Arbitration

Earlier this year, the U.S. Chamber of Commerce’s affiliate, the Institute for Legal Reform, cranked out a press release about a recent poll it commissioned that purported to prove that a majority of likely voters would overwhelmingly support mandatory arbitration.

This press release was but one weapon  in the arsenal the U.S. Chamber has deployed in its campaign to defeat the Arbitration Fairness Act, draft legislation which would ban mandatory arbitration agreements in employment, consumer, and franchise contracts.

The poll delivered exciting news for the Chamber, since it “proved” that likely voters overwhelmingly clamor for arbitration over litigation:

The recent poll found that 71 percent of likely voters oppose efforts by Congress to remove arbitration agreements from consumer contracts, and 82 percent prefer arbitration to litigation as a means to settle a serious dispute with a company.

Then, this summer, an op-ed in the Wall Street Journal trumpeted the benefits of mandatory arbitration for consumer agreements, insisting that “Arbitration Works Better Than Lawsuits“, since it “can help consumers resolve disputes with companies without the high costs and legal fees of a full-blown lawsuit” and do so with greater flexibility and speed.

(I guess that the author of this op-ed overlooked “Arbitration’s Fall From Grace“, a 2006 article appearing in Law.com’s In House Counsel, which described the basis for the growing disenchantment with arbitration in the corporate world — including, among other things, its lack of flexibility, substantial cost, and the quality of decision-making. Mediation, however, gets high marks: “most lawyers will tell you today that mediation is one of the most fantastic things to come along”.)

The biggest problem with the arguments made by opponents of the Arbitration Fairness Act is that so many of them appear to rest on half-truths and omissions. (You know you’re in trouble when the best testimonial you can produce comes from a 63-year-old widow awarded $281 in her arbitration against Sears.)  Some arguments are little more than hyperbolic nonsense; a senior partner at a prominent law firm warned Congress that the Arbitration Fairness Act “would effectively end arbitration in America,” a dire warning echoed in the U.S. Chamber’s press release:

“For more than 80 years, arbitration has helped Americans settle disputes fairly, quickly and inexpensively, without having to file a lawsuit or navigate the court system,” said Lisa Rickard, president of the U.S. Chamber Institute for Legal Reform (ILR). “The sweeping legislation pending in Congress would effectively eliminate arbitration, leaving many employees and consumers with little recourse.”

Little recourse? What do they call the court system?

The U.S. Chamber’s poll results (PDF) themselves are suspect.  Although the polling instrument itself is not reproduced on either the Chamber or the Institute for Legal Reform web site, the survey findings discuss briefly the methodology used: “Voters were read a brief, neutral description about arbitration, provided some information about arbitration agreements, and then told of the intention of some in Congress to remove these agreements from consumer contracts with companies”:

Just so everyone we talk to this evening has the same information, please listen as I read you a statement that describes what arbitration is and how it works. Arbitration is a non-court procedure for resolving disputes using one or more neutral third parties — called the arbitrator or arbitration panel. Arbitration uses rules of evidence and procedure that are less formal than those followed in trial courts. Now, there are lots of products and services you buy where you are required to sign a contract with the company providing the good or service. In some of these contracts there is an arbitration agreement, so when you sign the contract you agree to resolve any disputes with the company through the process of arbitration. Now, some officials in Congress would like to remove these arbitration agreements from the contracts consumers sign with companies providing goods and services. How about you, do you think Congress should or should not remove arbitration agreements from contracts consumers sign with companies providing goods and services?”

There is of course plenty of information missing from this “brief, neutral description”, including an explanation of the significant differences between public and private adjudication — information which I suspect (and I think the U.S. Chamber of Commerce suspects, too) would have produced an entirely different result.

It leaves me wondering whether we can ever have a meaningful debate about an issue so politically charged as this one — a debate that should rest on full disclosure and discussion of all the facts — and not simply the most convenient ones.

For a discussion and rebuttal of arguments mounted against the Arbitration Fairness Act, read “Arbitration Works Better than Lawsuits . . . But for Whom?” at California Labor and Employment Law. Meanwhile, another poll shows a very different outcome, courtesy of the Public Citizen Consumer Law and Policy Blog. I’ve also criticized the use of mandatory arbitration in “Why mandatory arbitration clauses are bad for business“, where I argue that the most cost effective dispute resolution any company can invest in is addressing the causes of consumer dissatisfaction and improving customer service.

One question remains that opponents of the Arbitration Fairness Act have yet to answer: if arbitration is so great, why not trust consumers to choose it?

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