Category Archives: Arbitration

Mediation: not meditation, not medication, and definitely not arbitration

confusing apples and oranges - mediation is not arbitrationYesterday the New Jersey Star-Ledger reported that the state’s Supreme Court “OKs mediation in custody disputes“.

The problem with the story is that the New Jersey Supreme Court did nothing of the kind. Instead, it held that parties to a matrimonial action can submit questions relating to child custody and parenting time to binding arbitration (PDF).

Was this confusion in reporting the result of careless journalism? No doubt. But this also tells me that the ADR field still has plenty of work to do in terms of public education and awareness. Arbitration and mediation are not concepts to be used interchangeably. One is not a synonym for the other. They serve different purposes and produce different outcomes. And we need to help the public – our prospective clients – understand that.

Hat tip to Jim Melamed, Mediate.com‘s CEO.

Don't pee on my shoes and tell me it's raining: more truth, less fiction, in debate on mandatory arbitration

if arbitration is so great, why not make it optional instead of mandatory?

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?

Everybody's doing it: BigLaw next to join mandatory arbitration frenzy

It’s not just credit card companies, nursing homes, telecom giants, and a Texas burger franchise who are jumping on the mandatory arbitration bandwagon.

According to Condé Nast Portfolio.com, one BigLaw firm has instituted mandatory arbitration for all its at-will employees.

Who will be next? Mediators?

Let’s hope not.

Mandatory arbitration agreements unhealthy for patients

Two different sources — one approvingly, one not — report that a growing number of doctors are asking patients to enter into agreements to arbitrate malpractice claims and waive their right to trial by jury.

Both sources link to “Arbitration a growing trend in health care“, a story appearing earlier this month in the Philadelphia Inquirer :

Michael Cohen was handed an arbitration agreement when he visited his longtime primary-care doctor in Bucks County. Cohen said he was not the suing kind, but the thought of being asked to give up his right to sue “stopped me in my tracks.” He said no, and his doctor saw him anyway.

Then Hedy Cohen, who has had a kidney transplant, was mailed a similar form by a group of kidney specialists she planned to see for the first time. The form from Hypertension-Nephrology Associates in Willow Grove insisted on binding arbitration and said she would have to pay the doctors’ legal fees if she filed a complaint and lost.

Hedy Cohen said no and was told to find another nephrologist.

That was fine with Cohen, a nurse with a master’s degree in health-care administration. “I couldn’t have a relationship with this person because they had already set the tone,” she said. “We’re adversaries before we even know each other.”

You can count me in the camp that considers such agreements a really bad idea. Never mind all of the usual arguments against mandatory arbitration agreements — they go without saying. The chief problem I see is the message it conveys — it says plainly, “I care more about my own self-interest than I do about the quality of my relationship with my patients.” What impact does that have on a patient’s trust? What does it say about the physician’s priorities? His or her sense of duty to that patient? What does it convey about that physician’s commitment to providing good patient care — what is at bottom good customer service? It would tell me as a patient all I need to know — to seek medical care somewhere else.

What if instead a physician asked a patient to enter into a very different kind of understanding? An understanding premised on trust, mutual respect, and a willingness to communicate?

It’s not so far-fetched. Listen to “Medical Apologies“, which aired recently on Radio Boston. It describes what happens when health care professionals actually talk to patients when medical procedures go wrong. It means fewer lawsuits, not more, when doctors apologize to patients for medical errors. And it represents a healthier direction for the health care field and for patients than the mandatory arbitration trend.

By reading this blog, you agree to mandatory arbitration

Burger joint imposes mandatory arbitration agreement on unwitting customersJust when you think that mandatory arbitration clauses, cropping up ever more frequently in consumer agreements and employment contracts, can’t get any more outrageous, along comes a business that stoops to a new low.

The Mojo Blog at Mother Jones reports that

[T]he owner of an East Texas Whataburger has apparently taken arbitration mania to a new level. Every public entrance to the burger franchise displays a sign informing people that simply setting foot on the premises means that they are giving up their right to sue the company for any reason, even if, for instance, they get a little e coli along with their fries. Instead, customers will be forced to arbitrate their claims before the American Mediation Association, an organization that seems to consist of three lawyers in Dallas hired by the Whataburger (part of a 58-year-old fast food chain deemed a “Texas treasure” by the state legislature).

(Emphasis added.)

(Hat tip to Consumer Law & Policy Blog.)

(In)justice for all: the case against arbitration clauses in consumer contracts

The case against consumer arbitrationLast month our mail carrier delivered to our home a slim envelope from Comcast, our cable television service provider.

The envelope contained an “Arbitration Notice”. Printed on glossy stock, the Notice was covered with oddly formatted text–entire paragraphs blazed across both sides in full caps, some in bold, others not, and all of it justified–enough to produce either a full-blown seizure or a blinding headache. (And no doubt calculated to discourage careful reading.)

This notice advised us about a new provision in our subscriber agreement, which we had 30 days to opt out of if we chose.

Here’s the gist of the new provision, translated into English:

Any dispute that we happened to have with Comcast would now need to be resolved by an arbitrator instead of in court by a judge. We would only have one year in which to pursue a claim (without mentioning of course that in the absence of this provision, applicable state or federal law probably gives us a lot more time than that to file a claim in court). We would also have no right to gang up on poor Comcast by bringing a class action with other subscribers. Although the arbitration would be held in an unspecified location that promised to be “convenient” for us, and while Comcast would be responsible for advancing to us all arbitration filing fees and the arbitrator’s costs and expenses (if we asked nicely in writing first), we would have to reimburse Comcast if we lost. (Comcast omitted telling us that in a court we would only have to pay a filing fee to the clerk, that taxpayers already cover the judge’s salary, and, if we lost in court here in Massachusetts, we wouldn’t have to reimburse Comcast a dime.)

Now I ask you, is that any way to treat a consumer?

We elected to opt out, but it made me wonder how many consumers would understand the consequences of opting in. And unfortunately mandatory arbitration clauses in consumer agreements are increasingly common.

For a well-written polemic on why this is a bad thing–not just for consumers but for the rule of law and our legal traditions–read “The Future of Consumer Law in the United States — Hello Arbitration, Bye-bye Courts, So-long Consumer Protection” (for the abstract and the link to the PDF download).

Apart from the obvious arguments against mandatory arbitration provisions in consumer agreements — questions about their fairness; their coercive, take-it-or-leave-it nature; the disparity in power between the consumer and company; the privatization of dispute resolution; the lack of judicial review; allegations that the system is weighted against the consumer; and the fact that the average consumer simply doesn’t understand these provisions — this article also warns of the implications such provisions hold for the American justice system and the further development of consumer law jurisprudence:

The common law is the system that America has adopted and developed over the centuries for ensuring the law stays current with rapidly changing social and economic conditions. As Justice Harlan F. Stone noted, “If one were to attempt to write a history of the law in the United States, it would largely be an account of the means by which the common-law system has been able to make progress through a period of rapid social and economic change.” The American judiciary is much more than just a check on the legislative and executive branches of government. It is an independent branch of government, often looking out for the rights of those who lack the power or influence to receive the attention of our elected representatives. The American common law tradition is an essential part of the development and continuation of consumer protection; arbitration destroys it.

While no doubt Big Business saves money with this end-run around the legal system, it fails to anticipate a different kind of loss: the impact on customer relations. It always seems to be the companies with the weakest track record for dependable customer service that insist on these one-sided arbitration provisions. Instead of paying their legal teams huge sums of money to craft these impenetrable clauses, they should work harder to improve services and products and train their customer service representatives to respond better to customer issues.

In other words, why not insist on customer-centered business practices and work harder to drastically reduce the underlying causes of litigation in the first place?

Why mandatory arbitration clauses are bad for business — and what companies should do instead

Mandatory arbitration clauses fray relationships between companies and customersLast week my fellow blogger Stephanie West Allen forwarded to me a link to a provocative article recounting “Arbitration’s Fall From Grace“. It seems that companies which had been inserting mandatory arbitration clauses into contracts with their customers in an effort to avoid costly court battles are now finding themselves spending inordinate amounts of time and money fighting for the enforceability of these clauses in, ironically, court.

None of this should come as surprising news.

Many of us have long recognized that mandatory arbitration clauses are bad for business. They are bad for consumers and definitely bad for customer relations. Typically they form part of a contract of adhesion—a take-it-or-leave-it, one-sided agreement consisting of terms that the customer has no power to bargain for, usually printed in a microscopic font barely visible to the naked eye written in language that even lawyers have trouble understanding. This agreement is never directly brought to the attention of the customer, since it typically arrives in an envelope packed with advertising material and other irrelevancies–most customers are blissfully unaware that such an agreement exists at all.

Think about the message a mandatory arbitration clause conveys to the customer. Basically the message is this:

  • If you have a legal beef with us, you can’t go to court.
  • You have to use arbitration, and you will have to share with us the costs for the arbitrator’s services (of course if you could go to court, which you can’t, you’d be getting the judge’s time for free, courtesy of taxpayers).
  • We, not you, get to pick the dispute resolution services company which will provide the arbitrator.
  • If lots of you have a beef with us, you can’t join forces in a class action law suit to enforce your legal rights collectively and publicly. That would level the playing field between us, a mega-corporation, and you, an insignificant flyspeck of a customer. We can’t allow that.
  • This dispute will be resolved according to the laws of a state far, far away from where you live and work–laws which favor us, not you.
  • In short, we are going to stack the deck so thoroughly against you that you have little hope of achieving justice.
  • Thanks, and have a nice day.

Mandatory arbitration clauses, in my own experience, seem to be favored by large corporations with poor customer service records and a history of unfair or deceptive business practices. Mandatory arbitration clauses are a way to limit corporate accountability to customers.

Mandatory arbitration clauses of course fail to address the underlying causes of customer dissatisfaction. They’re lousy conflict resolution tools.

So, instead of focusing on ways to limit liability, companies should be taking a preventative approach to managing problems with customers. This could include:

  • Conduct an honest assessment of corporate policies regarding customer service–are they fair, consistently applied, and favor communication and clarity?
  • Ensure adequate training of sales and customer service representatives
  • Provide incentives to employees to serve customers better, not just increase sales
  • Don’t hide contact information from customers–make it as easy as possible for them to get in touch with the right department and the right person to resolve their issue
  • Acknowledge and take responsibility for mistakes–apologies are not optional
  • Return customer phone calls and emails within hours, not days
  • If an issue requires investigation, provide customers with frequent updates–even if the investigation is ongoing and no new data is yet available
  • Create a customer service ombuds who can assist in the resolution of difficult disputes

Interestingly enough, “Arbitration’s Fall from Grace” drew attention to mediation’s far more positive track record:

As arbitration has fallen out of favor, mediation, a less frequently discussed alternate dispute resolution method, seemingly is gaining traction among corporations. Though the same issues that plague arbitration — a lack of discovery rights and enforceability — remain in mediation, the less-structured environment tends to be cheaper, less adversarial and quicker than an arbitration hearing.

At a recent continuing legal education event for corporate counsel in Atlanta, speaker David C. Vigilante, associate general counsel and chief litigation counsel at Turner Broadcasting, told the audience that he’s not a fan of arbitration because the process requires companies to give up some legal rights — and it’s binding. He called mediation “the worthwhile companion to its less worthwhile exercise, arbitration.”

In an interview after the event, he added that “most lawyers will tell you today that mediation is one of the most fantastic things to come along.”

Not surprising when mediation encourages communication, addresses misunderstandings, and levels the playing field for all parties at the table.

Mandatory arbitration provision violates US National Labor Relations Act

Mandatory arbitration provisions held to violate National Labor Relations ActRoss Runkel in both his arbitration blog and his employment law blog reports this week that the U.S. National Labor Relations Board has held in U-Haul Company of California (NLRB 06/08/2006) (2-1) that a mandatory arbitration policy adopted by a non-union company violates the National Labor Relations Act.

Ross’s analysis of this decision and its limited implications can be found here. Ross points out that this decision does not invalidate U-Haul’s mandatory arbitration policy in it entirety, but only the extent to which it affects NLRB claims.

Regular readers of this blog know that I am no fan of mandatory arbitration provisions in consumer, health care, and employment agreements.

For the reasons why, please read either of these posts: “The company we keep: ADR, tort reform, and the erosion of justice,” and “30 years after the Pound Conference: reflections on ADR and justice in the 21st century“.

For a detailed exploration of the issues associated with mandatory arbitration provisions from the perspective of the U.S. Equal Employment Opportunity Commission, the governmental body charged with enforcement of federal anti-discrimination laws, please consider the “Policy Statement on Mandatory Binding Arbitration of Employment Discrimination Disputes as a Condition of Employment” issued in 1997. The EEOC, a supporter of voluntary alternative dispute resolution, takes the position that mandatory arbitration provisions in employment agreements violate the fundamental principles of employment discrimination laws in large part due to the extent to which such policies shield employers from public accountability.

New arbitration blog joins the information highway

www2It’s not often that I get to announce in a single week the discovery of not just one but two new alternative dispute resolution blogs.

Earlier this week I introduced readers to the ADR Diversity Blog. Today I get to head you over to FloridaArbitrationLaw.com, a blog tracking law regarding the enforcement of arbitration and issues of vacating, confirming or correcting awards. As its name suggests, its primary geographic focus is Florida, but it also covers other states as well. FloridaArbitrationLaw.com is published by Christopher Hopkins, an attorney based in West Palm Beach, Florida.

Please stop by Christopher’s blog and join me in welcoming him. And if you blog about alternative dispute resolution or know of someone who does, let me know so I can add you to the Directory of Alternative Dispute Resolution Blogs.

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THE COMPANY WE KEEP: ADR, tort reform, and the erosion of justice

Over the years alternative dispute resolution (ADR) in all its forms has proliferated, increasing in popularity and accessibility. Mediation and arbitration are widely perceived as affordable, time-saving, private means for resolving disputes, presenting an appealing alternative to the expense, delay, and uncertainty that can characterize litigation.

Mediation and other forms of ADR can certainly spare people the emotional toll and financial costs that adversarial processes like litigation can produce. A friend of mine who mediates workplace and family disputes recently worked with a divorcing couple who came to mediation after spending thousands of dollars on attorneys’ fees. They had realized that they were wasting both time and money battling over issues that they could work out far more cheaply, efficiently and painlessly with the help of a mediator. And what is true in divorce cases is equally true of other kinds of disputes.

My first exposure to ADR came through my initial training by and subsequent volunteer work with grassroots community mediation programs, where mediation is used to bridge differences and empower individuals to become themselves the architects of positive change. Programs like these, which are founded upon idealism, optimism, and an abiding faith in humankind, undoubtedly do much good.

ADR’s success extends well beyond the grassroots level. ADR exists on both micro and macro levels, and today ADR is equally at home in the private and public sector, in schools, in neighborhoods, in federal agencies, in workplaces, in the military, in local, national and international conflicts, and even of course on the Internet.

But the Force, as any Star Wars fan can tell you, has a dark side.

The advantages that ADR offers over litigation have not gone unnoticed by corporate America. Litigation is an expensive proposition for corporations, and the public nature of trial and the evidence that discovery produces can result in embarrassing public revelations regarding corporate policy. Mediation and arbitration, on the other hand, conducted in private and shielded by confidentiality, produce speedy resolutions without public disclosure. ADR has become increasingly attractive to corporations who want to find ways to limit their liability and reduce exposure. Private remedies like arbitration and mediation shield corporate acts from public scrutiny and can result in the concealment of patterns of corporate misconduct.

The prevailing view in Washington is that litigation and jury trials have been bad for corporate America and that reform is urgently needed. Powerful business interests have been lobbying hard to limit access to courts, place caps on the amount of damages a jury can award, and place restrictions on class action lawsuits. (For example, Congress recently approved legislation aimed at restricting the power of state courts to hear class action lawsuits, requiring many of these suits to be filed in federal court instead where class action plaintiffs are less likely to enjoy a sympathetic reception. Good for business, very bad for consumers, patients, employees and others affected by negligent, unethical or illegal corporate practices.) Those sounding the drumbeat for litigation reform have been successful in influencing public opinion of trial attorneys and plaintiffs.

ADR unfortunately has become a piece of this overall pattern, increasingly utilized by the powerful to limit access to the courts by those less powerful. Mandatory arbitration, for example, has become a common feature of many consumer agreements, including everything from health care coverage to the purchase of an automobile. If you have a credit card or motor vehicle insurance, read the fine print—your agreement with either your credit card company or your insurer may well require you to arbitrate any disputes that arise—and most likely in a forum convenient for the company, not for you. And many large corporations—not surprisingly, Halliburton, friend of the current White House, is among these—have instituted mandatory ADR programs to address workplace disputes.

This trend is an alarming one. Those of us who are ADR practitioners need to be very careful of the company we keep and the uses to which ADR is put in our name.

ADR was conceived as a way to do much good, to provide a cost-effective process in which all parties participate on a level playing field, resolution can be achieved quickly, and which produces outcomes capable of creating winners out of everyone. We need to ensure that the affirming principles on which ADR was founded do not become distorted or manipulated for harmful ends.

We should resist the lawyer-bashing that seems to characterize much of the public conversation about litigation today. And let us stop spreading the notion that all litigation is bad—a view I have heard even well-meaning mediators advance in a misguided effort to promote the ADR field.

Litigation and ADR each have their place. There is much that each can offer, depending upon the parties, the case, and the issues at stake.

Mediation can result in what litigation by its nature does not typically allow for: dialogue, reconciliation, and closure. Arbitration avoids the delays of trial, bringing speedy resolution in an informal and private setting. And litigation can be the surest path to uncover truth, right wrongs, and achieve justice.

We need to ensure that all these avenues remain open and be cautious in our enthusiasm to promote the ADR field that we do not risk closing any of them.

May the Force be with you.