Arbitration is a method of alternative dispute resolution (ADR) designed to keep disputes out of a court of law and streamline the process of coming to a final resolution. The process of arbitration is a method, “…in which an arbitrator (a neutral third party or a panel of experts) hears a dispute and imposes a resolution on the parties. Arbitration is unlike other forms of ADR because the third party hearing the dispute makes a decision for the parties.” (Fundamentals of Business Law, Miller and Jentz, 2010, Ch. 2,pg. 50) An arbitration agreement is an agreement, either a separate contract or, as is more often the case, a clause contained within a contract, which both parties must agree to and is usually binding. In the case of Baker v. Osborne Development Corp., however, things aren’t quite that straight up. The original arbitration agreement was between Osborne and Home Buyers Warranty (HBW), whom Osborne had hired to administer a home warranty program. Weeks after people had moved into their new homes HBW sent out warranty booklets to homeowners that contained the phrase, “Any and all claims, disputes and controversies by or between the Homeowner, the Builder, the Warrant Insurer and/or HBW shall be submitted to arbitration.” (http://extmedia.kaplan.edu/legal/LS311/LS311_1303C/LS311_Assignment_2.pdf) At first one might be inclined to say the homeowners would have to submit to arbitration. In the case of NCR Corp. v Korala Associates, Ltd., one of the things the court focused on was earlier case law from Masco Corp. v. Zurich Am. Ins. Co., 382 F.3d 624, 627 (6th Cir.2004), “As a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” (http://www.ca6.uscourts.gov/opinions.pdf/08a0029p-06.pdf) Though the NCR case was about copyright infringement, it dealt with the arbitrability of the clause. The clause in dispute in the Baker case was very broad, as was the clause in the NCR case. The court went on to say, “When faced with a broad arbitration clause, such as one covering any dispute arising out of an agreement, a court should follow the presumption of arbitration and resolve doubts in favor of arbitration.” (Ibid.) Again, it looks as if precedent may for Baker et al. so submit to arbitration. Another point at issue of the Baker case was that of exactly who decides whether the dispute should go to arbitration, an arbitrator or the courts. In 2010, the United States Supreme Court decided two cases, Antonio Jackson v Rent-A-Center, an employment dispute and Stolt-Nielsen S.A. v. AnimalFeeds International Corp., a business dispute. In her article, Court Rules on Enforcement of Arbitration Agreements, for Iside Counsel Magazine, (2010), author Melissa Maleski explains the results of both cases. Referring to the Rent-A-Center decision she says;
In its ruling in Rent-A-Center, West, Inc. v. Jackson, the Supreme Court set forth a new rule: Claims that challenge the entire agreement, such as Jackson's, must go before an arbitrator; however, claims that challenge the specific agreement to arbitrate the validity of the agreement must be heard by a court. It relied mainly on an interpretation of the Federal Arbitration Act (FAA) that the high court set forth in its 1967 opinion in Prima Paint Corp. v. Flood & Conklin Mfg. Co. (http://www.insidecounsel.com/2010/08/20/court-rules-on-enforcement-of-arbitration-agreements)
And in Stolt-Neilsen she explains, “the majority said parties cannot be compelled to submit to class arbitration absent evidence that it contractually agreed to do so, and the court also restated the "foundational FAA principle that arbitration is a matter of a consent." (emphasis added) (Ibid.) In other words, if there is a specific phrase in the agreement giving the arbitrator the power to decide if the disagreement goes to arbitration, then he decides. If the phrase is not there, then the courts decide. Though the arbitration clause in Baker did contain language to the effect that the arbitrator was to decide arbitrabilty, the judge saw that “… the agreement contains a severability provision in the event that `any provision of this arbitration agreement shall be determined by the arbitrator or by any court to be unenforceable.... (emphasis in original) ” (http://www.lawyer.com/cases/14422029627313905142.html) This was very lucky for Baker et al, because it was that phrase that allowed the court to decide any enforceability issues. From there the court went on to find that the agreement was both procedurally and substantively unconscionable. And was decided in favor of Baker. This was appropriate because not only was the agreement unconscionable, Osborne was unethical in extremis. It basically attempted to strip the homeowners of any power at all to address wrongs and therefore was massively one-sided. If we were to apply duty-based ethics, which states that, “individuals should evaluate their actions in light of the consequences that would follow if everyone in society acted in the same way,” (cite textbook, ch 3) I think it’s clear that we wouldn’t want everyone in society to create these types of agreements. By the same token if we apply outcome-based ethics, which put simply is, “…an action is morally correct, or “right,” when, among the people it affects, it produces the greatest amount of good for the greatest number.” (Ibid.) It is also clear that the only benefits from the agreement in Baker benefitted only Osborne. But, luckily for the plaintiffs, Osborne was not only unethical they were incompetent.
