Copycat cases are expected if the Securities and Exchange Commission (SEC) approves Carlyle Group’s mandatory shareholder arbitration clause in the registration statement for its planned initial public offering (IPO).

And litigation could spike when mandatory arbitration shares are sold in the secondary market.

The problem is that secondary shareholders will not have agreed to the restrictions imposed by the registration statement, including class action restrictions. Therefore the contractual justification under the Federal Arbitration Act, upheld by the US Supreme Court last April in AT&T Mobility v Concepcion, could defer to shareholder rights, said Gibson Dunn & Crutcher partner Andrew Fabens.

Companies are allowed to include mandatory arbitration provisions in contracts with customers, and broker dealers may do the same with investors according to a 1987 US...