Arbitration Ain't Broke, But Trial Lawyers Want to "Fix" It

Lisa A. Rickard

4/3/2008 12:01:00 AM - Lisa A. Rickard

 A short article appeared in The New York Times on June 13, 1925 headlined “Federal Court Cases Double in Ten Years.” From 1915, the number of cases had risen annually from nearly 63,000 to about 126,000.  Despite their best efforts, the federal courts were drowning in cases, but change was coming. Four months earlier, Congress had passed the Federal Arbitration Act.

In the ensuing eighty three years, arbitration has proven to be a quick, fair and efficient alternative to lawsuits and, as a result, it has become a preferred alternative way to seek justice for millions of Americans.

But hold on! Some are now suggesting that perhaps arbitration isn’t the success story it appears to be, and they want to take it away.

Last fall, for example, the pro-lawsuit special interest group Public Citizen released a paper purporting to show that arbitrations find against the consumer the majority of the time. Unfortunately, Public Citizen tortures the statistics to try to make their case.

For a complete analysis of how misleading the Public Citizen report is, click on the link to the report: Arbitration – A Good Deal for Consumers by Dr. Peter B. Rutledge.

Nonetheless, the plaintiffs’ bar is taking up the Public Citizen’s report as proof that consumers are being denied their right to access the courts – and thus their access to justice – because of pre-dispute arbitration requirements.

Their timing, never a coincidence, was carefully coordinated to coincide with the introduction of the Feingold/Johnson Arbitration Fairness Act of 2007, a proposal that would effectively outlaw arbitration in virtually all consumer, employment and franchise contracts, leaving the courthouse as the only option for settling disputes.

That may be good for lawyers, but not so good for consumers.  Why?

First, consumers get disputes resolved faster in arbitration than in court.  The American Arbitration Association and other groups show that arbitration takes on average anywhere from four to 10 months to resolve a case. The federal courts take two years, on average, to get a case to trial, with state court backlogs showing similar delays.

Second, consumers get access to justice in arbitration that is most likely unavailable to them otherwise.  The simple truth is that lawyers are not going to take a case unless the amount in controversy is big enough to cover their fees and expenses.  In fact, one study shows that lawyers won’t represent people with provable damages of less than $60,000; another concludes that employment claims must reach at least $75,000 before they become cost-effective for an attorney to take to court.

That would be a problem for most consumers and many employees, since a number of studies show that the vast majority of consumer arbitration cases are for dollar amounts under $15,000, and half the employment disputes fall below the $75,000 threshold.  Without enforceable arbitration agreements, people with legitimate gripes that exceed the amount allowed in small claims court, but are unable to obtain the services of an attorney, will be left to fend for themselves in the complex civil litigation system—or could be forced to drop their claims altogether.

What’s more, when a consumer has a beef with a company, arbitration provides a greater likelihood of an award to a consumer than does a lawsuit.  A study of consumer-initiated actions by Ernst & Young with the American Arbitration Association estimates that pre-hearing settlements (about 60 percent of all cases) combined with judgments for the consumer result in a favorable outcome for the consumer in about three of every four arbitration cases.   That’s better than comparable cases in the court system.

It’s clear that arbitration is advantageous for consumers – and consumers realize this.  A national survey of likely voters conducted by bi-partisan polling firms for the U.S. Chamber Institute for Legal Reform has found that an overwhelming 82 percent of voters would prefer to resolve a serious dispute with a company using arbitration, while only 15 percent would opt for litigation.  In addition, 71 percent of voters surveyed believe Congress should not remove arbitration agreements from contracts.

Take a look at the video of Sharon Kruse, a retiree in Dundee, Michigan, whose positive experience using arbitration should be preserved.

The bottom line is that arbitration has worked for more than eighty years. For the vast majority of cases it is faster, more efficient, and yes, fairer, than hiring a lawyer and going to court.  Public Citizen and their trial lawyer friends would like you to believe that litigation is the only way to resolve disputes in every instance, but it isn’t – for most consumer and employment cases it’s actually the worse option.