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Suppose a FINRA-regulated financial institution is notorious for littering its service agreement with purportedly binding arbitration clauses, but then exercises a policy that amounts to depriving a customer of their assets without any lawful basis.

As their line of business is heavily regulated by statutes and regulations, surely there are certain immutable parameters as to how they should operate that cannot simply be contracted away with provisions in their terms of service that one may be required to sign on the dotted line of in opening an account.

If such a company oversteps one of these parameters for lawful operation, are arbitration clauses binding in respect of these breaches, in removing judicial recourse for the customer in court, rather than in arbitration venues?

And what other scenarios give rise to causes of action that can immutably transcend arbitration clauses?

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    To clarify - you are talking about civil remedies only? Arbitration clauses won’t affect possible fraud prosecution of course. Commented Jan 30, 2023 at 18:19
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    While beyond the scope of the question, the United States enforces arbitration clauses in many circumstances where other developed countries would not.
    – ohwilleke
    Commented Jan 30, 2023 at 18:31
  • @ohwilleke Definitely an important observation.
    – UBSOS23
    Commented Jan 30, 2023 at 18:38
  • @GeorgeWhite What about negligence?
    – UBSOS23
    Commented Jan 30, 2023 at 19:40
  • Negligence can be an element in both civil and criminal cases. Commented Jan 31, 2023 at 3:23

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If such a company oversteps one of these parameters for lawful operation, are arbitration clauses binding in respect of these breaches, in removing judicial recourse for the customer in court, rather than in arbitration venues?

In this situation, the arbitration clause (assuming it was actually entered into) is binding and there is no meaningful judicial recourse through a civil lawsuit. It does not bar criminal prosecutions or administrative agency action.

And what . . . scenarios give rise to causes of action that can immutably transcend arbitration clauses?

Civil actions seeking redress from sexual assaults are exempt from arbitration in the U.S., pursuant to H.R. 4445, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, which was signed into law on March 3, 2022.

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  • Until I had read the second part of your answer, I was literally thinking to myself "wait, that can't be right: if you enter into a contract with your broker saying that you agree to pursue all disputes with them in arbitration, then they kidnap, rape, or murder you, surely a court won't care very much about the arbitration agreement." But, having read the second part of your answer, are you saying that damages from kidnapping and murder (as they are not intrinsically sexual in nature) would need to be pursued in contractually designated arbitration forums?
    – UBSOS23
    Commented Jan 30, 2023 at 18:04
  • But, what would determine whether an arbitration clause was "actually entered into"? Presumably a customer has agreed to a service agreement which presumably was drawn up to be as watertight as possible in removing the customer's recourse to judicial remedies, and presumably the lawyers drawing it up in that way did a decent job of doing so. These all seem like fairly sensible presumptions.
    – UBSOS23
    Commented Jan 30, 2023 at 18:06
  • "are you saying that damages from kidnapping and murder (as they are not intrinsically sexual in nature) would need to be pursued in contractually designated arbitration forums?" Yes. It would be rare to have an arbitration agreement with someone who kidnaps or murders you, but it could happen. That wouldn't preclude a criminal prosecution or restitution in a criminal case, however. Arbitration applies to the forum for resolving civil disputes only, not criminal cases. There are doctrines to argue otherwise but they aren't ironclad.
    – ohwilleke
    Commented Jan 30, 2023 at 18:07
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    The sexual assault exemptions tend to come up in employee contract disputes than customer contract disputes.
    – hszmv
    Commented Jan 30, 2023 at 18:10
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    @UBSOS23 Arbitration clauses are very common in all sorts of contracts, especially contracts with employees, with customers, with firms that enter into lots of small transactions with each other, in construction, and in international commerce. Employee arbitration went from 2% in 1992 to about 55% now (more stats at the link). epi.org/publication/… Consumer arbitration stats can be found at lawreview.law.ucdavis.edu/online/vol52/52-online-Szalai.pdf
    – ohwilleke
    Commented Jan 30, 2023 at 18:17

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