Arbitration clause that allows one party to seek judicial remedies is invalid for lack of mutuality

Law Reporter, Sep 2002

Arbitration clause that allows one party to seek judicial remedies is invalid for lack of mutuality.

Cash in a Flash Check Advance of Ark., L.L.C. v. Spencer, - S.W.3d -,No. 01-1210, 2002 WL 937683 (Ark. May 9, 2002).

The Arkansas Supreme Court held that an arbitration clause in an agreement between a check cashing service and its customers was invalid because the service had retained the right to sue customers in certain instances.

Here, a customer filed a class action lawsuit against a check cashing service, alleging violations of the state usury law. Defendant moved to compel arbitration, citing a clause in the written agreement the customer had signed. The trial court denied the motion.

Affirming, the state high court observed that arbitration is strongly favored in the state as an expeditious means of settling disputes. In this case, defendant claimed that the arbitration clause, separately initialed and contained in each plaintiffs agreement with defendant, was contracted for by both plaintiffs and defendant and requires that any claim arising out of their transactions be directed to arbitration.

Here, the court said, the arbitration clause is invalid due to a lack of mutuality, which requires that the terms of an agreement impose real liability upon both parties. There is no mutuality of obligation where one party uses an arbitration agreement to shield itself from litigation, while reserving to itself the ability to pursue relief through the court system, the court said.

The agreement at issue in this case allows defendant at its option to take any of the actions listed in the "consequences of default" provision of the contract, including its power to "go to court and get a judgment against you for the then unpaid amount of your obligation to us," and to later collect any such judgment "through all judicial means necessary." This lack of mutuality is fatal to the enforceability of the agreement, the court concluded.

Plaintiffs' Counsel

Todd Turner, Arkadelphia, Ark. Dan Turner, Arkadelphia, Ark. Chris Averitt, Jonesboro, Ark.