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Case addresses issue of class arbitration in consumer contracts

Arbitration is a form of alternative dispute resolution which involves the use of a neutral arbitrator to review the evidence and render a decision which is legally binding for both parties. Arbitration can be used to resolve a variety of disputes, including construction disputes, family law disputes, and disputes between consumers and businesses.

In disputes between consumers and businesses, consumers are often limited by arbitration agreements which prevent them from pursuing not only class action litigation, but also class action arbitration. The latter involves the use of arbitration to resolve a dispute that involves a class of individuals. Like class action litigation, it requires certification of a specific class of individuals affected by the dispute.

One of the issues which has arisen around class action arbitration is how to handle agreements which do not say anything about class arbitration. This issue was at the center of a recent case involving a Pennsylvania couple who filed a federal lawsuit against Chesapeake Energy for that company’s alleged failure to pay millions of dollars in royalty payments to property owners in Pennsylvania. The judge handling the case ended up ruling, based on a U.S. Supreme Court decision, that because the lease is silent with respect to class arbitration, the energy company cannot be compelled to submit to the process.

Arbitration agreements are, of course, common in agreements with consumers, and can place certain limitations on the arbitration process itself. It isn’t always the case that consumers have a bargaining power with these agreements. When an arbitration agreement allows a consumer to contribute to the selection of an arbitrator, it is important to select an arbitrator with experience.

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