Join us at 9:30 as we liveblog the Arbitration Fairness Act’s second hearing before Congress. Arbitration is an extrajudicial jury-free way to resolve disputes where decisions are handed down by arbitrators who rule against consumers in 98.4% of cases. The Senate Judiciary Subcommittee on the Constitution will be considering S. 1782, an Act to banish mandatory binding arbitration from consumer disputes.
An October hearing on companion legislation in the House Judiciary Committee quickly devolved into a sob story, with three consumers sharing in horrifying detail how arbitration left them financially ruined. Today’s hearing will be comparatively sedate, featuring one panel of academics and lawyers.
Join us at 9:30 as the professionals slice and dice the wonderful and evil qualities of the most anti-consumer practice allowed by law—for now.
9:32: Video Link – Constitution Subcommittee hearing to examine S. 1782, to amend Chapter 1 of Title 9 of the United States Code with respect to arbitration. Coverage begins momentarily. Oh Congress, you could de-sass anything.
9:34: Here we go. Senator Feingold (D-WI) is chairing the hearing, already decrying our lost right to jury trials.
9:35: Arbitration is especially evil because contracts are often non-negotiable.
9:36: Arbitration’s extra-judicial nature precludes discovery and restricts judicial review. It’s the ‘gitmo of contracts.
9:37: Voluntary alternate dispute resolution is great, but consumers must be given the right to choose arbitration or a jury trial.
9:37: The bill is meant to apply to disputes between investors and securities brokers, which is important to some people.
9:38: And now to Senator Brownback (R-KS).
9:40: Brownback thinks the proposed law is “over-broad” because it applies to any dispute where the two parties have unequal power.
9:40: He is worried that removing arbitration would lead to a flood of lawsuits that would clog the judiciary. Then us poor consumers would have no meaningful chance of recovering anything.
9:41: More reasonable, he wants a distinction between fine print arbitration, where arbitration is snuck into an agreement, and agreed arbitration, where two equal parties agree to send disputes to an arbitrator.
9:42: Employees are 20% more likely to recover from arbitration than litigation.
9:42: California studies show that consumers won 65% of cases against businesses.
9:43: These statistics conflict directly with what we heard during the last hearing. Consumers have a 1.6% chance of winning most arbitrated cases.
9:44: Eh, weak point. The trial bar suggests that a series of small cases should be bundled together into a class action. Brownback offers “My toaster doesn’t work” as an example. If most toasters of a certain brand don’t work, a class action would be justified. The problem is that class actions also fail most consumers. Who wants a $5 coupon towards a new toaster when the lawyers handling the case get $5 million for their work? But that is a whole separate bill. We do not want to drag our broken toaster into arbitration.
9:46: Feingold is clarifying that the bill applies only, exclusively to mandatory arbitration. Other arbitration is more palatable.
9:47: The witnesses have been sworn in.
9:47: Oh good, we do have an aggrieved consumer: Fonza Luke of Birmingham, Alabama. She works two jobs in health care, and serves on the board of her church. She has four children and six grandkids.
9:48: She is going to talk about how mandatory binding arbitration applies to employees.
9:49: She spent 30 years as a licensed nurse and always earned the highest honors and accolades. Always took the hospital up on new training opportunities.
9:49: In November 1996, she was told she would lose her job if she didn’t sign a mandatory binding arbitration agreement.
9:50: She didn’t think it was right, and after speaking to her husband and pastor, she refused to sign.
9:50: The hospital tried twice more to get Fonza to sign, and when she still refused, she was fired for insubordination.
9:51: “The only things I did that were insubordinate were things that younger, white employees did all the time.” “I believe [the hospital] fired me because of my race and my age.”
9:52: The EEOC (Equal Employment Opportunity Commission) agreed and fined the hospital.
9:52: She sued in federal court, but was told that she had to go to arbitration, even though she had refused to sign the agreement.
9:52: She was told that she implicitly agreed to the proposed agreement because she continued to work for the hospital.
9:53: Her appeal was rejected, and she was sent to arbitration.
9:53: The arbitrator was paid by the hospital and rejected Fonza’s claims of discrimination. “I don’t even think he looked at my claims.”
9:54: Now Peter B. Rutledge of the Catholic School of Law.
9:55: He’s talking about “the data.”
9:55: “‘The data’ are conflicting with calls to abolish arbitration.” Dude, just say that the numbers tell us to shut up.
9:56: Costs would rise, consumers would lose access to justice. Irony would run through the streets without abandon.
9:56: “Eliminating arbitration would not make individuals as a whole better off.” We are bothered by the phrase ‘individuals as a whole.’
9:57: Most arbitration studies refer to employment arbitration, not the standard consumer arbitration that we hate.
9:58: His argument boils down to this: litigation is expensive and time consuming, so why not arbitrate?
9:58: Litigation is expensive, but that is a factor that each consumer must weigh. Sure, arbitration could work in certain circumstances, but arbitration can only be fair when consumers choose it over litigation. That choice is what this bill seeks to restore.
10:00: Onto Richard M. Alderman of the University of Houston Law Center.
10:01: Yuck! Congress eliminated mandatory arbitration for used car dealers, but hasn’t given us the same freedom.
10:01: The car dealers complained that stronger dealers would impose arbitration on weaker franchises, so Congress stepped in and provided relief. Thanks for forgetting the rest of us, Congress.
10:02: Bingo: Business has opted out of the civil justice system in favor an alternate form of justice that they control.
10:03: Our courts do more than hand down decisions. They interpret statutes and form common law. By escaping the courts, we kill democracy. Do you want to kill democracy? Didn’t think so.
10:04: Arbitrators are not bound by precedent. No common law, no uniformity. Different consumers in identical situations can receive different outcomes.
10:05: Arbitrators can not contribute to, or modify, common law. We have frozen the law and prevented any adaptation to new or novel situations.
10:05: Should a powerful party should deny weaker parties access to the courts and our common law?
10:06: Onto Richard Naimark of the American Arbitration Association. Wonder what he might possibly say.
10:07: “The AAA does not represent an industry.” Arbitrators are independent lawyers, not employees of the AAA.
10:07: He agrees that the issue is access to justice.
10:08: Back to this old point: arbitration is cheaper than litigation.
10:08: Arbitration is cheaper “IF due process protections are built into the process.”
10:09: ‘Due process protections’ and access to courts and consumer choice are not the same thing.
10:10: Due process means that costs must be reasonable, everybody should have access to legal counsel, the arbitration must be in a mutually agreeable location (we heard at the last hearing that this is not followed.)
10:10: Those provisions are necessary for people to take arbitration seriously, but they do not justify denying consumers access to the court system. Nothing does.
10:11: Onto Tanya Solov, the Director of the Securities Department with the Illinois Secretary of State. We’re going to hear about investors.
10:12: This is all the Supreme Court’s fault. They’re the ones who ruled that investors could be roped into mandatory binding arbitration.
10:13: Don’t think investment disputes affect you? Half of all Americans invest, and most investment agreements include clauses requiring mandatory binding arbitration.
10:13: A win in arbitration results in meager recovery, sometimes less than the cost of arbitration.
10:14: “Arbitration may be desirable if both parties knowingly and willing agree to arbitrate at the time of the dispute.” ‘However, even if arbitration is cheaper and faster, especially when investors lose their life savings, a fair hearing with a public review is more important than a cost-effective solution.’
10:15: She supports the act.
10:17: Onto Mark A. de Bernardo or Public Justice. He has testified more than 40 times before Congress. Impressive.
10:18: He supports arbitration over litigation. Again, litigation is not always the solution, but consumers must be given the choice.
10:20: He is rattling off statistics that prove how arbitration is better than sliced bread, all without addressing the issue of consumer choice.
10:22: “I do believe this bill would be a death blow to arbitration in America.” We agree.
10:23: “Arbitration is a job saver, litigation is a job destroyer.”
10:24: Onto F. Paul Bland, Jr. We will make no joke about his last name. None.
10:25: He wants to respond to some of the comments thrown around today. “Outlandish comments” have been made.
10:25: He’s pissed and wants people to look at the big picture, not little studies and “the data.”
10:26: The studies are rigged. One study selected one case out of every one thousand to show that consumers won.
10:27: Here is how the studies define a consumer win: Consumer loses their house, goes into arbitration. If the consumer recovers $1, that’s a win.
10:27: What is the one place in the country where the data isn’t handpicked? California. All data must be posted.
10:28: Bland is so angry. He’s practically yelling at the other witnesses.
10:28: Employee win rates and damage awards are much worse in California.
10:28: Blackballed: Every arbitrator that gave a large award to a consumer suing an HMO never heard another case involving HMOs again.
10:30: AAA talks about due process, but prior to 2001, they had never enforced due process claims. Only when they were sued in federal court did they begin to selectively enforce due process.
10:30: AAA doesn’t provide neutral arbitrators. They hand over a list of seven arbitrators who all specialize in defending the industry.
10:31: That’s what happened to Fonza.
10:33: Question time.
10:33: Feingold is praising Fonza for refusing to sign the arbitration agreement, but wants to know why she refused.
10:33: Fonza was told that she would be waiving her rights because she felt that she could be fired too easily as she was approaching retirement.
10:34: The hospital offered nothing in exchange for signing the agreement.
10:34: The arbitrator that heard her case refused to allow any evidence that the EEOC spent months collecting. Courts would have allowed Fonza to present her evidence.
10:35: Holy shit! The woman who was raped in Iraq and accused Halliburton of covering up her case is trying to sue the company in federal court. She is now being told that she must submit to mandatory binding arbitration.
10:36: Going back to the revolution, colonists complained that King George selected judges and who were dependent on him for their salary. Their decisions were decried as horrifically unfair. Sound familiar?
10:39: “To try to make arbitration more like a court won’t work. The question is should consumers be forced into arbitration.”
10:42: Brownback was the Kansas expert on “fence law.” What is fence law, and why is Brownback talking about Kansas fence law?
10:42: Oh, this is when a cow breaks through a fence and does unspeakable things to the neighbor’s property.
10:43: He is still talking about fence law, the civil alternative to pulling guns.
10:45: He is asking the AAA how more due process could be added, possibly by legislation.
10:46: The AAA would require legislation to protect the little guy by enshrining their due process requirements into law. Still doesn’t get us to consumer choice, though there might be new opportunities to sue for violations of those protections. If the AAA hands over a list of biased arbitrators, consumers could potentially sue for failing to follow the due process requirement of a neutral arbitrator.
10:47: Rutledge is concerned that all arbitration—consumer, employment, securities—is lumped together. “The data” don’t support that. “The data” are angry.
10:48: Brownback also wants more data.
10:48: Rutledge is defending himself from Bland’s claims of “outlandish comments.” Don’t mess with “the data.”
10:49: He believes the best, most accurate data have been cited in his testimony. Powerful words. Maybe he wants “the data” to speak for themselves.
10:50: A batch of schoolchildren have walked into the hearing room.
10:50: They do not look amused. These kids today, with their rock music and sneakers… they have no respect for “the data.”
10:52: The Illinois Secretary of State rep also wants to know how these studies classify a win.
10:53: Even without that data, she thinks there is more than enough support to pass the bill.
10:53: Feingold wants to hear more about how we lose something as a nation when we chose arbitration over common law.
10:54: Our system depends on private parties litigating in public to keep market players in check. When you make proceedings secret, the marketplace loses vital information.
10:55: We have a right to know if someone is suing Mattel for making deadly toys. “This is your life. This is your house, this is your health, this is your automobile. If this is secret, you do not have a way to protect yourself.”
10:56: Feingold is picking up on our choice argument: Do you think that it means that no reasonable person would choose arbitration?
10:56: Right, if nobody chooses arbitration, that strongly damns the institution.
10:57: Consumers rarely choose arbitration. Of 20,000 cases, 4 were brought by consumers. This is not a valuable alternative that helps consumers. “There are not consumers out there crying because they might lose the chance to arbitrate.”
10:58: Brownback wielding self-deprecation: “The fence law expert is back.”
11:01: He wants to know if there’s a way to bring arbitration into the tradition of common law.
11:02: Alderman does not believe there is any way to create public law outside of the courts.
11:03: We don’t want arbitrators interpreting statutes. Federal judges are nominated by the President and confirmed by the Senate. Businesses pick arbitrators who save them money. They should not be allowed to interpret Congress’ work.
11:04: The Texas Better Business Bureau required its members to use BBB arbitrators regardless of what their contracts stated. BBB arbitration was considered fair, but when one of the arbitrators ruled against the biggest homebuilders in the state, the businesses chose to withdraw from the BBB rather than face another unsuccessful arbitration. It is a money-saving business decision, not an open and fair system of justice.
11:08: Feingold contrasting mandatory binding arbitration and a Congressional hearing: “This is exactly what a hearing should be, a fair hearing of the issue.”
11:10: The hearing is adjourned.