I once issued  a report explaining how bad legal terms could not only invite lawsuits, they could put you in jail.

Right now you are getting a brief overview of what not to do.

The reason for this post is I woke to an email about a product supposedly creating instant legal pages – which promises to protect you from “any danger” and which, ironically, notes attorneys go around reviewing legal terms and filing lawsuits if you biffed your contract.

The product is by a marketer – no legal experience I am aware of – and reviewing his legal terms, which are apparently based on the product, saw not only an incredible hodge podge of gunk, but the issue I had warned about. This, my friends, is why you get legal advice from a lawyer.

Here’s the issue: arbitration.

If you don’t the know the pros and cons of arbitration you have no business putting an arbitration clause in your legal terms. It could destroy you. Or, it could save you.

One issue is arbitration can be exceedingly expensive. In one case I have now in arbitration the arbitrator’s fee is almost $30,000.

Depending on the issues and time involved, the cost could be less or more. In the last several arbitrations I have had, if there was one thing the attorneys agreed on it was the cost of arbitration is out of control and everyone was re-reviewing client clauses. The cost of arbitration is not being outweighed by a faster proceeding which reduces attorney fees.

Worse, for some issues as a matter of law there is no cost splitting. If you have an arbitration clause in your contract you may be paying the full amount. If you need to make a claim against someone you pay the $30k. IF SOMEONE INITIATES A CLAIM AGAINST YOU – YOU PAY THE $30K.

Do you see where this could quickly go south?

What this means is if you put in an arbitration clause requiring each party to pay one-half the arbitrator’s fees it could avoid litigation if the other side cannot afford it. If there is a consumer, employment or other legally protected issue you may get to pay it all with no cost splitting and no cost shifting no matter who wins. 

Here is how this can play out. 

Example 1: Company includes an arbitration clause in a contract. Years later a dispute arises and they go arbitrate, only to discover how much it costs. To avoid the cost they file a lawsuit in court where the filing fee is only a couple hundred dollars. An objection is raised to the court action due to the arbitration clause. The judge agrees, snuffs out the court action and issues an order requiring the company to pay for arbitration. Now the company is in a tough spot – either paying a lot of money for arbitration or being in contempt of a court order and potentially facing daily fines and/or jail time. The company paid money to settle.

(I once saw someone forced into bankruptcy because they couldn’t afford to pay the attorney fees to fight off the daily fines issued by a judge.)

Example 2: Company includes an arbitration clause in a contract. The party they are dealing with breaches the agreement and the amount of the loss is roughly $20,000. The company is looking at paying more than that just to arbitrate the issue. The other side knows it and offers a small fraction to settle knowing the company will otherwise go further in the hole it if tries to get its money back.

In one ironic twist, a major company with an arbitration clause was facing so many expensive arbitration demands that it sued in court to try and stop customers from making arbitration demands.

There are additional legal complications I saw in the non-attorney TOS, some of which have not been resolved in the courts. That’s the last thing you want – disputed issues that can create years of expensive appeals in the courts – before you even get to arbitration.

One could say if you blindly get and use legal terms from a marketer and wreck your life and your business, you get what you deserve. I say it’s one thing to lose $37 buying a bad IM product. It’s another to lose life altering tens of thousands of dollars. 

Filed under: Internet Law

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