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Arbitration Impenetrable Roadblock by Business Interest
Saturday, 18 January 2014

When the little guy gets shut out of court
The trend toward mandatory arbitration clauses has been accelerating for years, but attempts to curtail it have run into an impenetrable roadblock from business interests that are understandably eager to stay out of court. Their point might be justified if the arbitration process was fair, transparent and accountable. It is not.

When the little guy gets shut out of court

A pre-dispute agreement put a crack in Italian Colors bistro's case against American Express. Photo: Ian C. Bates, The Chronicle

Those who fail to read a contract's fine print - in other words, most of us - may not realize we are routinely forfeiting our right to a fair grievance process when we get a job, seek medical treatment or buy anything from a cell phone to a car.

It's become standard practice for businesses to require that any consumer or employment disputes be settled in arbitration instead of a court of law.

On the surface, that might seem reasonable. After all, who wants to go through the time, expense and angst of a lawsuit when a grievance could be resolved more efficiently by an independent third party?

But there is plenty of anecdotal evidence that arbitration is anything but fair to the consumer or worker taking on a monied interest. Many of those mandatory-arbitration clauses actually stipulate that the business gets to choose the arbitrator. Consumer and worker advocates complain that private arbitration companies are well aware that the path to attracting cases is to be perceived as friendly to the businesses that retain them.

"It's like the 49ers agreeing that the Seattle Seahawks get to hire all the referees," said Rosemary Shahan, president of Consumers for Auto Reliability and Safety, a Sacramento advocacy group. "Good luck with that."

The trend toward mandatory arbitration clauses has been accelerating for years, but attempts to curtail it have run into an impenetrable roadblock from business interests that are understandably eager to stay out of court. Their point might be justified if the arbitration process was fair, transparent and accountable. It is not.

As Sen. Al Franken, D-Minn., has observed, the Federal Arbitration Act of 1925 was designed to allow companies of "generally comparable bargaining power" to agree to resolve their disputes outside of the courtroom. But the U.S. Supreme Court has interpreted the law with increasing deference to business, said Franken, who has introduced legislation (S878) that would prohibit pre-dispute mandatory arbitration agreements on employment, consumer, civil rights or antitrust matters.

The Supreme Court ruling in the case of Italian Colors vs. American Express has further heightened concerns that the deck has become stacked against the little guy. Italian Colors, a neighborhood bistro in Oakland's Montclair district, had joined forces with other merchants over the financial giant's insistence that those businesses accept its high-fee knockoff cards as a condition of being able to take the regular American Express cards.

The justices, in a 5-3 ruling, declared that pre-dispute arbitration agreements signed by the individual merchants prevented them from collectively challenging what they regarded as abuse of monopoly leverage. The ruling portends dire consequences for individual consumers who may try to band together in a class-action case involving overcharges, deceitful practices or dangerous or defective products.

It's clear that the Roberts Court offers little hope for any individual or business bound by a mandatory arbitration agreement. Those clauses are anything but voluntary: If you want a job or a service or product, it's take it or leave it. The odds for the Franken bill are decidedly bleak in this Congress.

Perhaps the best near-term hope for workers and consumers would be passage of AB802, by state Assemblyman Bob Wieckowski, D-Fremont, which would expand the amount of data arbitration companies would be required to disclose about their cases and allow lawsuits against those that fail to do so. A recent legislative report noted that half of arbitration companies have not posted any of the data required under current law.

If the process is as fair as the arbitration industry lobby insists, then those companies have nothing to fear from transparency about their processes and outcomes. California legislators should pass AB802.

Leveling the playing field


Proposal: AB802 by Assemblyman Bob Wieckowski, D-Fremont

What it would do: Expand the amount of information private arbitration companies must disclose to the public about the process and results of the cases they review in a sortable spreadsheet format - thus giving the public an opportunity to assess patterns in the outcomes. It also would allow lawsuits against companies that did not comply with the law.

Prospects: Iffy, considering the vigorous opposition from business groups. The bill stalled in the Assembly last year after clearing the Judiciary Committee on a 7-2 vote.


Proposal: Arbitration Fairness Act (S878) by Sen. Al Franken, D-Minn.

What it would do: Prohibit pre-dispute agreements that require arbitration for grievances over employment, consumer, antitrust or civil rights issues. However, it does preserve the right of two parties to choose arbitration after a dispute arises.

Prospects: A long shot in the Senate, a nonstarter in the Republican-controlled House.

Federal enforcement

Proposal: The Consumer Financial Protection Bureau has the authority under the Dodd-Frank financial reform bill to study and regulate the use of forced arbitration clauses in consumer financial products and services.

What it would do: The bureau's options would range from tightening the guidelines to an outright ban.

Prospects: Uncertain. The big question is how aggressive Director Richard Cordray will be in challenging the powerful financial industry.

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