HomeOwners for Better Building - Los Angeles Times - Mandatory arbitration has tipped the playing field in favor of businesses

Bills aim to get consumers their day in court
Just a few years ago, Congress, then controlled by Republicans, made it a priority to limit litigation against businesses, expressing concerns about the costly burden it imposed. Now, with Democrats in charge, legislation is advancing that could lead to more court fights between consumers and businesses.

Bills aim to get consumers their day in court

By Richard Simon, Los Angeles Times Staff Writer
December 17, 2007

WASHINGTON — Just a few years ago, Congress, then controlled by Republicans, made it a priority to limit litigation against businesses, expressing concerns about the costly burden it imposed.

Now, with Democrats in charge, legislation is advancing that could lead to more court fights between consumers and businesses.

The turnabout shows how the fortunes of two key political interest groups -- business and trial lawyers -- have shifted in the last year.

At issue is the fine print in many contracts for goods and services, such as credit cards and cellphones, requiring that disputes be submitted to arbitration by a third party.

Critics of the provisions say they deny consumers and employees a basic American principle: the right to go to court.

"People from all walks of life -- employees, investors, homeowners, those enrolled in HMOs, credit card holders and other consumers -- often find themselves strong-armed into mandatory arbitration agreements," said Sen. Russell D. Feingold (D-Wis.), who is sponsoring one of the measures aimed at making arbitration voluntary rather than mandatory.

Business groups contend the new legislation would lead to more costly litigation -- to the benefit of trial lawyers, who contribute overwhelmingly to Democrats.

"Democrats want to pay back trial lawyers," said Rep. Chris Cannon (R-Utah).

Consumer advocates brush off the charge. They say they want fairness, arguing that the arbitration process often favors businesses because arbitration firms rely on the companies for repeat business and are not inclined to rule against them.

"This is not about trial lawyers," said Sally Greenberg, executive director of the National Consumers League. "This is about consumers getting their day in court."

The fight has escalated as the legislation has gained momentum.

One measure, attached to a House bill that deals with the sub-prime loan crisis, would make arbitration voluntary instead of mandatory in residential mortgage contracts. Another, approved by the Senate Judiciary Committee and attached to the farm bill, would prohibit binding arbitration between livestock and poultry producers and packers, unless the parties agree.

The broadest and most controversial measure, introduced by Feingold in the Senate and Rep. Hank Johnson (D-Ga.) in the House, would make arbitration voluntary in consumer, employment, franchise and medical contracts.

Johnson's measure, which has been the subject of congressional hearings but has not moved out of committee, has 53 co-sponsors in the House, including some Republicans.

Johnson said he introduced the measure after he considered building a home and found a mandatory arbitration clause in every home construction contract he was presented. Johnson, a lawyer, said parties in disputes should be free to turn to the courts, arguing that mandatory arbitration amounts to a "private judicial system" that "benefits the commercial interests at the expense of consumers and employees."

At a hearing on Johnson's bill, Deborah Williams, owner of a coffee franchise in Annapolis, Md., said an arbitration with the coffee company took place in Michigan, "500 miles from our home," and cost more than $100,000, "hardly a cheaper alternative to litigating locally in Maryland."

"We never knew how precious our constitutional rights were until they were stolen from us by a binding mandatory arbitration clause," she said.

That Congress is considering the measures so bitterly opposed by business groups underscores the political change since Democrats took control last year.

"Congress is under new leadership, and the new leadership is much more concerned about fairness in the marketplace and fairness in the civil justice system," Greenberg said.

A priority of the Republican-controlled Congress was to end what it called "lawsuit abuses." Congress, in its first override of a veto by former President Clinton, voted in 1995 to restrict investors' ability to sue for securities fraud -- a provision of the House Republicans' "Contract with America."

President Bush in 2005 signed legislation limiting class-action lawsuits and shielding gun makers and sellers from lawsuits arising from misuse of their weapons. Republican lawmakers also pushed to cap jury awards in medical malpractice cases and bar lawsuits that sought to hold restaurants liable for a customer's weight gain, though neither measure has made it out of Congress.

Feingold thinks prospects for passage of the legislation have improved as Congress comes under pressure from an increasing number of consumers and employees who have found themselves "having to choose either to accept a mandatory arbitration clause or to forgo securing employment or needed goods and services."

"Here's a take-it-or-leave-it deal, basically," said Ira Rheingold, executive director of the National Assn. of Consumer Advocates.

As one example, a contract for AT&T wireless service says: "Arbitration uses a neutral arbitrator instead of a judge or jury, allows for more limited discovery than in court, and is subject to very limited review by courts. . . . You agree that, by entering into this agreement, you and AT&T are each waiving the right to a trial by jury or to participate in a class action."

"People are beginning to understand that the use of arbitration clauses -- the creation of a private system of justice -- is antithetical to what our country stands for," Rheingold said.

Consumer advocates say the arbitration system tilts against consumers.

Public Citizen, a Washington-based consumer watchdog group, reported that consumers won 4% of 19,000 California cases decided by one arbitration firm between January 2003 and March 2007. The study found one arbitrator who rendered 68 decisions in one day -- "one every eight minutes," said Laura MacCleery, director of the consumer advocacy group Public Citizen's Congress Watch. "Consumers won zero."

But Matt Webb, a vice president for the U.S. Chamber Institute for Legal Reform, said that even if those consumers could have gone to court, he doubted they would have fared any better since the study involved disputes over debts. "Odds are these are folks who ran up their credit card bills and didn't want to pay," he said.

Roger S. Haydock, managing director of Minneapolis-based National Arbitration Forum, an arbitration firm, said there was no bias in favor of business. "All types of parties get the same substantive outcomes in arbitration that they would get had they brought their dispute to court," he wrote in an e-mail.

Opponents of the legislation, including the American Bankers Assn., AT&T and Coors Brewing Co., said in a letter to lawmakers that the Feingold-Johnson legislation would "turn what could be easily resolved disputes into protracted and expensive class-action lawsuits."

Cannon contended that consumers benefited from arbitration because it was likely to be cheaper and faster, and they didn't have the "deep pockets of a large corporation if the dispute heads to litigation."

During a hearing Wednesday on Feingold's bill, Sen. Sam Brownback (R-Kan.) said, "The fact of the matter is that the little guy is, by and large, better off in arbitration than trying to get to court. Arbitration is cheaper than litigation, and it leads to faster results for plaintiffs."

Critics of the legislation also portray it as a sop to the trial bar.

The American Assn. for Justice, formerly the Assn. of Trial Lawyers of America, has contributed about $28 million since the 1990 election cycle, of which 90% went to Democrats and the party, according to the Center for Responsive Politics. In the last two-year election cycle, 95% of the organization's $2.8 million in donations went to Democrats.

Bill Schulz of the American Assn. for Justice defended his organization's support for the legislation. "The fact is that big corporations want to force binding mandatory arbitration clauses on often unsuspecting consumers, pick the private arbitrator of their choice and deny all appeals when a decision is clearly unfair," he said.

Republican Sens. Jon Kyl of Arizona, Arlen Specter of Pennsylvania and Brownback wrote in a recent Senate Judiciary Committee report that they opposed making arbitration voluntary instead of mandatory in livestock contracts. They said the measure would force families to pay more for food "so that the trial lawyers can get their cut."

But Sen. Tom Harkin (D-Iowa), chairman of the Senate Agriculture Committee, said in a statement that all the provision said was "that these increasingly large and economically powerful companies cannot force contract growers to sign away their right to go to court to resolve disputes as a condition of doing business."

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