Individual Arbitration Rights At Risk
By Richard Olivastro
April 1, 2009

For more than 80 years, arbitration has helped Americans settle disputes fairly, quickly and inexpensively, without having to file a lawsuit or navigate the court system. But, now individual arbitration rights are at risk due to congressional tinkering. The so-called Arbitration Fairness Act, introduced last month in Congress, would affect almost everyone in the country. If passed, the bill would, in effect, nullify arbitration agreements which now exist in potentially millions of consumer, employment and franchise contracts, leaving individuals with little recourse in the event of a dispute -- except to file a lawsuit.

While the bill's sponsor touts the bill as "consumer-friendly" legislation - allegedly allowing the public a choice in determining how to resolve conflicts with major businesses or employers - in reality eliminating pre-dispute arbitration is tantamount to eliminating arbitration altogether. After all, if both parties do not commit to arbitration before a dispute might arise; inevitably one side will typically believe they have enough incentive to file a lawsuit -- forcing the case into our already over-burdened court system.

While the current process may not be perfect, the proposed legislation essentially would benefit those class action lawyers who want the expanded revenue opportunity created by bundling the most lucrative smaller claims into class-action law suits. These 'bundled' cases bring in millions in fees for those attorneys, while their clients often wait years to receive coupons or pennies on the dollar. A lawsuit against Blockbuster Video demonstrates this strategy. The company settled a suit over excessive late fees, and the class members were awarded coupons (for free video rentals), while the lawyers - purportedly representing class members - pocketed $9.25 million in cash. That is typical of such settlements and why more and more people understandably view class-action lawsuits as little more than insider state-sanctioned shakedowns that seem designed to enrich trial lawyers.

Yet, what happens in those instances when a stand-alone claim is below the 'revenue threshold' that typically attracts attorneys?

Studies show attorneys working on contingency generally require at least $60,000 to $75,000 in damages before they will consider taking a case - and then, charging about one-third of damages recouped, plus expenses. That can leave individuals with claims under $60,000 with little recourse.

In addition to the significant legal costs faced by businesses, litigation is also ultimately a more costly option for the majority of consumers, who must then hire an attorney to take their case.

Conversely, at present, consumers have been able to file and pursue arbitration at minimal cost -- and, overall, are happy with the results. Here's empirical data on arbitration costs, consumer satisfaction, and more.

A 2005 study of arbitration participants conducted by Harris Interactive found that over 70 percent were satisfied with both the fairness of the process and the outcome -- including a sizeable number of those who did not ultimately win their arbitrations.

That's noteworthy.

And, this month, the Searle Civil Justice Institute at Northwestern University School of Law released a study of consumer arbitrations administered by the American Arbitration Association (AAA). They found that arbitrator costs for consumers were about $200 for claimants seeking under $10,000, and about $425 for those seeking $10,000-$75,000; that more than 98 percent of cases complied with the AAA's consumer 'due process' protocol; and, "claims were resolved much more quickly -- in seven months, as opposed to two years or more for a civil lawsuit". The study also found that "consumers prevailed in 53.3% of the cases filed, recovering an average of $19,255".

Noteworthy, too, the Searle Civil Justice Institute points out that "more than 10 years ago, the AAA convened a group of officials from government, nonprofits, the bar and consumer organizations to develop the due process protocols"; and, that the "AAA refused to administer a number of consumer cases in 2007 (likely 9.4 percent of AAA's total consumer caseload) because of protocol violations by businesses".

This data and other study findings are persuasive evidence that the 'so-called' Arbitration Fairness Act is a misnomer, and not needed in consumer disputes

Similarly, arbitration in the workplace offers a fair hearing to employees.

Research indicates that more employees are able to gain access to justice through arbitration than through litigation, and that -- provided they have a qualified arbitration provider -- they are more likely to win their cases in arbitration. Another study conducted by the National Workrights Institute found that employees were almost 20 percent more likely to win cases in arbitration than those litigated in court.

To reiterate, no system is perfect. However, current law already contains clear protections against unfair arbitration clauses, and courts have struck down numerous arbitration clauses on that basis. The leading arbitration providers have adopted policies designed to provide consumers and employees with due process and fair arbitration procedures.

Fair minded Americans can only conclude that the 'so-called' Arbitration Fairness Act is yet another example of the U.S. Congress - in response to powerful special interest group supporters - attempting to "fix" a system that isn't broken; and, in the process, willfully dumping tens of thousands of cases into our court system and discouraging consumers with small claims from seeking redress.

Arbitration has proven to be cheaper, faster - and based on the national Harris survey - a fairer means of dispute resolution for individuals. To do away with it now, would leave many consumers and businesses out in the cold.

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Richard Olivastro is a professional member of the National Speakers Association, president of Olivastro Communications - an executive leadership development company - and founder of Citizens For Change.

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Note -- The opinions expressed in this column are those of the author and do not necessarily reflect the opinions, views, and/or philosophy of GOPUSA.