Consumer Law & Policy Blog

Elizabeth Warren on Business Week's NAF expose

Over the weekend, Brian posted about Business Week's new must-read investigative report on how the National Arbitration Forum stacks the deck against consumers.  Elizabeth Warren has just posted her thoughts on the article over at Talking Points Memo:

Whether you know it or not, you may have already lost your next dispute with your credit card company--even if they made the mistake and you can prove it.  . . .  The Business Week story is for everyone who thinks that, by and large, fairness will win out, for everyone who thinks that a big-name company would never deliberately take advantage of its customers, and for everyone who things that arbitration sounds like a low-cost, fair way to clear up problems.

(For more background on the subject, check out Public Citizen's statistical analysis of NAF cases.) 

Should Arbitrators Have to be Licensed?

Jeffrey W. Stempel argues that sometimes they should be in  "Keeping Arbitrations from Becoming Kangaroo Courts," 8 Nevada L. Rev. 251 (2007).  Here's the abstract:

Arbitration has grown rapidly during the past 20 years. Particularly notable and problematic is the rapid onset of new or mass arbitration that has resulted from the judiciary's modern favorable attitude toward enforcement of arbitration clauses, even those imposed upon consumers, employees, small vendors, and debtors as part of a standardized contract of adhesion. In a separate article (See "Mandating Minimum Quality in Mass Arbitration," 76 U. Cin. L. Rev. (forthcoming 2007)), I present a more comprehensive list of what I regard as the necessary steps that must be taken to insure minimally acceptable quality and fairness in mass arbitration. In this article, I focus more specifically on the questions of impartiality, adherence to substantive law, and judicial review, although these concerns are of course also dimensions of any reasonably broad inquiry into quality.

The explosion of mass arbitration during the late 20th Century has created too much potential that arbitration could become an unfair forum for dispute resolution. Of particular concern is the impartiality and competence of the arbitrator, consistency with substantive law, and quality control through appellate review. This article advances three operational proposals for achieving rough equivalency between arbitration and litigation: (1) a licensing system for arbitrators in mass arbitrations; (2) a default rule that arbitration follow substantive law and reach results consistent with substantive law; and (3) replacement of the current deferential standard of review for arbitration awards with appellate review similar to that accorded trial court decisions. However, parties in traditional commercial arbitration should be permitted to contract around the requirement of licensed arbitrators bound to follow substantive law and should also be permitted to stipulate to restricted judicial review.

More on the National Arbitration Forum

We have blogged frequently about binding pre-dispute arbitration in consumer contracts, including here, here, and here about the alleged bias of the National Arbitration Forum, one of the major private arbitration companies. Now, Business Week has weighed in with this lengthy expose on the anti-consumer leanings of the NAF.

Jean Sternlight on Governmental Imposition of Arbitration on Companies in Consumer Disputes

Jean R. Sternlight of UNLV, a frequent critic of binding arbitration clauses, discusses whether it would be acceptable and constitutional for the government to impose arbitration on companies in consumer disputes in "In Defense of Mandatory Arbitration (If Imposed on the Company)," 8 Nevada L. J. 82 ((2007), Here's the abstract:

Having spent much of her academic life battling companies' mandatory imposition of binding arbitration on consumers and employees, the author now switches gears. This Article contemplates whether mandatory binding arbitration is acceptable if imposed by the government on companies (governmental mandatory arbitration) rather than by companies on their employees and consumers (private mandatory arbitration). Specifically, the Article considers the possibility of statutes that would provide little guys (consumers and employees) with an opportunity to take their disputes to binding arbitration rather than litigation. If the little guys chose arbitration over litigation, post-dispute, companies would have to agree to such arbitration, and the results of the arbitration would then be binding on both little guy and company. If on the other hand the little guys preferred to litigate their disputes, they would reserve that right. After first examining the policy implications of this approach, and finding some reasons to favor the proposal, the Article next considers the constitutional arguments that would likely be raised in opposition to such statutes. Specifically, it considers the legitimacy of governmentally imposed mandatory arbitration in light of Article III, the Seventh Amendment, and the Due Process Clause. The Article finds that it may be possible to governmentally impose mandatory arbitration in some situations without violating the Constitution. Nonetheless, the Article concludes that trying to introduce such legislation is probably unwise, as a matter of realpolitik. At a minimum, however, the Article should discourage companies and their lobbyists from insisting, as they often do, that privately imposed binding arbitration is the best way to ensure little guys get access to arbitration. Instead, if such companies and lobbyists truly believe arbitration is better for little guys than litigation they should favor the governmental imposition of arbitration on companies, as discussed in this Article.

Why the NAF Wants Courts to Lower the Burden of Proof on Debt Collectors

by Paul Bland

  Several of the principals of the for-profit National Arbitration Forum, a Minnesota-based company that aggressively advertises offers a more corporate-friendly system of private judging than other private arbitration firms, have been writing and publishing articles arguing in essence that courts should not ask any questions – and particularly not demand any evidence or proof – in cases where debt collectors are trying to turn arbitration awards against consumers into court judgments. For example, see Susan Wiens & Roger Haydock, Confirming Arbitration Awards: Taking the Mystery out of a Summary Proceeding, 33 Wm. Mitchell L. Rev. 1293 (2007). Similar articles by NAF authors have also appeared in several state bar journals and the like. Where is this push coming from? Have courts been unreasonably refusing to turn arbitrators’ awards into judgments, or is something else afoot. The answer, which is obvious to any consumer lawyer, is the latter.

The NAF’s interest in making it easier for debt collectors to make money in arbitration is pretty easy to figure out. Last fall, Public Citizen issued a statistical analysis of EVERY SINGLE consumer case that the NAF has decided in California in the last several years. (California is the only state in the country to require arbitration companies to disclose information about the consumer arbitration cases it handles.) It turns out that out of about 34,000 consumer cases decided by the NAF in California, only 118 were brought by consumers. The other 99.6% of the cases handled by NAF were debt collection cases brought by creditors against consumers. In other words, NAF’s financial success depends overwhelmingly on debt collection. Put another way, the NAF’s financial success depends upon whether it can make debt collectors choose the NAF’s system over either the court system or other arbitration companies.

A surprisingly large number of debt collectors have a problem, though: they cannot even prove that a given consumer owes them any money (much less the often-padded sums that the debt collectors claim that they are owed). Sometimes this problem arises because the consumer actually does not owe the debt collector anything (the number of identity theft victims in the United States is high and rising rapidly), and sometimes it arises because of lousy record-keeping by credit card companies. In literally hundreds of thousands of cases, however, the debt collector cannot prove its case because it does not have (and never has had) any evidence.

Supreme Court Refuses to Hear Class-Action Ban Issue

by Deepak Gupta

  A cutting-edge issue in the world of consumer law--and one that this blog has discussed many times before (see, e.g., here, here, and here)--is the extent to which corporations can enforce class-action bans placed in consumer adhesion contracts. Class-action bans are clauses that purport to strip consumers of the right to seek any classwide relief, whether through class-action litigation or classwide arbitration. 

The question matters because class actions are often the only thing stopping companies like cell phone or cable providers from getting away with practices that cheat large numbers of consumers out of small amounts of money. As Judge Posner has put it, "[t]he realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30." 

This morning, the U.S. Supreme Court rebuffed an attempt by one of corporate America's leading Supreme Court litigators, Carter Phillips, to get the Court to weigh in on the battle over class-action bans. Public Citizen filed the brief in opposition, and we're thrilled at the result.  The Court's decision not to hear the issue is a good sign that, at least as far as class-action bans are concerned, the Supreme Court is going to allow the law to continue to develop in a way that vindicates the rights of consumers and employees to access the courts.  (You can read an Associated Press story about the case here.)

New Poll: Americans Say "No Thanks" To Binding Arbitration

A new national opinion poll shows widespread disapproval of binding arbitration provisions in consumer contracts and overwhelming support for the Arbitration Fairness Act now pending in Congress.

By five to three, Americans said they disapprove rather than approve of consumer contracts with binding arbitration provisions. When consumers who are initially supportive learn that arbitration means that they give up their right to take the case to court and that the company picks the arbitrator, two in three of the initially supportive consumers also disapprove. When the data is combined, a whopping 81percent of Americans express disapproval of mandatory binding arbitration.

The poll also shows broad support for the proposed Arbitration Fairness Act.  Overall, 64 percent of voters favor the legislation, compared with only 26 percent who oppose it.  Perhaps surprisingly, the poll reveals no statistically significant difference in support among Democrats and Republicans. A detailed memo by the pollsters is provided below the jump.  As the memo notes, this poll casts serious doubt on the contrary results reported in a survey recently released by the Chamber of Commerce's Institute for Legal Reform.

U.S. District Court Holds That Rape and Assault Claims Against Haliburton Are Not Subject to Arbitration, but Court Case Stayed While Other Claims Are Arbitrated

by Brian Wolfman

Last December, we blogged here about Haliburton's efforts to force into arbitration a suit brought by a former employee who maintains that she was gang-raped by her Haliburton co-workers in Baghdad. The plaintiff also filed a Title VII sexual harassment claim as to which the EEOC had found cause against Haliburton. Now, in an opinion dated May 9, 2008 in Jones v. Halliburton Company, No. 4:07-cv-2719, the U.S. District Court in Houston has held that the plaintiff's claims related to the rape and assault may be litigated in court, while the Title VII claims must be arbitrated. The court "reluctantly" stayed the case to allow the arbitration to be completed. The court rejected the plaintiff's claims of unconscionability under general state-law contract principles, but held that the arbitration clause requiring arbitration of any claim "related to" the plaintiff's employment with Haliburton did not encompass the claims concerning the rape and assault.

Second Circuit: Plaintiffs Have Standing To Pursue Antitrust Case Alleging Collusion By Major Credit Card Companies To Require Arbitation And Ban Consumer Class Actions

by Brian Wolfman

The Second Circuit today issued Ross v. Bank of America, No. 06-04755 (Apr. 25 2008). In this case, the plaintiff credit card holders claimed that the defendant banks conspired in violation of section 1 of the Sherman Antitrust Act to include in their credit card contracts provisions that impose arbitration as the sole method of resolving disputes relating to the credit accounts and purport to ban class actions. The district court held that the plaintiffs lacked Article III standing, principally because the arbitration clauses had not been invoked against the plaintiffs. The Second Circuit reversed. The court held that because the case was based on an antitrust theory (and was not a challenge to the contract provisions themselves), the plaintiffs had suffered an Article III injury. The court noted, among other things, that the conspiracy to require arbitration and ban class actions had undermined the plaintiffs’ choice of contract provisions in the marketplace, and that limitation was a concrete and present injury. As the court of appeals put it, a “card that limits the holder to arbitration is less valuable (all other factors being equal) than a card that offers the holder a choice between court action or arbitration.” The opinion is only 15 pages and is written in plain English. Definitely worth a look.

The "Snowballing Futility" of Arbitration for Employees

Here's some more recent news on arbitration. A study by Professor Michael LeRoy of the University of Illinois shows that, while employers are frequently successful in getting arbitration awards overturned in state court, employees are not.

LeRoy examines a "snowballing futility for employees" who are forced into arbitration. If they manage to win, despite the built-in institutional bias, the employer can take it to state court and get the award overturned, forcing the employee to start over from scratch. On the other hand, if they lose, the courts are highly unlikely to disturb the decision.

From the study:

Remarkably, state appellate courts confirmed only 56.4 percent of employee wins in arbitration. But when the same courts ruled on employer victories, they confirmed 86.7 percent of awards.