What Law Should Govern Enforcement or Invalidation of Standard Consumer Contract Terms?

Last week, I attended the American Law Institute (ALI) Annual Meeting in Washington, DC.  (I am back in The District this week for the Law and Society Association Annual Meeting.  More on that in a later post.)  Many important project drafts and projects were vetted at the ALI meeting.  As many readers know, however, the tentative draft of the Restatement of the Law, Consumer Contracts generated some significant debate in advance of and at the conference.  The membership approved part of the draft of the project at the meeting, but much still is to come.  

I want to briefly pick up a small thread here from the portions of the proposed Restatement discussed at the meeting that relates to some of the work I have done on crowdfunding.  Crowdfunding platforms, like most web-based service businesses, use standard form "terms of use" that the service provider and customer end-user may desire to enforce under contract law.  Unsurprisingly, many of the terms of use for websites of this kind (and crowdfunding platform sites are no exception to the rule) are protective of the interests of the service provider.  These terms include, for example, mandatory arbitration provisions and waivers of jury trial and class action rights.

As many of you likely know, there has been significant litigation about the enforceability of these kinds of provisions in form agreements--and whether a valid contract has been formed at all.  See, e.g., this article from earlier this year.  As the debates on the Restatement proceeded at the meeting, I found myself thinking about whether the common law of contracts is the best way to handle legal challenges to standard form contracts.  Something inside me just kept screaming for a more tailored legislative solution . . . .

After conclusion of the ALI Annual Meeting, I found this testimony before the Senate Judiciary Committee from Myriam Gilles, Paul R. Verkuil Research Chair and Professor at Cardozo Law.  She notes in that testimony:

[W]hen pre-dispute arbitration clauses and class action bans are forced upon consumers and employees in take-it-or-leave-it, standard-form agreements, “the probability of litigation positions is highly asymmetrical: the seller is far more likely to be the defendant in any dispute, and the consumer the plaintiff.” There is no negotiation, no choice, and the resulting arbitration procedures are not, in truth, intended to provide a forum to resolve claims. The one and only objective of forced, pre-dispute, class-banning arbitration clauses is to suppress and bury claims. The whole point is that consumers and employees seeking redress for broadly distributed small- value harms cannot and will not pursue one-on-one arbitrations.

(footnotes omitted) Professor Gilles recommended a legislative solution.

I do not teach contracts.  Perhaps those of you who do have comments on this matter that negate what I have written here.  If so, please share them.  In general, as a corporate finance lawyer, I favor private ordering.  But consumer contracts are a whole other animal, distinct from merger or acquisition and other corporate finance agreements.  Perhaps we should decrease pressure on the courts by focusing some legislative attention on the appropriate form of standardized terms in consumer contracts that operate as contracts of adhesion or otherwise offend public policy.  I am not sure quite what that looks like overall, but the idea seems to bear further thought . . . .