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Arbitration legislation is heating up.
Tuesday, 09 October 2007

Is agriculture arbitration bill the "tip of the iceberg'?
The Senate Agriculture Committee is expected to act on a farm bill this month that includes a provision barring binding arbitration clauses in livestock contracts. While the provision, written by Senate Agriculture Committee Chairman Tom Harkin, D-Iowa, applies only to those contract disputes involving livestock and poultry, “that's the tip of the iceberg in terms of what's going on with the attacks on arbitration right now,” said Matt Webb, senior vice president for legal-reform policy at the U.S. Chamber of Commerce in Washington.

Is agriculture arbitration bill the "tip of the iceberg'?
Business lobby, securities industry worry about implications
By Sara Hansard
October 8, 2007
Arbitration legislation is heating up.

The Senate Agriculture Committee is expected to act on a farm bill this month that includes a provision barring binding arbitration clauses in livestock contracts. While the provision, written by Senate Agriculture Committee Chairman Tom Harkin, D-Iowa, applies only to those contract disputes involving livestock and poultry, “that's the tip of the iceberg in terms of what's going on with the attacks on arbitration right now,” said Matt Webb, senior vice president for legal-reform policy at the U.S. Chamber of Commerce in Washington.

“It's basically a broad-scale attack going on by the trial bar, as well as their allies, in the consumer groups,” he said of the effort to limit binding-arbitration clauses.

The Chamber of Commerce is leading the Coalition to Preserve Arbitration, which includes 19 financial services industry and other business trade associations that are trying to ward off attempts to limit the clauses.

A provision similar to the one contemplated for the Senate farm bill was considered by the House Agriculture Committee when that body approved its version of the farm bill this year. The provision was later amended to require the Agriculture Department to issue rules about how arbitration should be handled in disputes between agricultural-commodity groups.

“Chairman Harkin believes producers deserve to have options,” Kate Cyrul, a committee spokeswoman, wrote in an e-mail. “The farm bill should allow producers to have the option to use arbitration but not be forced into it.”

Anti-arbitration provisions are finding their way into a number of other bills, including legislation dealing with home-building contracts, credit cards and payday lending. Opponents of binding-arbitration contracts say the arbitration system is weighted against consumers.

The most sweeping arbitration legislation was introduced in July by Sen. Russ Feingold, D-Wis., in the Senate and by Rep. Hank Johnson, D-Ga., in the House. That bill, the Arbitration Fairness Act, would prohibit any binding agreements requiring that disputes go to arbitration rather than the court system.

A hearing on the bill by the House Judiciary subcommittee on commercial and administrative law is tentatively scheduled for Oct. 16.

In prepared remarks made at a Sept. 27 press conference at which a report was released alleging problems with credit card arbitration cases, Mr. Feingold said, under arbitration, “the playing field ... is anything but level.” Arbitrators interpret laws to favor companies that give them repeat business, and consumers have little recourse in the courts, he said.

The securities industry has long included arbitration clauses in its contracts with customers. That practice has come under attack, with the North American Securities Administrators Association Inc. in Washington calling for either reform of process or for allowing investors the option of taking their disputes into the legal system (InvestmentNews, Feb. 5).

The Securities Industry and Financial Markets Association of New York and Washington and the Chamber of Commerce were among the groups that signed a coalition letter to Congress dated Sept. 21 protesting that the Arbitration Fairness Act legislation, which would nullify existing arbitration clauses in contracts, is “unwarranted.”

A survey conducted by global research firm RoperASW in New York found that 65% of participants would prefer to take a dispute to arbitration instead of filing a lawsuit, the letter said.

Arbitration doesn't deprive consumers of their rights, the letter said, but “it merely shifts the forum in which claims are heard.”

Research shows that arbitration may provide a greater likelihood of awards to consumers and is faster than court trials, the letter asserted.

“Mandatory arbitration is fast, fair, efficient and less expensive than the judicial system, all of which accrues to the benefit of the smallest claimants,” said SIFMA spokesman Travis Larson.

A study released in June by New York securities attorney Daniel Solin and Edward O'Neal, a principal with Securities Litigation and Consulting Group Inc., an economics consulting firm in Fairfax, Va., found in a survey of 14,000 arbitration records between 1995 and 2004 that the rate at which investors recovered money from brokers fell to 44% in 2004, from 59% in 1999.

“On its face [the finding] suggests at least that there should be some further scrutiny of the process,” he said.

But the study ignored about 70% of cases that were settled during the period of the study, according to a release issued by SIFMA.

Furthermore, SIFMA said that the authors are biased because Mr. Solin is a securities arbitration attorney who represents investors. He is also senior vice president of Index Funds Advisors Inc., a registered investment advisory firm in Irvine, Calif.

Sara Hansard can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .

http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20071008/FREE/710080304/1007

 
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