22 July 2010

Will Washington State Kill Arbitration?

Arbitration is a dispute resolution method almost always contractually elected by people who think they will sued in an effort to obtain a more favorable forum that the ordinary court system. Washington State's Supreme Court may have changed that equation in that state. Its state supreme court has held that statutes of limitations that bar actions in courts of law do not bar arbitration proceedings.

Thus, anyone who has a contract with an arbitration proceeding in it can be sued at any time for breaching the legal duties covered by the arbitration clause, even if the suit would have been thrown out of court if the arbitration clause was not present.

The case involved a securities arbitration suit in which the arbitrator dismissed a claim on the grounds that it was barred by state law statutes of limitation and the arbitration award dismissing the claims was challenges in state court.

The decision makes putting arbitration clauses in contracts far less attractive in Washington State than it was before the ruling. If other state courts or legislatures follow suit, it could effectively kill the practice of putting arbitration clauses in contracts.

The ruling also gives leverage to those pushing to end securities arbitration under the regulatory power the SEC has to do so under the Dodd-Frank bill. It also weakens the lobbying efforts against a bill being considered in Congress that would greatly limit the contexts in which mandatory pre-dispute arbitration clauses are allowed (banning them in most consumer and employment contexts).

No comments: