It happens all the time. You want or need something. You may need medical care at a hospital. You may need phone service. You may need a loan or a credit card to make ends meet. You decide to build a home.

To get what you need or want, the seller requires you to sign a contract. You try to take the time to read it, but the seller insists on rushing you or distracting you. Perhaps you can’t understand the document as it’s full of legal jargon, or the type is so small, you can’t read it. Later, you discover that the seller, formerly Mr. Friendly, is now running off with your life savings and that there’s nothing you can do about it.

This law letter is the first of a series that identifies some of the contract clauses that will cause you BIG trouble.

Arbitration

Generally, you have a right to a jury trial before an unbiased judge in North Carolina. You may find a clause in your contract requiring you to submit any dispute to binding arbitration. Sign that contract and you have given up your right to get help from the courts. You will often see these clauses in construction contracts and in the admitting papers for some hospitals.

The North Carolina Supreme Court, in the Tillman case from 2008, described some of the problems with arbitration. If your case involves at least $10,000, the filing fee with the American Arbitration Association is currently $1275 plus the cost of renting the hearing room. Court filing fees in North Carolina are less than $200.00. In 2005, arbitrators with the American Arbitration Association charged as much as $2380 per day. In North Carolina, judges are free. The Court, in its 2008 ruling, noted that in many cases, the “high arbitration costs” were “prohibitive.”

Some have also argued that arbitration has the potential for bias against the consumer. They note that while one bank, hospital, or builder may present numerous cases to a particular arbitrator, the consumer is likely to face the arbitrator only once. They claim that the arbitrator is biased in favor of the party who is likely to bring repeat business.

You Pay Our Attorney

Under North Carolina law, as a general rule, each side pays his own attorney fees. Look out for the contract that says you will pay the Seller’s attorney fees and/or costs. A typical attorney fee for litigation ranges anywhere from $300.00 per hour to $500.00 per hour. Do the math. You can be facing thousands of dollars in attorney fees from the other side.

Typically the contract will require you to pay attorney fees for the other side only if you lose your case. I just received a proposed debit card agreement from my bank. It states that I will pay their attorney fees even if I win my case unless I can prove that the bank was “grossly negligent” or committed “willful misconduct.” Essentially, I can’t afford to fight back if a dispute arises between me and the bank.

In addition to attorney fees, the “costs” in any case can be prohibitive. Paying a court reporter to attend a deposition and transcribe it can run into thousands of dollars. Bring a witness in from out of town, and you can get stuck with airfare, hotel bills, and meals. If that witness is an expert, you can be required to pay an hourly rate. The last time I hired a plastic surgeon in a case, his hourly rate was $500.00. He also required a $2000 deposit each time the case was put on the court calendar. That can happen several times in any given case. Plaintiff’s expert witness fees in my last medical malpractice case exceeded $100,000.00. Can you imagine the expense if we had lost and had to pay defense costs and attorney fees as well as our own costs?

Security Interest in Other Property

Another feature you may find in your mortgage agreement or other bank contract is the clause giving the bank a right to any money in any account you may have at the bank as well as in any of your personal property the bank can access. So, assume you have a safety deposit box, a business account, a personal account, and a retirement account at your bank. Then, because you lose your job or become sick, you can’t pay your mortgage. According to the contract, the bank can seize your retirement money. Retirement accounts would otherwise be protected from creditors under North Carolina law. And if Grandma’s diamond rings are in your safety deposit box, the Bank can take them as well. If you want to fight the bank over the seizure of your assets, you’d better win. Otherwise, you’ll be facing thousands of dollars in attorney fees and court costs.

In Short . . .

Banks and others have figured out that they can make millions by slipping the above clauses in their contracts. You can be cheated out of thousands of dollars if you sign a contract with these provisions. And the North Carolina courts will generally not help you out. The 2008 case I mentioned above was the first case in the history of North Carolina in which the Courts threw out an oppressive or “unconscionable” agreement. The general rule is that once you sign an agreement you are stuck with it. So be careful. Be sure you read contracts and understand them before you sign them. Good luck. You are swimming with sharks.