What does “consent” to Arbitration Actually Mean?

What does “consent” to Arbitration Actually Mean?

West Virginia Supreme Court insists upon meaningful consent to arbitration agreement

By Paul Bland, Senior Attorney

On Twitter! @Pblandbland

U-Haul signToo often, courts treat “consent” by consumers or employees to mandatory arbitration clauses as essentially a meaningless formality – so long as some language in some fine print somewhere refers to the word arbitration, an entire ocean of restrictive terms is squeezed out of that sponge of a few words. 

As an example of the outer limits of how little some courts care about consent, just a few months ago I wrote about a Florida appellate court that enforced an arbitration clause in a case where a 92-year-old person with a fourth-grade education and medical problems was held to have “agreed” to an arbitration clause, notwithstanding a factual finding that the individual “could not possibly have understood what she was signing.” 

Not all courts treat consent in a meaningless way, however.  Today, a very important decision was handed down by a 4-1 vote of the West Virginia high court in the case of State of West Virginia ex rel U-Haul v. Zakaib.  In this case, U-Haul gives consumers a form contract.  The form creates a contract relationship between U-Haul and its customers.  Then, in the key part that decides this case, the form contract has some fine print that says that the consumers acknowledge receiving terms and conditions in an Addendum to the contract.  But the consumers don’t actually receive the Addendum until after they’ve signed all the papers, and the contract is finished. 

Buried in the fine print inside a cardstock pamphlet that is folded into a bunch of sections and shaped like a narrow folder is a mandatory arbitration clause.  The conspicuous and main part of the Addendum pamphlet is devoted to how one returns the equipment she has rented.

The Court held that the arbitration clause in the Addendum was not agreed to by U-Haul’s consumers.  The court gave several reasons as to why U-Haul’s arbitration clause was not communicated to the consumers in a sufficiently clear and timely way to create a binding contract.  For example, in keeping with a large body of authority from other courts, the West Virginia high court sensibly found that the arbitration clause was a “material term” of the contract. 

This is a significant point – if two parties agree to a contract, the normal rule is that neither party can unilaterally add a “material term” after the deal.  This might seem obvious.  Parties are supposed to actually agree on the BIG terms to an agreement.  Someone can tack on a minor provision that doesn’t matter a great deal without causing a problem, but no one can add a major and substantial term to an agreement after the fact and say that it’s part of the contract.  As a result, it’s not surprising that the Court found it very “troubling” that “U-Haul’s practice was to provide customers a copy of the Addendum only after the Rental Agreement had been executed.”  This fits the normal rule of any contract: no material term becomes part of a contract unless the parties agreed to it at the time the contract was formed.

In addition, the Court concluded that in order for a second document to be “incorporated by reference” into a contract, the original contract document must clearly and unequivocally make clear what the second document includes.  On this point, the Court cited to a book from the National Consumer Law Center, Consumer Arbitration Agreements.  One of my terrific colleagues here at Public Justice, Leslie Bailey, is the author of the chapter of that book that the Court cited from in its opinion.  In this case, though, the Court concluded that U-Haul’s initial contract form was so vague and the Addendum folder didn’t look like a contract but more like an advertising document, that consumers would never have realized that it was part of a contract.

I want to congratulate the lawyers who handled this case, who are listed on the first page of the opinion.  In particular, it was a huge victory for my buddy Tony Majestro of Charleston, West Virginia and a number of his co-counsel, including lawyers from my friend Harry Deitzler’s firm.

Given how straightforward and obvious the law in this decision is, a lot of people might think this isn’t a very big deal.  I don’t agree.  I’ve seen some courts that have tossed basic rules of contract law out the window, in the rush to enforce any arbitration clause.  In this climate, it’s wonderful to see a court say that no enforceable agreement to arbitrate is formed unless it meets the normal and historic rules for creating a contract.

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