Arbitration Goes to the Mat

The U.S. Chamber of Commerce and allies are gearing up for a significant fight over the “Arbitration Fairness Act,” legislation pending in both houses of Congress that would strike mandatory arbitration agreements from consumer and employment contracts. Disgruntled contract holders would therefore have the right to sue — but not necessarily the option of mediation unless the business agreed to it.

The battle lines are clear: The U.S. Chamber, which represents business interests, is fighting to keep a wave of consumer suits against its members out of court. The American Association for Justice, which represents plaintiffs attorneys, wants to ensure consumers retain their right to pursue claims in the higher-stakes arena of the courts.

At a Chamber Institute for Legal Reform press conference today, the business group made its case in triplicate. First came anecdotal evidence in the form of a Michigan woman who took Sears to arbitration over a $288 boiler repair bill and won (she believed strongly in pre-dispute arbitration agreements).

Next came the focus group results suggesting that consumers don’t support an end to mandatory arbitration. Compiled by the bipartisan polling team of Public Opinion Strategies and the Benenson Strategy Group, the study finds that consumers are averse to lawsuits “and, if given the choice, would prefer arbitration” in the words of presenter Bill McInturff of Public Opinion Strategies. (A few of the questions seemed slightly leading to an untrained eye — for example, the survey defined an arbitrator as a “neutral 3rd party,” a definition that public interest groups challenge with their contention that arbitrators frequently align with the companies that choose them.)

Finally, Catholic University professor Peter Rutledge made the academic and legal case against the legislation. Dropping mandatory arbitration, he said, “unravels the quilt of dispute resolution.” Citing numerous categories of arbitration in which consumers already win a majority of cases, Rutledge suggested that allowing lawsuits would kill the incentive for businesses to respond to smaller claims. Lastly, he noted, the prohibition of pre-dispute resolution agreements would lead to a greater burden on judges’ dockets by smoothing the path for class actions.

But where would reporters in attendance find an opposing viewpoint? The American Association for Justice, the trade association for trial attorneys, had that taken care of: The association sent a representative to the press conference who poached reporters’ names for follow-up calls.

Julia Duncan, an AAJ counsel for legislative affairs, says her association’s goal is to prevent corporations from “setting the rules of the game … and being able bury a clause in a contract when the consumer doesn’t realize what effect it will have until later.”

Mandatory arbitration, which sometimes dictates a specific arbitrator in a specific state, is inherently skewed toward corporate clients, she argues, because they’re an arbitrator’s regular customers.

Duncan wouldn’t predict whether the arbitration legislation will move in the coming days or weeks, but she’s hopeful.

“I would note the big bill has 86 cosponsors, and it is bipartisan,” she says.

Comments

[Taylor Lincoln - Public Citizen]

A few points here.

This posting falsely portrays the debate over binding mandatory arbitration as one pitting businesses and plaintiffs lawyers. It is not. Mandatory binding arbitration tramples on the rights of regular citizens and there is a large coalition of citizens' groups fighting for legislation to halt its use.

We at Public Citizen are one of those groups. Notably, the Chamber's report was issued (as its title indicates) in response to a study we issued [link: http://www.citizen.org/documents/Final_wcover.pdf] last fall. Any coverage of the Chamber’s report should include our response, and one is available here: [http://citizen.typepad.com/watchdog_blog/]

I encourage people interested in the debate on binding mandatory arbitration to read the Chamber's report closely. Though it disingenuously claims that our study was built on a foundation of myths, the Chamber's author deserves credit for eschewing outright fables in the details under his headings. The text actually does a nice job of affirming our findings. Example: the report says our claim that arbitration removes one's right to a jury trial is a “myth.” And the “reality” is ...? Well, the report doesn't deny that we are correct; it opts instead to argue most court cases don't go before a jury, anyways. That's true, and we will remember that claim the next time the tort refrain crowd squawks about jury awards. But, as Walter Mondale might have asked, Where's the myth?

Here are a few quick things we noticed. The Chamber simultaneously argued that arbitration imposed by companies is fair but that both parties will almost never agree to arbitration after a dispute arises if they have a choice? How does one reconcile those views?

The survey (diplomatically characterized here as “slightly leading to an untrained eye”) never evidently asked respondents if they would prefer to have a choice of whether to have their case heard in court or arbitration; did not inform respondents that arbitration companies are hired by the actual businesses with whom consumers might find themselves in dispute; and did not clearly inform respondents that consumers retain no recourse if they are unable to achieve a satisfactory resolution in arbitration.

Oh, and did anyone notice that the Chamber's case study of arbitration working well for consumers was one involving a $281 dispute? Our report points out days in which single arbitrators have handed out more than $500,000 in awards in a single day. They were all in favor of business, but still ... Chamber, is that the best you can do?

[RyanZ]

The Chamber materials released at the press conference are available online here:
http://instituteforlegalreform.com/issues/issue.cfm?issue=ADR