Contracting with Tortfeasors: Mandatory Arbitration Clauses and Personal Injury Claims
Thornburg, Elizabeth G., Law and Contemporary Problems
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. Moreover, the procedural shortcomings of arbitration relative to litigation are especially damaging to personal injury claimants. Thus, while mandatory arbitration clauses may be exceedingly unfair and harmful to plaintiffs generally, (16) mandatory arbitration of personal injury claims raises additional and more serious concerns.
As a first step in identifying these concerns, this Article examines some of the cases in which courts have enforced arbitration clauses in personal injury litigation and considers why courts have reached the outcomes they have. Next, the Article evaluates the ways that arbitration can disturb the traditional values of procedural justice, contractual fairness, and the enforcement of tort-based duties. Finally, the Article suggests changes in the law regarding mandatory arbitration of personal injury claims and explores the extent to which change is possible.
TALES OF THE ARBITRATION CLAUSE
The effect of mandatory arbitration clauses on personal injury claims can be glimpsed in cases in which courts have enforced arbitration of such claims. (17) These cases also illustrate the kinds of circumstances in which compelled arbitration can be found (18) and the courts' inability or reluctance to look beyond the terms of the clause in question to reach a more equitable decision. These cases arise in four main contexts: health care, employment, product sales, and the provision of services.
A. Health Care
On January 7, 1973, Roberta Burton checked into Mt. Helix General Hospital for surgery. (19) The admission staff handed her four or five forms to fill out, including one entitled "Arbitration Agreement." This agreement provided in part:
[T]o settle disputes between PATIENT and HOSPITAL by arbitration and NOT by law suit, it is agreed as follows: IN the event of any dispute between PATIENT and HOSPITAL involving a claim for money damages or otherwise, whether arising before or after signing of this Contract, said dispute shall be submitted to arbitration. (20)
After her hospitalization, Burton filed a complaint against the hospital charging negligence and intentional infliction of emotional distress. The trial court found that Burton did not understand that the agreement required arbitration of any negligence or malpractice dispute with the hospital. It also found the arbitration agreement to be a form contract drafted by the hospital and presented to patients for signature at the time of their admission.
The court of appeals enforced the arbitration clause. While it admitted that there was sufficient basis for the trial court to find that Burton did not understand that future torts claims could be pursued only through arbitration, the appellate court held that failure to read or understand the arbitration provision was no defense to enforceability when, as here, the terms of the contract were "clear and unmistakable." (21) The court also rejected Burton's defense of undue influence, commenting that it is "not unusual for a patient to be asked to sign various consent and release forms at a hospital immediately before being admitted." (22) Finally, relying on the general policy in favor of arbitration, (23) the court held that the arbitration clause was not beyond a patient's reasonable expectations in light of its plain language. (24)
Terena Beauregard worked for KFC National Management Company (KFC) in Florida. (25) She alleged that she was attacked and injured while at work by an employee with a history of violent attacks against co-workers. Beauregard continued to work for KFC after the incident and later applied for a transfer from Florida to North Carolina. Her written application for a transfer was on a form furnished by KFC. It contained the following language:
Because of the delay and expense of the court systems, KFC and I agree to use confidential binding arbitration for any claims that arise between me and KFC, its related companies, and/or their current or former employees. Such claims would include any concerning compensation, employment (including, but not limited to any claims concerning sexual harassment), or termination of employment. (26)
A year later, Beauregard sued KFC for negligently hiring the co-worker who attacked her. KFC moved to dismiss and to compel arbitration. The trial court denied this motion, and KFC appealed. The court of appeals reversed, concluding that the language in the application was unambiguous and that it applied to claims based on both future and past incidents. The court therefore compelled arbitration, citing the public policy in favor of arbitration. (27)
The dissenting judge would have upheld the trial court's ruling that "the arbitration provisions contained in the KFC form employment application did not require arbitration of a personal injury claim that arose one year before she signed the application." (28) The dissent also would have found the language of the clause too ambiguous to apply