Binding Arbitration Segment on NPR

This segment about binding arbitration recently ran on NPR. It’s a great piece and I’m very happy to see MBA getting more national attention. But my question is: when are people going to start getting angry about this?

Rape Case Highlights Arbitration Debate

by Wade Goodwyn

All Things Considered, June 9, 2009 · Jamie Leigh Jones was a 20-year-old Halliburton employee in 2005 when she was sent to work in Iraq. She’d been there just four days when she joined a small group of Halliburton firefighters outside her barracks at the end of the day. One of them gave her a drink. She took two sips, and Jones says that was the last thing she remembered.

“I woke up inside the barracks,” she says. “It was actually inside my barrack room, and that’s when I noticed I had been severely beaten and was actually naked.”

Jones had been raped, repeatedly. By how many men, she’s not sure. But she says one man was still naked and asleep in the room when she came to.

“Apparently, he knew he was beyond the reach of any jurisdiction, so he was still brazen enough to be there,” she says.

Jones was escorted by security to the company clinic for a rape examination. When the rape kit examination was done, the evidence was turned over to Halliburton security.

The young woman’s breasts were so badly mauled that she is permanently disfigured. It has been four years since the attack, and despite the physical and circumstantial evidence, the Department of Justice has declined to investigate.

Seeking Justice Through a Suit

Justice Department officials refused to explain or comment in any way to NPR about the case. Jones has decided that if she can’t have her day in criminal court, she’ll sue Halliburton and its former subsidiary, KBR, in civil court.

“I want corporate accountability,” she says. “I was so brutalized that I’m going to have to remember this the rest of my life. And Halliburton was so uncompassionate that they even let the men work there, still, after I went home.”

Heather Browne, director of communications at KBR, says that while the company can’t speak to the facts since the case is ongoing, it denies any liability in the attack. And she argues that any dispute with Jones, even one involving charges of rape, must go to arbitration.

So Jones is now going to court seeking the right to sue. She has become one of the nation’s leading arbitration reform advocates.

An Arbitration Culture

If Jones’ case is remarkable, the fact that arbitration is involved is not. In the past 20 years it has become a dominant feature in the legal relationship between American corporations, their employees and their customers.

If you use credit cards, have a cell phone contract, bought a house from a builder or put your mother or father in a nursing home, you have very likely signed away your right to be heard in court if there’s a problem. It’s called pre-dispute mandatory binding arbitration.

Public Citizen’s David Arkush, one of the country’s leading researchers on arbitration, says many consumers have no clue as to the rights they’re signing away.

“In the fine print of those contracts is a provision that says that they can never sue the company if they have a dispute,” Arkush says.” Instead they have to go a private, secret tribunal chosen by the company.”

A Losing Record For Consumers

Arbitration is a closed, private process, often with little or no written record. But one state, California, changed its law to require that arbitration results be publicly recorded. Public Citizen staff reviewed 34,000 California cases, and Arkush says the results speak volumes.

“Overall, consumers lost 94 percent of the time,” he says.

The arbitration industry disputes that number. But it does not disagree that corporations win more of the time. The disagreement is about whether this is evidence of bias or a reflection that corporations bring stronger cases.

Mike Kelly, spokesman for the National Arbitration Forum — one of the country’s largest arbitration firms — says it’s the latter.

“You’re not going to bring a case that you’re going to lose,” he says. “Frankly, you’re not going to bring a case that you think you have a chance to lose.”

Kelly says the results would still be lopsided if these same cases went to court instead of arbitration. And Kelly says his arbitrators, which the NAF calls neutrals, are men and women without bias.

“What you’re really doing is taking a shot at all those individual neutrals who are handling these cases,” he says.

Rulings And Consequences

Elizabeth Bartholet was one of the NAF’s arbitrators for a time. She’s a law professor at Harvard and for two decades has moonlighted as a part-time arbitrator. The first 19 cases she arbitrated for the National Arbitration Forum were all credit card cases. She ruled each time for the credit card company.

Then, on the 20th case, she ruled for the consumer. After reviewing the evidence, Bartholet awarded the cardholder $48,000. And with that, her career as an NAF arbitrator was effectively over. She says she was stricken from her remaining cases.

“I called the NAF and spoke to the case manager, and she agreed the reason I was being removed was because I had ruled in this one case against the credit card company,” Bartholet says.

The NAF says nothing improper was done, that companies and consumers alike are allowed to strike an arbitrator from a case. Bartholet counters that arbitrators know full well that if they rule against corporations too often, their income will dry up.

“NAF arbitrators are given a form where every line is filled out in terms of the amount it is suggested that you rule,” she says. “And so all you need to do is fill in to the right [of that line] the exact same number. And then at the bottom, you total it up and they give the attorneys’ fees number. And there’s no indication that you should even write a one-sentence opinion.”

Bartholet says nowadays, she will arbitrate only when both parties are roughly equal in power and enter into arbitration voluntarily.

Push For Reform

The Arbitration Fairness Act now before Congress would ban clauses that make arbitration mandatory for the resolution of disputes — restoring to consumers and employees the choice of taking their case to court.

Lisa Rickard, president of the U.S. Chamber of Commerce’s Institute for Legal Reform, says that making arbitration voluntary will lead to its extinction.

She also says it will clog the courts with needless litigation. “It really is human nature,” she says. “When people have an argument, they really want to fight it out. And the best place to fight it out is in court.”

New Poll Shows a Majority of Americans Oppose Mandatory Binding Aribtration

A poll released yesterday by Lake Research Partners indicates that a majority of Americans oppose Mandatory Binding Arbitration (MBA). The study included 800 American adults who were likely to vote in the upcoming 2010 election cycle. Specific results were as follows:

- 59% of likely voters oppose the inclusion of mandatory binding arbitration clauses in consumer and employment contracts.

- 6 out of ten Americans support the Fair Arbitration Act.

- Over 2/3 of the sample didn’t realize that they were subject to mandatory arbitration clauses that were buried in the fine print of contracts they had signed with credit card companies, cell phone service providers and others.

- More than 70% of respondents were completely unaware that MBA’s could keep them from suing employers and consumer product companies in a court of law.

The results of the poll were announced yesterday by the Fair Arbitration Now coalition at a Capital Hill news conference that was held to commemorate Arbitration Fairness Day.

Today is National Arbitration Fairness Day!

People from all over the country are descending upon Capitol Hill today to meet with lawmakers and tell them of their own personal experiences with Mandatory Binding Arbitration and support the Arbitration Fairness Act which is currently working its way through Congress. Many others have visited their lawmakers’ local offices to do the same.

Unfortunately, the fight isn’t over and there is still time to get the attention of lawmakers and the media. Please contact your members of Congress by telephone or email and let them know you are part of the majority of Americans who support arbitration reform. Click here to find their contact information.

For more information, please visit: www.fairarbitrationnow.org.

I’ll be reporting on the effect of our efforts in the days and weeks ahead. Thank you all for your continued support.

Best,
Ehren Bragg

Outrage in Ohio: An Unfair Decision on Arbitration

This is a great story reprinted from the Consumer Law and Policy Blog and available at: http://pubcit.typepad.com/clpblog/2009/04/outrage-in-ohio-an-unfair-decision-on-arbitration.html

by Paul Bland and Tami Alpert (Power-Cotchett Felow, Public Justice)

Something really crazy has happened in Ohio. Last summer an Ohio State Court of Appeals held that, under Ohio law, if a company claims there is an agreement to arbitrate, then the plaintiffs can be automatically kicked out of the courtroom without being given a chance to respond. The decision is Garber v. Buckeye Chrysler-Jeep-Dodge of Shelby, 2008 WL 2789074, No. 2007-CA-0121 (Ohio. App. 5 Dist. 2008). We urged the Ohio Supreme Court to review and overturn this decision, but several months ago it refused to hear the case. For now, at least, this decision is the law in one part, and possibly all, of Ohio. Under the Garber rule, a plaintiff can be forced go before a private arbitrator picked by the company they are suing, without ever being given an opportunity to respond.

This new decision in Ohio is a complete aberration – court cases are normally like a game of chess in the sense that parties are given a chance to respond whenever the other side makes a move. But now, in Ohio, if a corporation simply claims that there’s an agreement to arbitrate, the corporation gets to have the legal equivalent of a checkmate on the first move. Under the Garber ruling, the consumer immediately loses and is kicked out of court. Under this decision, no matter how unfair a given arbitration clause may be, the consumer has no meaningful chance to appeal.

The Big Problem
To understand why the Garber ruling is so bad, it is important to know a bit about binding mandatory arbitration. Arbitration is not court trial, nor is it mediation. Instead of going before a publically chosen and accountable judge, using standard court rules and fees, under arbitration, a case is resolved by a private decision maker selected by a private arbitration company (there are three big arbitration companies in the US right now that do about 90% of the business). The private arbitration company makes up its own rules and fees, and the arbitrators usually do not issue written decisions explaining their awards. Even if they do write decisions, those are usually not publicly available or searchable – it’s very hard if not impossible for a consumer to find out why an arbitrator decided an earlier decision one way or the other. Unlike a court judgment or mediation, the decision of the arbitrator is final. It is binding and is not subject to any meaningful appeal. (See this prior post for more on the lack of judicial review in arbitration.)
Arbitration clauses are generally enforceable under the law. But like any contract, sometimes arbitration clauses have problems that make them so unfair that they are unenforceable. For example, there are some cases where the arbitration clause was never actually agreed to by the consumer. We have seen this in a lot of car sales; indeed we’ve even seen forgeries by some car dealers of consumer’s signatures. Like any contract, an arbitration clause that wasn’t assented to by both parties is not enforceable. Another example of why arbitration clauses should not be made automatically enforceable without giving consumers a chance to respond is that corporations often add ridiculously unfair terms to the fine print of an arbitration clause. One arbitration company used to require that all consumers, regardless of their residence or the amount of money they claimed in a dispute, had to physically go to Minnesota to have their cases heard in arbitration. Similarly, some corporations and/or arbitration companies have set such high fees for arbitration that they prevent people from proceeding. We’ve represented consumers who were faced with arbitration fees that were greater than the value of the underlying dispute. Other arbitration clauses have terms that are terribly biased and one-sided. In the infamous Hooter’s sexual harrassment case, 173 F.3d 933 (4th Cir. 1999), the arbitration clause allowed the company to pick practically anyone to be the arbitrator. Under the language of the clause, the company could even have selected themanager accused of harassing a waitress to serve as arbitrator in the case.

When parties challenge unfair arbitration clauses, it serves as a critical policing system. Many courts – including Ohio courts–have struck down abusive arbitration clauses in particular cases. In Ohio, as in most other states, there are cases holding when the terms of an agreement to arbitrate are so unfair they are unconscionable, the agreement is deemed unenforceable, and rather than arbitrate, the dispute can proceed in court. (I wonder if these pro-consumer cases still mean anything after the Garber decision.) Some companies have responded to these kinds of decisions by revising their arbitration clauses to jettison some of the most obviously unfair provisions. For example, some companies now will bear the full cost of arbitration. If consumers can’t challenge the most abusive arbitration clauses, corporations will have no incentive not to put in the most unfair provisions they can invent.

We’ve reviewed hundreds of cases involving unconscionability challenges to arbitration clauses, and we have NEVER before seen a court issue a ruling like the Garber case in Ohio. No other court has simply taken the word of one side, and refused to allow the other side to respond to a claim that there is an agreement to arbitrate. This is simply outrageous.
What Happened
In Garber, two car buyers filed a lawsuit in court against a car dealer, alleging fraud and violation of consumer protection statutes. A few weeks later, the dealer responded with a motion to compel arbitration. The NEXT DAY, without giving the car buyers any opportunity to respond, the trial court automatically granted the motion to compel arbitration! The following day, the car buyers rushed back to court asking to re-open the case and permit them to challenge the enforceability of the arbitration clause.
The car buyers raised very serious legal challenges, arguments that would have won in many courts. For example, one of the two consumers never even signed the agreement, and the agreement required that they use of a very expensive arbitration company. But the trial court refused to even consider the car buyer’s arguments and denied their motion.
Going against all previous precedent, the Ohio Court of Appeals affirmed, holding that the car buyers waived any arguments they might have against the arbitration clause because they did not raise the arguments IN THEIR COMPLAINT. Shockingly, the Court of Appeals also held that, under Ohio
law, the trial court was not required to permit the plaintiffs any response to the car dealer’s motion to compel arbitration.

We at Public Justice petitioned the Ohio Supreme Court to review the case, but the court refused, making this decision the final rule in at least a large part of Ohio. You can find a copy of our Petition, which sets forth the legal reasons why this ruling should have been overturned, here.

Why It’s Wrong
The ruling in Garber creates an entirely new procedural barrier and substantive requirement that has never before been recognized by any court, and that contradicts a number of established rules of law.
First, by ruling against the plaintiffs without even providing them an opportunity to be heard, the court violated their fundamental due process rights. Due process means that when one party makes a claim, the other party must be notified and given an opportunity to have their side of the story heard. What’s happened in Ohio s that the Garber ruling has eliminated this vital Constitutional protection for consumers alleged to have entered arbitration clauses. Now, if a corporation says there is an arbitration clause, the court is supposed to just take the corporation’s word for it and throw the lawsuit out of court. The plaintiff is never given an opportunity to challenge the existence of a valid arbitration agreement, and thus is denied basic due process.
Second, the Garber decision ignores the hefty body of law from around the country establishing that a party should be permitted to take discovery when resisting a motion to compel arbitration. Now, in Ohio, plaintiffs are forced to put forward their responses to an affirmative defense in their complaint, before they’ve had the opportunity to take discovery. This makes no sense. A lot of these situations are fact-specific, and therefore require discovery. Our petition lists many cases supporting the right of consumers to take discovery before being forced into arbitration.

Third, in many cases, consumers do not even know about a supposed “arbitration clause” until it is evoked as a defense. Sometimes this happens because a consumer never actually sees nor signs a contract. In other cases, the consumer won’t know about the arbitration clause – they’re often embedded deep within the body of the agreement, and unsuspecting consumers or employees sign without being informed of the arbitration clause. We have also seen cases where there is a language barrier, and the arbitration clause is never adequately translated. To say that these consumers are supposed to attack an arbitration clause that they don’t know about and usually don’t have a copy of in their complaint is an unfair and ridiculous burden.
Fourth, the Garber ruling creates a strict new pleading rule that does not exist in Ohio law for any other affirmative defense. For example, when addressing this very question in a non-arbitration context, the Ohio Supreme Court in Royce v. Smith held that “a matter constituting an affirmative defense . . . need not be alleged in the complaint.” Royce v. Smith, 68 Ohio St.2d 106, 112 (Ohio, 1981). This holding is consistent with the approach under the Federal Rules of Civil Procedure (which Ohio follows). Similarly, appellate courts in other jurisdictions have refused to automatically enforce arbitration clauses. Treating arbitration clauses differently than other affirmative defenses or other contracts that require judicial enforcement, and automatically enforceable, violates the U.S. Supreme Court’s repeated statements that arbitration clauses are “as enforceable as other types of contracts, but not more so.” Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n. 12 (1967).
Finally, up until now, courts across the nation, as well as in Ohio, have repeatedly rejected efforts to force cases into arbitration where no agreement had been reached, or where the arbitration clauses were unconscionable. As explained above, this can happen when the terms such as the venue or cost of arbitration are not reasonable, or when the agreement is otherwise downright unfair or one-sided. Because there are so many circumstances that can make an arbitration agreement unenforceable, blindly and automatically enforcing all arbitration agreements is simply bad law. The new rule created by Garber is unfair and unsound.

Conclusion
Because of the terrible Garber decision, many Ohio consumers are faced with this unfair barrier to justice unless the court rules are-rewritten or the legislature takes some action. Until then, consumers, employees, and other plaintiffs will be forced to jump through ridiculous hoops at the outset of a case in order to preserve any hope of a day in court.

ARBITRATION FAIRNESS DAY – 29 APRIL 2009

Respond to the Chamber of Commerce – Support Fairness in Arbitration

On April 29th, people who were harmed by forced arbitration will travel to DC to participate in Arbitration Fairness Day and urge support for the Arbitration Fairness Act. In anticipation of next week’s event, the Chamber of Commerce has inundated Capitol Hill with misleading paper opposing the Arbitration Fairness Act.

Businesses oppose the Arbitration Fairness Act because the system of forced arbitration allows them to escape accountability for discrimination, harassment, gross negligence, fraud, and other corporate wrongdoing. Businesses aren’t looking out for the best interests of consumers and employees; they want to protect their ability to force individuals into a system that they design. Who wouldn’t want to control the method by which claims against them are resolved?

The Truth: HR 1020, the Arbitration Fairness Act does not eliminate arbitration, it just makes it voluntary. In other words, big business can’t force you to sign away your right to hold them accountable for their wrongdoings, but a consumer can still choose arbitration.

Don’t listen to the hype. The Chamber knows full well that they must use scare tactics to try and defeat this bill because they are on the wrong side of this issue.

The Chamber of Commerce thinks Americans won’t hold them accountable for spreading anti-consumer rhetoric. Send a Letter to Congress and tell them not to be fooled by the U.S. Chamber of Commerce and their well-funded, big business allies. Insist that they put People over Profits!

For more information on forced arbitration and the upcoming Arbitration Fairness Day, or to sign a petition please visit www.fairarbitrationnow.org.

Contrary to what the Chamber of Commerce claims:

Americans support the Arbitration Fairness Act. As the attached letter reflects, civil rights, labor, and consumer groups representing millions of Americans support the Act because it protects consumers and employees from discrimination, sexual harassment, negligence, and predatory lending by holding corporations accountable for their wrongdoings.

The Arbitration Fairness Act would only restore the Federal Arbitration Act to what it was originally intended to do. Contrary to what the Chamber claims, forced arbitration has not been used for 80 years in consumer and employment contracts; it is business to business arbitration that has been used for 80 years. Corporations started using forced arbitration in consumer contracts beginning in the mid to late 1990’s, after court cases held that there was nothing in the Federal Arbitration Act that limited the use of forced arbitration to only business-to-business disputes.

Consumers favor voluntary arbitration and the bill does nothing to limit the use of arbitration after a dispute has arisen and both sides agree to it. If arbitration is so fair and efficient, as the Chamber claims, why wouldn’t consumers voluntarily choose it as a means to resolve their dispute? If consumers don’t choose it, it’s because it’s not fair.

Forced arbitration is not better for consumers. The studies cited by the Chamber carefully select the cases and distorted numbers they want to report. For example, the Searle study actually shows that businesses win far more often than consumers in mandatory arbitration and in much higher amounts. Consumers win less, and when they do prevail, receive much lower awards compared to their original claim. If a consumer is to claim $5,000 and only win $10, this counts as a “win” by Searle’s calculation, therefore inflating its 53.3% “win rate” figure.

Consumers support the Arbitration Fairness Act. You only need to read the questions included in the Chamber’s poll to understand why the results that it cites are inaccurate. The Chamber’s poll, which purported to show that voters did not support the Arbitration Fairness Act, asked voters: “If you could choose the method by which any serious dispute would be settled between you and the company, which would you choose?” (Emphasis added.) But what they didn’t tell these voters is that forced arbitration takes away a consumer’s choice. Under the current system, consumers are not allowed to choose which option is best for them. They are not allowed to choose to file a claim in court nor are they allowed to choose who the arbitrator will be, or even what state they will have to arbitrate the claim in. Instead, they are forced into an arbitration system that is set up to favor the corporation and trample on the rights of the consumer. When consumers are given the choice to arbitrate after a dispute has arisen, they gain bargaining power and are better able to enter into an arbitration system that is fair.

Thank you for Taking Action!

Jill Burke
People Over Profits

Thanks from a reader….

Thank You for your informative blog about arbitration.

I recently have been hired at Macy’s and have been introduced to their “Solutions In Store” arbitration policy. The only way to opt-out of their mandatory arbitration, new hires need to mail an opt-out card within 30 days of being hired, which I am going to do!

From thoroughly researching online, I know that just mailing the opt-out card is not enough. I also have to receive a confirmation letter that my opt-out has been processed. That confirmation letter will be my only evidence in court that proves I officially declined the final and binding arbitration process. I have a sneaky suspicion that Macy’s is going to make this process very difficult. Good thing that I am persistent!

For orientation, Macy’s has a pamphlet and video on why their arbitration policy benefits the employee. Macy’s really tries to make new hires feel fortunate that arbitration is the policy.

I would want my day in court if I were ever to be an unfortunate victim of a crime. It is hard for me to comprehend that an employer can take basic rights away from their employees.

One concern that bothers me about opting-out of the arbitration policy, is that I will be red-flagged as a potential law-suit. The 30 day opting-out period also coincides with my 60 day New Employee probation period. Macy’s policy says that declining arbitration will NOT affect employment.
I’ll let you know the results!

Thank you again for you blog,
Diana

Supreme Court Ruling Against Arbitration

This is a major victory for advocates of arbitration reform!

9 March 2009

WASHINGTON (AP) — The Supreme Court has ruled that consumers can sometimes resist credit card companies’ push to move their dispute over finance charges and late fees to arbitration. The justices voted 5-4 Monday in favor of Betty Vaden in her dispute with Discover Bank.
Discover sued Vaden in Maryland state court in 2003, claiming she hadn’t paid more than $10,000 that was owing on her account. Vaden filed a class-action counterclaim, saying the company’s finance charges and late fees violated state law. The bank then asked a federal court to force Vaden into arbitration over her claim.

But Justice Ruth Bader Ginsburg, writing for the majority, said state courts sometimes are the proper place for such lawsuits. “Here, the controversy between Discover and Vaden was triggered by Discover’s garden-variety, state-law debt-collection claim against Vaden,” Ginsburg said. Many credit card customer service agreements require disagreements over charges to be resolved using binding arbitration because it is cheaper and faster than a lawsuit, industry officials say. But they also argue that some state courts, reluctant to let go of lawsuits, are hostile to arbitration.

A study by the Public Citizen consumer advocacy group found that arbitrators often rule in favor of the credit card companies.
In this case, the issue was whether a federal court could step into what had been a state court lawsuit to order the parties into arbitration.
Discover sued Vaden in Maryland state court in 2003, claiming she hadn’t paid more than $10,000 that was owing on her account. Vaden filed a class-action counterclaim, saying the company’s finance charges and late fees violated state law.
The bank then asked a federal court to force Vaden into arbitration over her claim.

The case is Vaden v. Discover Bank, 07-773.