Does The Fine Print Always Win? Enforceability of Mandatory Arbitration Provisions in Illinois

Almost everyone has purchased goods or services that required signing a contract provided by the seller, from vehicle protection plans to airplane tickets. These are often “contracts of adhesion,” meaning consumers have little control over the terms of those contracts, many of which focus on keeping claims out of the court system by requiring binding arbitration instead. While such “mandatory arbitration” provisions are often enforceable, businesses and consumers must be wary because an overreach in drafting those provisions could not only result in parts of the agreement being unenforceable, but even the entire arbitration requirement.

One such result occurred in Bain v. Airoom, LLC, where an Illinois appellate court reversed an order compelling arbitration due to that overreach. See Bain v. Airoom, LLC, 2022 IL App (1st) 211001. In Bain, the plaintiff ordered remodeling work and sued the contractor claiming a breach of contract and violation of the Illinois Consumer Fraud Act. The contractor attempted to force the case into arbitration based on a provision in its contract that required any controversy or

claim arising from the contract to be resolved by binding arbitration.

The Bain court started by noting that Illinois public policy favors arbitration and that binding arbitration provisions are generally valid. Further, while this was a contract of adhesion and the plaintiff had no opportunity to negotiate its terms, the Bain court acknowledged that consumers routinely sign such agreements and this did not by itself make the provision “unconscionable” and therefore unenforceable.

However, a closer look at the arbitration agreement revealed several key parts that were unconscionable. These included language barring the consumer from obtaining her attorneys’ fees (despite her raising a Consumer Fraud Act claim which would explicitly allow that relief), a requirement that both sides keep the arbitration confidential (which would give the contractor a one-sided benefit of learning from repeated arbitrations), and compelling arbitration to be undertaken using burdensome rules that were “plainly ill-suited for and unnecessarily costly” for the plaintiff’s renovation claim. The Bain court found that each of the above portions of the arbitration agreement was “substantively unconscionable” and therefore unenforceable.

Finally, the Bain court considered whether the arbitration agreement could be saved by removing the offending provisions. However, the court held it could not do so without modifying the language to such an extent it would be “tantamount to drafting a new contract.” As a result, the entire arbitration agreement was unenforceable and the plaintiff was allowed to continue her case in state court.

It is worth noting that arbitration can also provide benefits to consumers, not just businesses. One of the main rationales behind arbitration is that it streamlines litigation and can make it less expensive for both sides. This comes at a cost for consumers, including that arbitration prevents their case from being heard by a jury, but if the amount at stake is small or a would-be plaintiff is cost-sensitive, it may be worth arbitrating his or her dispute anyway. However, the Bain decision sends a clear signal on how mandatory arbitration provisions can be challenged should consumers attempt to keep their case in state court.

Further, while mandatory arbitration provisions continue to be generally enforceable, this decision shows it is more important than ever to be careful in drafting contractual language, including these arbitration provisions. While businesses have a clear interest in adding language that improves their position, there is a tipping point where their contracts are skewed so far in their favor that they risk losing the benefit of those provisions entirely, as happened to the contractor in Bain. Given the temptation to look towards newer low-cost online legal service providers, that risk is significant as a boiler-plate contract could easily contain such overreaching provisions, and any business could benefit from having an attorney either take a second look at the contractual language they are using, or re-draft upon finding any issues that could arise in litigation.

If you have questions or would like more information on this subject, please feel free to contact attorney Thomas Fox at 847-705-7555 or tfox@lavellelaw.com.