Binding Arbitration (The Wells Fargo Dilemma)

     Wells Fargo Bank was recently caught opening thousands of unwanted accounts, resulting in millions of fees charged to unsuspecting customers.  After an investigation, Wells admitted its failures and has promised to make things right by its customers.  Since then a number of class action lawsuits have been filed, and Wells has, to-date, successfully stopped the lawsuits, invoking the arbitration clause of the standard Wells Fargo bank account contract, as follows:

You and Wells Fargo Financial National Bank (the “Bank”), including the Bank’s assignees, agents, employees, officers, directors, shareholders, parent companies, subsidiaries, affiliates, predecessors and successors, agree that if a Dispute (as defined below) arises between you and the Bank, upon demand by either you or the Bank, the Dispute shall be resolved by the following arbitration process. However, the Bank shall not initiate an arbitration to collect a consumer debt, but reserves the right to arbitrate all other disputes with its consumer customers. A “Dispute” is any unresolved disagreement between you and the Bank. It includes any disagreement relating in any way to your Credit Card Account (“Account”) or related services. It includes claims based on broken promises or contracts, torts, or other wrongful actions. It also includes statutory, common law and equitable claims. A Dispute also includes any disagreements about the meaning or application of this Arbitration Agreement. This Arbitration Agreement shall survive the payment or closure of your Account. You understand and agree that you and the Bank are waiving the right to a jury trial or trial before a judge in a public court. As the sole exception to this Arbitration Agreement, you and the Bank retain the right to pursue in small claims court any Dispute that is within that court’s jurisdiction. If either you or the Bank fails to submit to binding arbitration following lawful demand, the party so failing bears all costs and expenses incurred by the other in compelling arbitration.

Many consumers and lawyers have fought the use of this provision.  They argue that it unfair due to the cost, privacy, the possible bias of arbitrators and, most importantly, the inability to bring a class action lawsuit (which allows one case to be brought by many consumers who have similar claims).  Instead, the arbitration cases must be brought against the bank one at a time.  Wells argues that the parties agreed to these terms when the accounts were opened. However, lawyers have argued that since the fake accounts were never agreed to by the consumer, the terms of the standard contract they signed to open prior, legitimate accounts, does not apply.  So far Wells has been successful in moving lawsuits to arbitration.  Eventually the issue may be decided by an appellate court, but for now, consumers need to be aware of these clauses in their dealings with large corporations.

While arbitration is generally binding on the parties, mediation is another method of resolving disputes prior to court or trial.  Mediation is non-binding, which means that the mediator cannot rule on the case, and if the parties do not agree to a settlement, the matter continues to litigation.  Mediation either occurs through contract, a pre-suit statutory requirement, or by court order (which occurs in almost all civil cases today).

For example, in the most common real estate contract used in South Florida, all disputes under the contract must be settled by mediation prior to any lawsuit being instituted:

Buyer and Seller shall attempt to settle Disputes in an amicable manner through mediation pursuant to Florida Rules for Certified and Court-Appointed Mediators and Chapter 44, F.S., as amended (the "Mediation Rules").  The mediator must be certified or must have experience in the real estate industry. Injunctive relief may be sought without first complying with this Paragraph 16(b). Disputes not settled pursuant to this Paragraph 16 may be resolved by instituting action in the appropriate court having jurisdiction of the matter

In Homeowner Association disputes, matters may be resolved by either pre-suit mediation or binding arbitration, depending on the nature of the dispute.  Disputes regarding condominium associations can be subject to mandatory nonbinding arbitration depending on the nature of the claim.  This special type of arbitration results in a final decision of the arbitrator, but is subject to all regular appellate rules, making the ability to appeal the arbitration decision no different than a decision by a trial court.

In and of itself, arbitration, as a method to resolve disputes, is not better or worse than court.  It is often faster and cheaper than litigation, and many people prefer the privacy that a public trial does not provide.  It also offers more finality, as the grounds for a trial court appeal do not apply, though under certain limited circumstances, the arbitration decision can be appealed. 

Michael J Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business oriented law firm serving all of South Florida, with offices in Palm Beach County.  They can be reached at 561.594.1452, or at mjposner@warddamon.com