11.04.15

Leahy, Franken Press Arbitration Agencies For Answers Following NYT Report Highlighting Harmful Impact Of Forced Arbitration On Consumers

WASHINGTON (Wednesday, November 4, 2015) – Following a three-part investigation series by the New York Times highlighting the impact on consumers and workers of forced arbitration clauses that prevent individuals from seeking justice in court, Senate Judiciary Committee Ranking Member Patrick Leahy (D-Vt.) and Senator Al Franken (D-Minn.) are calling on the leading providers of arbitration services to address concerns about the use of such agreements.

We have grave concerns that forced arbitration thrusts consumers into a shadow justice system that operates with little transparency or oversight,” the Senators wrote in a letter to four leading arbitration service providers. “The New York Times investigation showed alarming evidence that forced arbitration favors big corporations and repeat players over individuals seeking to vindicate their rights.” 

Highlighting the broad scope of forced arbitration clauses that are frequently included in consumer contracts and employment agreements, the Senators expressed deep concern about a system “that consumers are involuntarily forced into, that lacks transparency and is not subject to meaningful appeal.”

They also raised concerns that forced arbitration clauses undermine the ability of consumers to bring class action lawsuits to protect consumer rights, jeopardizing the rule of law and forcing consumers into a privatized justice system that operates without the predictability, transparency, or consistency of the court system.

Leahy and Franken, the leading Senate author of the Arbitration Fairness Act, have long focused on the problem of forced arbitration clauses that waive individuals’ rights to bring a claim in court or to join other litigants in a class action.  The two have highlighted the issue in hearings of the Senate Judiciary Committee in 2007, 2008, 2011, and 2013, and in letters supporting administrative efforts to stop forced arbitration clauses in consumer financial services contracts and long-term care facilities such as nursing homes. 

A copy of the November 4 letter is below.  The letter was sent to the American Arbitration Association, JAMS, the International Institute for Conflict Prevention & Resolution, and the American Health Lawyers Association.

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November 4, 2015

Dear Sir / Madam:

A recent investigation by The New York Times revealed the scope of an injustice that affects millions of Americans: the inclusion of forced arbitration clauses in countless consumer contracts, employment agreements, and patient admission forms. These agreements, buried deep within contractual fine print, waive consumers’ rights to bring a claim in court or to band together in a class action, even when consumers are seeking to enforce their rights under fundamental state and federal laws. 

We have grave concerns that forced arbitration thrusts consumers into a shadow justice system that operates with little transparency or oversight.  The New York Times investigation showed alarming evidence that forced arbitration favors big corporations and repeat players over individuals seeking to vindicate their rights.  Among other examples, the report highlighted:

  • Several instances in which arbitrators socialized privately with corporate defendants during the course of an arbitration, including going to a basketball game, having lunch together during a break in proceedings, and meeting for coffee while proceedings were ongoing;
  • Interviews in which more than three dozen arbitrators described feeling “beholden” to companies because of the threat of losing repeat business;
  • Records of some 41 arbitrators who each handled 10 or more cases for one company between 2010 and 2014;
  • Examples of an arbitrator who handled 40 cases for a single law firm over a 5-year period, and another arbitrator who handled 28 cases for a single company; and
  • A story seen as a “cautionary tale” within the industry of an arbitrator who ruled in favor of an employee in an age discrimination suit and was never hired to hear another employment suit again.

This evidence of bias towards repeat players warrants more than simple conflict-of-interest rules to prevent abuse.  It raises real and troubling concerns about whether a privatized system of justice can ever operate fairly for individuals – especially when that system is one that consumers are involuntarily forced into, that lacks transparency and is not subject to meaningful appeal.

Beyond these deep concerns for individual consumers, privatization of the justice system also jeopardizes our rule of law.  By preventing individuals from joining together in a class action, mandatory arbitration clauses force many Americans to abandon their claims entirely because their single case is not worth pursuing alone.  State attorneys general have warned that arbitration clauses banning class action lawsuits undermine a crucial tool for protecting consumer rights.  Others have said that such clauses give a “get out of jail free” card to corporations who can escape accountability.  We agree.

Forced arbitration also undermines key priorities for any justice system: predictability, fairness and consistency.  Forced into private adjudication without a public record and with no precedential value between cases, plaintiffs’ claims are reviewed on an ad hoc basis – again, often against the plaintiff’s wishes and without the possibility of meaningful appeal.  How is the public able to gain insight into what a particular law means, how it is to be interpreted, and how it applies to a given set of facts if there is no public disclosure of a claim or articulation of the basis for its resolution?  Even if that approach may be justified for private disputes between sophisticated companies who both choose to engage in arbitration, it has a devastating impact in cases where individuals are seeking to enforce their rights under state and federal laws.

As one of the largest providers of arbitration services in the country, your organization plays a key role in perpetuating the arbitration system and determining which cases are heard and by what standards.  Accordingly, we ask you to provide information to address the serious concerns that have been raised about inherent flaws and unfairness caused by forced arbitration clauses.

1.     Transparency in decision-making.  The New York Times investigation suggested that arbitration decisions can be made without publication or other mechanisms to promote transparency and inform the public about the proceedings. 

a.     How is the public able to track arbitration filings within your organization? What specific information is made public about the parties, the arbitrator, any questions of law presented, the process followed in the arbitration, and the decision rendered in each case?

b.     How is the public able to gain information about an arbitrator’s past judgments, experience, and relevant expertise?

c.   How is the public able to gain information about repeat adjudications against a particular party?

2.   Rule of law.  Article I of the U.S. Constitution grants to Congress legislative powers to enact laws; Article III of the U.S. Constitution grants to the judicial branch the power to interpret the law and apply those interpretations to specific cases.  Foundational to the judiciary’s constitutional role is its ability to publicly enunciate whether and how a law applies to a given set of facts.  How do decisions of private arbitrators contribute to the interpretation and development of the law?  Do you make arbitration decisions and opinions available to the public?  What efforts, if any, are made to promote consistency across rulings of multiple arbitration providers?

3.  Conflicts of interest.  Which party designates the arbitration provider?  Do you place limitations, including numerical limitations, on the cases an arbitrator can hear from a particular client or firm?  Do you disclose to parties the prior cases an arbitrator has heard, and what information do you make available to parties about how those prior cases were decided? ‎ Is a party able to reject an arbitrator based on that information? 

4.  Arbitration resulting from forced arbitration clauses.  In our view, there is an important distinction to be made between arbitration that both parties choose to enter into after a dispute arises, and forced arbitration that results from fine-print embedded in consumer contracts or employment agreements that individuals sign before a dispute arises, often unknowingly or without real choice.  Do you agree with the finding of The New York Times investigation that there has been an increase in the latter form of arbitration?  Do you agree with its finding that individuals are increasingly being diverted into arbitration instead of bringing their claims as a class action in court?  Do you share our concern that forced arbitration raises important questions about fairness to parties who would not opt in to arbitration if they were given a choice after the dispute arose?

Thank you for your prompt attention to this matter.  

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