Professor Jeff Sovern recently blogged about the FTC’s June 2023 revisions to its Endorsement Guide. The Guide helps advertisers and endorsers make sure that their advertising using endorsements or testimonials is truthful and not misleading. The blog focused on the FTC’s adoption of a definition of “clear and conspicuous” as meaning that “a disclosure is difficult to miss (i.e., easily noticeable) and easily understandable by ordinary consumers.”
Fair enough. But Professor Sovern then throws a sucker punch at consumer arbitration clauses, stating that “[t]he industry must be very pleased that arbitration clauses are not required to be clear and conspicuous, because multiple studies have now shown that they are not easily understandable by ordinary consumers.” That gratuitous barb is totally unwarranted and requires a short response.
As a technical legal matter, under the Federal Arbitration Act (FAA) arbitration clauses cannot be singled out for special treatment. That means, among other things, that a state statute cannot require arbitration clauses—but not other parts of the contracts containing the arbitration clause—to be “clear and conspicuous.” In a landmark U.S. Supreme Court case so holding, Montana courts refused to enforce an arbitration clause in a Subway franchise contract because it did not comply with a state statute requiring that notice that a contract is subject to arbitration be “typed in underlined capital letters on the first page of the contract.” The Court (in an opinion by Justice Ginsburg) held that the statute was preempted by the FAA because courts may not invalidate arbitration agreements under state laws applicable only to arbitration provisions.
Nevertheless, as a practical matter, most industry members strive to do more than the law requires. They voluntarily use combinations of capital letters, boldface type and/or other typographical features to make sure that consumers do have notice that there is an arbitration clause included in the contract (along with, in many cases, a right to opt out of the arbitration clause). Moreover, they aim to make the arbitration clause itself clear and understandable and explicitly disclose, among other things, that the parties will waive jury trial and class action rights if they arbitrate a claim. This makes good business sense, since companies depend on consumers to buy their goods and services and want their relationship to be a positive one.
They also understand that an arbitration clause that is not clear and understandable may be challenged by the consumer in court on that ground. While consumer arbitration clauses are often criticized (by Professor Sovern, among others) for being too long, complex and technical, that is largely attributable to arguments frequently made by the consumers’ own lawyers that an arbitration clause is unenforceable because it is too general and does not contain enough details and complexity. For example, in one well-known case, the New Jersey Supreme Court refused to enforce an arbitration clause covering “any claim or dispute” between the parties because it did not expressly specify that it covered “statutory” claims in particular. One would think that an ordinary consumer would understand the broad phrase “any claim or dispute” to cover statutory (and all other types of) claims, but the court held otherwise since a waiver of the constitutional right to a jury trial was involved in arbitrating a statutory claim.
Lesson learned. The result is that a short, perfectly understandable phrase such as “any claim or dispute” has morphed into “disputes based upon contract, tort, consumer rights, fraud and other intentional torts, state and federal constitutions, statutes and regulations, ordinances, common law and equity,” followed by numerous examples of particular types of claims. Also clear and conspicuous, but much more prolix.
Of course, the same plaintiffs’ lawyers (and consumer advocates such as Professor Sovern) then turn around and complain that arbitration clauses “are not easily understandable by ordinary consumers” because they are too verbose, complex and technical. Professor Sovern even insinuates that industry members must be “very pleased” not to have to make their arbitration clauses clear and conspicuous. Such “darned if you do, darned if you don’t” assertions are cynical and patently unfair. Companies do strive to make their consumer arbitration clauses “clear and conspicuous.” Any criticism that the clauses do not measure up to that standard should be directed not to the industry, but to the consumers’ own lawyers, who are largely responsible for the extra wording and additional complexity in the first place.