Arbitration provisions and enforcement December 27, 2018

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Arbitration provisions and enforcement
December 27, 2018
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Arbitration provisions and enforcement 
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Ken,
            The South Carolina Legislature in the Uniform Arbitration Act enacted a law that requires a statement on the first page of the contract if there is an arbitration provision.  Our local counsel has advised that he has seen more than one judge strike down or refuse to enforce arbitration provisions because of the failure to comply with this law and when it is done generally the cost of appeal is far greater than the amount sought in recovery.  He recommended that we simple stamp on the front of each of our All in One Agreements the statement “THIS CONTRACT IS SUBJECT TO AN ARBITRATION CLAUSE” in red ink would fix it.
            You may also want to review the South Carolina Supreme Court’s opinion in Munoz v Greentree Financial Corp decided in 2001 which I think our courts would find as binding authority.  In Munoz the South Carolina Supreme Court limited the reach of the FAA in South Carolina.
Name withheld
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Response
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            The law of arbitration is undergoing some serious evolution in recent years.  The Federal Arbitration Act preempts most if not all state laws pertaining to arbitration.
            Many states, like South Carolina, have consumer laws that prohibit or restrict arbitration provisions unless various requirements are met.  A notice on the first page of the contract is one example.  Others include different size and color font for the arbitration provision or a separate signature by the consumer acknowledging the arbitration clause and its effect on other consumer rights, especially the right to participate in a class action and right to a jury trial or trial before a judge with right to appeal.
            However, no doubt much to the chagrin of state law makers, the United States Supreme Court has decided several cases which uphold the sanctity of the right to contract and recognize Congress’ intention that arbitration be favorably looked upon and enforced as a matter of public policy. 
            Arbitration, if you have selected the right arbitration program, can be quick and cost effective.  If you select the wrong arbitration program or agree to a tortuous process then you may find the arbitration takes longer and costs more than a court case. 
            Drafting the arbitration provision requires legal skill, as do most of the other provisions in the alarm contracts.  Transactional lawyers, those who draft contracts, generally don’t understand or appreciate litigation issues or alternative dispute resolution procedures, such as arbitration.
            Alarm companies, for the most part, engage in interstate commerce [as defined by the Supreme Court] and are therefore able to rely on the the FAA [arguably one need not actually engage in interstate commerce]. 
            Almost all contracts, alarm contracts included, have a provision with a governing law stated.  It generally reads that “This contract shall be interpreted and enforced according to the law of South Carolina” or some other states [I love when I see Delaware and the parties have nothing to do with Delaware – then I know I am dealing with someone with a double digit IQ].  This provision may very well invalidate an arbitration provision unless state law has been complied with. 
            A properly drafted contract would provide that the arbitration is governed by the FAA.  That’s how the updated Standard Form Agreements are written.  I suggest you update if your contract does not read that way.
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
516 747 6700
www.KirschenbaumEsq.com