single arbitrator to be agreed between the parties.

2. Any consumer of the computer product is limited to binding arbitration; the computer manufacturer is allowed to utilize the courts to recover money from the clients in the event of nonpayment or any other issues arising with the contract.

3. The computer company has 17 regional branches. The hearing shall be conducted in the city of the regional branch office closest to the individual's place of residence unless both parties consent to a different location.

4. The company and not any individual claimant has the right to record the arbitration or hire a reporter to record the arbitration hearings.

5. The decision of the arbitrator shall be final and binding upon all parties.

6. In the event that the clauses in this contract regarding arbitration need to be changed, only the computer company can cancel the arbitration agreement or change the arbitration rules outlined herein.

QUESTIONS:

1) Do any of the provisions in the binding arbitration clause appear to be unconscionable and therefore unenforceable?

2) Recall what you learned about ethical decision making in the business law context. Now take the unenforceable clauses you identified in answer No. 1 and apply the ethical tests you learned in Chapter 2 (Golden Rule, Public Disclosure Test, and the Universalization Test) to those unconscionable contract provisions. In applying these tests, do the clauses appear to be ethical? Why or why not?

3) Consider that the facts of this case study changed so that the arbitration was a class action. In other words, multiple parties wish to arbitrate against the computer company as a cohesive unit. Would a class action such as this still be enforceable under an arbitration clause? Why or why not?