Dracca Inc.: Arbitration, Ethics, and Product Safety Law

Arbitration Clause Enforceability and Consumer Rights

Despite Dracca's claims that the presence of an arbitration clause on page 5 of its 16-page consumer contract renders all lawsuits null and void, recent case law suggests there is considerable room for dispute — particularly for its Spanish-speaking consumers and for all consumers who purchased the offending product. In the Florida Supreme Court case Roberto Basulto, et al. v. Hialeah Automotive, etc., et al., the court found that the arbitration clauses "contained in various agreements signed by the Spanish-speaking petitioners relating to their purchase of a Dodge Caravan from a car dealership were unenforceable." The Florida Supreme Court upheld the trial court's ruling that the arbitration clauses could not be enforced because they were conflicting and unconscionable, particularly given the low level of English literacy of the consumers (Oppenheimer, 2014). The court ruled that arbitration clauses must be consistent, contain all essential terms, and above all be fair.

The Supreme Court of New Jersey similarly "refused to enforce a lawyer-client arbitration provision because it failed to include sufficiently detailed warnings to the client" in Atalese v. U.S. Legal Services Group, L.P. (Ciolino, 2014). The agreement constructed by Dracca met none of the standards established in either of these cases, suggesting that case law is trending toward protecting consumer rights against companies that attempt to use complex legal language to shield themselves from legitimate litigation. The Spanish-speaking consumers will likely prevail if this matter goes to court. From Dracca's perspective, offering a financial settlement before the bad publicity a trial would generate would be prudent.

Ethical and Legal Failures in Dracca's Litigation Strategy

From an ethical standpoint, given that real harms were done to consumers, using the arbitration clause to escape responsibility is morally as well as legally questionable. The harms done to consumers were considerable, and a trial might very well be the most appropriate forum in which to decide the case. Dracca's overall approach to the litigation process is morally inexcusable, and its reliance on a procedural technicality — rather than substantive engagement with its obligations — reflects a broader failure of corporate ethical leadership.

Employee Tampering, Corporate Responsibility, and the Cover-Up

When children were harmed by Dracca's product — specifically the Pack-n-Play clasps — rather than being forthright about the fact that tampering by a disgruntled employee was the cause of the issue, Dracca instead attempted to conceal this fact. When such unethical behavior is revealed, particularly by a company responsible for personal care and children's products, consumer trust is irreparably damaged. Dracca also has a moral obligation to ensure that consumers remain safe and are not harmed by its products.

Although Dracca did not direct the employee to tamper with the clasps, it is still responsible for her actions because she was an employee of the company at the time and was working on company property. Even though her actions were personally motivated, Dracca remains responsible for instituting safety procedures sufficient to detect and prevent such misconduct. The fact that the defective clasps passed safety inspection itself highlights Dracca's legal and ethical culpability. A company manufacturing products used by small children must be held to a higher standard of diligence, not a lower one.

For guidance, Dracca should look to other companies that have handled product safety scandals responsibly. When Johnson & Johnson, the manufacturer of Tylenol, discovered that their drug had caused the deaths of innocent people due to in-store tampering, the company immediately recalled all products, refunded consumers' money, and developed tamper-proof packaging that today sets the gold standard for product safety. Notably, the tampering of the Tylenol products occurred in stores — not in areas specifically under corporate control — and the creation of tamper-proof caps was new technology at the time, not an accepted industry standard (Markel, 2014). Dracca, by contrast, is dealing with a situation in which it is far more morally culpable: the tampering actually occurred on the premises of its corporate headquarters, carried out by a member of its own organization.