Courts Wising Up, Striking Down Arbitration Clauses

Kia Franklin

This time it was with Blue Hippo, a Baltimore-based company that sells computers and other electronic goods on a layaway program. The decision strikes down mandatory arbitration for some customers and allows class action lawsuits against the company.

Here’s an excerpt from the article:

Federal Courts have dealt a blow to BlueHippo Funding by dismissing the company’s attempt to force all of its customers to take their complaints to arbitration, opening the door to class-action lawsuits…
It was the center of a January 2007 investigation by ConsumerAffairs.Com and targets low-income individuals with bad or no credit and sells cheap computers for as much as five times the value and often never delivers any product, even after hundreds of dollars have already been paid, according to customer complaints…

The company is also under investigation by the attorneys general in West Virgina, Florida and Illinois and settled with the Maryland attorney general in May.

As a result of that settlement, Maryland consumers who received nothing or overpaid for their BlueHippo products, will receive reimbursements starting in early 2008, attorney general spokeswoman Raquel Guillory, said. [Read full article.]

Posted at 9:53 AM, Sep 14, 2007 in Permalink | Comments (2) | TrackBack (0)

Comments

Of course, the court didn't "strike down" any arbitration clause; it had no basis for doing so. It simply ruled that the arbitration clause in the contract didn't apply to people who hadn't signed the contract.

Thanks for the correction. This actually was the case of a company trying to hold its customers to terms they didn't even agree too, an even more egregious abuse of mandatory arbitration than what we usually see.

It is worth noting, however, that a large contingent of consumer advocates and legal scholars would argue that the court in fact did have a basis for invalidating even those arbitration contracts that customers did sign. They argue (and I agree) that some contractual relationships are just inappropriate for mandatory binding arbitration; namely, relationships in which one party has vastly disproportionate bargaining power. Given that the target group for these customers are low income people, in another jurisdiction the arbitration agreements could have been struck down on the basis of unconscionability.