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Curbing Arbitration

On Thursday, February 4, 2016 two Senate Democrats introduced a bill seeking to limit the use of arbitration, an alternative legal dispute resolution process to litigation in a court. Arbitration is the submission of a dispute to one or more impartial arbitrators, who typically, absent a clear case of fraud, generate a final and binding decision for the parties.1 The two Senators, Patrick J. Leahy and Al Franken, state that arbitration is tipping the scales against the average consumer, forcing them to forgo their constitutional right to protect themselves in court.2 The Senators state that the purpose of this bill is to reinstate American consumers’ right to challenge unfair practices by corporations, a right that has been diminished by the use of arbitration clauses to ban class-action suits and force individuals into biased arbitration procedures.3

Despite the Senators’ arguments, arbitration is shown to provide many benefits as an alternative dispute resolution process.4 Arbitration provides each party more flexibility and more control over the process. Through arbitration parties can tailor procedures of the process to suit the specific needs of each particular dispute. This can include expanding or limiting the scope of discovery and in turn increasing of constraining the amount of time the dispute resolution occupies.5 Additionally, parties can choose which arbitrator resolves each dispute, often allowing parties to select an arbitrator that may have more particularized knowledge on the subject matter in comparison to a randomly selected judge.

Another cited benefit of arbitration is that it often results in a less expensive process than going to court.6 Because arbitration allows parties to a dispute to control the procedure, parties can often save in attorney’s fees that are often a significant portion of any litigation cost.7 The flexibility of arbitration noted above, also allows parties to save costs as they can choose the timing of events in the process as well as the location of events, meaning they can save on the transport of themselves, resources, and witnesses.8

A third and fourth benefit of arbitration is the ability to keep any procedural matters confidential and the finality of an award.9 This can entice parties to be more candid in the dispute resolution procedure and can ease the process of achieving a settlement or award. The exclusion of an appeals process cuts down the potential time that can be occupied as well.10

However, at the same time, arbitration can provide significant drawbacks for the average consumer. There has been a recent proliferation of arbitration clauses in contracts between consumers and large corporations, these clauses essentially force consumers to arbitrate any dispute that arises within the scope of the contract. Additionally, research found that the rules surrounding the arbitration process often favor corporations over consumers.11 One of the cited benefits above, was the ability of the parties to choose an arbitrator who was more qualified to hear a particular dispute. However, The New York Times found that many arbitrators often view corporations as their clients, finding more often in the corporation’s favor in the hopes of getting repeat business.12

Additionally, by entering arbitration, many consumers are foregoing sets of rights that are guaranteed to them in the litigation process. In an arbitration procedure the parties can set any rules, therefore the rules of evidence and even substantive legal law do not need to apply.13 Additionally, courts are hesitant to overrule an arbitration award, because they fear violating the purpose of Federal Arbitration Act (“FAA”), which is to enforce the terms of arbitration agreements.14 The FAA provides that Courts can overrule an arbitration award if there was fraud or substantial injustice in the decision-making process.15  However, since arbitrators are not required to provide a reasoned justification for their award, let along a written opinion, this is often hard for a party to achieve.16

Additionally, in certain lawsuits, arbitration may prove to be significantly more expensive. Many corporations now couple a ban on class-action lawsuits with their arbitration clauses.17 In 2013, the Supreme Court declared such bans legal, even if it denied the party the only realistic way to bring a case.18 State judges have often referred to these clauses as “get out of jail free” cards, because it is nearly impossible for one individual to take on a corporation, with its vast resources, without the support of many like individuals.19 For example, when Ms. Patricia Row tried to initiative a class action against AT&T for a $600 fee she was charged, along with 900 other AT&T customers, the case was thrown out. Ms. Rowe stated that the costs of arbitrating her case would have cost her far more than $600.20 Corporations argue that the ban on class actions is necessary because they function as a payout for plaintiff’s lawyers, while only resulting in minimal payments to each consumer.21 Additionally, it is said that the arbitration process makes grievance resolution easier, however, it appears that once individuals are blocked from court they are more likely to drop their suit than pursue the claim.22 In addition to preventing many individuals from pursuing their claim, these class-action bans also prevent consumers from exposing company wrongdoing.23

Another area of concern for the Senators was when arbitration clauses force consumers to be governed by religious principles.24. Proponents of such arbitration state the process allows individuals to resolve disputes using their shared values, which achieves a reconciliation in addition to a settlement.25 However, problems arise when a consumer is unaware of the religious aspect of an arbitration clause or has fallen out with the religion.26 Judges often state they are reluctant to declare such clauses invalid because they fear infringing on the First Amendment rights of religious groups. However, plaintiffs state in response that their First Amendment rights are being infringed because they are forced to participate in “religious activity.”27

It will be a difficult battle for the proponents of the bill, as similar bills seeking to curb the ability to subject certain groups and subject matters to arbitration have met fierce resistance.28 If this bill is enacted it would make laws such as the Family Medical Leave Act and the Fair Labor Standards Act exempt from arbitration.29 However, weighing the benefits and costs of arbitration is a far more extensive process than the glimpse this post has been able to provide. The Senators will have to overcome intense opposition if they want to show that arbitration is “denying us of our constitutional right to protect ourselves in court.”30

  1. Arbitration, American Arbitration Association, (last visited Feb. 16, 2016). 

  2. Jessica Silver-Greenberg and Michael Corkery, Bill Seeks to Limit Use of Arbitration to Avoid Courts, The N.Y. Times, at 1 (Feb. 4, 2016), . 

  3. Id. at 3. 

  4. Edna Sussman & John Wilkinson, Benefits of Arbitration for Commercial Disputes, American Bar Association, 1 (Mar. 5, 2012), . 

  5. Id. at 1 . 

  6. Id. at 2 . 

  7. Id. 

  8. Id. 

  9. Id. at 3 . 

  10. Id.  

  11. Jessica Silver-Greenberg & Michael Corkery, In Arbitration, a ‘Privatization of the Justice System’, The N.Y. Times, at 2 (Nov. 1, 2015), . 

  12. Id. at 2-5 . 

  13. Id. at 4. 

  14. Jessica Silver-Greenberg & Robert Gebeloff, Arbitration Everywhere, Stacking the Deck of Justice, The N.Y. Times, at 11 (Oct. 31, 2015), . 

  15. Federal Arbitration Act, 9 U.S.C. § 10 (1947 . 

  16. Decision & Award, Financial Industry Regulatory Authority, (last visited, Feb. 16, 2016 . 

  17. Silver-Greenberg & Gebeloff, supra note 13, at 2 . 

  18. Id. at 13 . 

  19. Id. at 2 . 

  20. Id.  

  21. Id. at 5-9.  

  22. Id. at 3 . 

  23. Id. at 15.  

  24. Silver-Greenberg & Corkery, supra note 1 at 2; Michael Corkery & Jessica Silver-Greenberg, In Religious Arbitration, Scripture is the Rule of Law, The N.Y. Times, at 2 (Nov. 2, 2015), 

  25. Id. at 3. 

  26. Id. at 2 – 4.  

  27. Id. at 4. 

  28. Silver-Greenberg & Corkery, supra note 1 at 2. 

  29. Id. 

  30. Id. at 1 – 2.