Details from the Class Action Complaint against the National Arbitration Forum (Web)

New York-based law firm Milberg LLP filed a class action suit last month against National Arbitration Forum and related companies, alleging consumer fraud.

Specifically, the suit charges that NAF offered its arbitration processes for credit collection purposes. The complaint alleges that the defendants worked together and created separate entities to avoid transparency into the operation.

The Sept. 15 filing, in a Los Angeles U.S. District Court, names NAF along with Rockville, Md.,  debt collection law firm Mann Bracken LLP; Accretive LLC, a New York-based equity investor; Axiant, LLC, an Accretive-affiliated debt collection center in Huntersville, N.C.; Agora Fund I GP, LLC, an Accretive affiliate that is a Delaware limited partnership that apparently helped fund Axiant operations and, according to the complaint, owns 40% of defendant Forthright Solutions.  Forthright is an NAF affiliate that handled back-office operation for the arbitration business.

Milberg posted a press release, along with a link to the complaint, here.

The complaint states that, “NAF and Mann Bracken worked hand-in-hand to create the illusion of legitimacy and due process, with the purpose of railroading consumers into a corrupt dispute resolution process and bilking consumers out of hundreds or thousands of dollars, including NAF charges and Mann Bracken’s alleged fees and costs.”

Yesterday, a Page One Wall Street Journal article described the interlocking relationships and the nature of the debt collectors’ use of arbitration processes.  Detail here.

The suit was filed as a class action on behalf of all customers who used NAF’s arbitration services since June 1, 2006. The class action alleges, among other things, misrepresentations and other federal and California consumer protection law violations, and violations of the federal Fair Debt Collection Act.

In July, in the wake of a suit by the Minnesota Attorney General’s office, NAF ceased its consumer debt arbitration work. Details here.

NAF provided alternative dispute resolution services for consumer credit matters to its customers. NAF was written into credit card and financing agreement contracts to act as a neutral third party to help resolve disputes.

The complaint alleges that NAF held itself out as an independent organization and then did not provide its listed services or serve as a neutral, impartial party in the arbitration of debt collection issues.

The complaint further alleges that because NAF is owned or accountable to a debt collection agency, NAF’s interests are actually aligned with the credit card companies rather than remaining impartial.

In addition, the complaint alleges that NAF and the defendants favored the creditors. It states, “Creditors who took their business to Mann Bracken and NAF did not have to worry about losing, which is exactly how Defendants appealed to large creditors and dominated the consumer debt arbitration market for years.”

Links to this website’s reporting on NAF’s cessation of much of its arbitration work, and accompanying Congressional hearings and legislative action, can be found here.

In addition, the Disputing blog has followed the developments here.

In expanding on yesterday's Wall Street Journal story, the newspaper’s Law Blog reported on a discrimination suit by a former NAF employee that also alleges that the arbitration provider manipulated ADR proceedings and results. Details can be found here.

--Erica Jaffe, CPR Intern