A recent case from the United States Court of Appeals for the Fifth Circuit, which governs Texas, has demonstrated a potential problem with the cost of arbitration. In the case of Overstreet v. Contigroup Companies, Inc., the plaintiff was Gertrude Overstreet, a chicken farmer. Ms. Overstreet had an agreement with Contigroup and another defendant, Wayne Farms, LLC, that the defendants would provide baby chicks, feed and medicine, and that Ms. Overstreet would raise chickens for the defendants. The parties got cross-wise, and Ms. Overstreet ended up filing a lawsuit. Based on an arbitration provision in the contract, the defendants asked the court to send the claim to arbitration. Ms. Overstreet argued that it would be impossible for her to go to arbitration. The arbitration fees (not her attorney fees) would be over $27,000.00. Ms. Overstreet argued that she and her husband, who received less than $1,000.00 per month in social security benefits, owned no land, had no cash savings, received food stamps, and relied on medicaid for prescriptions, would not be able to afford arbitration, and a referral to arbitration would effectively preclude them from bringing their claims. The Fifth Circuit ultimately held that the case was required to go to arbitration.

The shame is that the defendants were not really interested in arbitrating the claim to achieve a just result; they were interested in making it economically impossible for Ms. Overstreet to pursue her claim. If the defendants were really interested in arbitration, they could have found a solution where arbitration was cost-effective. Indeed, we routinely arbitrate small claims in cases where we determine arbitration may be in the best interests of our client, including small cases where arbitration is chosen because it is cost-effective.

In addition to cost, there are other potential pitfalls of arbitration.  Unfortunately, it is difficult to know before a transaction whether the pitfalls or cost-issues will be present in any future dispute. As a result, consumers should be wary of pre-dispute arbitration agreements.   After all, if arbitration ends up being a good solution, the parties can always agree to arbitrate after the dispute arises.