Private arbitration criticized Report says court often cheaper; supporters say study is misleading
Private arbitration is not as cost effective and time efficient as its proponents have stated, according to a new report conducted by Public Citizen, a consumer organization.The study will be introduced this week to a Texas legislative panel starting a review of the role of arbitration in resolving legal and contractual disputes, according to officials at Public Citizen, which is based in Washington, D.C.The report found that for most low-income individuals, going to court remains cheaper and faster than private arbitration. It also found that many companies use the high cost of filing and pursuing arbitration to keep people from filing claims against them.

Private arbitration criticized Report says court often cheaper; supporters say study is misleading

05/15/2002
By MARK CURRIDEN / The Dallas Morning News

Private arbitration is not as cost effective and time efficient as its proponents have stated, according to a new report conducted by Public Citizen, a consumer organization.

The study will be introduced this week to a Texas legislative panel starting a review of the role of arbitration in resolving legal and contractual disputes, according to officials at Public Citizen, which is based in Washington, D.C.

The report found that for most low-income individuals, going to court remains cheaper and faster than private arbitration. It also found that many companies use the high cost of filing and pursuing arbitration to keep people from filing claims against them.

"Binding mandatory arbitration is a creation of corporations seeking to undermine the rule of law and the power of juries," said Joan Claybrook, president of Public Citizen.

Arbitration officials, who also plan to testify at Wednesday's legislative hearing in Austin, say the Public Citizen study is misleading and biased.

"This report was not a balanced, reasoned approach to studying arbitration," said India Johnson, senior vice president of the American Arbitration Association.

Ms. Johnson said there is "a little war going on" between trial lawyers and corporations over the costs of litigation and the most effective ways of resolving disputes. She said companies turned to arbitration clauses in contracts as a way of dealing with "the massive class-action lawsuit world in which we live."

Ms. Johnson said that two months ago, the arbitration association took steps to protect individuals who didn't have the necessary funds to litigate an arbitration by shifting most of the expenses to the companies that draft the contract. As a result, the most any individual will have to pay to resolve a dispute of $50,000 or less is $375.

Public Citizen said that the cost of filing a lawsuit is half that amount in most jurisdictions.

During the last five years, credit card distributors, health insurance companies, home builders, computer makers and scores of other companies have started requiring their customers to agree to settle any problems they have out of court.

Under those contracts, individuals waive their rights to go to court and have a jury decide their case.

The use of these binding mandatory arbitration contracts has become so common throughout the country that the number of arbitrations last year exceeded the number of public jury trials, according to court officials.

The arbitration association, for example, conducted more than 200,000 hearings in 2001.

The explosion of arbitrations has also caused alarm among federal judges, who have seen the number of civil disputes they handle drop dramatically during the last five years.

Fifth U.S. Circuit Court of Appeals Judge Patrick Higginbotham warned at a conference in Dallas two weeks ago that the movement away from the public court system toward private justice is a "dangerous situation with major public policy implications."

The Public Citizen report said that many of the binding mandatory arbitration contracts are unclear and unfair because most people are not aware that they are signing away their rights to go to court.

The study cited several banks that included multi-page inserts into their monthly credit card bills that informed card users that they were henceforth waiving their rights to trial by jury and agreeing to settle all future disputes over billing or interest rates through binding mandatory arbitration.

Those amendments to the "cardholder rules" became effective without the user having to agree or sign anything.

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