Contracting with Tortfeasors: Mandatory Arbitration Clauses and Personal Injury Claims

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INTRODUCTION

Once upon a time, the Federal Arbitration Act (FAA) (1) was a procedural statute for the federal courts, designed for commercial arbitration between business entities. (2) Then, about twenty years ago, the Supreme Court began to transform the FAA into a substantive provision as powerful as any fairy tale monster. (3) As long as a contract comes within the reach of the Commerce Clause, the FAA creates a preference for arbitration over litigation no matter what the cause of action. (4) States may not carve out areas in which arbitration is thought to be inappropriate or in need of special regulation; any state law that is specifically directed at arbitration, as opposed to contracts generally, is preempted by the FAA. (5) The Court tends to look at arbitration as if it were merely a change of venue, comparable to moving a dispute from Virginia to Maryland. (6) Even if the arbitration clause is contained in an adhesion contract, it must be enforced unless it can be invalidated under general principles of state contract law. (7) With the support of this legal framework, banks, insurance companies, phone companies, Internet service providers, e-commerce merchants, and sellers of consumer goods and services routinely include mandatory arbitration clauses in their standard-form contracts. (8)

Less well known is the tort law chapter of this story: Mandatory arbitration clauses have come to be used to compel arbitration of personal injury claims arising between contracting parties. (9) Such clauses have long been used in the context of personal injury claims arising from medical malpractice, (10) claims in which the underlying relationship between the contracting parties is based primarily on tort duties. More recently, mandatory arbitration clauses encompassing personal injury claims have begun to appear in situations in which the parties' primary relationship is governed by contract rather than tort law. The dispute to be arbitrated is therefore further from the core of the anticipated relationship between the parties. Arbitration clauses appear in contracts for employment, for the sale of goods, and for the provision of services. In each case, the parties' duties to each other are generally privately undertaken and made enforceable by the common law of contracts. (11) These relationships, however, can also result in ancillary tort duties, and breaches of those duties might result in personal injuries. In this way, an arbitration clause that might have been understood as governing relatively minor contract claims comes to be applied to more serious personal injury claims.

Today, many kinds of contractual relationships lead to interactions between the parties that can result in personal injuries. These relationships include those between doctors and patients, HMOs and members, landlords and tenants, employers and employees, car manufacturers and motorists, utilities and homeowners, schools and students, summer camps and campers, stores and shoppers, lawyers and clients, airlines and passengers, travel companies and travelers, and so on. (12) If intermediaries such as liability insurance companies or credit card issuers are allowed to impose arbitration on behalf of third parties, the list could grow even longer. (13)

In these and other contexts, the drafting party often requires an arbitration clause and argues that the clause applies to personal injury claims as well as to contractual ones. (14) Further, these relationships and their governing contracts will often be ones in which traditional safeguards of contractual fairness are missing. (15) A danger therefore arises that arbitration will be enforced in situations in which true consent is absent. This same danger exists outside the context of personal injury claims, but within this context it threatens the retributive, economic, and communitarian goals of tort law and exposes the tensions between the underlying norms of tort law and contract law. …