The LA Times Blasts Forced Arbitration
Monday, May 04, 2009
I wanted to share with you an excellent article on
the issue of forced arbitration that appeared in the
LA Times Saturday. AAJ is part of the Fair
Arbitration Now Coalition working to pass the
Arbitration Fairness Act. If you would like to
learn more about this legislation or send a letter
to Congress, visit:
Senior Vice President for Public Affais
Sue the company? Most contracts force consumers to
forfeit that right
May 3, 2009
If you have a credit card, a cellphone or even
just a job, chances are you've already signed away
your right to sue if something goes wrong.
Mandatory arbitration clauses have become a
routine part of the fine print in most financial,
telecom and employment contracts, as well as
numerous other customer agreements.
They typically require you to abandon the right
to a jury trial or class-action lawsuit, and to
agree instead to take any grievances to a
But because of the way the system is set up,
critics say, arbitration often favors the company
and not the individual. So the likelihood of a
positive outcome (for you) can be less than if you
had pursued litigation.
Consumer advocates, sensing a shift in the
political winds under President Obama, believe the
time is right to challenge mandatory arbitration and
have banded together to support legislation ending
"We have no problem with arbitration," said David
Arkush of the watchdog group Public Citizen. "We
just want people to be able to choose it if they
want it, rather than having it be required."
He was speaking on behalf of the Fair Arbitration
Now Coalition, an organization of consumer and
community groups. The coalition released poll
results last week showing most people have no idea
they're giving up a constitutional right when they
sign contracts containing an arbitration clause.
When details of mandatory arbitration are made
clear, 59% of Americans say they oppose the practice
and would back legislation requiring that
arbitration be voluntary, the poll found.
Easier said than done. Although bills have been
introduced in the House and Senate ending mandatory
arbitration, they're strongly opposed by some of the
most powerful industries in the country, including
banks, telecom providers and insurers.
"We know it will be tough," Arkush said. "But
we've probably got as good a chance now as we've
One of the biggest problems with mandatory
arbitration clauses is their prohibition on joining
class-action lawsuits. This effectively takes away
consumers' single most powerful tool in seeking
redress from companies for relatively minor
More often than not, such issues would be too
costly to pursue in court individually. Class-action
suits allow consumers to join together in dealing
with a deep-pocketed business, leveling the playing
Another key problem with mandatory arbitration is
that the company generally gets to pick the
arbitrator, often a retired judge. These arbitrators
thus have an incentive to keep the company happy if
they want future employment.
"If a retired judge issued a significant
anti-insurance decision, for example, there is no
chance an insurance company would use him again,"
said Jeffrey Ehrlich, a Claremont attorney who has
handled numerous arbitration cases.
"The deck is stacked against consumers because
the arbitrators don't want to offend the people who
Fontana resident John Ramirez told me he
experienced just such a situation after going into
mandatory arbitration with his former employer,
Tenet Healthcare Corp., in 2003.
Ramirez, 37, believed he'd been discriminated
against because problems with a prosthetic leg
forced him to miss about six months of work. He lost
his own leg in a childhood accident.
"They started giving me a real hard time after I
came back," Ramirez recalled. "I was forced to work
the graveyard shift."
He filed an arbitration claim seeking back pay
and compensation for his claim of discrimination.
But the arbitrator ruled against him.
Ramirez thinks a jury would have been more
"If I could have sued, I might have won," he
Tenet declined to comment. But Wayne Kessler, a
spokesman for the American Arbitration Assn., a
leading arbitration provider, said procedures are in
place "that are fair and neutral, and which give all
parties to a dispute an equal voice in the selection
of an arbitrator."
Or maybe not.
Geoff Lysaught, director of the Searle Civil
Justice Institute at Northwestern University School
of Law, said researchers have found evidence that
companies involved in repeated arbitrations tend to
receive more favorable outcomes than infrequent
He said this may not necessarily reflect the fact
that "repeat players" represent more revenue for
"The reason they may win more often is because
they only arbitrate cases they think they can win,"
Lysaught said. "They settle all the others."
He said this theory might also explain why
consumers tend to win about half the cases they
bring to arbitration, whereas companies win nearly
84% of cases they initiate.
Perhaps. Or perhaps, as consumer advocates and
lawyers say, it's because professional arbitrators
know how their toast is buttered, and they have a
built-in bias toward pleasing companies.
Seems to me that if arbitration is indeed fair to
everyone, it shouldn't have to be crammed down
consumers' throats. Arbitration should be offered as
a cost-effective and relatively speedy alternative
to litigation. But it should be just one option
available, just as filing a lawsuit should be an
By the same token, no company should be permitted
to deny customers their right to a jury trial or to
participate in class-action lawsuits.
In a perfect world, such things wouldn't be
But this isn't a perfect world.