Arbitration Clause Valid Despite Claim of Economic Duress

Applying Connecticut law, a federal district court upheld the validity of an arbitration clause in an investment advisor franchisee’s arbitration agreement despite the franchisee’s claims of economic duress and unequal bargaining power.

As noted by the court, in order to demonstrate economic duress under Connecticut law, a plaintiff must prove: (1) a wrongful act or threat; (2) that such act or threat left the victim with no reasonable alternative; (3) that the victim acceded to this threat; and (4) that the resulting transaction was unfair to the victim. The franchisee had alleged that the terms of the franchise agreement were portrayed by the franchisor as non-negotiable, and that the franchisee feared that if he did not sign the agreement, he would ultimately lose his business. According to the court, however, economic necessity cannot be the sole basis for a claim of economic duress under Connecticut law. Rather, the franchisee was an educated business person with ample time (at least one month) to review the terms and conditions of the contract.

Ironson v. Ameriprise Financial Services, Inc., Dist. Court, D. Connecticut, No. 3:11cv899 (JBA), September 10, 2012.

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