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Court on when a company can’t force an arbitration-only clause

How do you resolve business conflict?

Negotiation often does the trick, but not always. And when a contractual impasse seems truly implacable, formal litigation can be required to resolve it.

And then there is arbitration, a long-honored dispute resolution process under American law. Arbitration is widely popular in the commercial realm. We note in a recent Berdon, Young & Margolis blog post that company principals “generally favor arbitration for the comparatively expedited outcomes and cost savings that it often brings.”

We particularly stress in our May 29 entry that arbitration-only [no recourse to any other resolution mechanism] contracts “are on a roll, both in Connecticut and nationally.”

Here’s a question: Will they always be enforced?

A central takeaway from the above post underscores that a “forced arbitration” provision will indeed be found enforceable by a court if it is in an otherwise enforceable contract.

A universal stamp of approval for arbitration can never be assumed, though, even with such an accepted principle. A recent federal case from California bears that out.

That matter focused on a multinational company’s claim that a customer could not take a personal injury claim to trial after allegedly being burned by an exploding smartphone. Samsung Electronics pointed to a warranty booklet mandating forced arbitration in the event of a contract dispute. That booklet was part of the phone package purchased by the consumer.

The court dismissed Samsung’s argument. The tribunal held that it was unreasonable to assume that key dispute-resolution information would be contained within a pamphlet prominently noted as containing safety-related data.

Samsung’s motion to dismiss the plaintiff’s lawsuit was denied.

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