Arbitration: The U.S. Chamber of Commerce's Fairness Act Ruckus. (Web)

Two weeks ago, the U.S. Chamber's Institute for Legal Reform, an advocacy arm that supports tort reform, launched an offensive on the Arbitration Fairness Act, a bill introduced by Sen. Russell Feingold, D., Wis., in July 2007 that seeks to amend the Federal Arbitration Act, 9 U.S.C. Section 1, et seq. (The bill text is available at http://thomas.loc.gov/cgi-bin/query/z?c110:S.1782:.)

A press release, “Voters Strongly Back Arbitration, New Poll Shows,” and a multimedia package, which includes an academic study, were released by the Chamber on April 2. The materials are posted on the ILR’s home page at www.instituteforlegalreform.com.

According to the Chamber’s poll, 71% of voters oppose Congressional efforts to remove arbitration agreements from consumer contracts, and 82% prefer arbitration to litigation in settling a dispute with a company.

The Feingold bill, S. 1782, which has six cosponsors, was introduced last July at a press conference organized by Washington lobbying group Public Citizen. (See Public Citizen President Joan Claybrook’s press conference statement here: http://www.citizen.org/pressroom/release.cfm?ID=2472.) A companion House bill, sponsored by Rep. Hank Johnson, D., Ga., also was introduced July 12, and has 86 cosponsors.

The survey is based on a telephone poll of 800 registered voters. It was conducted Dec. 17-20. Details of how the participants were chosen were not disclosed. The survey was conducted on behalf of the Institute for Legal Reform by Bill McInturff and Alex Bellone of Public Opinion and Strategies, in Alexandria, Va., and Joel Benenson, of New York’s Benenson Strategy Group. Benenson is a pollster for Sen. Barack Obama's presidential campaign.

In the press release, ILR president Lisa Rickard warns that the pending legislation would eliminate arbitration, “leaving many employees and consumers with little recourse.” She says that eliminating arbitration is a “top priority of the trial lawyers’ lobby,” purportedly for opportunities to collect more fees through litigation, and package claims against companies into class-action suits.

The ILR press package includes a website videotape statement praising arbitration from Sharon Kruse, a 63-year-old Michigan widow who settled a $300 dispute over a boiler maintenance contract.

An April 5-6 weekend edition Wall Street Journal editorial, “No Lawyers, Please” (on page A7) supports ILR's view. The unsigned editorial describes the proposed legislation as an attempt “to prohibit Americans from agreeing at the start of a business relationship to submit disputes to arbitration.” It deems the Arbitration Fairness Act an “ironic” title for the bill.

But the proposed act declares simply that “no predispute arbitration agreement shall be valid or enforceable if it requires arbitration of (1) an employment, consumer, or franchise dispute; or (2) a dispute arising under any statute intended to protect civil rights or to regulate contracts or transactions between parties of unequal bargaining power.”

It also provides that the “validity or enforceability of an agreement to arbitrate shall be determined by the court, rather than the arbitrator, irrespective of whether the party resisting arbitration challenges the arbitration agreement specifically or in conjunction with other terms of the contract containing such agreement.” The move eliminates the effect of the most recent U.S. Supreme Court decision on the subject, Buckeye Check Cashing Inc. v. Cardegna, 546 U.S. 440 (2006), which held that a challenge to the validity of a contract as a whole, and not specifically to the arbitration clause within it, must go to the arbitrator, not the court.

The Feingold bill states that it seeks to do away with mandatory consumer arbitration because of the power imbalance between the corporation and the consumer. The bill's findings note that corporations require millions of consumers and employees to give up their rights to a trial, often as a condition of employment, or in a service contract.

The findings explain that there usually is no meaningful option on whether to submit claims to arbitration, and in many instances the consumer or employee is not even aware of the provision.

The findings also discuss arbitrators' freedom to ignore laws and rules in light of the usual lack of judicial review of arbitration decisions. Additionally, the findings state that many corporations add unfair provisions to their clauses, including setting arbitration seats hundreds of miles from claimants.

The Institute for Legal Reform’s voter survey includes a short description of the arbitration process for respondents who may have been unfamiliar with it, though it didn’t present the Feingold bill or its findings. Instead, the ILR, at the home page link above, counters with a 34-page study by Peter B. Rutledge, a law professor at Catholic University’s Columbus School of Law in Washington, D.C. Rutledge’s paper responds to “The Arbitration Trap: How Credit Card Companies Ensnare Consumers,” a September 2007, Public Citizen report (available at www.citizen.org).

In the ILR survey, arbitration was described simply as a process that did not require going to court and used less formal evidence rules than litigation. Here is the scripted question used in the survey:

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?


As a result, 71% of those polled answered in the negative.

The stark contrast between the bill’s aims and the ILR poll description set off contributors to a Wall Street Journal webboard set up to discuss the editorial. The posters on the site included some who claimed they were attorneys, and others who stated they were consumers who had lost arbitration cases. The six posts–all within a day of the editorial’s publication--unanimously rejected the Journal’s reasoning, and its support for the ILR poll. The posts are available here: http://forums.wsj.com/viewtopic.php?start=0&t=2035&topic_view=flat.

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Two days after the editorial appeared, the Journal printed on page A3 an article titled “San Francisco Sues Provider of Arbitrators.” Reporter Nathan Koppel, in his April 7, piece described a suit by San Francisco city attorneys against Minneapolis-based National Arbitration Forum Inc., a big national ADR provider.

The suit alleges that of the 18,000 arbitrations NAF conducted in a four-year period ending March 31, 2007, only 30, or 0.2 percent, were won by consumers.

The NAF issued a statement defending the fairness of its arbitration program, but without specifically addressing the allegations.

San Francisco alleges that consumers are forced into arbitration without consent and that arbitrations yield lower recoveries than jury verdicts.

The article cites two stories alleged in the suit. One consumer was informed of a $25,000 award, along with $10,000 in attorneys' fees, despite the fact that she had not been notified of the arbitration because she was served at her old address.

Another consumer was not granted his request to appear at a hearing to explain why he believed he did not owe his purported debt, and an award was entered against him.

For more on the San Francisco suit against NAF, see the Wall Street Journal’s Law Blog at http://blogs.wsj.com/law/2008/04/07/san-francisco-sues-provider-of-arbitrators-alleging-bias/?mod=WSJBlog.

--By Lenny Fuchs and Kelly McIntyre, CPR Interns