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New York Law School

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Tuesday, March 30, 2010

NYS Court of Appeals Issues Guidance Re; Individual's Ability To Pay For Arbitration

Matter of Brady v. Williams,___N.Y.3d___(March 25, 2010), is an important case.  It addresses the issue of whether an arbitration agreement will be enforceable if it is prohibitively expensive? The answer, at least with respect to an individual appears to be "no." In making this determination, the Court explained that the following factors must be examined:

In adopting the standard New York courts are to apply in resolving the question of a litigant's financial ability, we are mindful of the strong State policy favoring arbitration agreements and the equally strong policy requiring the invalidation of such agreements when they contain terms that could preclude a litigant from vindicating his/her statutory rights in the arbitral forum. We believe that the case-by-case, fact-specific approach employed by the federal courts (see e.g. Bradford; Morrison v Circuit City Stores, Inc., 317 F3d 646 [6th Cir 2003]; Spinetti v Service Corp. Intl., 324 F3d 212, 218 [3d Cir 2003]), as well as the principles set forth in Gilmer and Green Tree, properly acknowledge and balance these competing policies.

Based on the foregoing, we hold that in this context, the issue of a litigant's financial ability is to be resolved on a case-by-case basis and that the inquiry should at minimum consider the following questions: (1) whether the litigant can pay the arbitration fees and costs; (2) what is the expected cost differential between arbitration and litigation in court; and (3) whether the cost differential is so substantial as to deter the bringing of claims in the arbitral forum (see Bradford, 238 F3d at 556). Although a full hearing is not required in all situations, there should be a written record of the findings pertaining to a litigant's financial ability. Finally, we do not see the need to detail the precise documentation a court should request to resolve this issue. Such matters are best left to the court's discretion.

Mitchell H. Rubinstein

 

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