Wednesday, July 16, 2008

If Arbitration is so Great, People Will Choose it Willingly

Two days ago the Wall Street Journal published an editorial opposing the Arbitration Fairness Act (AFA). The article, written by former FTC commissioner Christine Varney, alleges that the AFA would eliminate arbitration as an option for employees and customers in disputes with corporations.

It is, to put it mildly, a bizarre argument. Most of the article spends its time talking up the virtues of arbitration as a superior alternative to litigation for all parties. And undoubtedly, sometimes it is. But the AFA would do nothing to stymie arbitration as an option for dispute resolution. All it prohibits is mandatory, pre-dispute arbitration: that is, contracts which require any future disputes – regardless of what they may be – to be submitted to arbitration, regardless of whether it is the best option for both parties. Right now, those sorts of clauses are placed deep in the fine print of standard employment or consumer contracts: situations in which individuals have virtually no ability to bargain or refuse them (did you even think to check if your car purchase contained a mandatory arbitration clause? If it had one, would you have refused to buy the car?). Under no reasonable interpretation can that be considered an "agreement" by the company and the employee or consumer. The AFA would bar these pre-dispute clauses, but once a dispute has started, both parties can still agree to submit it arbitration if they view it as the best possible forum.

Ms. Varney's only argument as to why the AFA threatens arbitration is the “inconvenient reality” that “it is very difficult to get two sides of a dispute to agree to much of anything once a dispute has started.” But this is contradicted by nearly every paragraph in her own article. If arbitration truly offers the many benefits for individuals in terms of efficiency and reduced cost that she claims it does, it should not be difficult to secure an arbitration agreement even after a dispute has been filed.

The true inconvenient reality, however, is that in many cases arbitration is neither cheapest nor fairest route to resolve disputes. Arbitration prevents the development of class action lawsuits, which are important tools when companies engage in small illegal practices affecting large numbers of people. They also can deter individuals with small claims who have to pay all expenses up front, with no guarantee that they'll receive any settlement at all. Yet mandatory pre-dispute arbitration clauses, agreed to by consumers and employees with little say in the matter, force any case to go arbitration no matter what the individual circumstances are.

The whole reason arbitration was created as an alternative to the court system was Congress' recognition that different types of proceedings work best for different types of cases. But it is impossible to predict which cases belong in arbitration and which belong in the courts in advance.

The Arbitration Fairness Act restores the original purpose of arbitration: to arbitrate when it makes sense to arbitrate, and go to court when it makes sense to go to court. If Ms. Varney is convinced that arbitration is the superior route most of the time, she should have confidence that consumers and employees will select it most of the time. But giving employees and consumers a true choice will help insure that the right forum is available for each and every case.


Anonymous said...

Obviously, Ms. Varney and some of the posters have never been forced into arbitration. If they had experinced arbitration first hand they would sing a diferent tune and loudly. Below is what arbitration is really like... one of millions of examples of the injustice.This is what happened to us two senior citizens pitted against a multimillion dollar corporation.
Arbitration is a contractual agreement between the builders and the arbitration companies? The builder will be their constant stream of revenue and they will save the builder millions of dollars, by allowing them to cheaply throw up defective improperly constructed homes and still get an inflated price.
The cost is of arbitration is horrible and it is not just counterclaim filing fees: $4250. It is case management fees, $2500, arbitrators fees, $2250, pre and post study payments, 1687.50, stenographers, discovery, binders for every one and copies of everything for the builders their lawyers and the arbitrator ... even the room rent, $75.00. All the burden of proof is on the homeowner. You spend money for pictures, expert testimony, expert witnesses, power point presentations and 187 exhibits and the builders and their lawyers walk in with one witness and 37 pages in a little white binder. They have done this so many times. They laugh at you, denigrate you and tell one another that if you get a judgment of an award against them, then you will see what real negotiations are all about. After all, they have no money in that corporation any more so you will end up with nothing.

If arbitration is so fair and wonderful why is it mandatory and why is it forced on the public?
Arbitration companies do not know how much it is eventually going to cost you, because they do not know how many days the arbitrator and the builder intend to hold you hostage. They do not care as long as this "nonprofit" agency gets its spoils. They conduct themselves like a demented collection agency. They call themselves the facilitator. Like something out of the Godfather. The arbitration company emails you a paper to fill out ... they want all your credit card information so they can just charge what ever costs as they accrue. You are going to be in debt, for the rest of your life, because this builder builds defective homes.

Arbitrators will protect and defend fraud, unethical behavior and allow the builder to provide evidence to prove you are the reason the house he built is uninhabitable...and this entire proceeding is all your fault? It is crazy. They are trying to prove: you did not want your home, your money, or your credit. They try to argue that you wanted to live in an apartment and spend the last four years in torment. Of course, the arbitrators agree with them.

Arbitrators turn a blind eye to blatant perjury. They will dis allow any pertinent information that would be written into the record that makes their meal ticket look like what they are. They have a symbiotic relationship with the builder. They attend social functions and seminars together because some of the builders’ lawyers are also arbitrators. They laugh and cut up and the arbitrator is on speed dial to the builders’ lawyers. Money talks here. Repeat offenders are protected. No one will tell you how many times this builder has been in arbitration. That is where the secrecy is protected. Even though you know three different cases against them are going on at the same time. And the builder also has numerous cases against them in court with homeowners who were not crippled by the consumer cursed arbitration clause. They were so far spared arbitration and protected by the courts.

The award is “bestowed”. The word award is a cruel joke in itself. It sounds like a present or a surprise. You aren't going to be surprised. You know exactly what has happened to you. The privatization of the justice system has held you down while the builders came at you from behind.

Please google my name and read my testimony to the congressional sub committee on arbitration, it's effects on the consumer.
Jordan Fogal

Anonymous said...

As far as I am concerned ANY contract that mandates a way to get issues resolved is going to be one sided. If MBA was as good as Ms. Varney says it is, well she would not have to have written what is nothing more then spin in my opinion. Her job is to protect that blatant one sided contract.
Every citizen should have a choice as to whether or not they can invoke their rights to a trial by jury or go the MBA route.
For me, there would be no choice, I would take a courtroom everytime.