Binding arbitration clauses helped Joe Geiger’s aviation business fly on in lawsuit-happy California
More than 1 million lawsuits are filed in California each year, making it one of the nation’s most litigious states. Just ask entrepreneur Joe Geiger, who owned an aviation services company, Performance Aircraft, in the Golden State for 21 years. For more than a decade after founding the company in the 1960s, Geiger was sued about twice a year. “I had lots of sleepless nights,” he says. “I was worried about the cost of litigation. I was afraid my business was gone.”
Eventually, he started to notice a pattern: Someone would file a lawsuit, but as soon as the case was about to go to court, the opposing side would drop the suit and offer to settle. “I realized we were never going to go to court,” says Geiger, who now lives in Richmond, Virginia, and teaches entrepreneurship at the University of Richmond. Still, he lost precious time and money dealing with frivolous lawsuits. After a particularly nasty lawsuit, he asked his attorney, “How do I stop this from happening?”
The attorney’s response: Add a clause to contracts saying that all disputes must be solved by binding arbitration, which prevents a case from going to court and thus only allows parties to ask for actual damages, not pain and suffering. (A sample clause reads, “The parties to this agreement agree that any and all disputes between the parties will be settled by binding arbitration, not in court.”)
Since that day in 1975, Geiger—who has founded, grown and sold 10 businesses—hasn’t signed a contract without a binding arbitration clause, which put an immediate stop to the lawsuits. His contracts include a separate signature box for that statement, highlighted in large, bold text.
“It worked like a charm,” says Geiger. “Once I did that, I sure slept better. I could take a whole week and go on vacation, and it didn’t bother me so much.”
Today, Geiger teaches college students about the importance of binding arbitration clauses and details their value in his book Entrepreneurial Success: The Road to the Top: 101 Business Principles. “A lot of people don’t know about binding arbitration clauses,” he says.
Geiger recommends that all business owners—especially those in states with a high number of lawsuits such as California, Florida and New York—include binding arbitration clauses in their contracts. “Whether you’re mowing lawns in Kansas or delivering oranges in Florida,” he says, “if you have contracts, put it in there.”