Table of Contents

• Overview
• What Is Arbitration?
• How Does Arbitration Factor Into TCPA Litigation?
• Is Arbitration Always an Effective Defense?
• Conclusion

Overview

In recent months, multiple notable Telephone Consumer Protect Act (TCPA) court decisions have hinged on questions of arbitrability and the enforcement of mandatory arbitration clauses. These clauses are a valuable method of defense for callers and TCPA defendants, but they are not a simple, end-all-be-all solution. They are a complex legal defense strategy and a topic of considerable depth and nuance.

What Is Arbitration?

Arbitration is a form of alternative dispute resolution in which the parties to a dispute present their cases to a third-party arbitrator who renders a binding decision. It is an alternative to settling civil disputes through the court system.

One of the first significant uses of arbitration involved the Jay Treaty of 1794. This treaty resolved issues between the United States of America and Great Britain that had remained since the Treaty of Paris, which ended the Revolutionary War. In the treaty, both sides agreed to have disputes over wartime debts and the boundary between America and Canada resolved by arbitration.

Arbitration is used to resolve disputes in a number of different circumstances and for a number of different jurisdictions. For example, arbitration is often used to resolve international claims. It is often easier to enforce arbitration agreements than court judgments in international cases due to the fact that the governments of most countries are signatories to the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards.

In the United States, arbitration is frequently used to resolve both consumer and employment disputes. Businesses and consumers enter into arbitration agreements in which the consumer waives their Seventh Amendment right to pursue a civil trial by jury in favor of having disputes resolved through arbitration. While these agreements can be signed after the dispute, more often they are part of the contractual terms to which the consumer agrees in order to do business.

As the Center for American Progress explains, “This is entirely legal, due to the Federal Arbitration Act, a 1925 law designed to help businesses resolve their contractual disputes quickly and easily outside of court by validating agreements made by private arbitrators.” Over recent decades, pro-business court rulings have expanded the scope of what sorts of disputes are arbitrable and what sorts of compelled arbitration agreements businesses are allowed to include in their contractual terms. As a result, “these clauses have become ubiquitous in contracts, determining how potential disputes will be handled long before a dispute arises. The clauses may include bans on participating in class action lawsuits, as well as requirements that individual disputes go to arbitration.”

Arbitration clauses have been particularly useful to marketers in order to preclude costly TCPA litigation.

How Does Arbitration Factor Into TCPA Litigation?

Marketers and callers often find arbitration to be a preferable alternative to defending TCPA lawsuits and class actions through the court systems. TCPA litigation can be extremely costly, due to the law’s per-call violations of up to $500 per violation, treble damages of up to $1,500 per willful violation, and uncapped statutory damages. Arbitration offers a number of advantages to would-be TCPA defendants.

Arbitration offers the parties in a dispute the opportunity to choose a specific arbitrator to decide a dispute rather than being assigned a judge by the court system. This can be particularly useful for defendants in that arbitrators with expertise in telecommunications can be chosen to handle what are often legally and technically complex TCPA disputes. There are too many examples of TCPA defendants receiving unfavorable results in court because judges do not understand the technological nuances of modern telecommunications.

The operating costs for arbitration are often considerably lower than litigation. Arbitration proceeds more quickly than litigation and discovery is generally limited or sometimes nonexistent. Arbitration also offers few, if any, avenues for appeal so the expenses associated with defending a dispute through multiple stages of courts and decisions is a non-issue.

Arbitration results can also be made confidential, unlike jury awards and court judgments. This can help protect a defendant’s reputation should they lose at arbitration and prevent a business from being seen as a potential target for professional plaintiffs and serial litigators.

The most significant reason why arbitration is a preferable avenue for callers rather than defending a TCPA complaint through the court system is that, in aggregate and across a wide variety of disputes, arbitration outcomes greatly favor businesses over consumers when compared to the court system. The Economic Policy Institute quotes a judge as calling compelled arbitration agreements “get out of jail free” cards.

While that overstates the case, the EPI’s summary of a research report on arbitration outcomes states that “consumers and employees often find it more difficult to win their cases in arbitration than in court.” Additionally, even when businesses lose their arbitration cases, the outcomes are generally preferable to court decisions. Again, according to the Center for American Progress, “Successful lawsuits… typically resulted in awards roughly 5 to 10 times larger than those reached in arbitration.”

Is Arbitration Always an Effective Defense?

Compelled arbitration is an extremely effective defense against TCPA complaints when it is applicable. But not every TCPA case may be arbitrable and not every arbitration clause may be enforceable. It is instructive to examine some case studies in which TCPA defendants were unsuccessful in their efforts to enforce arbitration clauses.

In Engen v. Grocery Delivery E Services USA Inc., a district court ruled that the defendant could not compel arbitration in a TCPA class action because the arbitration clause was added to the defendant’s terms and conditions one month after the plaintiff had agreed to them. The defendant tried to argue that the amended arbitration clause was enforceable due to promotional emails that they sent to the plaintiff providing “‘actual, or at least constructive notice’” of the revised terms and conditions. They also argued that the plaintiff effectively agreed to the revised terms and conditions by the simple act of signing into her account. The court rejected both arguments.

In Berman v. Freedom Financial LLC, the Ninth Circuit ruled that the defendant could not compel arbitration due to specific issues with the design of the website used to get the plaintiffs to agree to the terms and conditions containing the arbitration clause. The court ruled that the arbitration clause could not be enforced because the plaintiffs did not “unambiguously manifest their assent to the terms and conditions when navigating through the [defendants’] websites.” Among the reasons cited were the size of the text in the disclosure, the color of the text containing the hyperlink to the full terms and conditions, and the specific phrase used on the button that users click to agree to the terms and conditions. The Second Circuit reached a similar conclusion in Luis Arnaud v. Doctors Associates, Inc. d/b/a Subway.

In Robert Kelly v. the McClatchy Company, a district court ruled that a newspaper company could not compel arbitration in a TCPA complaint because the allegedly violating calls occurred after the plaintiff had canceled his subscription. The court found that the cancellation effectively terminated the contract between plaintiff and defendant and made the arbitration clause unenforceable for the calls that occurred after cancellation.

Conclusion

The frequent use of mandatory arbitration agreements to resolve disputes is fairly unique to the United States. In fact, a scholarly article from the UNLV Boyd School of Law notes that “companies rarely if ever employ this strategy outside the United States.” U.S.-based callers would be well served to avail themselves of this opportunity to protect themselves from the uniquely punitive nature of the TCPA.

However, as the above case studies demonstrate, a forced arbitration clause is not a “get out of jail free” card, despite what one particular judge may say. For arbitration to be an effective defense against TCPA complaints, callers should abide by certain best practices. An arbitration clause that is crafted specifically for a caller with the assistance of an experienced attorney is likely to be more effective than a boilerplate arbitration clause that is copied from a website. Arbitration agreements should be tailored to the proper scope to include TCPA complaints and any potential claims under any state laws that may be arbitrable. Arbitration agreements also must cover the span of the contract with the consumer. As the McClatchy case demonstrates, violations that occur after an arbitration clause is no longer in effect can result in complaints that are not arbitrable. And as Berman and the Subway case demonstrate, seemingly minor details like webform design can ultimately undermine arbitration defenses.