Read The Fine Print, Or At Least The AAA Rules

As attorneys, or business owners for that matter, we all are intimately familiar with every aspect of the AAA’s arbitration rules, right?  Well, based on a recent Court of Appeal decision from our very own Fourth District, we better be.  In Brinkley v. Monterey Financial Services, Inc., 242 Cal.App.4th 314, the plaintiff brought a class action lawsuit against Monterey Financial Services related to Monterey’s alleged unlawfully recording telephone conversations.  The trial court compelled arbitration of the plaintiff’s individual claims and dismissed the class claims.  While most of the decision applies Washington law (due to a choice of law provision in the contract), the Court of Appeal applied federal law and reversed the lower court’s decision to dismiss the class claims.  The court held that the contract incorporated the AAA arbitration rules.  Since the AAA’s rules provided that the arbitrator should decide whether class claims are arbitrable, the court concluded that the parties intended to delegate the resolution of the question of whether the class claims were arbitrable to the arbitrator.

Brinkley serves as a word of caution to both attorneys and their business clients – be careful what you wish for.  While many businesses are including arbitration provisions in their contracts and employment agreements, there can be unintended consequences that could actually increase legal fees, rather than reduce them.  The moral of Brinkley is to have counsel carefully read your contractual arbitration provisions to determine whether there are any similar land mines such as the one in this case.

Larsen Woodard LLP is a boutique litigation firm that handles business and employment matters.  If you would like more information on arbitration clauses, or have other questions, please contact Greg Woodard at (949) 769-6602.

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