In Randolph v. Green Tree Financial Corp. (11th Cir. 6/22/99), the U.S. Court of Appeals ruled that an arbitration agreement was unenforceable for claims arising under the Federal Truth in Lending Act, because the agreement did not ensure that the plaintiff could vindicate her statutory rights in arbitration.
The plaintiff Randolph claimed that defendant Green Tree violated the Truth in Lending Act in connection with a mobile home loan by failing to make proper disclosure. Green Tree sought to compel arbitration under the arbitration agreement in the retail installment contract.
The court declined to order arbitration. The court stated that in connection with federal statutory claims, such as those under the Truth in Lending Act, an arbitration agreement must provide for an effective and accessible alternative forum in order to be enforceable.
The court found that the Green Tree arbitration agreement failed to provide the plaintiff with the minimum guarantees required to enable the plaintiff to vindicate her statutory rights. Specifically, the agreement did not provide any guidance as to how filing fees, arbitrators' costs and other expenses would be borne, leaving open the possibility that a plaintiff's access to arbitration could be curtailed by high costs. The court noted that some arbitration rules, such as those of the American Arbitration Association, give guidance on how costs will be assessed and imposed, but the Green Tree arbitration agreement failed to specify any governing rules.
Under the Randolph decision, a business which seeks to enforce an arbitration agreement for consumer claims based on statutory rights should ensure that the agreement provides for the necessary elements to make arbitration an adequate alternative to court litigation for persons seeking to assert those statutory rights.
In Fradella v. Petricca (1st Cir. 7/7/99), the First Circuit U.S. Court of Appeals ruled that the three month period for moving in a federal court to vacate an arbitration award was not tolled by an application to the arbitrators to modify the award. The award required payment of $25,000. After the award was issued, the losing party notified the arbitrators that the award was imperfect as to form because it referred to New York rather than Massachusetts law. The arbitrators then corrected the award accordingly. Within three months after the award was corrected, but more than three months after the award was first issued, the losing party moved in court to vacate the award. The Court ruled that it was too late, because the award was final in substance when it was issued, and the request for clarification of governing law did not toll the running of the three month period.