Consumer Law

Stephen E. Friedman Argument that the Federal Arbitration Act Doesn't Apply to Internet Transactions

By Jeff Sovern

Stephen E. Friedman of Widener has written Protecting Consumers from Arbitration Provisions in Cyberspace, the Federal Arbitration Act and E-SIGN Notwithstanding, 57 Catholic University Law Review (2008). Here's the abstract:

Arbitration provisions are among the most significant of boilerplate contract terms. Yet the Federal Arbitration Act, which applies to written arbitration agreements, is generally understood as leaving little room for state regulation of these provisions. This article takes the position that arbitration provisions displayed on web-sites in consumer transactions are not written for purposes of the FAA. The FAA is therefore inapplicable to such arbitration provisions and states should be free to regulate them as they see fit.

When Congress enacted the FAA in 1925, Congress excluded oral and other non-written arbitration agreements from the FAA's coverage. In the current commercial environment, arbitration provisions on consumer web-sites are the closest equivalent to what oral and other unwritten arbitration provisions were in 1925 - a form of contracting notable for its casual nature and its failure in most instances to register meaningful choice or to impart seriousness. Arbitration provisions in consumer Internet transactions are thus properly excluded from the FAA.

This interpretation of the term written in the FAA must also be reconciled with E-SIGN. E-SIGN generally ensures that electronic documents be given the same effect as written documents. E-SIGN could thus be seen as requiring that all arbitration provisions in electronic form be treated the same as those in written form. While I acknowledge and discuss that argument, I take a contrary position and argue that E-SIGN does not dictate that text on an Internet web-site must always be considered written for purposes of the FAA.

Interpreting written to exclude at least some electronically displayed text from the scope of the FAA recalibrates the balance between state and federal arbitration law in an appropriate way and in an appropriate context

Full post as published by CL&P Blog on December 09, 2008 (boomark / email).