National Arbitration Forum's Wall of Secrecy Crumbling

by Paul Bland

cross-posted from Tort Deform

While very few of them actually know it, courts would say that tens if not hundreds of millions of Americans have "agreed" that if they ever have a dispute against various powerful corporations, that their dispute will be decided by an organization named the National Arbitration Forum (or "NAF"). Who is the NAF?  What is its background? Is it really a neutral organization, or is it likely to favor one side or the other in disputes?

Let me put my own "biases" on the table at the outset. Based upon extensive investigation and interviews with literally hundreds of people, my law firm, Trial Lawyers for Public Justice, has argued vociferously in several different court cases around the nation that the NAF is not a truly neutral organization. Instead, we have argued, NAF has conducted itself in ways that suggest that it in disputes between consumers and large corporations (and particularly banks and other lenders), that the NAF as an institution is pre-disposed to favor the corporations and lenders.

A great deal of background about this organization is set forth in a legal brief that we filed in a case in North Carolina called McQuillan v. Check N Go. A copy of this brief is posted on the website of my law firm, along with hundreds of pages of evidence, that anyone can download for free. You can find affidavits from consumers who swear that they had terrible experiences with the NAF, an expert affidavit from a law professor who studied the way NAF conducted arbitrations in a certain category of non-consumer cases and concluded that NAF has a systematic tendency to favor the more powerful party in those disputes, a series of advertisements and solicitations that NAF has used to try to get banks and other large corporations to write it into their standard form agreements where the NAF has made statements that we argue show a pre-disposition to favor the corporations, and other similar evidence. I should make clear that the trial court in the McQuillan case did not agree with our challenge to the NAF as biased, holding in essence that a consumer can’t challenge an arbitration company as biased in advance, but must instead wait until after the arbitration is complete to raise that question, and also holding that some of our evidence was hearsay and not admissible. That ruling is on appeal, and our brief in the appeal is also available on TLPJ’s website.

It has been very difficult to gather much information about the NAF, though. It is a closely held corporation that vigorously resists answering questions about itself in court. In a series of cases where individuals have sought to challenge the NAF’s status as a neutral (consumers and employees in these cases have had mixed results, winning some challenges and losing others), NAF has refused to respond to subpoenas and has gone to court seeking court orders quashing the consumers’ discovery requests. In a number of cases where consumers have been able to get past these obfuscations, courts (mostly state courts in Minnesota, where the NAF is based, and where a consumer must generally go to fight for information about the secretive organization) have only allowed the consumers to learn key facts under stringent gag orders that make it impossible for other persons to find out what those consumers had learned.

There is something ironic about the fact that NAF seeks to replace the court system and the jury system, while being so secretive. Think about how open our court system generally is – trials are open to the general public, most courts write out opinions setting out the reasons for their decisions in important cases, and those opinions are publicly available in published volumes or can be searched through various data bases. By contrast, the NAF has sought to make itself as much of a "black box" as possible.

Until this month! Two major cracks have appeared in the wall of NAF secrecy, that offer disturbing insights into the way that this organization operates. The first comes in the form of an article entitled "Arbitration and the Godless Bloodsuckers" written by Richard Neely, a former justice of the West Virginia Supreme Court in the September/October issue of The West Virginia Lawyer. After retiring from the bench, Justice Neely was approached by the NAF to serve as one of their independent-contractor arbitrators, and he agreed to do so. His experience turned out to be very different from what he expected, though. He concludes that "banks have converted apparently neutral arbitration forums into collection agencies to exact the last drop of blood from desperate debtors." Among other things, he tells that NAF "sends the arbitrator a judgment form already filled out so that all the arbitrator need do is check the appropriate box and sign his or her name. It looks like a collection agency to me!" He also reports that when he did not award a bank the full amount of attorneys’ fees it asked for, that he found himself barred from handling anymore cases involving that bank. He explains that banks, as "professional litigants," can make use their superior knowledge to help make sure that their cases are heard by NAF arbitrators who will rule on them.

The second crack in the wall comes in a deposition of Harvard Law Professor Elizabeth Bartholet, taken on September 26, 2006, by a lawyer challenging the NAF as being biased in a consumer case against Gateway Computers.   Professor Bartholet had also served as an independent contractor arbitrator for the NAF, until she resigned. Her February 8l, 2005 resignation letter expressed her concern that NAF’s system is biased in favor of lenders and against individuals. NAF fought hard to block Professor Bartholet from testifying in the Gateway case, but after a lot of back and forth, a court basically ruled that she would be permitted to testify so long as she did not give the names of particular parties whose cases she had handled as an arbitrator. Her deposition describes how she was also blackballed by a credit card company after she ruled against it in a single arbitration. At the time that the credit card company decided to block her from hearing any more cases involving itself, she was scheduled to hear a number of other consumer cases. NAF sent out letters to the consumers falsely stating that she would no longer be the arbitrator in their cases, because she supposedly had a scheduling conflict. The professor did not have a scheduling conflict, however, but the NAF sent out this explanation rather than the true one that she had been blackballed by a lender who didn’t like how she had ruled in a past case. Professor Bartholet has testified eloquently about how NAF operates a systematically unfair system that is biased against credit card companies.

Consumers or consumer advocates who would like to see these documents should contact me at pbland@tlpj.org.

Much about the way that the NAF operates, and how it makes key decisions, and how it makes its money, remains unknown. Nonetheless, there are now some new cracks in the wall of secrecy it has erected around itself, and what we can see through those cracks is not at all pretty. The NAF bills itself as offering a (a) private (b) neutral (c) justice (d) system, but from here, it looks like it only meets the promises of (a) and (d).

Related Link:

Bob Lawless at Credit Slips discusses Justice Neely's article

Comments

[Andrew Engel]

What!!! The repeat player myth isn't a myth after all? What a surprise. Great work. Perhaps in light of these two "cracks" courts will be a bit more permissive in allowing more expansive discovery.

Now, when will you be able break through their "quasi-judicial immunity?"

[Gary Kennedy]

Respondent’s Response to the Panel’s Final Decision
Regarding Case #FA0609000808307
XM Satellite Radio v. Gary Kennedy (xmstations.com & xm-stations.com)

This panel’s decision should be considered as the poorest written decision of all the NAF published decisions. I don’t mind losing this decision if it wasn’t based upon ignorance and lack of integrity. This decision has the tone of being written in a hurry to meet the deadline, is based upon total ignorance, and is suspiciously biased. The forum coordinator should have line item veto power with regard to ignorance. This panel ignored many rules of evidence, along with who has the responsibility to prove their statements. It is puzzling that FRE RULE 408 can be used in some decisions, but not others. This entire case was based upon unsupported or unproven “beliefs” as to “my” actions. “Circumstantial evidence” would not hold up in a court of law. Kyle Kennedy’s offer to sell the domain names was not proven by the complainant other than in writing for $100.00. His actions had nothing to do with my legal intent for the domains’ use. I should not have to prove any action one way or the other with regard to Kyle Kennedy. This panel used “inferences” that were not proven by the complainant. My “complicity” with Kyle Kennedy also was not proven.

This panel’s ignorance of what happened with my registrar “ItsYourDomain.com” is what caused you to believe I was earning “click fees”. Within in days of registering these domains, a lock was placed on these domains by ICANN and Whois. Therefore, “inactive use” or “merely holding without active use”, should not be held against me since I had no control of these domains until this complaint was finalized. I was prevented from redirected them to our website for our intended business venture. Also, IYD immediately, as they do with all the domains they manage, redirect the domains to a “Coming Soon” page that lists other similar websites. I had no control or knowledge of their practice. I never received a “click fee”, nor would I ever have received one. I never used these domains for any “commercial benefit”. This panel did not even check with IYD to determine if I was telling the truth or not. They should have contacted IYD to find out why they use parked domains for “their” commercial benefit. This is gross ignorance of this panel and this opinion should be challenged or vetoed. Retired attorneys do not have any business serving as panelist until they are more informed with the business operations of domain registrars. I did learn from these hopeless panelists. I learned it is not what is right that matters the most, it is who is doing the fighting and how the fight was fought. Much of our country’s legal system is like this. Remember this, exposing gross ignorance is not sour grapes. This response will be published on the internet.

Gary Kennedy, Respondent

CC: Ian Barker, Panelist, Panelist, Atty.
Carolyn M. Johnson, Panelist, Houston,TX Atty.
R. Glen Ayers, Panelist, San Antonio,TX Atty.

[R. Mullen]

I am an NAF arbitrator. I love this work and do it because the legal system is LESS likely to give consumers a decent break. You might not like the administrative side of things, but to be frank, if someone allows a FORM to control the oucome of a case, that person shouldn't be doing this kind of work.

Second, if people who spent all their energy slamming the system spent a fraction of that time educating consumers on how to USE the system to their benefit, I suspect they would find that many consumers would prefer it to their so-called "day in court." The way I read the on-line critique, one would think that court "justice" is closer to exoneration from debt than the more torturous rubber stamp a judge is going to give to a valid debt. The justice in court comes from payment plans anyway, --something available come enforcement time which goes through a court anyway.

Third, correct me if I'm wrong but Judge Judy is arbitration. Judge Hatchett is arbitration. Judge Joe is,--you guessed it! ARBITRATION. Now, yes, it's TV, but if you want non-neutral, biased, ridiculous views of dispute resolution, then recognize that TV audiences seem to love it! What we independent arbitrators do is take the ridiculous out and try to do the right thing the SAME way a judge might.

Fourth, I've read some of the studies and what is conscipuously ABSENT from most which purport to show administration bias is the simple fact that these cases usually involve debt which is valid and owing. THAT'S the main reason companies win. The other is that consumers don't PARTICIPATE in the process and the lawyers who do don't bother to read the rules! Encouraging consumers to stick their heads in the sand is irresponsible. Thanks to changes in the bankruptcy code, it's simply no longer possible to stop debt collection by "getting one's day in court" anyway.

Consumer arbitration is one opportunity to do one's own legal work and do just as well as any lawyer could, because there ARE conscientious arbitrators out there who really believe in the process and believe in self-determination. Give me good argument and the basis for it, and you'll find arbitration as good as any "day in court." I'll be doing a lot of on-line eduation myself consistent with a neutral position, -- so stay tuned.

[Doe]

Most disputes never go to court even when consumers DO have the right to sue, because they settle. Thus, leverage afforded by keeping the right to sue is very important for consumers to keep. If the corporation they're up against knows they cannot sue, the corporation has little or no incentive to settle. Arbitration will keep the complaint out of public record in 49 states, and the arbitrator will likely be from a firm that woos businesses for work and does repeat work for them. This is such an obvious potential for bias that it alone should be reason to ban mandatory arbitration clauses in consumer contracts.

The courts are not fun, I agree...but being forced to give up that constitutional right is just wrong. When entire industries use arbitration clauses, and those products and services are required in today's society, then it SHOULD be thrown out of court as a contract of adhesion, but it's not anymore. Consumers do not do repeat biz with arbitrators, nor do consumers know ahead of time what all the arbitration fees will be. If it was good for consumers it would not have to be mandatory, would it?