Recently in Arbitration Category

Consumers in debt collection cases prevailed more often in cases resolved in arbitration rather than in court, a recently released study has found.

A report by the Searle Civil Justice Institute (SCJI) at Northwestern University School of Law examined the outcomes of American Arbitration Association debt collection arbitrations and the outcomes of debt collection cases in court. The data came from cases in Oklahoma and Virginia state courts, and student loan cases in federal court.

It found:

• Creditors prevailed less often (that is, consumers prevailed more often) in the arbitrations studied than in court;

• Creditor recovery rates in the arbitrations studied were lower than, or comparable to, creditor recovery rates in court.

• The rate at which debt collection cases were disposed of other than by award or judgment (e.g., by dismissal, withdrawal, or settlement) did not appear to differ systematically between arbitration and litigation.

This is the second report on arbitration released by the Searle Civil Justice Institute this year. The Institute also released an empirical study of consumer arbitration which found that "access to justice is provided in a relatively inexpensive and expeditious manner, and outcomes are not biased in favor of businesses that arbitrate on a repeat basis," according to Geoff Lysaught, director of the Institute.

The Civil Justice Association of California supports arbitration as a fair, speedy, and efficient method of resolving disputes. Click here to listen to Kim Stone, CJAC's Vice President-Legislation, talk about arbitration. More background is available on our blog at www.cjac.org/blog/arbitration.

Arbitration has long served as an invaluable resource for solving disputes, especially the vast majority of small-dollar consumer suits that lawyers wouldn't -- and won't -- take.

But it generally does not have to be done with the services of a trial lawyer, which is why plaintiffs' lawyers have been trying to cripple consumer arbitration, Lisa Rickard, president of the U.S. Chamber Institute for Legal Reform, wrote in a column on the organization's web site.

One of the largest arbitration firms in the nation has agreed to cease all consumer arbitrations as a result of a lawsuit; another firm halted consumer debt collection arbitrations pending a review of their practices and procedures.

But, Rickard writes, "For arbitration's opponents, ensuring that consumers can go to court is not the end goal. It is actually the first step of a two-step dance at the plaintiffs' lawyer prom.

"The second step is to allow these consumer cases to become large class actions -- the kind that are famous for making a relatively few plaintiffs' lawyers rich while giving the consumer masses pennies on the dollar, or even coupons, for their trouble.

"But here's the ultimate truth about consumer lawsuits -- the vast majority of consumer disputes are inherently dissimilar and not eligible for class certification."

The Civil Justice Association of California supports arbitration as a fair, cost effective, and efficient method of resolving disputes and has urged Governor Schwarzenegger to sign Assembly Bill 1 (Monning), which would allow teachers to use their independent study time to study arbitration mediation and conflict resolution.

Assembly Bill 1 - Letter to Governor.pdf

Also, watch Kim Stone, CJAC's Vice President-Legislation, testify on AB 1 here.

"Make a list of threats to your job and your health," CJAC President John H. Sullivan wrote in an op-ed published in today's San Francisco Chronicle.

"Layoff, pay cut, swine flu, West Nile virus, for starters. You probably won't list personal injury lawyers. But you should."

California personal injury and other plaintiffs' lawyers are working to preserve laws that make the state a haven for speculative lawsuits and a risky place for businesses to operate and create jobs.

Their other schemes include asking California courts to destroy the state's model medical liability law, and lobbying to kill individuals' right to choose less-costly arbitration to settle disputes.

"Anyone injured through the negligence of another should have access to justice and a fair opportunity for compensation," Sullivan wrote. "But when a state's litigation playing field tilts toward lawyers, then jobs and the economy suffer."

Calling it a "step in the right direction," Kim Stone, CJAC's Vice President-Legislation, testified Wednesday in front of the Senate Education Committee in support of a bill that will allow teachers to choose individualized personal training for negotiation, mediation, and conflict resolution.

Assembly Bill 1, authored by Assemblyman William Monning, passed the committee and will now go to the Senate floor.

Ongoing teacher education allows teachers to choose to study appropriate disciplines on their own time in order to enhance their skills and augment the teaching of state-based educational standards, Stone wrote in a letter to the Senate Education Committee.
Assembly Bill 1 - Senate Education Committee.pdf

The Civil Justice Association of California supports the study of dispute resolution as a means toward achieving and maintaining a civil society.

"We believe that allowing teachers to choose ongoing education in the area of conflict resolution may very well help to reduce excessive and unjustified litigation that can drive up expenses to schools," Stone noted in her testimony, which can be viewed below. "Particularly (in) times now of budget pressures it does not make sense for schools to be spending money on litigation that they could be spending educating their students."

She mentioned a January 2008 study by Citizens Against Lawsuit Abuse, entitled "The Fourth R of California's School Districts: Ripped off by Litigation," which noted that three of California's five largest school districts paid $32.8 million in litigation costs in just one year -- 2005.

Congress is being pushed to pass the deceptively-named Arbitration Fairness Act of 2009, which would amend the Federal Arbitration Act to make pre-dispute, mandatory arbitration clauses in employment, consumer, and franchise agreements unenforceable.

If passed, it would have a profound effect on potentially millions of arbitration agreements that presently exist, attorney Eric B. Meyer wrote on The Legal Intelligencer Blog, the law journal's blog. Meyer, of Dilworth Paxson, litigates and provides counsel to employers on labor and employment issues affecting the workplace.

Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform, said the legislation could nullify millions of existing contracts, causing widespread uncertainty of their recourse should a dispute arise. The legislation could also increase litigation and severely damage an alternative dispute resolution system that consumers and businesses have relied on for decades.

Recent studies have shown that consumers fare better in arbitration rulings than they did when their case was decided in a courtroom. The Civil Justice Association of California supports arbitration as a fair, speedy, and efficient method of resolving disputes.

A Stanford Law Review empirical study of arbitration in employment law concluded that from the employee's point of view, arbitration yields roughly the same result as litigation, but is much faster.

In another study of consumer arbitration cases, the upfront cost was found to be quite low, and the average time from filing to award was just under seven months.

On a side note: The federal legislation would not disturb the Supreme Court's recent decision in 14 Penn Plaza LLC v. Pyett; a collective bargaining agreement may continue to provide for the mandatory arbitration of certain federal claims.

Arbitration is a fair, cost effective, and efficient method of resolving disputes, Kim Stone, CJAC's Vice President - Legislation, told the Assembly Natural Resources Committee.

Ms. Stone testified in support of Assembly Bill 696, authored by Assembly Member Curt Hagman, which would have allowed an applicant and a lead agency to agree to resolve disputes arising from an environmental impact report through arbitration rather than through a lawsuit. Assembly Bill 696 failed to pass out of the committee.

Several studies have also showed the utility of arbitration. A Stanford Law Review empirical study of arbitration in employment law concluded that from the employee's point of view, arbitration yields roughly the same result as litigation, but is much faster.

Another study reviewed 301 cases of consumer arbitration cases, all performed by the American Arbitration Association (AAA), and found the upfront cost to be quite low -- $96 for claims seeking under $10,000 and $219 for claims seeking between $10,000 and $75,000. The study shows that "access to justice is provided in a relatively inexpensive and expeditious manner, and outcomes are not biased in favor of businesses that arbitrate on a repeat basis," said Geoff Lysaught, director of the Searle Civil Justice Institute.

The California Supreme Court has also supported the use of pre-dispute arbitration agreements to resolve complaints.

Click here to watch Ms. Stone's testimony.

In a win for arbitration, the U.S. Supreme Court signaled its support of the efficient dispute resolution tool with a 5-4 ruling endorsing labor contracts that send age discrimination claims to arbitration rather than to federal courts.

"We hold that a collective-bargaining agreement that clearly and unmistakably requires union members to arbitrate (Age Discrimination in Employment Act) claims is enforceable as a matter of federal law," Justice Clarence Thomas wrote in a ruling that may boost arbitration more broadly than just in age-discrimination cases, Legal Times staff writer Tony Mauro reported.

The ruling in 14 Penn Plaza v. Pyett will likely also apply in the context of other anti-discrimination laws, Mayer Brown's David Gossett told the paper, adding that the decision is the latest of several that have marginalized earlier precedents that are "relics of an earlier era when the Supreme Court was pretty hostile to arbitration."

The Civil Justice Association of California supports arbitration as a fair, speedy, and efficient method of resolving disputes. Arbitration brings cases to resolution faster and at less overall expense to both parties than traditional litigation.

Several studies have found that consumers fare better in arbitration rulings than they did when their case was decided in a courtroom. One study of more than 34,000 debt cases in California found that more than 32% of consumer debtors named in cases that did not settle prevailed in their case by either winning their arbitration hearing or having the claims against them dismissed. In another 16.4% of the cases that did not settle, the study found that consumer debtors had the claims against them reduced by a median of nearly $825.

Another study reviewed 301 cases of consumer arbitration cases, all performed by the American Arbitration Association (AAA), and found the upfront cost to be quite low -- $96 for claims seeking under $10,000 and $219 for claims seeking between $10,000 and $75,000. The average time from filing to final award was just under seven months. Consumers won some relief in 53.3% of the cases they filed and recovered an average of $19,255; business claimants won some relief in 83.6% of their cases and recovered an average of $20,648.

Consumer arbitration appears to be an expeditious and fair way to resolve disputes, according to a new empirical study of consumer arbitration. The study, by the Northwestern University School of Law Searle Center on Law, Regulation, and Economic Growth, reviewed 301 cases of consumer arbitration cases, all preformed by the American Arbitration Association (AAA).

The upfront cost of arbitration for consumer claimants in cases administered by the AAA appears to be quite low -- $96 for claims seeking under $10,000 and $219 for claims seeking between $10,000 and $75,000, according to the study. The average time from filing to final award was just under seven months.

The study shows that "access to justice is provided in a relatively inexpensive and expeditious manner, and outcomes are not biased in favor of businesses that arbitrate on a repeat basis," said Geoff Lysaught, director of the Searle Civil Justice Institute.

Consumers won some relief in 53.3% of the cases they filed and recovered an average of $19,255; business claimants won some relief in 83.6% of their cases and recovered an average of $20,648.

These findings, and the entire study, are worthy of further review. So far in this legislative session, the California legislature does not appear to be attacking arbitration agreements, or limiting the ability for parties to use arbitration.

In previous years, the legislature has attempted to prevent Californians from using arbitration agreements. In 2006, AB 2371 (Levine) would have invalidated arbitration agreements in employment contracts regarding discrimination claims. That bill died on the Assembly floor. In 2008, AB 2947 (Eng) would have limited arbitration agreements between long term care facilities and their residents. That bill was vetoed.

You can read articles about the report on the Wall Street Journal Law Blog and on Legal Newsline.

California has had a long, successful tradition of allowing parties to enter into contracts specifying that should any future dispute arise between them, the disagreement will be resolved through private, binding arbitration.

Californians use arbitration agreements in a variety of settings, including real estate transactions, automobile repairs, even fee disputes between lawyers and their clients. A provision approving such agreements between physicians and their patients is part of the landmark Medical Injury Compensation Reform Act of 1975 (MICRA).

In Washington, however, there's a movement to amend the Federal Arbitration Act to preclude parties from contracting for arbitration before a dispute arises. One bill heard in the last Congress, S. 1782 sponsored by Sen. Feingold (D-Wisconsin) would have prevented such clauses in employment, franchise, and "consumer" disputes. It is certainly likely that the issue will be approached again with the new Congress sworn in this month.

But what such attempts fail to appreciate is the benefit that all parties receive when arbitration has been agreed upon before a dispute has even taken place.

For example, when arbitration -- which allows parties to resolve disputes at significantly lower transaction costs than through court -- is factored into a business transaction, the cost of the goods or services can be reduced at the outset. Another benefit to pre-dispute arbitration agreements is that they promote a smooth, less emotional environment for a continued relationship. This is especially true in health-care relationships such as assisted living and health maintenance organizations.

Finally -- and Congress should pay attention to this -- it is no coincidence that the use of arbitration in California coincides with our judges' ability to control their civil trial calendars. Without the availability of this beginning-to-end alternative resolution system, overcrowding would again handicap the country's civil justice system -- with serious consequences to our national economy.

Preserving pre-dispute arbitration -- whether in California or nationwide -- promotes the public policy of giving citizens freedom of choice when dealing with others. Take away that choice, and we'll have nothing but uncertainty in return.

Gordon Ownby is general counsel of the Cooperative of American Physicians, Inc., www.cap-mpt.com, and can be contacted at gownby@cap-mpt.com.

Every legislative session, plaintiff's lawyers try to kill people's right to agree to resolve any future disputes out of court, rather than going through the time and expense of a lawsuit. This goes on, even though people of all kinds speak out in favor of arbitration and mediation, and even though our courts are jammed with criminal and civil cases.

When the lawyers testify in favor of limiting or eliminating arbitration, though, they rarely disclose that their own fee agreements they present to their clients routinely include a binding arbitration clause!

Recently, the California Supreme Court heard oral arguments to determine whether binding arbitration agreements between lawyers and their clients are enforceable. The specific issue: Does the state Mandatory Fee Arbitration Act allow a client to opt out of arbitration and sue, even if he has signed an arbitration agreement. (Ironically, the Mandatory Fee Arbitration Act was designed to keep lawyers from suing clients over nonpayment of fees, not designed to allow clients to sue their lawyers.)

In this case, we agree wholeheartedly with the lawyers, represented by Sean SeLegue of the San Francisco firm Howard Rice, who said: "The reason people agree to binding arbitration in the first place is it's cheaper, quicker, and more private. It's only fair to enforce it."

What's good for the goose is good for the gander. Lawyers seem have no problem using arbitration agreements. We wish they would stop trying to prevent others from using them too.

The case is Shatz v. Allen Matkins Leck Gamble & Mallory LLP, S150371.

As trial-lawyer backed groups feverishly lobby Congress to pass legislation that would nullify arbitration clauses in millions of consumer contracts for goods and services, a new legal analysis found that consumers fared better in arbitration rulings than they did when their case was decided in a courtroom.

A study of more than 34,000 debt cases in California found that more than 32 percent of consumer debtors named in cases that did not settle prevailed in their case by either winning their arbitration hearing or having the claims against them dismissed, according a Legal Newsline article. In another 16.4 percent of the cases that did not settle, the study found that consumer debtors had the claims against them reduced by a median of nearly $825. The study, by Chicago-based Navigant Consulting, was commissioned by the U.S. Chamber of Commerce Institute for Legal Reform.

Consumers fare much more poorly when facing debt collection lawsuits than they do in arbitration, according to an Institute for Legal Reform press release. For example, a study released last fall by the Urban Justice Center found that less than 8 percent of consumers facing debt collection lawsuits in New York City courts prevailed by having their cases dismissed -- a rate four times worse than that of arbitration.

Congress is set to consider a bill this week that would increase costs for consumers and leave people with small damages claims without any remedy but a costly court battle.

The deceptively-named Arbitration Fairness Act of 2007 will wipe out arbitration provisions in hundreds of millions of consumer contracts -- for everything from credit-card agreements to cell phones to health-insurance policies, even a contract for the purchase of a kitchen sink, Christine Varney, a partner at Hogan & Hartson, writes in a Wall Street Journal op-ed. Varney was a commissioner on the Federal Trade Commission from 1994 to 1997, and was also an assistant to President Clinton and Secretary to the Cabinet.

The bill is so sweeping that it wouldn't apply just to contracts consumers may sign in the future. It will cancel arbitration agreements agreed to in the past.

"This legislation is a top priority of plaintiffs' lawyers, since arbitration keeps big-dollar disputes out of the courtroom," Varney writes. "But it's a bad deal for consumers. The law will not make arbitration 'fairer'; it will make it go away, because it is very difficult to get two sides of a dispute to agree to much of anything once a dispute has started. That inconvenient reality is one that some of our lawmakers are simply ignoring."

She notes other subtle ways that Congress is chipping away at arbitration, a quick, effective, and cost-saving way to resolve disputes: The recently-passed farm bill prohibits mandatory arbitration to resolve disputes over livestock and poultry contracts. The same House subcommittee is considering a bill that would eliminate arbitration agreements between auto dealers and buyers.

"Congress should think long and hard before discarding it in favor of more lawsuits -- which may benefit lawyers but will leave most consumers out in the cold," Varney said.

The legislation is scheduled to be marked up by a subcommittee of the House Judiciary Committee tomorrow and could be taken up by the full committee on Wednesday.

Eighty-two percent of likely voters said they prefer arbitration to litigation as a means to settle a serious dispute with a company, according to a just-released survey by the U.S. Chamber of Commerce Institute for Legal Reform.

The poll also found that 71 percent of voters oppose efforts by Congress to remove arbitration agreements from consumer contracts.

The national issues mirror those found in California, which faces repeated attempts by the plaintiffs' bar to limit the right of Californians to agree to resolve their future disputes through arbitration.

Assembly Bill 2947 is the latest attempt. It would prohibit voluntary arbitration agreements between elders and their long-term care facilities.

The bill, authored by Assemblyman Mike Eng (D-Monterey Park), would even retroactively invalidate existing arbitration agreements, driving more cases into the state's already overburdened court system. It passed out of the Assembly Aging and Long-Term Care Committee on April 8, 2008, and was referred back to the Assembly Judiciary Committee.

"Nothing undercuts the personal injury lawyers' attempt to define themselves as 'consumer' attorneys than their campaign against arbitration," said John H. Sullivan, president of the Civil Justice Association of California.

"They don't seem to mind hanging thousands of people out to dry without fair, lower-cost arbitration just so they can wait for their big jackpot contingency fee lawsuit," he added.

"Fee arbitration offers cheaper, faster alternative to litigation." Where did that headline run? Give up? In the California Bar Journal, the "Official Publication of the State Bar of California! The story beneath it praises fee arbitration between lawyers and clients, saying that arbitrators are reporting that their work "gives people immediate results, unlike protracted litigation."

The Bar's presiding arbitrator, Arne Werchick, is quoted as saying: "It's a neutral program that gives everyone a fair shake."

We hope Mr. Werchick, who was president of the trial lawyers association in 1980, sends copies of the article to personal injury and other plaintiffs' lawyers in Sacramento and Washington. They are once again firing up their endless campaign to block people's constitutional right to contract to settle future disputes by arbitration rather than going to court.