Hoping to recoup their losses, Welshans and Williams sued in Maryland federal court. But Coffee Beanery struck back in Michigan; a federal judge there ordered the couple—as required in the fine print of their franchise agreement—to instead take their dispute to a private arbitrator selected by the company. (Such binding arbitration clauses are boilerplate in contracts for everything from cell phones to credit cards.) Welshans had to borrow another $100,000 from his brother-in-law just to proceed with the process, which required steep fees up front.
She ordered the couple to pay $187,452 in legal fees and arbitration expenses—not including their own legal tab or the cost of travel to and from Michigan. Among the charges: $16,800 for Barron’s services, $35,571 for a court reporter and transcription, even $504 for the Beanery lawyers’ lunches.
Arbitration has a place in the American legal system. It is no panacea, but for many businesses it enables a comparatively quicker and less painful (though often more expensive, given the arbitrator’s fees) method for resolving disputes with other businesses.
But let’s be real: anyone who demands they alone have the right to choose the arbitrator is trying to defraud you.
There is a huge roster of fair and impartial arbitrators who would be happy to hear your case, and multiple services (like AAA and JAMS) willing to provide you options. No business has good reason for demanding they be able to unilaterally choose the arbitrator in advance.
If the parties want to name a particular arbitrator in advance, that’s fine, as the parties have an opportunity to explore who that person is, but leaving the option open for an unfettered choice down the line after the wrongful conduct has occurred is unreasonable and should be prohibited by the Federal Arbitration Act (keep in mind — arbitration is not a “contractual” right, it’s a statutorily-prescribed method of dispute resolution, making Congress complicit in these abuses).
I wouldn’t buy the time of day from someone who proposed that and neither should you.