When is an arbitration clause less unreadable? When it’s a hash-it-out clause

by Jeff Sovern

According to standard readability measures, arbitration clauses require a lot of education to understand. The CFPB arbitration study reported that the average arbitration clause was written at a level that required more than two years of college to grasp. A study that I co-authored found that consumers didn't understand arbitration clauses at all. So, as an experiment, I asked my students to try drafting an arbitration clause that was at an eighth grade reading level, using the Flesch-Kincaid Grade Level test. Even that level is beyond the grasp of half of Americans. One of my students, Jay Hedges, came up with a particularly imaginative arbitration clause that reads at a level of 8.9, or just under ninth grade. It has some flaws as a contractual provision, but I thought readers of the blog might find it interesting to read what may be the first Hash-it-Out clause ever written:

“Hash-it-Out” Section: (a)

We want to explain to you how we will fix serious disagreements between us. When you use our product, you agree that we will hash out the argument outside of the courtroom. When we fix our argument outside of court under these rules, the outcome will last forever. We will use this “Hash-it-Out” Section when we disagree about anything in our larger Agreement or the product you bought from us. But if our disagreement gets started in a court that oversees smaller disagreements, we won’t use the “Hash-it-Out” way of fixing our differences. If either of us choose to fix our disagreement outside of court, here are the rules we will play by:

(1) We agree that neither of us gets to fix our argument in court. Also, neither of us get to have a jury decide who wins. We can’t look into each other’s records or files to help out our argument, unless some other set of rules lets us.

(2) When we hash out our disagreement outside of court you don’t get to bring up any other person’s problem with us, even if its similar to yours. Even if a bunch of other people who use our product try to gang up on us, you don’t get to join them if the problem is something we have to fix outside of court.

 (3) Again, we are going to follow the rules laid out here, as well as any other rules added by the Person we choose to help us decide whose argument wins.

(4) Just so we are all clear, the Person who decides whether your argument or our argument wins makes the final decision. But there might be some limited situations where you can keep arguing your point according to a law called the “Federal Arbitration Act.”

 (5) There are certain things you are allowed to do in court that we can’t do outside of court when we “Hash-it-Out.”

(b) Whoever starts our disagreement gets to choose the outside organization we will use to help us hash things out. Usually we will only have two options, either JAMS or the American Arbitration Association (a.k.a. “AAA”). But if these two options don’t want to help us hash things out, then we can agree to use another similar organization. If we can’t agree on a new option, then we will let a court pick one for us. If one of us picks JAMS, then we will follow their rules. JAMS has two sets of rules. If our disagreement is for less than $250,000, then we will use their rules called “Streamlined Arbitration Rules.” But, if we are fighting over $250,000 or more, then we will use their set of rules called “Comprehensive Arbitration Rules.” If one of us picks AAA to help us hash things out then we will use a set of rules called “Commercial Arbitration Rules.” You can check out these rules ahead of time by reaching out to the organizations. To get a hold of JAMS you can call them at 1-800-352-5267 or head to their website at www.jamsadr.com. To contact AAA call them at 1-800-778-7879 or visit their website at www.adr.org.

If we have to hash out a disagreement then we will do so in your area, known as your “federal judicial district.” If you ask us, we will pay the costs to get the disagreement process started. If your argument wins, we will pay for some other costs as well. But we won’t pay for your lawyer, your experts, or your witnesses. If the law requires us to pay for anything else, we will happily do so.

The Person who decides which argument wins will follow that law we mentioned above, the “Federal Arbitration Act.” There is a certain part of that act called “9 U.S.C. §§ 1 through 16,” which will help the decision-maker know what other laws to use. For example, these laws might include ones which say how long either of us has to bring up a disagreement, or laws which say that some facts may be “off-limits” during our disagreement. Once the decision-maker tells us whose argument wins, we can let any court with authority know who won and what the other side has to do to make up for losing.

(c) This “Hash-it-Out” Section of the larger Agreement between the two of us applies even if you make get more of our product or if you quit using our product altogether. The “Hash-it-Out” Section of our larger Agreement will follow the laws of our authorities. We will follow the laws of the federal government. We will follow the law we’ve mentioned a couple of times now, the “Federal Arbitration Act.” And we will follow Ohio law. The “Hash-it-Out” Section will follow all of these laws, even though some of them might be in disagreement. But we won’t follow Ohio law if it conflicts with federal law or the “Hash-it-Out” Section of our Agreement. Also, there are certain people covered by the “Military Lending Act” who this “Hash-it-Out” Section won’t apply to.

If a court or other authority says any part of this “Hash-it-Out” Section of our larger Agreement can’t be used anymore, then we aren’t going to use this “Hash-it-Out” Section at all. In that case, we will keep using the rest of our larger Agreement. Even if our larger Agreement says something else, we will either use all of the “Hash-it-Out” Section or none of it.

You should know that the government has special protections for members of the Armed Forces and their families who use our product. Usually members of the Armed Forces and their families can’t be charged more than 36% each year for our product. This maximum 36% yearly charge includes a number of things. First, this yearly charge includes the costs of an insurance which will cover whatever you owe in certain situations when you yourself can’t pay. Second, this yearly charge maximum includes the costs of any extras you buy with our product. Third, this yearly charge maximum will include fees for most applications. And finally, this yearly charge maximum will include any fees for participating. If you want someone to tell you want this paragraph says out loud, then call 1-877-292-1682.

In any event, if anyone knows of an arbitration clause written at an eighth grade reading level or less, I would love to see it.

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