Update: NAF Halts All Consumer Arbitrations; House Hearings Wednesday (Web)

UPDATE, SUNDAY, JULY 19:  NAF HALTS CONSUMER ARBITRATIONS

The National Arbitration Forum announced on Sunday, July 19, that it "will voluntarily cease to administer consumer arbitration disputes as of Friday, July 24, 2009, as part of a settlement agreement with the Minnesota Attorney General."

Here's NAF's press release.

---------------------------

Here are the details posted on this site origiinally on Wednesday and Thursday last week:

The Minnesota State Attorney General’s Office has posted its 43-page consumer fraud complaint against St. Louis Park, Minn., ADR provider National Arbitration Forum at this page.

The suit, asking for civil penalties and enjoining NAF officials, directors, employees and affiliates from making deceptive statements, was filed by Minnesota AG Lori Swanson yesterday.

In addition, a Congressional subcommittee has announced a hearing for next week that will tackle some of these allegations, and surely put NAF operations under scrutiny.  Michael Kelly, former NAF chief operating officer who is now chief executive officer of Forthright, an affiliated ADR servicing company, is an invited expert for the hearing before a House subcommittee, set for next Wednesday.

Another invitee:  AG Swanson.

In the July 14 complaint, Swanson alleges that NAF hides its financial ties to a New York hedge fund that invested $42 million in NAF, and at the same time formed a debt collection company that purchased the operations of Mann Bracken, a Georgia law firm focusing on debt collections, which itself had merged into its debt collection operations those of  two other law firms.

Alleging that NAF works closely with and on behalf of creditors, the complaint states that the company “conceals its affiliations with the collections industry through extensive affirmative representations, material omissions, and layers of complex and opaque corporate structuring.”

NAF said it will respond to the complaint.  In its website message yesterday it also denied that NAF has institutional investors.  The company explains that back-office servicing affiliate Forthright “has a multitude of minority investors,” but that “[a]t no point does any minority shareholder or fund have any role or influence over the impartial arbitration process."

You can find the full NAF statement here.

Meantime, Rep. Dennis Kucinich, D., Ohio, announced that the Domestic Policy Subcommittee of the House Oversight and Government Reform Committee that he chairs will hold a hearing on July 22 titled, "“Arbitration or ‘Arbitrary’: The Misuse of Arbitration to Collect Consumer Debts.”

Along with a committee face-to-face with both AG Swanson and NAF COO Kelly, the invitees include  Richard W. Naimark, Senior Vice-President, of the American Arbitration Association and its International Centre for Dispute Resolution division; F. Paul Bland, Staff Attorney, at Public Justice, a Washington, D.C., public interest law firm, and University of Kansas law Prof. Christopher R. Drahozal, who has written an arbitration treatise.

A representative from the House Subcommittee on Commercial and Administrative Law, where H.R. 1020, the House version of the Arbitration Fairness Act has been referred, says that no new hearing dates on the bill, sponsored by Georgia Democrat Hank Johnson, have been scheduled. 

The Minnesota attorney general's office also put out a lengthy press release detailing the allegations here

It's not the first consumer protection action against NAF.  Last year, San Francisco filed suit against the provider for allegedly unfair and deceptive practices against consumers in its arbitration processes.  Details and links can be found in this CPR Website article.  That case is still open.

The Wall Street Journal Law Blog posted this item; This morning's USA Today article is here, and the National Law Journal's article is here, available with free registration.

 * * *

UPDATE: Christina Doucet, a spokeswoman for NAF and Forthright, provided the following statement by E-mail  a day after this article was originally posted at www.cpradr.org, in response to a request for comment and confirmation that Michael Kelly would testify before Congress next week.  Doucet writes:

After a thorough review of the attorney general’s lawsuit, the National Arbitration Forum would like to point out that the lawsuit contains no allegations of bias and no allegations of unfairness in the arbitration process; but rather, only contains allegations regarding communications. The FORUM takes every opportunity to assure that the arbitration process is fair to all parties and it will continue to do so.

As part of the United States House of Representatives Committee on Oversight and Government Reform’s ongoing look into arbitration, Mike Kelly will indeed speak on behalf of the National Arbitration Forum at a hearing in Washington D.C. next Wednesday. He will likely discuss recent happenings in the arbitration industry, as well as the roles that arbitration and the National Arbitration Forum play in the U.S. justice system.
--Russ Bleemer, Editor, Alternatives

CPR Intern Andrew Gange contributed research to this article.