ALTERNATIVE DISPUTE RES.  Jan., 2008

Consumer Advocates, Trial Lawyers Push

to Ban Agreements  By Lawrence Hurley    LA Daily Journal Staff Writer

 
WASHINGTON - Consumer advocates and trial lawyers have joined to push for Congress to ban what has become a common feature in many contracts in recent years: mandatory arbitration agreements.

 

The recently introduced Arbitration Fairness Act would make such agreements voluntary, which some observers think will sound the death knell for arbitration.

Legal Rights
Democrats also have inserted clauses in several other pieces of legislation that would ban arbitration in certain narrowly focused areas. Supporters of the move point to the rise in the use of such agreements as part of many routine contracts, including cell phones and credit cards. They think it denies people their legal rights, including the right to a trial by jury.

Enough Protection
Big Business defends the practice, saying the system works well and provides more than enough protections for consumers.  Banning mandatory agreements will merely lead to more court cases, they say.

 

The Arbitration Fairness Act's main sponsor in the Senate is liberal Democrat Russ Feingold of Wisconsin, who held a hearing on the issue in December.

Feingold said then that he is concerned that mandatory arbitration clauses are "slowly eroding the legal protections that should be available to all Americans."

He cited the "growing number" of companies that require consumers and
employees to sign contract that include such clauses.

"Perhaps most disturbingly, mandatory arbitration clauses are being use to prevent individuals from trying to vindicate their civil rights under statutes specifically passed by Congress to protect them," the senator, a noted civil rights advocate, added.

Feingold's bill, simply put, states that no arbitration agreement is valid or enforceable if it involves an employment, consumer or franchise dispute.

Any dispute involving civil rights is also covered, as are disputes between investors and securities brokers, although collective-bargaining agreements are exempt.

The Federal Arbitration Act, passed by Congress in 1925, acted for 60 years as a means to resolve disputes within businesses.  The use of mandatory arbitration agreements began to expand, legal scholars say, only following a series of Supreme Court cases in the late 1980s and early 1990s.

The court held that the law could be applied much more broadly to different types of contracts, including those involving consumers. It also pre-empts state consumer protection laws, the court held.  As David S. Schwartz, a professor at the University of Wisconsin Law School has noted, some believe the court's decisions were part of a concerted effort within the judiciary to reduce caseloads in federal court.  "Unfortunately, the price for this 'do-it-yourself court reform' falls most heavily on consumers, employees and small businesses, who lose their access to the courts," Schwartz said in testimony before the House in June.
What some consumer attorneys fear most is that mandatory arbitration will become even more commonplace throughout all sectors of the economy,
including health care, where, they say, it could have a dramatic impact on
medical-malpractice law.

F. Paul Bland Jr., an attorney with public-interest firm Public Justice, said he is getting increasing numbers of calls from consumers about arbitration clauses in health-care-related contracts.

In 2006, Public Justice recorded 30 such calls, but in 2007 it was up to "a couple of hundred," Bland reported.

He also fears that Big Business has the goal of putting a stop to class actions altogether by forcing cases into arbitration, instead. The bills before Congress would not lead to a huge increase in court cases, Bland insists, largely because the proposal merely would turn back the clock a few years.

"It's just going to restore the status quo," he said.  Supporters of the legislation likely will have a tough fight on their hands, they acknowledge, because the powerful banking and financial services lobby is against it.

Financial services attorney Alan S. Kaplinsky, a senior partner at Ballard, Spahr, Andrews & Ingersoll in Philadelphia, contests most of the complaints made about arbitration.

"I would certainly hope Congress would not act hastily here," Kaplinsky said. "The consumers who actually go through it like arbitration." Although successful plaintiffs may win less in arbitration than they do in court, they can claim legal costs, he added.

That means they can attract competent legal representation if they have a legitimate grievance, he said.

Kaplinsky also noted that an increasing number of clients also are allowing consumers to opt out of mandatory arbitration agreements. Those opposed to banning arbitration also point to data that they claim supports their argument.

Peter B. Rutledge, a law professor at Catholic University in Washington, testified before the Senate in December that only 33 percent of companies surveyed use mandatory arbitration clauses.

Even the financial services sector used them only 69 percent of the time, he added.

Rutledge said there is a danger of allowing the headline-grabbing "unrepresentative horror stories" to drive the political debate. Both sides admit there may be more chance of Congress banning arbitration in certain cases rather than disposing of it altogether. A provision in the bill introduced by Democrats in the aftermath of the sub-prime lending scandal would ban mandatory arbitration clauses in mortgage contracts, for example.

A similar clause in a farming bill would prevent mandatory arbitration in contracts between small farmers and big agribusinesses.

Kaplinsky said such moves are more about rhetoric than substance. "It's just an easy thing to shoot at," he said of the mortgage crisis. "They are looking to point fingers at the industry."