Binding arbitration
August 13, 2014 8:25 AM   Subscribe

I have an arbitration clause in my lease. Does this preclude me from using small claims court?

I have called several lawyers and have two more to call today but I have not had a clear conversation about this and it seems pretty straightforward:

I have a clause in my lease that requires any controversy related to the lease agreement to be decided by arbitration by one of two arbitration agencies (my landlord chooses which). It also states that if the arbitrator finds against me, I pay the landlord's legal fees. When I told this to one law firm they were like, "yeah, we can't help you."

What I want to know is, is there precedence to answer this question: Can I still take my landlord to small claims court? For example, if she keeps my security deposit when I move out, and I want to contest that, and I go to small claims court, could my landlord simply reply that we have this arbitration clause and therefore she does not have to participate in the small claims process?

posted by latkes to Law & Government (7 answers total)
I have called several lawyers and have two more to call today but I have not had a clear conversation about this and it seems pretty straightforward:

If the lawyers you've called are all telling you this isn't straight forward, there are two options:

1. You've called bad lawyers (odds of this decrease as the number increases)
2. It's not actually straight forward.

Given that one of those lawyers has said they can't help you, I wonder if you're getting straight answers and they just happen to be not what you want to hear, because "we can't help you" seems pretty direct to me.

On the other hand, the question you're asking is also pretty firmly hypothetical. "Can I still take my landlord to small claims court?" Well, you can certainly file there. Whether or not the court accepts the case and doesn't dismiss it because of the arbitration agreement is a separate question. So, too, is the question of whether or not that court's decision would actually hold up if the landlord decided to push further. What you can do, what you ought to do, and what might work can be three different things.

It doesn't sound like you have an actual controversy and you're calling lawyers to ask them for a memo. This is something a firm is probably willing to do for you -- to outline what the options are and in what situations you might be able to get out of that clause -- but you're going to have to pay for it, and you'll probably have to explicitly ask for that sort of service. (and I'd guess it's not going to be cheap, either)

Generally speaking, though, if you signed that contract, you agreed to use arbitration and not the court system. If I were you, I would assume that includes small claims court unless I could get solid advice from my own attorney (and not AskMe) to the contrary.

"I want the benefits of the contract but not the costs" is not often a successful legal argument.
posted by toomuchpete at 8:42 AM on August 13, 2014 [1 favorite]

You are asking for specific legal advice - "Is the arbitration clause in my lease valid/enforceable, and does it apply to asking for my deposit back in small claims court?" Unfortunately, no one is going to be able to answer that question for you definitively online - whether an arbitration clause is valid depends on a lot of factors, including what the language is in contract/lease & the law where you live. Here is a brief article on whether California law allows binding arbitration in residential leases (I have no idea if the information in that article is actually correct, but it shows that the answer isn't always simple). Thus, my guess is that the reason you didn't receive a clear answer from the lawyers you spoke with is that there isn't a clear answer under the law where you live.

As toomuchpete said above, there's nothing stopping you from filing in small claims court, and there's nothing that would stop your landlord from asserting that the arbitration clause means that the case should be dismissed. I have no idea what the court would do in that situation, and I would guess that the lack of clear answers means that the local lawyers think that the answer is "it depends on a lot of factors."
posted by insectosaurus at 8:50 AM on August 13, 2014 [1 favorite]

Response by poster: Thanks for the link to the article.

Let me be clear: I recognize askme cannot take the place of a lawyer. I also recognize that I can try to take her to small claims court if I want. I have enough basic knowledge to understand the limitations of askme and I do not expect a comprehensive or unequivocal answer in this forum so no need to school me on that score.

I am asking, in general for folks how have general or specific knowledge in this area, does a binding arbitration clause in a California lease tend to preclude successful small claims court cases.

If you don't know the answer, or don't feel comfortable giving more specific answers, then no need to answer the question! Thanks!
posted by latkes at 8:57 AM on August 13, 2014 [2 favorites]

Best answer: The article insectosaurus posted may explain the hesitation you're getting from the attorneys you've called. It makes it sound like California code speaks out of both sides of its mouth on the issue ("The court of appeal in the case discussed above examined the conflict of the two laws but did not come to any conclusion."). It's likely that whether or not the arbitration clause is binding depends upon the specific nature of the dispute between you and the landlord and relevant case law/judicial precedent above and beyond the specific code.
posted by dis_integration at 9:31 AM on August 13, 2014 [1 favorite]

Best answer: Usually in California, if an arbitration agreement alters the governing substantive law, the court will be disinclined to enforce the agreement. So, in your fact pattern, the provision that the loser pays the winner's attorneys fees would be a change to substantive law, and an argument against enforcing the agreement. (The landlord might cite to a severability clause, if any.) Permitting the landlord to choose among arbitration firms is also somewhat unusual -- usually the agreement specifies the arbitration firm or permits the person with the claims (employee, tenant) to choose among a list of options. On a practical level, if you were to file in small claims court, the landlord would probably need to hire legal counsel to compel arbitration. Given the dollar limits of small claims court, and the fact that both sides can participate in small claims without an attorney, it might not make economic sense to the landlord to compel arbitration. It may be that the the arbitration clause is included in the lease in the event of higher-ticket litigation than a small claims action.
posted by ClaudiaCenter at 9:41 AM on August 13, 2014 [2 favorites]

Best answer: IANYL of course but I see two problems with answering your question. First, lawyers are not allowed in small claims court in most jurisdictions, so it is unclear how this issue would arise if that's the forum you chose. At worst, the small claims action would be dismissed in favor of arbitration. Second, it is not uncommon in my jurisdiction that one-side arbitration clauses, such as those which would require you to pay the landlord's lawyer's fees if you lose, but not vice versa, or those that preclude common consumer actions such as class actions, are viewed as unconscionable and hence unenforceable.

So, basically, I can't tell if your arbitration clause is enforceable. Were I you and I had a claim within small claims court jurisdiction, that's where I'd file it. If the amount at issue were larger, I'd have a lawyer look at whether the arbitration clause is enforceable, and if so, I'd bring my claim in the arbitration forum via the lawyer.
posted by bearwife at 10:51 AM on August 13, 2014 [1 favorite]

Best answer: or those that preclude common consumer actions such as class actions, are viewed as unconscionable and hence unenforceable.

The US Supreme Court says this is not the fact. I have handled at least one appeal that successfully enforced an arbitration clause on this exact point.

The key case on this point is AT&T Mobility v. Concepcion. The US Supreme Court found that the California law that invalidated certain arbitration agreements with class action waivers was pre-empted by the Federal Arbitration Act.

No one can tell you about your arbitration clause without being your lawyer and reading it. However, the Concepcion case says that states can't have policies against arbitration clauses. The arbitration clause is generally only going to be unenforceable if it would otherwise be unenforceable under state law. For example, if it were in a contract to restrain trade or if you had to sign the contract with a gun to your head. You don't get to say "I don't like arbitration clauses" and win.

I have reviewed the link from the California real estate firm regarding arbitration clauses in residential leases. There is no date on that article, but there is no discussion of Concepcion. I am not a California lawyer, but I do not see how Concepcion does not invalidate the California law that prohibits rental agreements from compelling mandatory arbitration of disputes. California does not get to have a policy against arbitration clauses.

To your question, "does a binding arbitration clause in a California lease tend to preclude successful small claims court cases.", I think the answer is yes. I think if you ever take your landlord to court, the landlord will file a motion to compel arbitration and the landlord will have her motion granted. It doesn't matter if the attorney's fee clause is one-sided because statute makes it reciprocal regardless.

I am not your lawyer and this is just legal information.
posted by Tanizaki at 11:44 AM on August 13, 2014 [4 favorites]

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