People Prefer Arbitration. Should They?

Last week, the Institute for Legal Reform -- an arm of the U.S. Chamber of Commerce -- released results of a survey it commissioned on voters' attitudes towards arbitration.  It summarized the findings thus:

1. Voters express concern about the difficulty of settling a dispute with a company, and how fairly they would be treated in such a situation.
2. Given the choice of how they would like to settle a serious dispute with a company, voters overwhelmingly choose arbitration (82%) over litigation (15%).
3. Voters strongly believe Congress should NOT remove arbitration agreements from the contracts consumers sign with companies providing goods and services (71%).
4. Voters believe there could be many adverse outcomes should arbitration agreements be removed from contracts.

Blawgletter already suspected that people fear going to court and that they worry about getting fair treatment there.  But we didn't imagine that their anxiety would prompt them to prefer arbitration to litigation, much less by such a huge margin -- 82 percent to 15 percent. 

And yet the outcome makes total sense.  Surveyors asked respondents to pick between "arbitration, which does not require going to court" and "litigation, which does require a lawsuit and going to court."  Who, aside from a trial lawyer, wants to go to court?  What individual, other than Bill Gates or Warren Buffett, thinks he or she can outspend and outgun a company in a lawsuit?  Doesn't a process that "does not require going to court" sound oh so much nicer and less likely to bankrupt you?

We have more trouble accounting for the strong opposition -- 71 percent -- to letting "some officials in Congress" remove arbitration clauses from contracts for goods and services.  But then we reflected that people probably (a) distrust Congress (especially "some officials" there) and (b) feel weak and vulnerable when imagining a hypothetical fight with, say, the cable or telephone company.  They think an arbitration clause will protect them from all the bad stuff they've heard about the court system.

The last bit of the survey confirms our inferences.  Respondents' biggest worry -- 64 percent called it "the worst thing that could happen" -- is that "consumers who may not be able to afford the cost of a trial would never be represented in a dispute".  They also feared that eliminating arbitration agreements would cause price increases, force consumers to choose between paying for a trial or dropping their complaints, benefit lawyers, and increase the number of lawsuits.

The survey strikes us as fair and informative -- as far as it goes.  But it doesn't go far enough.  We'd like answers to, for example, these questions:

1. If going to court and arbitrating a dispute cost the same, which would you prefer?
2. Should Congress set fairness standards for arbitration provisions in consumer contracts?
3. Should federal standards include (a) requiring that either party may elect arbitration or that only the consumer may choose it, (b) making the company cover filing fees above what the fee for initiating a lawsuit would cost, (c) barring routine secrecy of arbitration proceedings and results, and (d) allowing class or aggregate arbitration of similar claims?

We don't expect the ILR will commission our survey any time soon.  We doubt they'd like the answers.

Our feed adores standards.

Comments

[J. Michael Young]

Barry,

Today's Wall Street Journal has an article on nursing homes using arbitration agreements to reduce awards: http://online.wsj.com/article/SB120786025242805879.html?mod=hps_us_inside_today

Now that seems like a classic disparity in bargaining power. An elderly, potentially incapacitated, individual against a corporate nursing home.

J. Michael Young
www.txprobatelitigation.com

[Andrew Golub]

Barry,

I did a longer and more cogent post but the kind folks @ typepad seem to have eaten it. Here's a shorter version.

This "study" is a colossal joke. The questions were all skewed to obtain the desired results, such as the 'which would you prefer' question making arbitration sound simple and user friendly, whereas litigation required both a lawsuit (as if an Arbitration Demand ISN'T a lawsuit) and 'going to court' (horrors!).

How much different do you think the study results would have been had respondents instead been offered the choice of:

a) arbitration, which may be unilaterally imposed upon you, thereby denying you your Seventh Amendment right to trial by jury, as well as any right to appeal an incorrect decision by the arbitrator(s), and in which arbitrators have an incentive to rule for the repeat-user because they want to be picked for the next case, and the case after that?; or

b) lawsuit, in which you will receive a neutral, randomly appointed judge who has no financial incentive to handle your case, who will do all work necessary for nothing more than your $255 filing fee, and in which you can have both a jury and the right to appeal incorrect rulings by the judge?

Arbitration is great, so long as two parties of equal bargaining power agree to go use a rent-a-judge. But for consumers and employees, who have their rights stripped simply for buying a $100 toaster or showing up for a minimum wage job, it represents a quintessentially bad deal.

The pending legislation -- the Arbitration Fairness Act -- intends to restore balance by preventing big business and big employers from forcing consumers and employees -- by fiat -- into an unfair forum in which the repeat player effect puts them at a huge disadvantage. With luck it will soon become law.

Andrew S. Golub
Dow Golub Berg & Beverly, LLP
8 Greenway Plaza, 14th Floor
Houston, Texas 77046